GTE’s attention to human capital accounting allows it to quickly address major and minor personnel problems. For example, says Walker, the system allows GTE to monitor churn in its customer-service call center. “It costs us a tremendous amount of money to get [these employees] trained,” says Walker. “And it’s extremely important that we keep highly qualified people in those jobs. We want to get our return on investment.”
With the information derived from its scorecard, GTE can quickly determine what kinds of call-center employees are turning over — the new recruits with 1 to 3 years of experience or employees with more than 10 years at GTE. Armed with that knowledge, says Walker, HR can identify the causes of defections and devise solutions “to stop the drain of talent.”
Of course, remedying human capital problems isn’t a guarantee that corporate performance will improve. Take the example of Sears, which has experienced problems in retail sales over the past couple of years and has suffered huge credit-card loan losses. In 1995, a study to assess whether Sears was a compelling place to work, shop, and invest determined that a force driving financial performance was employee satisfaction. For example, sales per square foot could rise as much as 17 percent when employees had responsive managers, access to training, and flexible working conditions.
Like A.C. Nielsen, Sears tied top-management bonuses to human capital results: one-third for employee satisfaction measures, one-third for customer-satisfaction measures, and one-third for increasing sales or earnings results. “The things we do to make Sears a compelling place to work” result in more satisfied customers, says Steven Kirn, vice president of innovation and organizational development.
For Sears, these efforts have not been enough to compensate for aggressive competition from discount chains, such as Target Corp. In the fourth quarter of 1999, Sears’s same-store sales — a key measure of retail performance — increased only 2.4 percent at a time when many other competitors posted increases of 5 percent to 9 percent. Says Kirn, “If your business design is wrong, you can do all the cheerleading of employees you want; it isn’t going to get you where you need to be.”
Facing the Flaws
Not only are human capital efforts vulnerable to outside influences, but taken in isolation, the measures are also sometimes misleading. For example, GTE measures how long it takes to fill a position. But there’s a cost to the company if it brings in the wrong people. At one business unit, the cycle time to fill a position dropped dramatically, but the cost of training went through the roof and customer satisfaction fell because the company churned employees.
Analysis revealed that the business unit had been hiring through temporary agencies and job banks, often finding applicants who were ready to start quickly but were harder to train and keep. It was a bad trade-off. “It made sense to accept a longer cycle time and more cost to ensure the right person was put in the job,” says Walker.