HUMAN CAPITAL

MANAGEMENT
A MEASUREMENT BREAKTHROUGH ON THE HORIZON
SAP White Paper
mySAP ERP Human Capital Management

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2
Robert J. Thomas, Thomas H. Davenport, and Patricia Fletcher - Accenture and SAP
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
3
CONTENTS
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 inte-
gration 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.
EXECUTIVE OVERVIEW
4
5
Todays global business climate is marked by extreme geopolitical
and economic uncertainties. Global market acceleration is forc-
ing businesses to respond to customers faster than ever with
value-added products and services, while they struggle to main-
tain 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 organiza-
tions 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.
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.
INTRODUCTION
Figure 1
To a great extent
2%
Not at all
14%
To a minimal
extent
40%
To a modest
extent
30%
1. Attracting and retaining
skilled staff
2. Increasing customer care
and service
3. Improving workforce
performance
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
Survey of 189 senior financial executives conducted
by CFO Research Services in fall 2002.
Figures are % of respondents
To a considerable
extent
14%
WHAT ARE YOUR TOP
STRATEGIC PRIORITIES
FOR 2003?
TO WHAT EXTENT DO YOU KNOW THE
RETURN ON YOUR AGGREGATE
INVESTMENTS IN HUMAN CAPITAL?
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.
In discussing a solution to the absence of metrics, those same
executives pointed to three sources of pressure to create such
a solution:
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 out-
sourcing 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.
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.
THE PARADOX OF HUMAN CAPITAL MANAGEMENT
6
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 cost-
effective ways.
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 indis-
putable proof documenting the link between employee engage-
ment, human capital management practices, intermediate busi-
ness outcomes, and total shareholder return. Of importance to
managers is the fact that the academic literature lacks the gran-
ularity and the operational focus needed to help them decide
precisely where to invest their limited time and money to maxi-
mum benefit.
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
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.
but, they have yet to link this data with shareholder value.
Perhaps this is because they do not collect the data on opera-
tional 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 share-
holder value.
7
Figure 2
* 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
100 BEST (2001) VS. S&P 500
10%
15%
20%
25%
30%
35%
40%
5%
0%
ANNUALIZED STOCK MARKET RETURN
18%
36%
18%
33%
11%
30%
Source: FORTUNE, January 8, 2001
100 Best S&P 500
10 Year 5 Year 3 Year
D
e
c
-
9
6
D
e
c
-
9
7
D
e
c
-
9
8
D
e
c
-
9
9
D
e
c
-
0
0
D
e
c
-
0
1
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
100,000
KAM*
S&P 500
125,000
75,000
50,000
25,000
P
O
R
T
F
O
L
I
O

V
A
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U
E

(
$
)
Again, however, correlation does not mean causality: the ability
of profitable companies to provide better pay and amenities than
their competitors may lead employees to blur engagement
which connotes involvement and superior contribution with
pay satisfaction.
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;
Interviews with senior HR executives, CFOs, business unit finan-
cial directors, and financial analysts yield two recurring themes
regarding the measurement of human capital investments on
financial performance.
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.
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.
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, execu-
tives 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 organiza-
tion to acquire, develop, and retain employees with those skills.
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
want to assess the people-related risks associated with new tech-
nologies: 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 organiza-
tional restructuring, and in coping with game-changing external
THE NEED FOR MEANINGFUL AND USEFUL MEASUREMENTS
8
Figure 3
Total Return to
Shareholders
(TRS)
Spread
Operating
Margin
Capital
Efficiency
Weighted
Average Cost of
Capital (WACC)
Return on
Invested Capital
(ROIC)
Growth
Organic Growth
Growth Through
M&A
CUSTOMER
SATISFACTION
INNOVATION
PRODUCTIVITY
QUALITY
HUMAN
CAPITAL
9
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 meas-
urement 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 right-
hand side is familiar to the HR community. If people are our
most important asset becomes anything more than manage-
ment 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 innova-
tion, 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 inno-
vate, 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.
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 pro-
duction, and the other seeks to enrich customers experience
and enhance customer satisfaction. Nevertheless, in the case of
International Paper and Harrahs Entertainment, senior execu-
tives 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 com-
bination 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.
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 organi-
zations business objectives.
PRACTICAL EXPERIMENTATION IN ENTERPRISING COMPANIES
10
Figure 4
Level 3:
Leading
Change
Level 2:
Building
Capability
Level 1:
HR
Fundamentals
Level 3 HR Goals:
Strategic business partner
Driving culture change
Helping create the new
business model
Level 1 HR Goals:
Administrative excellence
Employee champion
Increasing service at reduced
cost
2002
2001
Level 2 HR Goals:
Developing leadership talent
Linking performance man-
agement to business results
Engaging employees
Change leadership
Time
11
Figure 5
40
60
80
100
20
0
Gallup Employee Engagement Scores
Middle 50% Top 25% Bottom 25%
Return on Productivity Safety
Investment Improvement (2001)
(2001) (2001)
Percent
of results
achieved by
top quartile
facilities
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 pos-
sible 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 sup-
port 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 opera-
tional outcomes, like safety, productivity, and return on invest-
ment. The results have been very positive (see Figure 5). Those
facilities (usually pulp mills and conversion plants) with high-
employee 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 per-
formance, 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.
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 satisfac-
tion. The results have been impressive: over the past three years,
Harrahs operating margins, as well as its total return to share-
holders, have outpaced competitors and the market as a whole.
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.
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 can-
not 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.
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.
12
Figure 6
GREAT SERVICE
CUSTOMER SATISFACTION
CUSTOMER LOYALTY
GROWTH SHARE OF WALLET
SAME STORE SALES
OPERATING INCOME
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 satis-
faction 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 deter-
mine which activities in employee recruitment, compensation,
training, supervision, and evaluation most directly affect how
well employees perform in those moments of truth.
13
Figure 7
Management
Accountability
Service Standards
and Productivity
BEFORE DURING AFTER
Full
Capacity to
Serve
Great
Service
Experience
Service Delivery
Measures
HR Processes
Staffing
Forecasting
Scheduling
Customer
Satisfaction
Revenue/
Profit
Customer
Dissatisfaction
Service
Recovery or
Defections
Focus Behavior Measures Work Environment
14
Using the background research on organizations like Interna-
tional 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.
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 reten-
tion, 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 compe-
tency management and performance appraisal, and broader
human capital processes, such as learning and knowledge
management.
ACCENTURE HUMAN CAPITAL DEVELOPMENT FRAMEWORK
15
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 invest-
ments, 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 multi-
dimensional 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
Figure 8
BUSINESS RESULTS Tier 1
KEY PERFORMANCE DRIVERS
HUMAN CAPITAL CAPABILITIES
HUMAN CAPITAL PROCESSES
Economic
Value Added
Sales Growth P/E Ratio Return on Capital
Productivity Quality Innovation Customers
Leadership
Workforce
Proficiency
Workforce
Performance
Employee Engagement
Competency
Management
Career
Development
Performance
Appraisal
Succession Planning
Leadership Development
Rewards and
Recognition
Employee
Relations
Human Capital
Strategy
Learning
Management
Recruiting Workforce
Planning
Workplace
Design
Knowledge
Management
Human Capital
Infrastructure
Workforce
Adaptability
Human Capital
Efficiency
Tier 2
Tier 3
Tier 4
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 recommenda-
tions help the company focus management action on human
capital processes that can, in turn, drive improvements.
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 repre-
sents 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.
16
Figure 9
BUSINESS RESULTS Tier 1
KEY PERFORMANCE DRIVERS
HUMAN CAPITAL CAPABILITIES
HUMAN CAPITAL PROCESSES
Economic
Value Added
Sales Growth P/E Ratio Return on Capital
Productivity Quality Innovation Customers
Leadership
Workforce
Proficiency
Workforce
Performance
Employee Engagement
Competency
Management
Career
Development
Performance
Appraisal
Succession Planning
Leadership Development
Rewards and
Recognition
Employee
Relations
Human Capital
Strategy
Learning
Management
Recruiting Workforce
Planning
Workplace
Design
Knowledge
Management
Human Capital
Infrastructure
Workforce
Adaptability
Human Capital
Efficiency
Tier 2
Tier 3
Tier 4
3 4 3 2
4.9 1.9 2.4 3.4
3.6 3.0 4.7 4.4
4.1 4.7
1.3
3.9
2.4 2.8
2.4
4-5 High
Scores 3-4
2-3
1-2 Low
3.3
3.3
3.0 3.5 3.7
4.3
4.4 4.5
17
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 com-
panys 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 company-
specific 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 capa-
bilities. 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 Frame-
work 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 data-
base 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.
NEXT STEPS IN HUMAN CAPITAL MANAGEMENT
18
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