Finally, the third phase implies interpreting those results and using them to gain a competitive strategic advantage on the market.
The phase dealing with the development of qualitative and quantitative metrics brings about some of the usual challenges in terms of measuring things: what metrics best reflect the performance of a certain activity? In the case of human capital, quantitative metrics can sometimes be a simple as sales growth per employee or changes in financial performance and productivity.
There are several problems, however, with this type of approach. The direct link between the changes in financial performance and human capital results is difficult to prove and, quite often, a negative change in financial performance is not necessarily caused by negative performances of human capital. For example, external factors, such as the current economic crisis, could determine a negative financial performance, despite the fact that human capital has perhaps performed well. At the same time, qualitative metrics are also useful for a better evaluation of human capital and human capital performance, because this type of metrics will also explain why a certain event has occurred, given an overall better understanding of the evolution of events, both in the past and in the future.
An excellent example of qualitative instruments used to evaluate human capital, more specifically the alignment and coordination of human capital with the general vision and strategic objectives of the organization, is given by Microsoft
. In 2003, the company put together a questionnaire for its employees in which they were asked to answer a number of 10 questions, generally of the type "I clearly understand Microsoft's vision" and "Microsoft attracts and retains smart people."
The responses, presented as percentages of the total number of answers, were relevant in determining whether or not the employees at Microsoft were working in coordination with the Microsoft vision, but also in understanding some of the issues that may affect the performance of human capital at Microsoft.
A question such as "my manager demonstrates respect for diversity" had a 90% favorable response. If it had had a percentage of 80% and it would have shown that 20% of employees believe their manager to be intolerant towards diversity, then the management at Microsoft could understand this as a problem affecting the performance of human capital. As this example show, qualitative measures are often an additional tool (sometimes they are combined with quantitative measures: in this case, the favorable responses were presented as a percentage of total responses) in understanding some of the things that quantitative measures do not cover.
The fact that human capital involves so many complex and subjective notions that are difficult to evaluate quantitatively, such as creativity or knowledge, makes evaluation different from the evaluation of performance for other assets in an organization. In other words, a machine can be strictly evaluated based on the way it reaches the objectives for which it was created, such as, for example, the number of spare parts it produces. With human capital, this is impossible. This is why it has been pointed out that there are two parts to human capital that need to be evaluated: the economic part and the spiritual part
. This dichotomy comes from the perception of an individual in an organization both as an economic unit and a spiritual being.
At the same time, as previously mentioned, measuring the performance of the human capital in an organization needs to be done in relationship with the objectives of that organization and the way that human capital has managed to contribute to accomplishing them. This goes hand in hand with the top-down approach that has been described in the beginning, related to the necessities of the 21st century.
Sometimes, evaluating based on the correlation between the performance and the objectives can be done by matching human capital performance to the company vision. Most companies are an expression of a certain vision, which is usually the common denominator of all its products and creations, as well as marketing and sales strategies.
For example, in the case of Apple, this vision is based on creativity. From that perspective, evaluating performance at Apple could tie the human capital performance to its contribution to increasing the level of creativity at the company. An example of a quantitative metrics could be the number of new product proposals per employee. Note, however, again how complex human capital evaluations are: such a quantitative metric will only present part of the evaluation and will not show whether the new product proposals were realistic (maybe they were financially or economically feasible) or whether they have actually been put into production, thus actually contributing to the development of the organization.
The phase dealing with the interpretation of the results will need...
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