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appears on the balance sheet. While this number has dropped from the heady highs of $ in March 2000, this :1 ratio still accounts for a large portion of your organization’s value. Figure 1 shows the results from Baruch Lev’s study of markettobook ratios – it clearly demonstrates the growth in this ratio since the late 70s.So what accounts for the difference? Typically, these are the organization’s intangible assets. Intangibles include a variety of factors such as brand strength and reputation, relationships with customers, patents and a variety of factors that we call human capital。 these include quality of leadership, employee creativity, productivity, loyalty, passion and knowledge management. Scarcity in one or more of these areas or suboptimal productivity in them is often more constraining for businesses than financial capital. At times, businesses have been taken over merely to acquire their intellectual or human capital.“As the correlation between quality of human capital and business performance bees clearer, the notion of human capital being represented on financial statements has surfaced,” says Mark C Ubelhart, ValueBased Management Practice Leader with Hewitt Associates. Ubelhart has been working on developing methods that can help measure the contribution of human capital and drive decisions to invest in people. He says, “The new frontiers of measuring human value are being developed in financial metrics similar to those being used in everyday investment processes.”HCM describes a variety of people measurement practices that help organizations understand and quantify their people investments. As an approach, it also helps HR build credibility with the line functions, as HR measures now bee more performance focused and demonstrate an understanding of value creation.It would be wrong to think of HCM as a unified body of practice. There are numerous approaches, models, “offers” and conceptual frameworks. A simple way to try and get an understanding of HCM, no matter how evolved the thinking in your organization, is illustrated in Figure 2.As organizations begin to adopt these frameworks, HCM is evolving very quickly. Until recently, there were few robust cases or methods for demonstrating the relationships that exist between investments in people and business outes. HCM consisted of measuring and benchmarking, for which the measures in vogue were focused on either efficiency or accuracy (for example, the ratio of HR staff to employees, number of payroll errors, time to fill vacant posts etc).For evaluation, these productivity metrics were then benchmarked against best practices and were not focused on the results they produce – a 10:1 or 20:1 employee to HR staff ratio does not necessarily produce a tangible result. The majority of organizations continue to follow this approach that focuses mostly on performance of policies. These costfocused approaches often restrict the HR’s role in the organization. To bee a strategic partner, some HR departments are using more sophisticated HCM approaches (see figure 3). A small number are also measuring how human capital impacts strategic outes.This change in philosophy to more sophisticated HC measures is precisely where Hewitt has focused. We have developed a variety of approaches and measures for organizations at various stages in their development. Hewitt’s measurement solutions range from HR benchmarking and metrics to HR scorecards and from there to human capital modelling (see articles on National Australia Group and Cargill). At all times, our goal is to match and align the nature and depth of HCM with the organization’s needs and level of sophistication. An overview of our general approach is outlined below. Benchmarking and MetricsHewitt’s approach to understanding the efficiency and effectiveness of the HR function is detailed in a subsequent article (see HR Analyzer article). Developing better benchmarking and metrics can provide an easy starting point and entry into HCM. Appropriate and wellselected benchmarks and metrics can help panies analyze and review HR data to outline improvements and benchmark opportunities. The scorecard ensures alignment of HR strategy with overall business strategy, focuses HR initiatives on meeting strategic goals, and evaluates the impact of diverse HR activities on an organization’s longterm business objectives.This allows panies to review their existing HR measures, understand benchmarks or innovatively measure a particular aspect of their programs, polices, etc.This approach will often identify functions, processes or systems that are not performing as well as possible (relative to other panies) and identify opportunities for improvement. It will not provide a measure of how effective your human capital investments are on your business.Hewitt aims to move organizations away from measurement processes that focus predominantly on costs, efficiency and accuracy or solely on benchmarking. Such an approach is only valid in a paradigm that views HR and employees as costs to be managed. While simple to understand and calculate, today these measures provide little linkage to a pany39。s business strategy. This places many HR functions at risk in a number of ways:178。 Measures reported are often lagging. There are no indicative signs of future performance for management to take action in time。178。 It can often reinforce a dysfunctional leadership behaviour that sees the HR function as a corporate expense — a prime candidate for downsizing, elimination, or outsourcing。 and 178。 Benchmarking focuses on what others are doing and can inhibit outsidethebox thinking or refocus on new people strategies. Building HR ScorecardsThe HR Balanced Scorecard is an effective tool to illustrate the contribution of HR to achieving longterm value generation. It is based on the business measurement framework provided by Robert S. Kaplan and David P. Norton. Besides providing a framework for measurin