The Hindu Business Line : Don't confuse capabilities with activities, nor intangibles with unmeasurables

The company had deployed the Lev and Schwartz model for the purpose, and computed the present value of the future earnings of the employees, factoring in both direct and indirect benefits earned both in India and abroad, and using a discount rate of 14.09 per cent. Its education index of employees soared to 74,057 from 44,972 in the previous year, and the value added per software engineer stood at Rs 21.7 lakh.

Just the stuff that can stir complexes in the minds of many, because too few companies value their staff, be it face-to-face or in annual reports. There, HR function is better explained as hot-rolled, with its antique `establishment' colour, and its high priests would look down upon employees as insects worthy of no self-respect.

Human resource is intangible but not valueless; and so intangibles are assets, as any accountant can tell you. So, it was heartening that Harvard Business Review chose the topic for its spotlight a couple of months back. One of the articles in that section is titled `Capitalizing on capabilities', written by Dave Ulrich and Norm Smallwood. Its blurb read: "Assets like leadership, talent, and speed are what produce superior market value. A capabilities audit can show you how you measure up — and how to build on your intangible strengths."

A promising area for CAs to explore, I'd suggest, not only because of the word `audit' juxtaposed to capabilities, or that the task itself abbreviates as CA, but also because the profession can project itself as possessing the capability to see something as invisible as capabilities.

The HBR article focuses on organisational capabilities that enable a company to deliver by leveraging the combined competencies of individuals. There are 11 of such capabilities, the authors identify, and list the following: Talent, speed, shared mind-set and coherent brand identity, accountability, collaboration, learning, leadership, customer connectivity, strategic unity, innovation, and efficiency.

On talent, remember these 5 `b's that competent leaders practise: "Buy (acquire new talent), build (develop existing talent), borrow (access thought leaders through alliances or partnerships), bounce (remove poor performers), and bind (keep the best talent)."

With speed, the company can make "important things happen fast". Think of "a return-on-time-invested (ROTI) index", advises the article. More than ROI, this ROTI can help you "monitor the time required for, and the value created by, various activities."

Likewise, measure the degree of consensus in your team about "the top three things we want to be known for in the future by our best customers", to find if there is a shared mindset.

Accountability seems close to our vocation, but what's it? Harsh as it may sound, "performance accountability becomes an organisational capability when employees realise that failure to meet their goals would be unacceptable to the company". Collaboration sounds hackneyed as a capability, but `shared services' can effect savings of 15-20 per cent in administrative costs per employee, the authors propound.

Learning happens when new ideas are generated. "For individuals, learning means letting go of old practices and adopting new ones." A must for CAs because you find too many of them suffering from a tunnel vision that sees only `tax'.

The discussion of `leadership' has one new metric: the substitute-to-star ratio to answer the question, "How many backups do you have for your top 100 employees?" For most of our political parties, such a ratio would work out to a big zero. But don't let that happen in your company.

Connectivity with customers is not measured by the length of cables you lay between your computers. "When a large portion of the employee population has meaningful exposure to or interaction with customers, connectivity is enhanced." Check if everybody in the company can spell strategy properly: Simply ask around and see if there is consistency about company's strategy. For innovation, compute `vitality index' — recording revenues from products created in the last three years. Last comes efficiency, but leaders can't afford to fail to manage costs. This is the easiest to track, note the authors, because you can get the numbers from published accounts.

The article discusses how one can go about capability audit, a topic that is an ideal fit for CA seminar, I'd suggest, rather than something as funny as `marching towards professional excellence'. Towards the end of their work, the authors provide a whole bunch of guidelines on the audit. One last lesson is: "Don't confuse capabilities with activities." Means? "Instead of asking what per cent of leaders received 40 hours of training, ask what capabilities the leadership training created."

A clue to the Institute's Continuing Professional Education (CPE) directorate, that is, because one finds it too obsessed with hours of CPE credit rather than with what the participants take home as skills.

Accountspeak@TheHindu.co.in

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