In my Opinion: Chartered Management Institute

Chartered Management Institute Companion Rhiannon Chapman assesses the latest thinking on human capital management.

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Last Updated: 31 Aug 2010

When speaking at management conferences, I cannot resist asking the audience whether they know what proportion of their total operating costs are represented by people costs. Usually, less than a quarter of them have any idea. When I tell them that typically, in the services sector, it will be somewhere between 60% and 80%, they are amazed. I then challenge them as to why, if they are all as business-focused as they should be, they have not been taking a more active interest in the people aspects of managing the business. At this, they are stumped.

I think I know the answer. The human resources function has largely usurped the role of line managers in staff management matters. Managing people can be challenging work and may not feel very rewarding, especially for managers who have come up through the technical or specialist route and who are not naturally 'people' people. Few HR functions have provided managers with the tools they need to manage their people themselves: ready-to-hand (preferably electronic) guides on staff policies - for example, flowcharts or helplines to walk them through the steps they need to take when one of their key team members tells them she is pregnant. Even the basic skills they need to have of listening to, communicating with and coaching their staff are often sadly neglected.

People are the only source of competitive advantage left to us today, so Michael Porter, renowned competitiveness guru, says. How we deploy them, develop their skills, hone their judgments, even merely manage their attendance, makes a very substantial difference in how effectively we can conduct our business.

Do we set standards for them to meet targets to aspire to? And do we measure their achievements in any formal way? Is success acknowledged, celebrated? A survey recently conducted among the Institute's membership reveals that 82% of them still rely on the annual appraisal for information about their people and their attainments, despite the fact that they also make it clear that they feel that the annual appraisal tells them little of value and is too often considered a waste of time for all concerned.

What exactly is going on here? Professor Les Worrall at the University of Wolverhampton's Business School has been researching a phenomenon he calls the 'oak ceiling'. It is the difference between what people in boardrooms and other senior managers think is going on in their organisations, and what the people, who actually do the work, think is going on. There has always been a significant gap between these two sets of perceptions.

The really bad news is that in recent years this gap has gone exponential: the speed at which it is widening is increasing all the time. What does this mean? It means that when we take high-level views about where the business is and what needs to happen next, we are probably not as aware as we need to be of the reality on the ground. If you don't know where you are starting from, how can you ever plan to get anywhere? The implications for risk management - for example, in regulated industries with respect to compliance - are frightening.

The truth is that we do not know enough about the people into whose hands we entrust the operations of our enterprises. We do not know what impact their behaviours or attitudes are having on our business outcomes - for good or ill - or how improvements might be made. We may suffer the buffeting of high labour turnover and manage our way through it as best we can, but we rarely ask ourselves: Why is it happening and what can we do about it?

In most organisations, there are just a few, often quite simple changes in how people are managed that might make a huge difference to our bottom-line results. But we don't have the information we need to tell us what they are. Here, our HR people have a key and central role - to contribute to and inform the crucial, strategic debate about what would make this difference. And then to set about designing and implementing it for us.

Being in a good position to join up the ends, they could also make a start on resolving the oak ceiling problem, too.

The Institute currently has a working party on Human Capital Management & Reporting (HCMR). Many of you will be aware of the recent Kingsmill report, 'Accounting for People'. The Institute is looking at what it means for our membership and for line management generally in the UK. What is already clear is that only tiny proportions of managers have even identified the questions they need answers to. We manage our people passively, like Joyce Grenfell's dancing partner - moving them around 'like they was a load on our mind'. We see them principally as problems, not solutions.

This must change, and the HCMR initiative is an important start. We so often claim that 'our people are our greatest assets' and yet, left to ourselves, we take few active steps to engage them in the business, to achieve better outcomes from their labours or to ensure that we are making the best possible use of their talents.

CV

Rhiannon Chapman is non-executive chairman of Visions Consulting Co and undertakes senior interim assignments leading major change programmes.

She was formerly CE0 of the Industrial Society and HR director of the London Stock Exchange. Chapman is chairman of the CMI's working party on Human Capital Management Reporting.

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