Unlocking the true value of human capital

A roundtable of HR directors hosted by Energy & Utility Skills found that utilities are in good shape when it comes to putting a proper value on people and skills – but there is much work ahead, says Nick Ellins.

As utility human resources directors sat down at the latest Energy & Utility Skills strategic roundtable at The Ivy in Birmingham last month, No 10 was announcing that it would be prioritising infrastructure as an engine for the UK economy, and it restated its faith in HS2.

Neither of these goals can be achieved without having the human capital to do the job – affordably – and their pursuit should ensure that the human resources leaders involved are heard and scrutinised at board level for some time to come. HR directors should be heard not just for what they do for skills and training as inputs, but also because HR is critical to the outputs of ensuring strategic corporate delivery.

The series of roundtables is entitled “As I Said To The Board” and is a collaboration between Energy & Utility Skills, Utility Week, and Network HR. Its aim is to stimulate the utilities sector to better recognise and talk about its human capital, and introduce experienced external experts to help explore the issues surrounding it.

What is human capital?

The first item on the agenda was what was meant by “human capital” in the first place.

It is a term abhorred by some outside the room, but increasingly governments, regulators, investors, regulated companies, and major supply chain partners – encouraged by trade unions – are accepting that workforce resilience and skilled human assets are what ultimately delivers strategy and financial returns. Discussions about human capital easily mirror those for financial capital, natural capital, and the rest.

The government has already told the Office of National Statistics (ONS) to develop a more sophisticated measure of human capital, as part of its efforts to grow the UK economy. In late 2019, the ONS launched an initial consultation, advising that it would be the first of several phases in what will now be a wider review of measuring, understanding and building human capital.

Network HR said that institutional investors are in the same space, with more than 130 organisations with a combined worth of more than $15 trillion under management, seeking a defined value for human capital, and increasing workforce disclosure.

Around the table sat pioneers for just such an approach.

One energy company in attendance – SSE – has set out clearly its belief that there are high returns to be had from investing in people. It has published a landmark report, Valuable People; Valuing SSE’s Human Capital, and another on the business rationale for inclusion, Valuing the Difference; It Pays to be Inclusive.

And one of the water companies present, Severn Trent Water, has laid its cards on the table by committing to build one of the first bricks and mortar utility academies. The initial input into building capital will deliver an inevitable rise in human capital. And not just for the company, but for other water companies and strategic partners.

One of the consensus points that emerged from those around the table was that these HR directors had pursued evidence-based approaches and their boards had accepted that evidence as robust and pivotal to corporate success.

Regulatory focus

More widely, Ofwat and Ofgem were recognised by attendees for delivering a welcome focus on human capital in the business and boardroom by enshrining workforce resilience as a requirement in the PR19 and RIIO2 price-setting methodologies.

The discussion progressed on to how human capital value can best be enhanced, such as by embedding inclusion and diversity. The pioneering Ignition Brewery, which employs people with learning difficulties, was sited as a particularly exciting example.

The commercial business case for having a diversity of perspectives in any organisation was recognised as inarguable, with global consultancy research showing empirical outperformance against non-diverse organisations, and consumer benefits from having a workforce that mirrors the community it serves.

A fascinating insight on the night was what to do when a company has a driving ambition to ensure diversity across all the main societal groups, but the community it serves and employs, is everything but that?

The two resulting questions were how to be genuinely inclusive (something that sounds easy but offers painful lessons from other industries) and how to best collaborate as a sector internally and externally.

The Energy & Utilities Skills Partnership Inclusion Commitment already counts 42 major utility businesses among its signatories. And going forward it will use the Royal Academy of Engineering audit mechanism to ensure that the pledge is not a mere “playing to the gallery”, as some initiatives unfortunately are, but a business-relevant initiative seeking to deliver and monitor change. If the whole UK sector works as one, it will succeed.

Diversity pays dividends

Insights were shared by attendees on the irrefutable benefits that diversity in the workforce brings. The employability of those with learning difficulties stood out as an inspiring case study. In addition to the obvious social value and personal wellbeing enjoyed by the individual employed, such recruits were also proving better outright performers, with a stronger mental focus, more reliable attendance records, and displaying attitudes and behaviours that most employers value.

This was no simple task either, with employer checks and balances put in at every stage and use of emotional intelligence paramount. The reality is that the end customers were happy and commercial business operations improved.

The roundtable ended with an uplifting declaration of the value of human capital diversity, as a water company and an energy supplier set out their clear and compelling beliefs in the vital role that their people – their human assets – play in delivering the strategies, business plans and ultimate sustainability of their future business models, and why they will be consciously investing in their capabilities and wellbeing.