On 31st March 2015 the Global Index of Human Capital Management (OMINDEX) was launched with an overview guide of the findings from its research. Included in the Index was the Scottish energy company SSE, which had been awarded a BB- rating. Ten days later, The Herald newspaper in Scotland covered a story on a report produced by PwC for SSE entitled ‘Valuable People – Understanding SSE’s human capital’.
You might think there must be some connection between these two developments, but there isn’t. OMS, which compiles the Global Index, produced its rating based entirely on externally available evidence. PwC were commissioned by SSE to write their report. So what are the different motivations at play here for analysing how organizations manage their human capital?
The need for a method by which companies can report on their human capital has been acknowledged for many years. In the UK this reached a point in 2003 where the government commissioned a report from its Accounting for People Taskforce. In 2010 SHRM, in the US, decided that it needed better measurement of human capital practices and attempted to produce ‘investor metrics’. Both of these initiatives failed but the need remained.
OMS was born out of the work and professional standards set by the Maturity Institute whose goal is crystal clear: to show how an organization’s over-arching goal has to be societal, rather than shareholder value; although we view both as mutually supportive when human capital is managed effectively. The comparative organizational maturity ratings (OMRs) used to build the OMI index measure how well an organization is doing against this standard. This analysis has to be objective and supported by a credible and totally independent professional body. It also has to demonstrate a direct, evidence-based, causal connection between decisions on HCM and the market value of the company.
John Stewart’s purpose (SSE’s director of HR) for commissioning his report was to “prove” that SSE’s approach to HR management was “good for business”. The report shows that it follows a very different route. It subscribes to the IIRC’s (International Integrated Reporting Council) framework, which posits six different types of capital (financial, manufactured, natural, intellectual, social/relationship and human).
These are two entirely different approaches to answering the main question – ‘does your company get the maximum value from its human capital?’ In fact, they are based on totally different business paradigms and management philosophies. MI sees people as valuable capital, not a cost. IIRC still views human capital as something that has to fit with conventional accounting practice.
Under the heading ‘Next steps’ in the SSE report the company admits that “as the first UK company to carry out this assessment we don’t have a benchmark to compare our human value capital against.” MI does exactly that: it provides a well-conceived and practically structured benchmarking scale which forms the basis for the OMI index. If SSE takes a look it will find exactly where it sits in the rankings: its current position is 51st out of 64.
SSE does want to learn from its efforts though and invites “other organizations to actively engage with us on how we can refine this process and create new benchmarks for business in understanding the value of the people they employ.” At MI we are more than happy to do so.