SAP White Paper

mySAP ERP Human Capital Management

HUMAN CAPITAL
MANAGEMENT
A MEASUREMENT BREAKTHROUGH ON THE HORIZON

 Copyright 2004 SAP AG. All rights reserved.

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CONTENTS
Executive Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Paradox of Human Capital Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The Need for Meaningful and Useful Measurements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Practical Experimentation in Enterprising Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Accenture Human Capital Development Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Next Steps in Human Capital Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

EXECUTIVE OVERVIEW
Globalization, rising customer and shareholder expectations,
and a volatile social and economic climate exert tremendous
pressure on executives to efficiently generate business results and
outperform the competition by delivering top value through
innovative products and services. Market accelerators and mostly
temporary competitive advantages have resulted in a new focus
from executives: how to better invest and leverage the source of
their competitive advantage their workforce. With 30% to 60%
of a companys revenue spent on human capital management,
CEOs, CFOs, HR executives, and other business leaders want
to understand how these dollars are being used to deliver on
business goals.
These business drivers have resulted in a void in the ability to
measure human capital investments against benefits to the
business. C-level and HR executives struggle with what to
measure and how to clearly tie these metrics to business performance. In a recent meeting between some of SAPs most thoughtleading human capital management (HCM) customers, the
inability to properly measure the contribution of the workforce
and HCM strategies and programs against business performance
ranked among the top of their focuses and concerns.
THE WHITE PAPER OBJECTIVES

This white paper marks the first of a series of three collaborative

white papers by SAP and the Accenture Institute for High
Performance Business. They will address the concept that the
economic benefit an organization realizes from human capital
investment is in direct proportion to the quality of its human
capital processes. The outcomes of those processes are critical
capabilities, like leadership, managerial competency, workforce
adaptability and proficiency, and employee engagement.

Leveraging case studies and relevant research, this first white

paper proposes a new approach to linking human capital
management processes to financial performance. Businesses,
such as International Paper and Harrahs Entertainment, are
reviewed to help the reader understand how these businesses are
working to untangle the knotty relationship between investments
in people and business results. The white paper concludes with
an overview of Accentures Human Capital Development
Framework and the partnership between SAP and Accenture
to help businesses understand the impact of human capital
investments on shareholder value. The Human Capital Development Framework uses four distinct levels to measure human
capital practices against business performance. Using a value
chain between human capital management and shareholder
value as a base, the tiers include human capital processes, human
capital capabilities, key business performance drivers, and
business results.
THE PARTNERSHIP BACKGROUND

SAP has joined the Accenture Institute for High Performance

Business to support its research in understanding the impact of
human capital investments on shareholder value. This research
alliance stands to improve the model and to accelerate its integration with next generation HCM software software that
will be engaged by leading-edge companies to test its promise,
and to furthering the cause of measurement in human capital
management.

INTRODUCTION
Todays global business climate is marked by extreme geopolitical
and economic uncertainties. Global market acceleration is forcing
businesses to respond to customers faster than ever with valueadded products and services, while they struggle to maintain
temporary competitive advantages. These businesses are under
extreme pressure to increase revenue and drive profitability, while
decreasing costs, optimizing resource utilization, and tightening
corporate governance. Organizations know they must adapt their
business and IT systems to survive, innovate, and grow. And,
behind it all, executives remain firmly convinced that people are
their most important asset.
Most executives today find themselves at a loss to demonstrate
that investments in people lead to improved business results
(see Figure 1). Commonly used metrics, such as economic value
added (EVA), return on investment (ROI), and earnings before
interest and taxes (EBIT), tell us little about how an organizations human assets are performing. They tell us even less about
whether an organization has either 1) the depth of talent to
compete in an uncertain global economy or 2) the people
development processes needed to support the organizations
commercial, technical, and social challenges. Indeed, it seems
the biggest impediment to effective intervention in the domain
of human performance is the lack of meaningful measurements
and convincing evidence that human capital investments
improve a companys financial performance.

WHAT ARE YOUR TOP

STRATEGIC PRIORITIES
FOR 2003 ?

TO WHAT EXTENT DO YOU KNOW THE

RETURN ON YOUR AGGREGATE
INVESTMENTS IN HUMAN CAPITAL?

1. Attracting and retaining

skilled staff
2. Increasing customer care
and service
3. Improving workforce
performance

To a great extent
2%
To a considerable
extent
14%

Not at all
14%

4. Changing leadership and

management behaviors
5. Changing organizational
culture and employee
attitudes

High-Performance Workforce
Study 2002/2003; Survey of 200
CEOs, COOs, CFOs, CIOs, and
senior HR executives conducted
by Accenture

To a modest
extent
30%

To a minimal
extent
40%

Survey of 189 senior financial executives conducted

by CFO Research Services in fall 2002.
Figures are % of respondents.

Figure 1

However, new theory and practice in human capital management

are directly addressing this impediment. In this white paper,
through case studies and a thorough review of research, Accenture
and SAP propose an innovative approach to linking human capital
management processes with financial performance. Particular
attention is drawn to enterprising organizations specifically,
International Paper Company and Harrahs Entertainment.
These companies are working to untangle the knotty relationship
between investments in people and business results. Further, the
white paper concludes with an overview of Accentures Human
Capital Development Framework and its imminent and future
implications for the practice of human capital management.

THE PARADOX OF HUMAN CAPITAL MANAGEMENT

Global human resources executives recently convened by SAP
were in near unanimous agreement concerning this point: their
ability to justify investments in people in training and, more
broadly, in new approaches to learning, knowledge management,
leadership development, and performance management has
been severely constrained by the absence of metrics. Credible
metrics are needed to adequately reflect the myriad ways human
capital affects business performance and to convince numbers
conscious CFOs of that reality.

2. External pressure, in the form of government initiatives and

impending regulations, may soon require companies particularly those doing business in Europe to publicly report their
investments in people and training. Equally as important, lobbying has intensified among trade unions, nongovernmental
organizations (NGOs), and activist groups to urge companies
to be more responsive to the situation of the unemployed, to
young people in search of first jobs, and to geographic regions
adversely affected by globalization.

In discussing a solution to the absence of metrics, those same

executives pointed to three sources of pressure to create such
a solution:

3. Technological capabilities, particularly in the form of enterprise software packages and human capital management applications, are making it possible though not yet practical to
better measure, track, and manage human capital and to deliver
training and job-related information in more costeffective ways.

1. Internal pressure, such as the growing emphasis by top

management on shareholder value and financial management,
is forcing human resources executives to make a business case
for every investment.
In recent years, the dominant theme has been cost cutting and
efficiency, which has led to dramatic upsurges in outsourcing
in the hopes of reducing administrative expenses. However,
more and more leadership teams are asking whether their
people and their collective skills and abilities are adequately
positioned to support expansion and competition in an increasingly complex global economy.

Human capital is defined as individual, as well as collective, skills,

talents, and capabilities. Despite unanimous agreement in the
applied literature and among academia that human capital is
essential to enterprise success (see Figure 2), there is no indisputable proof documenting the link between employee engagement, human capital management practices, intermediate
business outcomes, and total shareholder return. Of importance
to managers is the fact that the academic literature lacks the
granularity and the operational focus needed to help them
decide precisely where to invest their limited time and money to
maximum benefit.

1) Brian Becker, Mark Huselid, and Dave Ulrich, The HR Scorecard: Linking People, Strategy and Performance, Cambridge, MA: Harvard Business School Press, 2001.
2) Marcus Buckingham and Curt Coffman, First Break All the Rules, New York: Simon and Schuster, 1999.
6

Nonetheless, partial evidence abounds: from Becker, Huselid, and

Ulrich (2001),1 for example, it is known that companies investing
in strategic human resource management seem to achieve better financial performance than those that use more traditional
approaches. Correlation is not the same as causation: does strategic HR management drive superior financial performance, or
does superior financial performance make it possible to take a
more strategic approach to HR management?
Similarly, studies of employee attitudes strongly suggest that
profitable companies are those whose employees feel engaged in
their work and respected by their managers. See, for example,
the highly suggestive studies undertaken by Gallups research
team.2
Again, however, correlation does not mean causality: the ability of
profitable companies to provide better pay and amenities than

100 BEST (2001) VS. S&P 500

ANNUALIZED STOCK MARKET RETURN

Research organizations like the Saratoga Institute and EP-First,

as well as a number of human resources consultancies, collect
valuable data on metrics, such as investments in training and
ratios of human resource budgeting to employee head count;
but, they have yet to link this data with shareholder value.
Perhaps this is because they do not collect the data on operational
performance, which includes productivity, quality, or customer
satisfaction, that would make it possible to assess the effect of
human capital variables on the factors that create shareholder
value. Some have linked a specific human capital initiative or
human resource practice that is, the use of 360-degree performance
reviews to overall financial performance, but they have failed to tie
the broader context of human capital to shareholder value.

GROWTH OF $50,000 INVESTED ON 1/1/97, THROUGH

12/31/01, KAM HYPOTHETICAL PORTFOLIO VS. S&P 500**
(*net performance after deduction of all fees)
150,000
KAM*

100 Best

25,000
Dec-01

S&P 500

3 Year

50,000

Dec-00

5 Year

75,000

Dec-99

10 Year

11%

100,000

Dec-98

18%

30%

Dec-97

18%

33%

S&P 500

125,000

Dec-96

36%

PORTFOLIO VALUE ($)

40%
35%
30%
25%
20%
15%
10%
5%
0%

their competitors may lead employees to blur engagement

which connotes involvement and superior contribution with
pay satisfaction.

Source: FORTUNE, January 8, 2001

* As defined by The 100 Best Companies to Work For in America (by Robert Levering and Milton Moskowitz, 1984 and 1993),
** Performance of a portfolio of companies that lead their industries in investments in human capital. Compiled and reported by Knowledge Asset
Management, 7316 Wisconsin Ave. Ste. 450, Bethesda, MD 20814, Toll-Free 866.526.5261, info@knowledgeam.com

Figure 2

THE NEED FOR MEANINGFUL AND USEFUL MEASUREMENTS

Interviews with senior HR executives, CFOs, business unit financial directors, and financial analysts yield two recurring themes
regarding the measurement of human capital investments on
financial performance.

What is needed is a measurement framework that is sensitive to

differences in business models especially when an organization
houses more than one business model, as is often the case in
multiproduct enterprises.

First, measures need to be meaningful from an operational

perspective; that is, following the conventional wisdom that
what is measured gets managed, both human resources and
financial managers want measures that reflect the way value is
created in the organization. Benchmarks like per capita spending
on training may tell you whether your organization is spending
more or less than your competitors; but snapshot pictures like
those do not tell you whether your spending is aligned with your
business model or whether you are getting the right return on
your investment. As opposed to a high-volume, low-margin
production and marketing strategy, pursuing a low-volume,
high-margin strategy ought to lead to significant differences in
how much you spend on human capital development, as well as
how you structure and organize your delivery of HR services.

Second, measures need to be useful from a planning and

investment perspective. Beyond tracking the performance of
human capital management practices in the short run, executives
want a way to determine where they should be investing for the
future. They need to know the kinds of skills employees will need
to achieve the organizations longer-run strategies, and they need
to know the human resources, training, learning, and knowledge
management capabilities it will take for the organization to
acquire, develop, and retain employees with those skills.

Return on
Invested Capital
(ROIC)
Spread
Weighted
Average Cost of
Capital (WACC)

Total Return to
Shareholders
(TRS)

In terms of time, a measurement approach cannot simply be

about monitoring the present and making sense of the past; it
must also give insight and guidance for the future. For example,
HR executives and their counterparts in finance and operations

Operating
Margin

Capital
Efficiency
CUSTOMER
SATISFACTION
INNOVATION
PRODUCTIVITY
QUALITY

Organic Growth
Growth
Growth Through
M&A

Figure 3

HUMAN
CAPITAL

want to assess the people-related risks associated with new technologies: Do we have the skills we will need to be successful with
this new technology? Do we have the capacity to grow those
skills in our own organization or will we have to go outside?
Do we have the depth of leadership talent to be able to meet the
challenge of rapid, transformational change? The same can be said
for risk analysis in mergers and acquisitions, in organizational
restructuring, and in coping with game-changing external events
like deregulation: executives need and want to better understand
what their human capital capabilities are and where they should
be investing resources to greatest future benefit.
It is easy to see that static measures of HR efficiency will not
suffice. Accenture and SAP believe it is necessary to widen the
view a view that goes beyond conventional metrics and measurement techniques to address what it takes to manage human
capital today and tomorrow, and to manage it in a fashion that is
aligned with an organizations strategic objectives. To illustrate
this point, look at Figure 3.

The left-hand side of Figure 3 is familiar to CFOs and financial

analysts, the center is familiar to line managers, and the righthand
side is familiar to the HR community. If people are our most
important asset becomes anything more than management
rhetoric, it will be because these pieces of the puzzle came together,
united by purpose. By way of explanation, Figure 3 separates total
shareholder return (on the left side of the diagram) into two major
components spread and growth:
Spread represents that part of value creation that derives from
being more efficient than competitors are in the use of capital,
in pricing strategy, and in operations.
Growth represents the part of value creation that comes from
cultivating new products and services, often through
innovation, and from achieving superior market position and
market share through acquisition.
An organizations relative emphasis on spread versus growth is a
matter of both competitive environment and strategy; but,
behind its ability to create value is a finite set of capabilities or
performance drivers that is, the organizations ability to
innovate, to satisfy customers, and to produce quality. However,
behind those capabilities and beyond all its fixed assets, the most
critical performance driver is an organizations people, their
knowledge and skill, and their ability and willingness to execute.

PRACTICAL EXPERIMENTATION IN ENTERPRISING COMPANIES

Paper making and gaming might not appear to share much in
common; after all, one is a traditional manufacturing industry
with a long history of focusing on efficiency and volume
production, and the other seeks to enrich customers experience
and enhance customer satisfaction. Nevertheless, in the case of
International Paper and Harrahs Entertainment, senior executives are searching intently for the most effective ways to engage
employees in their jobs and, by extension, improve the ability
of their companies to win in an increasingly competitive global
economy. In this context, what makes both companies distinctive
is the integral role they accord to human capital management
in pursuing competitive success. Of course, cost containment
clearly plays a role for International Paper and Harrahs, but more
profound is the way these companies weave people development
into their core processes of value creation.
International Paper is a global forest products, paper, and
packaging company with primary markets and manufacturing
operations in the United States, Canada, Europe, the Pacific Rim,
and South America. Revenues in 2002 reached nearly $25 billion.
In most of its major markets, International Paper is the dominant
player. However, to remain competitive, International Paper has
focused considerable attention in the past few years on trimming
costs in all its operations, including human capital management
(HCM), through process redesign, improvement of its core
information systems, and outsourcing.
Through it all, senior executives like Jerry Carter, senior vice
president for human resources, and Paul Karre, global vice
president for human resources, recognized that real breakthroughs
in performance were only likely to come about through a combination of efficiency and effectiveness with the latter having to
do with positioning the right people, with the right skills, in the
right places, at the right times.

10

After undertaking a critical review of International Papers

ability to be both efficient and effective particularly in the way
it manages its human resources Carter and Karre concluded
that the company had to commit itself to an ambitious agenda
of transforming HR if it wanted to link HR activities to critical
business results.
Figure 4 depicts the course they set for the HR function inside
International Paper. From their own self-designated Level 1
where Karre admits many of International Papers facilities were
situated in 1999 the company strives to advance to Level 3, which
is a state in which HR is not just a fast reactor to business
strategy, but a real contributor to shaping the organizations
business objectives.

Level 3:
Leading
Change

Level 3 HR Goals:
Strategic business partner
Driving culture change
Helping create the new
business model

2002

Level 2:
Building
Capability

Level 1:
HR
Fundamentals

2001

Level 2 HR Goals:
Developing leadership talent
Linking performance management to business results
Engaging employees
Change leadership

Level 1 HR Goals:
Administrative excellence
Employee champion
Increasing service at reduced
cost
Time

Figure 4

By Karres reckoning, and that of Karres key managers in

International Papers major business units, employee engagement
is central to being both efficient and effective. Engaged, involved,

and committed employees not only strive to make the best possible
use of existing resources, but they also seek out the skills and
knowledge necessary to be effective. HRs responsibility is to
enable employee engagement through 1) training and support of
all levels of management, 2) identification of the kinds of skills
and behaviors needed to achieve critical business results and positive
employee experiences, and 3) investments in the activities and
processes essential to the future growth of the business.
Given the pivotal role that employee engagement plays in International Papers human capital strategy, it is not surprising that
they monitor employee attitudes closely. In association with
Gallup, Inc., Karre and his colleagues have implemented a
focused employee survey virtually every year for the past five
years. More importantly, they have also begun to explore the
relationship between employee engagement and valued operational outcomes, like safety, productivity, and return on investment. The results have been very positive (see Figure 5). Those

100

facilities (usually pulp mills and conversion plants) with highemployee engagement scores also tend to be among the highest
performers in ROI, productivity improvement, and safety.
What is important to note about International Papers approach
is its emphasis on the linkage between human capital processes;
workforce capabilities or attributes, like employee engagement;
and operational outcomes, like facility ROI, productivity, and
safety. Unlike other organizations investigated by Accenture and
SAP that relate employee satisfaction directly to financial performance, International Paper recognizes that a truly realistic
assessment of the impact of human capital management has to
take into account those linkages and intermediate outcomes.
Thus, rather than ask whether happy employees make for more
profitable operations, International Paper asks, how does
employee engagement impact safety or productivity the things
that lead to more profitable operations? They also recognize
that the impacts of human capital practices are often timelagged;
by determining how long it takes for an intervention to have a
measurable impact, they are much better positioned to calculate
the payback on investments in human capital.

80
Percent
of results
60
achieved by
top quartile
40
facilities
20
0
Return on
Investment
(2001)

Top 25%

Middle 50%

Productivity
Improvement
(2001)

Bottom 25%

Gallup Employee Engagement Scores

Figure 5

Safety
(2001)

Harrahs Entertainment operates casinos in more markets in

the United States than any other casino company and conducts
business through a wholly owned subsidiary, Harrahs Operating
Company, Inc. (HOC), and through HOCs subsidiaries.
Revenues in 2002 exceeded $4 billion. In recent years, under
the leadership of CEO Gary Loveman and vice president of HR
Marilyn Winn, Harrahs has staked its financial well-being on a
fairly simple proposition: customer satisfaction is the most
critical success factor in the gaming business and employee
behavior is the most important determinant of customer satisfaction. The results have been impressive: over the past three years,
Harrahs operating margins, as well as its total return to shareholders, have outpaced competitors and the market as a whole.

11

While perhaps not a revolutionary concept in service-oriented

industries, these ideas have been applied with discipline and
intensity in Harrahs. And, characteristic of masters at the top of
their game, Harrahs management has sought everywhere to
simplify the way they communicate their message even as they
explore the complexities of the processes of customer satisfaction.
Take, for example, the service value chain as depicted in Harrahs
internal training materials (see Figure 6), which identically
reflects the ideas presented a few years ago in a Harvard Business
Review article coauthored by CEO Loveman. Harrahs service
value chain posts a clear linkage between Great Service and
overall financial performance.

GREAT SERVICE
CUSTOMER SATISFACTION
CUSTOMER LOYALTY
GROWTH SHARE OF WALLET
SAME STORE SALES

What is not obvious from the service value chain is that great
service is time-sensitive. That is, to produce customer satisfaction,
great service has to be there reliably in every customer interaction
the last as well as the first. In addition, all the ingredients that
go into making great service have to be forecasted, measured,
and evaluated on an ongoing basis. As senior vice president and
casino general manager Tom Jenkin points out, If the last person
a customer interacts with is the valet who brings around their car
and if that interaction is not positive, it does not matter how well
we did at registration or in the gaming areas or at the cashier.
Moreover, according to HR vice president Marilyn Winn, if
Harrahs suffers a breakdown in recruiting, training, scheduling,
or evaluating employees, the likelihood of great service being
produced also plummets.
Harrahs, known for the discipline and ingenuity with which it
studies customer profiles and spending habits, has recently
turned its attention to measuring and evaluating service delivery
(see Figure 7). It is important to note that at each phase of service
delivery, both individual employee behaviors and HR processes
are being measured.

OPERATING INCOME

Figure 6

12

For example, effective workforce planning forecasting models

intended to insure that enough people are available to work in
line with the day and the season is essential if the right balance
between staffing (efficiency) and proper customer experience
(effectiveness) is to be achieved. However, forecasting tools cannot help if recruitment, orientation and training, performance
feedback, and management coaching processes have failed to
prepare employees to perform. Thus, HRs Marilyn Winn and
customer satisfaction vice president John Bruns have initiated
parallel measures of individual performance and human capital
management process performance.

The results of their investigations are quite promising. For

instance, when Winn reviewed the cost of employee turnover,
she did not just look at it in terms of training and recruitment
expenses; instead, she calculated the impact on customer satisfaction and, by extension, on the ability of Harrahs to retain its
most profitable clientele. By halving employee turnover,
Harrahs was able to increase customer satisfaction, retain prized
customers, as well as convert lukewarm clients into loyalists.
Efforts such as these helped Harrahs remain profitable during
a recessionary period that battered many of its competitors. Moreover, Bruns devised a simple, but telling scorecard that traces out
the impact of individual performance on moment of truth
interactions between employees and customers, on customer
satisfaction scores, and ultimately, on revenues. A next step will be
to focus the analysis back on HR practices to determine which
activities in employee recruitment, compensation, training, supervision, and evaluation most directly affect how well employees
perform in those moments of truth.

BEFORE

HR Processes

DURING

Service Delivery
Measures

AFTER

Customer
Satisfaction

Revenue/
Profit

Staffing
Forecasting
Scheduling

Full
Capacity to
Serve

Work Environment

Management
Accountability
Service Standards
and Productivity

Focus Behavior Measures

Great
Service
Experience

Customer
Dissatisfaction

Service
Recovery or
Defections

Figure 7

13

ACCENTURE HUMAN CAPITAL DEVELOPMENT FRAMEWORK

Using the background research on organizations like International Paper and Harrahs Entertainment as a starting point,
the Accenture Institute for High Performance Business working closely with the Accenture Human Performance Service Line
developed the Accenture Human Capital Development
Framework to estimate the business impact of human capital
initiatives and guide their implementation. In developing the
approach, three objectives were established:
1. Identify and measure the human capital factors that affect
organizational performance, whether they do so directly or
indirectly, immediately or with a lag
2. Develop a repeatable measurement scheme that is, one that
can be carried out over successive time periods in a single
organization and, therefore, allow that organization to track
its performance over time
3. Establish a database enabling companies to benchmark in key
human capital development areas against their competition,
and to predict return on investment from specific human
capital investments and interventions
The core of this argument is simple: the economic benefit an
organization realizes from human capital investment is in direct
proportion to the quality of its human capital processes. The
outcomes of those processes are critical capabilities, like leadership, managerial competency, workforce adaptability and proficiency, and employee engagement.

14

The Accenture Human Capital Development Framework uses

four distinct levels or tiers of measurement in arriving at an
assessment of an organization's human capital practices. These
tiers (see Figure 8) reflect the four key variables that influence
the relationship between a company's human capital assets and
its financial performance:
Tier 1, business results, consists of measures of organizational
performance, such as traditional financial analyses featuring
EVA, sales growth, price earnings (P/E) ratio, and return on
capital.
Tier 2, key performance drivers, directly contributes to business unit or enterprise results. Key performance drivers are the
intermediate organizational outcomes, such as productivity,
quality, innovation, and important customer metrics, including customer satisfaction and customer retention, which are
often captured on a balanced scorecard.
Tier 3, human capital capabilities, consists of the most
immediate and visible people-related qualities, including
employee attitudes and abilities, which are necessary for
achieving critical business outcomes. Their influence is felt
through key performance drivers.
Tier 4, human capital processes, consists of practices that
lead to robust and effective human capital capabilities. Included in this tier are core HR processes, including competency
management and performance appraisal, and broader human
capital processes, such as learning and knowledge
management.

BUSINESS RESULTS
Economic
Value Added

P/E Ratio

Tier 1

Sales Growth

Return on Capital

Tier 2

KEY PERFORMANCE DRIVERS

Productivity

Quality

Innovation

Customers

Tier 3

HUMAN CAPITAL CAPABILITIES

Leadership

Workforce
Proficiency

Workforce
Performance

Employee Engagement

Workforce
Adaptability

Human Capital
Efficiency

HUMAN CAPITAL PROCESSES

Tier 4

Competency
Management

Career
Development

Performance
Appraisal

Rewards and
Recognition

Employee
Relations

Human Capital Learning

Strategy
Management

Succession Planning
Leadership Development

Recruiting

Workforce
Planning

Knowledge
Management

Human Capital
Infrastructure

Workplace
Design

Figure 8

Of the four measurement tiers, Tier 4 is, in many respects, the

most distinctive. Unlike other approaches to evaluating HR
organizations or assessing the return on human capital investments, it focuses explicitly on the maturity of an organizations
human capital development processes. That is, rather than look
only at levels of spending, such as the training budget per
employee, to get a sense of an organizations approach to human
capital development, Tier 4 measurements seek to understand
how complete the underlying practices are, and how well aligned
they are with the organization's competitive strategy and mission.
This approach is inspired by advances in the world of quality in
both manufacturing and software development. For example,
total quality techniques, including capability maturity and
other models, have enabled companies to achieve dramatic
improvements in the reliability and repeatability of key processes.

Thus, embedded in each of the Tier 4 variables, is a multidimensional maturity scale grounded in industry best practices
and modified as a result of employee evaluations.
The Accenture Human Capital Development Framework can be
deployed in three distinctive ways:
1. As a diagnostic assessment that highlights areas for
performance improvement or value creation
2. As part of a recurring measurement activity one aligned
with an organizations core planning processes
3. As part of a large-scale organizational transformation, where
the goal is to reshape traditional HR, learning and training,
and development functions to bring them in line with a new
business strategy

15

Once data is collected, an assessment is generated that represents

in numbers, graphs, and against benchmarks an organizations
ability to use human capital to generate business results (see
Figure 9). Each attribute in the model is graphically colored to
reflect the current state or maturity of each factor in the model:
red represents an immature capability, yellow represents a mature
capability, and green represents a highly mature capability. In
addition, Tiers 3 and 4 are numerically scored to represent
maturity, with low scores indicating an absence of capability or
maturity, and high scores indicating an extensive level of
capability or maturity.

These assessments can be compared across business units in the

same enterprise. And, as the number of Accenture Human
Capital Development Framework applications increases, the
Accenture Institute for High Performance Business will grow a
benchmarking database of unprecedented depth and value
one that represents economic returns on investment, not indirect
measures, which is currently the case. Because the assessment is
built around a predictive capability model, recommendations to
improve in a specific factor area are clear. These recommendations help the company focus management action on human
capital processes that can, in turn, drive improvements.

BUSINESS RESULTS

Economic
Value Added

Tier 1

P/E Ratio

Sales Growth
2

Return on Capital

3
Tier 2

KEY PERFORMANCE DRIVERS

Productivity

Innovation

Quality

4.9

3.4

Customers
1.9

2.4
Tier 3

HUMAN CAPITAL CAPABILITIES

Workforce
Proficiency

Leadership
3.6

2.4

Workforce
Performance
3.3

Workforce
Adaptability

Employee Engagement
4.7

Human Capital
Efficiency
3.0

4.4
Tier 4

HUMAN CAPITAL PROCESSES

Competency
Management
3.3

Performance
Career
Appraisal
Development
3.0
4.3

Rewards and
Recognition
4.5

Employee
Relations

Recruiting

Succession Planning
Leadership Development

Human Capital Learning

Strategy
Management
4.4
2.8

3.5

3.7

4.1
Human Capital
Infrastructure

2.4

Knowledge
Management
3.9

Scores

Figure 9
16

Workplace
Design

Workforce
Planning

4-5
3-4
2-3
1-2

4.7

1.3
High
Low

NEXT STEPS IN HUMAN CAPITAL MANAGEMENT

To date, the Accenture Institute for High Performance Business
has completed development of the Accenture Human Capital
Development Framework and beta-tested it at a handful of
organizations. Accenture is now entering the second and most
challenging stage of the effort demonstrating empirically that
investments in human capital assets and processes affect a companys growth potential and its value to shareholders. Fortunately,
SAP has joined with Accenture in supporting the research,
engaging leading-edge companies in testing its promise, and
in furthering the cause of measurement in human capital management. This research alliance stands to improve the model and
to accelerate its integration with next generation HCM software.
Each new application of the Accenture Human Capital
Development Framework will expand our database of companyspecific information regarding all four key variables: human
resources practices, workforce capabilities, business outcomes,
and financial performance. This database will enable Accenture
and SAP to do something that has not been done before: to
rigorously and comprehensively link human capital capabilities
with business results.

In the absence of adequate data, it is difficult to imagine being

able to explain variations in financial performance using human
capital variables let alone predict a companys future financial
performance based on its current human capital capabilities.
Executives are painfully aware of the inadequacies of existing
techniques used to guide their investments in people. Tools such
as EVA, ROI, and EBIT tell them little or nothing about how an
organizations human assets are performing.
However, the Accenture Human Capital Development Framework offers executives, for the first time, a comprehensive tool
to assess human performance, to align HR and learning strategy
with business strategy, and to make human capital investments
that generate real business value. Supported by a growing database on human capital and shareholder value, the Accenture
Human Capital Development Framework promises to empower
an organization to diagnose its strengths and weaknesses in key
human capital practices. At the same time, it will prioritize
investments and track performance, and, ultimately, it will
empirically establish the link between human capital investments,
business practices, and shareholder value.

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