How Can We Better Measure Employee Skills and Knowledge with a New HR Accounting Model?

The discipline of management is, among other things, the skill of translating accounting information into behavior. Where the knowledge and skills of employees are the principal asset of an organization, current key performance indicators rarely provide appropriate or relevant information and indeed may be misleading to management. Since managing the knowledge and skills of employees is the current organizational challenge (Handy, 1996), it is time that serious consideration is given to the development of measures that meet this challenge. This paper proposes a human resource accounting model that utilizes the balanced scorecard concept and seeks to strengthen its innovation and learning perspective. The aim is to provide information that allows management to monitor the performance of its human resources and also enables others to assess management's ability to nurture and augment the talent and accumulated knowledge of their organization's human resources. This model could be considered the beginning of Puxty's (1993) long road in search of a planning, control, and performance measurement system that accounts for the human element of an organization's intellectual assets.

The proposed human resource accounting model aligns with the Balanced Scorecard framework to enhance organizational performance measurement and management of intellectual assets. To implement this model effectively, organizations should consider the following steps:

1. Identify Key Human Resource Metrics: Determine the critical indicators that reflect the knowledge and skills of employees, such as training hours, employee turnover rates, and skill development assessments.

2. Integrate with Balanced Scorecard: Align the human resource metrics with the traditional financial and operational metrics in the Balanced Scorecard to create a comprehensive performance evaluation system.

3. Establish Data Collection Mechanisms: Implement systems to gather accurate data on human resource performance, ensuring the information is reliable and up-to-date.

4. Analyze and Interpret Results: Regularly analyze the human resource data in conjunction with other Balanced Scorecard metrics to derive meaningful insights into the organization's performance and areas for improvement.

5. Continuous Improvement: Use the findings from the human resource accounting model to drive continuous improvement initiatives, focusing on enhancing employee skills, knowledge, and overall organizational performance.

By adopting this integrated approach, organizations can effectively measure and manage their human capital, leading to improved decision-making and sustainable competitive advantage.