Yet Another Reason Structured On-The-Job Training Should Be Part of Any Company’s Business Model – New ISO 30414 Standards for Human Capital Metrics

By Dean Prigelmeier, President of Proactive Technologies, Inc.

A new reason has come to town to support why structured on the job training – at least the PROTECH® system of managed human resource development^© approach – can be an important component of an organization’s business strategy and model: ISO 30414 – Human Capital Metrics and Reporting.

For far too long, critics have been vocal that decisions on how to reduce costs to protect “shareholder value” were heavily weighted against workers, undercounting the firm’s cumulative investment in each worker’s development and aggregate value of the firm’s worker expertise as intellectual property. It was easy to erase labor wages off the books without considering the loss of value to the company when that value was never measured and counted in the first place. While the benefits of such cuts can provide a short-term lift to earnings per share, the long-term impact on organizational capacity, quality and effectiveness is often not known to shareholders until problems arise.

There has been an extensive global effort to create standards for the voluntary gathering and reporting of human capital metrics, organized by the International Organization for Standardization (ISO), which have been released. And there seems to be a case to be made why companies should not ignore their importance.

Many quality professionals were exposed to the new requirements for a systematic approach to human resources in ISO 9001:2015. These new requirements are based on the principles considered by ISO to be essential to quality management success. But some quality professionals may not be aware of new ways that they can bring added value to their organizations by implementing the spirit and intention of these new requirements.

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“If the firm has not defined the job classifications of workers in clear, procedural terms, they have little to measure, report on and use to improve performance.” 

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In a recent article in CFO.com entitled, “Human Capital Reporting Standards Finally Arrive,” David McCann writes, “Depending on the extent to which companies voluntarily adopt the new standards, stakeholders — investors, analysts, customers, and current and prospective employees — would have a new category of data with which to assess organizational value and the prospects for financial and non-financial returns from investments in human capital.”

Conversations regarding ISO 30414 human capital reporting have changed in the last few years, perhaps related to the awareness that the public is asking more and more that corporations be good corporate “citizens” since given that standing in recent Supreme Court rulings such as Citizen’s United.

The institutional investor community, including the Human Capital Management Coalition with aggregate assets of $3 trillion dollars and is lead by the UAW Retiree Medical Benefits Trust, has expressed strong support. They went as far as petitioning the U.S. Securities and Exchange Commission in 2017 to require public companies to disclose information on their human capital management. The Commission accepted the petition and is currently considering it.

The coalition didn’t offer specific metrics that should used, but the ISO standard calls for 23 metrics in 9 general categories, including:
– Costs (total workforce costs)
– Productivity (EBIT/revenue/turnover/profit per employee/human capital ROI, or ratio of income or revenue to human capital)
– Recruitment, mobility, and turnover (average time to fill vacant positions; average time to fill critical business positions; percentage of positions filled internally; percentage of critical business positions filled internally; turnover rate)
– Skills and capabilities (total development and training costs)
– Workforce availability (number of employees; full-time equivalents)

The standards also say the companies should take 36 other measures of performance for internal reporting that reveal the organization’s positioning and long-term stability. Two categories pertain to organizational culture and succession planning.

Jeff Higgins, a former CEO and lead U.S. representative on the ISO task force contends that compiling the metrics for public disclosure should not be a major burden, but did say one fortune 500 executive he spoke to estimated that it would take 2 years to come into full compliance.

The trouble is many of these companies saw no reason in the past to measure and collect this information in the past, so adjusting to the new, voluntary reporting may be spotty and slow to form. If the firm has not defined the job classifications of workers in clear, procedural terms, they have little to measure, report on and use to improve performance.” The Proactive Technologies’ PROTECH approach provides several metrics of worker development, capacity, under-capacity, accumulated expertise and other important measures that can not only easily support the effort, but creates an infrastructure to improve some of the outcomes when actual numbers are revealed.

Many PROTECH projects have been “monetizing” these measures for years as a way of demonstrating internally the value that structured on-the-job training has on the organization – a justification to management for the investment to setup and implement structured, focused, accelerated and deliberate worker development and empirical evidence of the many returns on investment derived. These metrics can easily be used, and expanded, for reporting under the new ISO guidelines. This turns out to be yet another dividend of the PROTECH approach to human resource development.

Higgins went on to say that he estimated the level of awareness among Fortune 1000 companies, and some contemplating going public, that these ISO standards were evolving was around 10%. Still, companies may soon start receiving requests for human capital metrics so they should begin right away to familiarize themselves with the requirements and formalize a plan to collect data and report it.

Everyone in the investment community, the companies and those in the workforce have known that the growing reliance on labor cuts and relocations to lower wage labor markets was, in many cases, was a panacea that might have lead to the appearance of performance improvement in the short-run. The long-term ramifications on investments, to the workforce, communities and economy, once very unknown, are now more predictable; far more understandable now than the rhetorical justification made for the decisions in the first place. Perhaps this is a “first step” in the right direction away from this practice to make it the “last resort.”

If you would like to know how this approach might work at your firm, and how a pilot project may be the best way to quickly introduce this approach to your organization and allow you to evaluate it for wider application, contact a Proactive Technologies representative today to schedule a GoToMeeting videoconference briefing to your computer. This can be followed up with an onsite presentation for you and your colleagues. A 13-minute promo briefing is available at the Proactive Technologies website and provides an overview to get you started and to help you explain it to your staff.