Frank DiBernardino is the founder of Vienna Human Capital Advisors and has more than 30 years of experience as a senior human resources advisor. Recognized as a trusted advisor to executive management, Frank has deep expertise and vast experience in human capital strategic planning for large and mid-size organizations. He is skilled in helping client organizations link rewards (compensation and benefits) to organizational objectives, maximize the value of their investment in people, and craft customized solutions to unique problems. DiBernardino’s background includes strategic planning, client relationship management, consulting practice leadership, labor negotiations, underwriting, staff development and line management. Prior to forming Vienna, DiBernardino was a principal at Mercer. He served as the national practice leader in both the Health & Welfare and Flexible Compensation practices. During his career, Frank has developed sophisticated strategic planning tools to enable clients to reliably measure the financial impact of benefit strategy alternatives. Frank serves on the Society for Human Resource Management (SHRM) Measures and Metrics Task Force focusing on HR indicators that will demonstrate human capital value in investor instruments. Frank has also served on the Board of Directors of the American Benefits Council and the Employers Council on Flexible Compensation.
Davide de Palma : What is Human Capital Analytics?
Frank DiBernardino : Human Capital analytics is the process of measuring and analyzing the investment in human capital (people). Measuring identifies how well the investment in human capital is performing. The analysis identifies the changes necessary in human capital strategy that will continuously improve the return on the human capital investment, thereby enhancing the economic value of the business enterprise.
Davide de Palma : Why it is important to calculate the financial performance of the Human Capital?
Frank DiBernardino : For decades, common HR metrics such as turnover rates, costs per hire and per FTE numbers have been have been woefully insufficient as business investment measurement tools. While HR continues to measure disjointed efficiencies, decision makers really want a measure of effectiveness, such as ROI, to gauge the impact of human capital (HC) investments on enterprise-level value.
In the “Strategic HR Management Survey Report,” HR professionals identified their most prevalent barrier to making effective contributions in the workplace as “the inability to directly measure HR’s impact on the bottom line” and a lack of “an established method for measuring the effectiveness of HR strategy through metrics and analytics.” Likewise, a 2011 report surveying 720 companies concluded that the single biggest challenge of the HR function is measuring HR programs in financial terms.
By measuring the effectiveness of the human capital investment, CEOs will get the information they want and HR will have the information it needs to drive human capital strategy decisions that will lead to increased enterprise value.
Davide de Palma : How does a company maximize the efficiency of human capital?
Frank DiBernardino : Two types of investments drive business results: human capital and financial capital. While financial capital (cash) is the lifeblood of the business, it is human capital, the body through which the lifeblood flows, that deploys the cash, and ultimately determines whether the deployed cash increases or destroys the value of the business enterprise.
Productivity is the measure of efficiency.To maximize the efficiency of human capital, an organization must accurately measure Productivity of the human capital (people), and understand the factors that drive the level of Productivity. We define human capital productivity as the revenue added, after raw material costs. The formula Vienna has devleoped and patented is: Revenue, less Raw Material Costs; divided by Human Capital & Financial Capital Costs. Once an organization has determined its level of human capital Productivity, it then has a benchmark against which it can measure progress.
To maximize the Productivity of the human capital investment, companies need to continuously monitor and analyze the results, and regularly adjust some or all aspects of the human capital strategy (Talent, Rewards, Culture & HR Services) to drive higher levels of Productivity. In short, the process is:
- Regularly measure, dissect and analyze the human capital ROI and Productivity formula elements to understand the factors driving results,
- Analyze HR metrics that will help identify the people issues driving the ROI and Productivity results,
- Probe, in collaboration with business managers, the factors driving the financial results and identify the human capital strategy changes necessary to continuously improve Productivity, Human Capital ROI and overall business performance,
- Write the story that explains why the results are the way they are, the changes necessary to improve the results, and the resources required (people, time and money) to fully develop and implement the solutions.
- Get CEO’s and business leaders approvals to execute
Davide de Palma : What is the Vienna Human Capital Index™?
Frank DiBernardino : The Vienna human Capital Index measures the ROI, Productivity and Liquidity of the human capital investment. Human Capital ROI is the measure CEOs and boards are most interested in. Productivity drives ROI (the higher the productivity, the higher the ROI) and Liquidity, what Vienna calls Profit Sensitivity, protects the profits of the business. These are the three components of the Vienna Human Capital Index™.
Davide de Palma : How is it made up the Vienna Index?
Frank DiBernardino : As stated above, the Vienna Index consists of a set of metrics that measures the financial performance of a company’s investment in human capital. The human capital investment consists of employee costs (salaries, bonuses, benefits and payroll taxes), costs in support of employees (the variable or incremental costs a company incurs to support its employees), and costs in lieu of employees (costs associated with independent contractors and outsourcing).
To measure ROI, the Vienna developed, patented formula is EBITDA, less financial capital costs, divided by the human capital investment. In the world of finance, this type of formula is known as a values-added formula. Financial capital costs consist of interest, depreciation, amortization and cost of equity.
To measure Productivity, the formula is as explained above.
Liquidity measures the ratio between profit-driven incentive compensation and a profit goal for the company. The Liquidity metric is a corollary of the acid test, but with a laser focus on the organization’s compensation structure. The formula’s premise is that incentive compensation is the most agile tool a business can use to protect its profitability. A high Liquidity value shows that incentive compensation can help maintain a stable earnings pattern, thereby protecting the value of the enterprise. The formula is Profit- driven incentive compensation plan divided by EBITDA plan.
These formulas have been developed in collaboration with and vetted by CFOs, investment bankers and private equity executives, so they pass the Finance smell test. And all of the data used in these formulas is sourced from the Financial system, the most credible, up-to-date data source in an organization.
Davide de Palma : You have applied the Vienna index, with what results?
Frank DiBernardino : We have applied the Vienna Index formulas and strategy analytic process, described above, for many organizations .To illustrate the power of this approach, with one client, we showed how shareholder value would increase $75,000,000 by improving overall Productivity. To achieve the higher level of productivity, the company needed to implement several changes in its human capital strategy. (These changes were identified by following the process described above.) The higher Productivity would directly improve the ROI of the human capital investment, leading to improving the overall profitability of the business and an expected increase of $75 million in shareholder value.
Davide de Palma : What is the future of Human Capital Analytics?
Frank DiBernardino : While HR metrics have been in the market since the 1970’s, the field of human capital analytics is in its infancy, but offers great promise. Companies invest large amounts of revenue in human capital and, as you would expect, want to know and understand how effectively those financial investments are performing. Human capital analytics provides the opportunity to measure the financial performance of the investment and identify the human capital strategy levers that will most positively impact future results.
Unfortunately, at this point in time, there are no universally accepted methods to accurately measure the financial performance of the human capital investment. Nor is there a consensus on where to begin the human capital analytic process. The Vienna Human Capital Index is a method that will credibly answer the investment performance question, and an excellent starting point for a company to begin the human capital analytic process.
Davide de Palma : Das Humankapital, is a blog that wants to promote the development of human capital. Do you think it is important to promote the development of human capital?
Frank DiBernardino : As important as cash is to the vitality of any business, it is human capital that determines the ultimate success or failure of a business enterprise. Moreover, the pace of change companies are facing to stay competitive, in the global economy, is at unprecedented levels and will continue to remain so. Vibrant, competitive organizations therefore must continuously develop their human capital if they are to have any chance of effectively responding to the rapidly changing competitive environment. Thus, the relevance and importance of promoting the development of human capital simply cannot be overemphasized.
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