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Shraddha Verma and Philip Dewe, 2004

Executive summary

Research using a survey questionnaire has been carried out to identify current perceptions and practices in the area of valuing and measuring human resources. The research focuses on the importance of valuing human resources in UK organisations, current measurement practices, the identification of barriers to the valuation of human resources and the progress expected in this field over the next five years. The survey questionnaire was sent to both human resource and accounting professionals in three types of organisation, traditional (manufacturing and retail) companies in the private sector, knowledge-intensive companies in the private sector and local authorities in the public sector.

From the 4938 questionnaires that were distributed, 288 responses were received – representing a response rate of 5.8%. Of these respondents, 67.8% worked in human resource management, 22.3% in accounting and finance and 9.9% in other functions. Around a third (35.8%) of the sample came from the traditional (manufacturing and retail) sector, 27.15% from the knowledge-intensive sector and 30.9% from the public sector.

52.1% of respondents stated that measuring human resources was very or extremely important to their organisation.

The four most important reasons for measuring human resources, indicated by over 70% of respondents were:

• the human resource function should be accountable, just like any other function (94.1%)
  • the knowledge and skills of their people are their most important sources of sustained competitive advantage (79.4%)
• measurement of human resources gives management needed information about the people resources in the organisation and if the resources are there to support business strategies (75.1%)
• measurement helps with strategic planning (70.2%).

Most respondents agreed that measuring human resources was important or extremely important to the human resource function (84%). Most respondents also agreed that measuring human resources was regarded as being important or extremely important to senior management (63.6%), the CEO (63.3%) and the board of directors (54.7%), but less so to line managers (49.5%) and those involved in financial and managerial accounting (44.9%).

50% of the respondents stated that the valuation of human resources should be driven by the human resource professionals as they had expertise in dealing with human resources and access to the appropriate data. In relation to this, however, one third of respondents also identified that human resource professionals did not have the necessary expertise in measurement or valuation techniques.

35% of the respondents stated that a multifunctional team should be involved in the valuation process to obtain the expertise of both the human resource and accounting functions and to improve the acceptance and understanding of any proposed measures throughout the organisation.

There were relatively few measures of human resources that were currently used by a majority of respondents and relatively few measures that were identified as being important by a majority of organisations. Out of 33 human resource measures, seven were currently used by more than 50% of respondents and ten were identified as important by more than 70% of respondents. These are given in table ES1.

Table ES1: Measures of human resources

This limited agreement as to what should be measured indicates that a prescriptive approach is neither feasible nor desirable. Instead, a more flexible approach, with organisations being able to use those measures most appropriate to their circumstances, may be the way forward.

Complex measures such as intellectual capital are not identified as being important and this may, in part, be due to the perceived difficulty and complexity in calculating these, lack of agreement on how they should be calculated and concerns about quantifying people.

The main barriers to the valuation of human resources were identified as:

• lack of understanding of the measures by others in the organisation (58.8%)
• uncertainty as to what information should be reported (58.8%)
• lack of precision in current human resource measures (57.7%)
• lack of wide acceptance of current human resource measures (47.2%)
• lack of reliability of current human resource measures (47%).

In relation to future plans, 39.6% of the respondents stated that their organisations had plans to introduce human resource measures in the next year, 22.2% in the next two to five years and 9% in more than five years’ time.
When asked how much progress in the valuation of human resources was likely to take place in the next five years, however, only 13% of the respondents considered that there would be significant progress. Most respondents (65.3%) indicated some or moderate progress and 19.1% indicated little or no progress over that period.
In order for more progress to be made in the foreseeable future more research, both theoretical and empirical, needs to be undertaken. More theoretical research is needed into valuation methods and models; the use of a range of measures, including soft measures; how best to deal with concerns over quantifying people; and how best to deal with industry differences, and with differences between the private and the public sectors. As well as developing appropriate measures which would gain acceptance by most organisations, empirical research is also needed into issues such as

• ways of gaining commitment to the valuation of employees by senior management, which will, no doubt, involve persuading management of the benefits of the process compared with the costs involved
• how systems to value employees, when developed, are implemented in organisations and
• the consequences, both intended and unintended, of the ways in which the systems operate in practice.

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