By CPA John Githinji Njoka
All through my career, I have always struggled with disciplines in which there existed no structured form of accountability. Possibly at this point it would be appropriate to define what I mean by accountability. For the purposes of this article, I intend for the word ‘accountability’ to mean contribution to revenue generation. After all, generation of revenue seems to be one of the best ways human beings have been able to attach or associate value with.
Having headed the human resources function in various positions I have held, and prior to that, associating very close with human resource team leaders, I can assure you that this article is not meant to belittle the critical role human resource plays in achieving the objectives of any organization, whether it be profit driven or not for profit.
My hope is that this article reshapes our thinking on how a win-win approach can enable human resources to remain as a non-scientific crucial support function, while at the same time giving accountants a basis to be able to attach value to activities or functions that human resources provide. I have the benefit of speaking as one with both accountancy and human resources qualifications.
Accountability begins way before hiring for any position begins. Requisitioning for any new personnel should originate from the functional departmental head, who of course should sign off on why and how the new request will add value or deter any potential or actual waste or losses through risk exposure, non-compliance, gap inefficiencies, etc. Any sign off should have estimated and enumerated the value attached to it, which helps both the departmental head and the human resources lead, have clear reasons and measures to refer to. Which goes to prove that even before the hire, evaluation parameters have already been factored into departmental and individual performance score cards. I must say that this is easier said than done. In my experience, what I have observed is that hiring is done hurriedly, and is in most cases based on subjective and relational perceptions. Transition to a value based hire will involve sensitization and training with all parties involved. This enables organizations make reasonable and meaningful hires, which promote personal, departmental and corporate wellbeing. The accountant is therefore able to make informed decisions based on actual financial performance parameters, availability of cash flow, and budgetary allocations.
Another factor I have observed in my career, is time value. By this, I mean that time has a cost or a value attached to it. Whenever a staff member on fixed pay ‘utilizes’ time (which for salaries and fixed-pay workforce actually belongs to the company) value is consumed. If this value is not translated into value being realized by the organization, value is lost. However, this is a rather tricky aspect which needs careful assessment, based on cultural dynamics of any organization. Ignoring culture, and implementing a blanket cut-and-paste approach, may be detrimental to the organization in the long run. An organization needs to be tactful in transitioning its personnel into a time based value approach, where time is used to achieve clear goals, targets or outputs, as clearly defined in the department and individual score cards.
Another aspect which I have observed in my career, which defeats logic, is that organizations that have a good assets resource base but struggle financially with low returns and cash flows, are the ones that waste, or in graphic terms, ‘bleed’ most cash. I would sometimes attribute this to lack of having a clear asset policy and measures of Return on Assets (ROA). I am glad that most organizations have adopted a lease-or-buy approach, which enables them qualify, to some measure, the appropriate cash smart way to access use of assets. Asset use, maintenance and safeguarding must be attached to responsible officials within the organization. To avoid unnecessary bureaucracies and abuse of authority on use of assets, the asset policy and procedures should clearly define, state and guide accessibility and use of assets. Such policies or procedures should be cascaded downwards and be assigned to individual staff member’s job descriptions and performance score cards. Where it is difficult, impractical and risky to assign responsibility to assign responsibility to individual staff members, such responsibility could be held under a department or division. The departmental head would therefore be responsible to ensure the asset is safeguarded and used as per the policy guidelines.
Finally, I believe that in today’s business and / or service environment, ’real’ value is what is perceived as value by the client or user of the asset. When the human resources function assesses value, an important aspect will be to identify, quantify and assess value from the point of view of the client, receiver or consumer of the goods or services, whether internally or externally. The value could be realized through repeated consumption, referrals or perceptions indices. The skill would be to determine what data to collect and how, in the pursuit to determine quantifiable value. The idea, however, is not to achieve perfection at the onset, but to work towards consistent improvement and refining of the value creation measures.
Therefore, to play an effective human resources support function within an organization, the human resources arm should balance between qualitative and quantitative factors, which directly focus on generating or creating value for the organization. Just as departmental, divisional or sectional heads conduct the delegated human resources functions in an organization, the human resource team is also required to understand, implement and inculcate a value based approach and culture into the organization. After all, value is exceptionally clear when the staff member gets periodic compensation.
As a disclaimer, the article given above is not to contradict existing Financial Standards, Concepts and Conventions, but rather to complement them, based on my over 20 years’ experience in practical assignments heading finance and human resources functions in various organizations. The article is not exhaustive, as many other approaches exist the address the issue of value based human resource. My hope is that the article stimulates us to consider how laws, practices and standards can be interpreted and translated into everyday use, with a focus on value creation. After all, whenever policies and guidelines are not translated into value creating and / or generation, plus the general wellbeing of the organization, and eventually of individual staff members, the policies may be good but eventually lack the ability to create ‘real’ value and Return on Equity (ROE).
John Githinji Njoka is a Certified Public Accountant (CPA (K), Certified Public Secretary (CPS (K); a Certified Human Resources Professional and a member of Institute of Human Resources Management; a trained trustee of the Retirement Benefits Authority. He has an MBA (Strategic Management and Finance).
He is also the founding director of Strategic HR Solutions (a business that focuses on Recruitment, Selection and Induction Strategy); and Innovative Business Process Solutions (a business that focused on enabling companies achieve optimum performance through effective Policies, Processes and Procedures).
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