Human Capital Management Update

For almost 40 years, Dr. Jac Fitz-enz, CEO of Human Capital Source and the father of human capital performance benchmarking, has taught companies around the world how analytical systems and targeted metrics can optimize human capital productivity. Dr. Fitz-enz recently spoke with Oracle about continuing skepticism over HR metrics, how to achieve metrics success, and what his latest venture is doing to quantify correlations between HR investments and better performance.

Oracle: You've said it's still sometimes hard to get C-level executives to commit to systems for gathering and analyzing human capital metrics. Why is that?

Jac Fitz-enz: Many still believe you can't measure the effectiveness of human capital the way you can measure the effectiveness of structural investments in technology or other areas. It's a mythology that has been around forever, and I think most still believe in it.

Oracle: If I were one of these skeptics, what would you say to convince me otherwise?

Fitz-enz: I would start by asking, "Of all the assets in your organization, which are active and which are passive?" The answer, obviously, is that only people are active, and all other assets are inert and passive. If you buy computers or you buy turret lathes, they don't leverage anyone's ability to perform unless you train people how to use them. And that's really the nut of the whole idea: If you invest in nonhuman assets but don't involve the human component through training or whatever else is necessary, you just have a cost, basically.

Oracle: Where do companies go wrong when they don't achieve the full potential of using human capital metrics?

Fitz-enz: Mostly they're starting with basic things like counting the number of people hired, the number trained, and turnover rates. They're looking at the cost and quantity side of the equation, not the value-added side. My job is to get companies past counting bodies and hours and ask, "If you reduce turnover by 2 percent, what difference will it make?" Or, "If you spend a million dollars training all these people, what benefits will you see?"

People don't tend to ask the second- and third-level questions, the "So what?" questions, so that's what I always do. That way, we eliminate a lot of [metrics] that have very little relevance and we don't have to spend much time on them. We focus on maybe five or ten things that really do make a difference. And it usually isn't more than five or ten metrics.

Oracle: If a company wants to do metrics right, what first steps should they take?

Fitz-enz: I start at the top and ask about the company's strategic initiatives and goals. I don't want to build a system that is irrelevant. If they tell me that what's important are world-class customer service, cost reduction, innovation, or growing top-line revenue—if they can give me two or three goals—then we can talk about what that means in terms of the HR function.

Oracle: A good workforce analytics system lets you ask questions and slice and dice them in many different ways to get the right answers.

Fitz-enz: Yes, and that's important because the answer may change from unit to unit. In some cases, high turnover may be because of a lousy supervisor. In other cases, competition is drawing people away. In still other cases, pay is not up to the standard for the region. But companies do too much generalization when they see the turnover rate go up. They raise pay across the board, and end up spending a lot more money, while turnover in some areas continues to go up. In-depth analysis doesn't occur.

Oracle: Tell us about your new venture with the Workforce Intelligence Institute.

Fitz-enz: We're trying to create the next generation of metrics and benchmarking, which traditionally has been focused on broad macro numbers like turnover rates and effectiveness of human capital investment. What we're doing now is tracking about a dozen different variables ranging from labor cost to staffing, turnover rates of managers, HR operations, leadership, planning, and performance management.

Then we'll correlate that data with financial, marketing, and operating data pulled from various public sources like Hoover's Online and others. The idea is to run correlations between the human capital investments in the things I just mentioned and any changes in financials, marketing, or operating issues. Over time, we'll find out whether or not we can come up with correlations that will answer the question, "Does it really make any difference how you invest in human capital?"

To participate, all a company has to do is fill in this questionnaire, which has only 15 questions on it. It's at www.workforceintell.com\question.html. We're not going to sell the report. Only participants will get it.

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