Human Capital Management: Achieving Added Value Through People

238 Pages·2007·1.57 MB·English

by  Angela Baron

HUMAN
CAPITAL
MANAGEMENT

HUMAN
CAPITAL
MANAGEMENT
ACHIEVING ADDED VALUE
THROUGH PEOPLE
Angela Baron & Michael Armstrong
London and Philadelphia
Publisher’s note
Every possible effort has been made to ensure that the information contained in this book
is accurate at the time of going to press, and the publishers and authors cannot accept
responsibility for any errors or omissions, however caused. No responsibility for loss
or damage occasioned to any person acting, or refraining from action, as a result of the
material in this publication can be accepted by the editor, the publisher or any of the
authors.
First published in Great Britain and the United States in 2007 by Kogan Page Limited
Apart from any fair dealing for the purposes of research or private study, or criticism or
review, as permi�ed under the Copyright, Designs and Patents Act 1988, this publication
may only be reproduced, stored or transmi�ed, in any form or by any means, with the
prior permission in writing of the publishers, or in the case of reprographic reproduction
in accordance with the terms and licences issued by the CLA. Enquiries concerning
reproduction outside these terms should be sent to the publishers at the undermentioned
addresses:

120 Pentonville Road 525 South 4th Street, #241
London N1 9JN Philadelphia PA 19147
United Kingdom USA
www.kogan-page.co.uk
© Angela Baron and Michael Armstrong, 2007
The right of Angela Baron and Michael Armstrong to be identified as the authors of this
work has been asserted by them in accordance with the Copyright, Designs and Patents
Act 1988.
ISBN-10 0 7494 4938 1
ISBN-13 978 0 7494 4938 4
British Library Cataloguing-in-Publication Data
A CIP record for this book is available from the British Library.
Library of Congress Cataloging-in-Publication Data
Armstrong, Michael, 1928–
Human capital management : achieving added value through people / Michael
Armstrong and Angela Baron.
p. cm.
Includes bibliographical references and index.
ISBN-13: 978–0–7494–4938–4
ISBN-10: 0–7494–4938–1
1. Personnel management. 2. Human capital. I. Baron, Angela. II. Title.
HF5549.A89776 2007
658.3'01—dc22
2006039736
Typeset by JS Typese�ing Ltd, Porthcawl, Mid Glamorgan
Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall
Contents
Foreword ix
Acknowledgements xi
Introduction 1
Part 1 The essence of HCM 3
1 The concept of human capital 5
Intellectual capital 6; Human capital 7; Social capital 13;
Organizational capital 14; Practical implications of
intellectual capital theory 15; Conclusions 18
2 The concept of HCM 20
HCM defined 20; Aims of HCM 21; Rationale for HCM 22;
HCM and HRM 23; The concept of human capital advantage
and resource-based strategy 26; Conclusions 27
3 The process of HCM 28
HCM drivers 29; The HCM journey 30; Human capital
measurement 31; Human capital reporting 34; Drawing
conclusions 36; Ge�ing into action 37; Pu�ing it all
together 38; Developing HCM 40
vi ❚ Contents
Part 2 The practice of HCM 43
4 Human capital data 45
Overall considerations 45; Types of data 47; Problems
with data collection 53; A guide to data management 54;
Conclusions 55
5 Measuring human capital 59
Measurement issues 59; Classification of measures 62;
Developing measures 62; Approaches to analysis 66;
Analytical models 67; Examples of approaches to
measurement 78; Conclusions 80
6 Human capital reporting 81
Internal reporting 82; External reporting 88;
Conclusions 97
7 Applications of HCM 98
The link between HCM and strategic HRM 98; HCM
and talent management 101; HCM and learning and
development 104; Knowledge management 108;
Performance management as a source of human capital
data 110; Reward management 114; Supporting and
developing line managers 116
Part 3 The role and future of HCM 119
8 The role of HR in HCM 121
The business partner concept and HCM 122; HR’s role in
developing, analysing and using human capital data 125;
The role of HR in enhancing job engagement and
commitment 131; The strategist role 135; Making the
business case 135; Working with the other functions 138
9 The skills HR specialists need for HCM 140
Closing the skills gap 142; Developing a new template for
HR 143; HR versus line manager skills 147; Conclusions 149
10 The future of HCM 150
The virtues of HCM 150; Question marks about HCM 151;
The link between HCM and business strategy 153;
Contents ❚ vii
Establishing the link between HR practice and business
performance 154; Information on intangible value for
the investment community 157; Convincing senior
management 157; Enlisting the interest and involvement
of line management 158; Convincing HR specialists 160;
Staged development of HCM 160; Developing the HCM
skills of HR specialists 162; The meaning of added value 163;
What is meant by regarding people as assets 164; Selecting
the measures 165; Analysing and evaluating the data 166;
The future of external reporting 166; Conclusions 169
Appendix: The HCM toolkit 170
Purpose of the toolkit 170; What is an HCM approach? 170;
Do we need to adopt an HCM approach? 172; How do we
adopt an HCM approach? 174; Introducing HCM 177;
Decide HCM goals 178; Decide areas to be covered by
HCM 180; Identify measures required and available 180;
Develop internal reports 197; Develop external reports 198;
How do we operate HCM? 201
References 207
Index 215

Foreword
So what is human capital? The term has probably set off more emotions
in the HR world than any other. On the one hand its proponents hail
it as a revolutionary way of managing people, treating them as assets
rather than costs. On the other, detractors see is as just another HR fad.
Some practitioners are embracing the challenge with enthusiasm while
others feel daunted and confused by the array of tools and techniques
and the need to have at least a passing acquaintance with numbers.
Even the very phrase ’human capital’ leads to heated debate with on
the one side those who believe it dehumanizes the people element of
the enterprise to the other who believe it finally puts people on the
right side of the balance sheet.
Whether we like it or love it the term ‘human capital’ is here to stay
and is now accepted as a common definition of the all important people
element of intangible value. Intangible value is constantly increas-
ing in importance as the very existence of most of our organizations
depends on our ability to innovate, to capture the support of cust-
omers, to establish our brand and to respond to an ever-changing
marketplace. All of this depends on people and ge�ing the best from
people depends on understanding what motivates them to perform,
to give outstanding service to customers, to run that extra mile when
it counts. Without this information, managers have to make decisions
largely in ignorance of the impact these decisions might have on the
performance of people.
x ❚ Foreword
What this book tries to do is demystify some of the lo�ier claims for
human capital management and demonstrate that any practitioner in
any organization can get be�er at providing the information that will
help them understand just what it is that their people contribute. This
in turn will improve management decision making and help them
move towards developing strategic measures to help identify the
drivers of success in their business.
Human capital management is a journey. Where you start will
largely depend on the information available. Where you go will de-
pend on what you do with that information and how you are able to
grow and communicate it. The kind of practical guidance, tools and
analysis of the literature contained in this book will help managers to
build themselves a route map to continue that journey whatever their
starting point.
The use of quality people data is the key to good human capital
management. Analyse and link this data with business performance
metrics (such as sales, customer service and financial performance)
and you begin to get deep organizational insight into how effective
your people strategy is and its impact on business performance and
the bo�om line.
Human capital is o�en represented as both a challenge and an
opportunity. A challenge to identify relevant measures and provide
meaningful information which can be acted on, and an opportunity
to both evaluate and maximize the value of people.
Neil Roden
Group Director, Human Resources
The Royal Bank of Scotland Group