Burgess COMMENTARY

Peter Burgess

The Hidden Value of Human Capital 'As industrialised economies have moved to knowledge based economies, businesses have invested accordingly, but accountancy tools and investor mindsets have lagged the changes' Helena Morrissey, Chief Executive, Newton Investment Management About this survey This survey is the first stage of a project aimed at developing a reliable and valid approach to assessing the value of human capital in medium sized organisations, typically during the undertaking of due diligence. The questionnaire asks investment analysts/advisors about which data on human capital they would find helpful when assessing an organisation. It also includes associated intangibles which interact with human capital and may influence its value. Potentially supporting your charity of choice Respondents who supply their contact details at the end of the survey will be sent the results, and, if requested, will be updated on progress at the end of each project milestone. Names supplied will be entered into a lottery and £100 or equivalent in dollars / euros will be sent to the winner's charity of choice. After the survey The subsequent stages of the project will involve consulting organisations on the practicalities of supplying data; developing an instrument and determining both its reliability and validity. How long will it take? It has 50 issues to be rated and has been designed to be completed in between 15 - 20 minutes, depending on the level of commentary you choose to include. Who is organising the survey? The approach is being designed and developed by Peter Fargus under the supervision of Professor John Sparrow and Dr. Martyn Brown of Birmingham City Business School. Peter is a Fellow of the Chartered Institute of Personnel and Development; a Fellow of the Institute of Consulting; a Fellow of the Higher Education Academy and an Associate Fellow of the British Psychological Society. He can be contacted at the following email address: peter.fargus@mail.bcu.ac.uk

The Hidden Value of Human Capital Here some basic information is requested. This will enable your responses to be placed in context. A A. Where did you hear of this survey? Through PwC Alumni Through your professional network Through personal contact from the Researcher Other (please specify) B B. Please indicate your professional qualification(s) (select all that apply) Accountancy Legal Finance Banking Other (please specify) C C. Please indicate which age group you belong to up to age 30 31 to age 50 age 51 and above D D. Your gender Male Female E E. Please indicate the countries in the British Isles in which you practice (select all that apply) England Eire Scotland Northern Ireland Wales Channel Islands / Isle of Man F F. Please indicate any other Regions in which you practice (select all that apply) Africa Australia/New Zealand Far East Mainland Europe North America Middle East South America

The Hidden Value of Human Capital Your initial viewpoint You can skip this part of the survey, if short of time, by selecting the button below. However, it would be useful to understand your views on Human Capital before 'putting words into your mouth' Please outline below the three most important pieces of information you would like to have about Human Capital when assessing a Medium Sized Enterprise (MSE), for example when undertaking due diligence. For the purpose of this survey, an MSE is defined as a company with a head count of 50 to 250. Assume you already collect enough information about the owner(s) and senior management team. 1. 2. 3. By all means add any further comment here if you judge that to be appropriate

The Hidden Value of Human Capital For the purpose of this research, the following definitions and assumptions have been used: You can skip this page too because definitions are repeated in the survey. Medium Sized Enterprises (MSEs): the project is restricted to organisations employing between 50 and 250 people. Data requested: wherever feasible data generated objectively has been specified. The data should be able to be verified by subsequent discussion. Intangible assets (also termed Intellectual Assets or Knowledge Assets): an identifiable non-monetary asset without physical substance. Intellectual property: Intangible assets which are protected in law. It is assumed that this aspect of Intangibles is already incorporated into due diligence practices and so is excluded from this survey. Competence: the knowledge, skills and experience needed to perform effectively at work. Commitment: the ongoing willingness to contribute to achieving agreed objectives. Adaptability: the ongoing willingness and ability to react positively to changing circumstances. Human Capital: the combination of people's competence, commitment and adaptability that enables an organisation to meet its objectives. It is assumed that legal issues such as contracts of employment are already incorporated into due diligence practices and so are excluded from this survey. Organisational Capital: represents the organisation of work activities, together with how well knowledge (e.g. practices, procedures, know-how, etc) is captured, shared and monitored. Relationship Capital: represents the networks of stakeholders that influence the survival of an MSE (e.g. investors, customers, partners, suppliers, employees, local community).

The Hidden Value of Human Capital HUMAN CAPITAL : COMPETENCE This data aims to reflect the combination of knowledge, skills and experience within a workforce. Please record your views by clicking the part of the rating scale which best represents your viewpoint. Secondly, for each item, indicate whether or not it is currently included in your assessments. State 'yes' if so; leave blank if not. In making an assessment of an MSE, for example undertaking due diligence, in my opinion ... An absolute must Of high interest Of moderate interest Nice to have Of no interest Q1. Information detailing the composition of the workforce (e.g. age range; male/female ratio; ethnicity) is ... Already included in your assessments? Q2. Workforce composition broken down by organisational roles/levels (e.g. male/female ratio at senior management level) is ... Already included in your assessments? Q3. Knowledge and skills of the workforce (e.g. educational levels 1-8) is ... Already included in your assessments? Q4. Experience of the workforce (e.g. length of time in current roles ) is ... Already included in your assessments? Q5. The number of people in management, or occupying critical roles, who have successors formally identified within the organisation is ... Already included in your assessments? Q6.The frequency of use of contingent workforce (e.g. contractors/agency/consultancy) is ... Already included in your assessments? If you would like to clarify any of your responses or suggest any other data that would be useful under this component, please do so here

The Hidden Value of Human Capital HUMAN CAPITAL : COMMITMENT This data aims to identify the ongoing willingness of employees to contribute to achieving agreed objectives. Please record your views by clicking the part of the rating scale which best represents your viewpoint. Secondly, for each item, indicate whether or not it is currently included in your assessments. State 'yes' if so; leave blank if not. In making an assessment of an MSE, for example undertaking due diligence, in my opinion ... An absolute must Of high interest Of moderate interest Nice to have Of no interest Q7. Evidence of defensible pay & benefits levels and differentials is ... Already included in your assessments? Q8. The level of overall employee turnover is ... Already included in your assessments? Q9. The level of employee turnover broken down by role is ... Already included in your assessments? Q10. The number of formal grievances over the last 3 years is ... Already included in your assessments? Q11. Understanding the loss of output due to disputes over the last 3 years is ... Already included in your assessments? Q12. Levels of absence due to sickness or unauthorised non-attendance are ... Already included in your assessments? If you would like to clarify any of your responses or suggest any other data that would be useful under this topic, please do so here

The Hidden Value of Human Capital HUMAN CAPITAL : ADAPTABILITY This data aims to identify the employees' ongoing willingness and ability to react positively to changing circumstances. Please record your views by clicking the part of the rating scale which best represents your viewpoint. Secondly, for each item, indicate whether or not it is currently included in your assessments. State 'yes' if so; leave blank if not. In making an assessment of an MSE, for example undertaking due diligence, in my opinion ... An absolute must Of high interest Of moderate interest Nice to have Of no interest Q13. Evidence of attempts to update know-how in line with changing circumstances is ... Already included in your assessments? Q14. The number of vacancies filled through internal appointments (sideways moves & promotions) over the last 3 years is ... Already included in your assessments? Q15. The number of vacancies filled through external appointments over the last 3 years is ... Already included in your assessments? Q16. The number of times individuals have moved roles in order to gain more/different experiences over the last 3 years is ... Already included in your assessments? Q17. Understanding how a given organisation's strategy could influence the adaptability of the workforce (e.g. focusing on innovation or agility in the market place) is... Already included in your assessments?

The Hidden Value of Human Capital HUMAN CAPITAL : ADAPTABILITY cont/d ... This data aims to identify the employees' ongoing willingness and ability to react positively to changing circumstances. Please record your views by clicking the part of the rating scale which best represents your viewpoint. Secondly, for each item, indicate whether or not it is currently included in your assessments. State 'yes' if so; leave blank if not. In making an assessment of an MSE, for example undertaking due diligence, in my opinion ... Absolute must Of high interest Of moderate interest Nice to have Of no interest Q18. Knowing the key changes over the last 3 years (e.g. relating to changes in the products/services supplied; changes in supplier/supplies; changes in customer behaviour;) is... Already included in your assessments? Q19. Understanding the factors most likely to initiate change over the foreseeable future is... Already included in your assessments? If you would like to clarify any of your responses or suggest any other data that would be useful under this component, please do so here

The Hidden Value of Human Capital RELATIONSHIP CAPITAL : the extent and strength of organisational relationships with internal (employees) and external stakeholders (e.g. customers & suppliers) This data aims to identify, apart from the senior management team, who else in the organisation is key to initiating / maintaining external relationships. Please record your views by clicking the part of the rating scale which best represents your viewpoint. Secondly, for each item, indicate whether or not it is currently included in your assessments. State 'yes' if so; leave blank if not. In making an assessment of an MSE, for example undertaking due diligence, in my opinion ... This data aims to establish the nature and strength of external relationships An absolute must Of high interest Of moderate interest Nice to have Of no interest Q20. Evidence of monitoring those factors most likely to initiate change in the next 3 years is... Already included in your assessments? Number and seniority of key internal contracts relating to ... Q21. Regulatory stakeholders (e.g. health & safety executive) is... Already included in your assessments? Q22. Controlling stakeholders (e.g. some customers, investors) is... Already included in your assessments? Q23. Dependent stakeholders (e.g. some suppliers) is... Already included in your assessments? Q24. Knowledge rich agencies (e.g. Universities) is... Already included in your assessments? Q25. Understanding the nature and strength of communication channels between external stakeholders and employees at different levels of an organisation (e.g. supervisors; salespeople) is... Already included in your assessments? dividing line

The Hidden Value of Human Capital RELATIONSHIP CAPITAL : cont/d ... This data aims to identify, apart from the senior management team, who else in the organisation is key to initiating / maintaining external relationships. Please record your views by clicking the part of the rating scale which best represents your viewpoint. Secondly, for each item, indicate whether or not it is currently included in your assessments. State 'yes' if so; leave blank if not. In making an assessment of an MSE, for example undertaking due diligence, in my opinion ... This data aims to establish the nature and strength of internal relationships Absolute must Of high interest Of moderate interest Nice to have Of no interest Q26. Understanding the nature and strength of communication channels from the senior management team to all employees is... Already included in your assessments? Q27. Understanding the nature and strength of communication channels between employees in different organisational units is... Already included in your assessments? Q28. Understanding the nature and strength of communication channels from employees to the senior management team (employee voice) is... Already included in your assessments? Q29. Evidence of effective wellbeing policies (e.g. addressing mental health/ musculoskeletal issues) is... Already included in your assessments? Q30. Evidence of meeting relevant regulatory requirements relating to people (e.g. working time directive) is... Already included in your assessments? If you would like to clarify any of your responses or suggest any other data that would be useful under this component, please do so here

The Hidden Value of Human Capital ORGANISATIONAL CAPITAL : the way an organisation is structured and operated in order to influence employee contribution to achieving objectives This data aims to establish how work is organised and how well knowledge is captured, shared and monitored. Please record your views by clicking the part of the rating scale which best represents your viewpoint. Secondly, for each item, indicate whether or not it is currently included in your assessments. State 'yes' if so; leave blank if not. In making an assessment of an MSE, for example undertaking due diligence, in my opinion ... An absolute must Of high interest Of moderate interest Nice to have Of no interest Q31. Evidence of systematic activities encompassing environmental scanning; innovation and agility is... Already included in your assessments? Q32. Understanding the thinking behind the number of organisational levels in relation to strategy is... Already included in your assessments? Q33 . Understanding how the activities of different organisational units are co-ordinated is... Already included in your assessments? Q34. Establishing at which level(s) the organisation monitors and controls the quality and quantity of output (empowerment) is... Already included in your assessments? Q35. Establishing that there is a formal employee handbook or manual covering people management practices (e.g recruitment, induction, grievances etc) is... Already included in your assessments? Q36. Establishing that formally established business practices/ processes have been captured (e.g. a procedures manual) is... Already included in your assessments? If you would like to clarify any of your responses or suggest any other data that would be useful under this component, please do so here

The Hidden Value of Human Capital ORGANISATIONAL CAPITAL : cont/d ... This data aims to establish how work is organised and how well knowledge is captured, shared and monitored. Please record your views by clicking the part of the rating scale which best represents your viewpoint. Secondly, for each item, indicate whether or not it is currently included in your assessments. State 'yes' if so; leave blank if not. In making an assessment of an MSE, for example undertaking due diligence, in my opinion ... An absolute must Of high interest Of moderate interest Nice to have Of no interest Q37. Establishing that there are formal procedures for planning, monitoring and assessing employee performance is... Already included in your assessments? Q38. Understanding the extent to which the organisation relies on co-operation from partners (organisations or individuals) which exist independently is... Already included in your assessments? Q39. Understanding how knowledge within the organisation is created / shared / monitored / applied is... Already included in your assessments? If you would like to clarify any of your responses or suggest any other data that would be useful under this component, please do so here

The Hidden Value of Human Capital HUMAN CAPITAL COSTS/INVESTMENTS This data enables the calculation of ratios which can be compared between organisations (e.g revenue per employee). Please record your views by clicking the part of the rating scale which best represents your viewpoint. Secondly, for each item, indicate whether or not it is currently included in your assessments. State 'yes' if so; leave blank if not. In making an assessment of an MSE, for example undertaking due diligence, in my opinion ... An absolute must Of high interest Of moderate interest Nice to have Of no interest Q40. Establishing the cost of fixed pay is... Already included in your assessments? Q41. Establishing the cost of variable pay (e.g bonuses) is... Already included in your assessments? Q42. Establishing the cost of equity based reward (e.g direct equity; phantom equity; share schemes) is... Already included in your assessments? Q43. Establishing the cost of benefits (e.g life insurance; health insurance; loans) is... Already included in your assessments? Q44. Establishing the cost of contingent pay (e.g. agency employees; consultancy support; contractors) is... Already included in your assessments? Q45. Establishing the cost of pension liabilities is... Already included in your assessments? If you would like to clarify any of your responses or suggest any other data that would be useful under this component, please do so here

The Hidden Value of Human Capital HUMAN CAPITAL COSTS/INVESTMENTS cont/d ... This data enables the calculation of ratios which can be compared between organisations (e.g revenue per employee). Please record your views by clicking the part of the rating scale which best represents your viewpoint. Secondly, for each item, indicate whether or not it is currently included in your assessments. State 'yes' if so; leave blank if not. In making an assessment of an MSE, for example undertaking due diligence, in my opinion ... An absolute must Of high interest Of moderate interest Nice to have Of no interest Q46. Establishing the cost of maintaining/improving knowledge and skills (e.g. through training, development,conference attendance, benchmarking etc.) is... Already included in your assessments? Q47. Establishing the cost of travel and entertainment is... Already included in your assessments? Q48. Accessing details of investment in standards such as Investor in People / Business Excellence / Baldrige Award is... Already included in your assessments? Q49. Accessing results of investment in in employee opinion surveys is... Already included in your assessments? If you would like to clarify any of your responses or suggest any other data that would be useful under this component, please do so here

The Hidden Value of Human Capital SUPPLEMENTARY - IMPACT ON ACCESSING THE DATA 50. Q50. Assuming most of the data I have rated as 'a must' or 'of high interest' were to be available, it would vary my assessment of organisational value (higher or lower) as follows ... 0% up to 10% up to 20% up to 30% up to 40% 50% or more do not know