The true value of measuring human capital
If you were a potential investor looking at the pros and cons of putting your money behind a particular company, you’d want to look at their books and the value of their assets – you’d probably think of the physical assets, and the intellectual property.
But what about the people? After all, a company’s value is primarily driven by the people who work there. A company could own a lot of valuable assets and have a healthy balance sheet – but without a well-trained, skilled and motivated workforce, it will stand still.
Our investor relations team in the past 12 months has taken around 2,500 questions from investors; 24% were about group strategy (and rightly so); 15% were about political and regulatory risk. But a mere 1% were people related – and mostly about senior management.
In other words, when investors look at the value of our company, SSE, questions about our employees are few and far between. Part of the reason for this could be the fact that there has been precious little evaluation work up until now on analysing the ‘value’ of a workforce. But now the concept of ‘human capital’ is starting to change all that.
As a company, our human capital is made up of the productive capacity of all the people we employ – their combined talent, skills and knowledge.
This is what enables our organisation to function and thrive, from the engineers operating our power stations to the customer service advisers in our call centres.
We believe that we were the first company in the UK to measure and put a monetary value on this important resource; generating a number we can actually crunch and use to develop future people investment strategy. It can also illustrate the economic value that our training programmes generate for our trainees, our company and society.
We are conscious that we borrow our human capital from society, and the research demonstrates that the longer we keep people and the more we invest in them, the greater the value that is generated. And that value is not simply SSE’s value, from which investors obviously benefit – it is value that is shared with the individual and society too.
From my perspective, this work shines a light on value and investment in a way that I’ve not seen before. And it supports a mind-set about a modern, sustainable model of employment. Creating pipelines of talent, recruiting from the communities we serve, investing in skills – and, importantly – aiming to appoint around 80% of our most senior managers from within.
In case you’re wondering what the number came out as, it was £3.4 billion, which confirms what we knew all along: that our people are one of the most valuable assets that our company has.
Should this matter to investors? I believe it should. Yes, investors should always be able to look at the physical assets we own, such as our power stations and wind farms, when deciding if we’re a good company to put their money into. But now they can also look at how we value our people and how we are investing in growing this resource.
There is a lot of room for investors and shareholders to spend a bit more time analysing how companies build, maintain and expand their human capital. It is the extent of the ability, talent, knowledge and skills of people in companies like SSE that ultimately determines their capacity to deliver returns for shareholders.
We value our employees highly and we’re sure others will too. Hopefully we can encourage investors to ask companies what they are doing to develop and invest not only in their physical assets, but also in their people.
A version of this article appeared in HR Magazine.