HR and learning and development (L&D) have come in for some serious criticism over the years, in terms of value for money. If I felt they needed defending I would suggest that managing people in organisations is a much more complex affair than most operational managers realise or are prepared to admit. Certainly HR administration can become very costly if not managed well.
It is not just the constantly changing landscape of employment legislation and employee rights or the shifting expectations of new generations of employees that make it so difficult. Managing human performance involves constantly re-tuning and re-balancing a problematic, employment relationship that comprises a complex mix of mutually-dependent, contractual rights, responsibilities and rewards. Most line managers I have ever worked with would love to be able to just get on with the task in hand without having to worry about any HR implications but it’s about time they accepted that they can’t. HR and L&D require careful thought and conventional auditing practice does not tell us whether they are managing people well. Furthermore, the audit profession at large has failed to acknowledge that human capital management represents a new and special case requiring a fresh perspective.
To put this assertion to the test I wrote a letter to several international, auditing journals last year asking their readers how they audit training spend. This elicited several replies, all of which took my enquiry seriously and offered very professional, considered and constructive suggestions but none of them acknowledged that the advent of human capital management poses a different set of questions. Almost hidden within the detail of their answers though were two unshakeable principles of auditing philosophy.
- All organisational objectives – that means HR and learning objectives as well – have to be seen to be contributing to the main corporate objectives and
- All objectives have to be measured in terms of financial impact
Trying to apply these principles in a world where ‘intangibles’ are now accepted as having a significant, albeit indeterminate, value is proving to be a real auditing challenge. This extract from one auditor’s response clearly illustrates how accountants themselves are struggling with this: -
“Unfortunately many accountants have not been trained in the setting of non-financial objectives and are used to defining objectives in qualitative rather than quantitative terms, e.g. the best xxx, the biggest yyy, more effective zzz, etc. The setting of non-financial objectives can, despite the best of intentions, soon become a game in which the participants revert to the old practices at the first opportunity. It can take several cycles of the planning process before the setting of quantitative objectives becomes the accepted norm. The absence of objectives expressed in measurable terms is itself a significant audit finding and associated recommendations may have to be repeated over 3-5 years before they are fully implemented.”
This also describes perfectly what has been happening to HR and L&D practitioners who have yet to accept that they need better measures of what they do. Whereas evidence-based HR and L&D professionals have no problem adopting the auditors’ most cherished principles. If we insert the words ‘human capital’ for ‘xxx’ and ‘zzz’ why shouldn’t we be asked whether we have evidence that we helped the organisation to acquire the ‘best’ human capital or managed it to ‘best effect’? If we do not take this challenge on ourselves then we will have to suffer auditors judging us with their conventional methods. Auditing bodies, such as the UK’s National Audit Office, still try to shoehorn HR ‘auditing’ into their traditional methods by measuring what they can, activity and inputs, rather than what matters – value added.
This inevitably produces meaningless numbers such as ‘the number of HR people per 100 FTE’s’, ‘the number of training days per year’ or ‘the average cost of training’. The NAO might try to convince themselves that these are indicators of “the organisation’s commitment to enhancing its capacity to deliver and improve” but they know only too well that illogical thinking produces absurd conclusions. If spending = commitment then why not seek 100% commitment by spending 100% of employee time on training?
Auditors are not stupid people, far from it, but when their tools are just not sophisticated enough for the modern job required we can only expect them to start hitting everything with the same hammer. In doing so their legendary, sharp-eyed and equally sharp-pencilled cost-cutting logic becomes twisted and distorted under the strain imposed by trying to audit human beings. This leads them to develop at once both a fallacious and contradictory view of HR and L&D – as a ‘necessary evil’ cost that is also a positive sign of commitment: they cannot be both at the same time.
Do finance and auditing departments have an equally fixed idea of the perfect ratio of accountants and auditors for each 100 FTE’s? If so, do they automatically assume that a lower ratio is good news or can they for once allow their intelligence some room for manoeuvre and admit it really depends on how much value their auditing ability adds? If Arthur Andersen auditors had spent more time using their brains and doing their job properly, instead of shredding evidence, maybe Enron and even Andersen would still be around today?
Perhaps those of us in EB-HR and EB-L&D, who base everything we do on evidence of organisational impact, could teach auditors a thing or two about what indicators are necessary to assess the real value of great human capital management?
