Measuring Human Resource Management Effectiveness: The Second P&L Account


By Anni Hollings - Learning and Development Manager

Being rooted in Human Resource Management, specifically Learning and Development, and passionate about creating workplaces that provide employees with a sense of purpose, value and achievement, I was both fascinated and excited about the notion of reviewing people management as a second P&L account.

However, the People and Leadership account is not from the single dimension perspective of the ‘holy grail’ of HR’s contribution to the bottom line - although inevitably all HR initiatives should have an impact. Rather, the idea of the People and Leadership account is one that compliments the traditional P&L account and helps create a meaningful boardroom discussion about the influence of good people management on organisational success.

Of course, the idea of people being an organisation’s greatest asset is not new - it is both a truism and a cliché that has been peddled for a long time. Nor is the idea of measuring the effectiveness of people management an innovation.

The emphasis placed upon HR Analytics has led to a real move to gather data and use it for examining employee data providing actionable insights. The potential for these insights are limitless. They help in formulating responses to both internal and external drivers leading to (amongst other things) a better informed recruitment strategy, improving employee engagement and helping tighten performance management. HR analytics not only help HR practitioners understand their employees’ talents, capabilities and productivity, but also help them understand how employees respond to initiatives that benefit them and the company.

What struck me as being so useful about the idea of the ‘second P&L account’ is the direct link to financial metrics. I really like the image of a meeting to discuss P&L with a refocus on people and leadership as another, compatible, main area of measurement designed to give a more holistic view of success (or otherwise).

I know that HR departments are developing and producing trend information and measuring performance against projection and prediction. It is very much in evidence as HR Departments successfully challenge the resistance to the strategic contribution of people management to organisational performance. I really appreciated the contribution of the Balanced Scorecard to the re-balancing of the focus on traditional management accounting which only report history and do not identify underpinning sources of success. I love the emphasis the Balanced Scorecard gives to stakeholders not just stockholders.

So, given that there is plenty of evidence to say that HR professionals are engaging in ways which create meaningful analysis of non-financial variables that can be incorporated on a level playing field with other data analysis, why was I so taken with the ‘Second P&L Account’? It is with the significance and importance that the Profit and Loss Account holds. As a key feature of the annual accounts and the financial information incorporated into a company’s annual report, used to enable scrutiny and analysis of company performance, the P&L account is central to decisions about company performance.

Just the title made me sit up and ponder. The Second P&L Account based upon people and leadership gives that area of analysis gravitas and authority. Not only that, people and leadership also identifies organisational leadership as being a point of attention and there can be no argument with a need to bring leaders to account.

Research shows that there is still an issue with trust in leaders of organisations, excessive greed and callous disregard for the ordinary worker being a root cause of distrust. Where organisations have maintained high levels of trust there has been a common theme. That theme is holding management to high levels of accountability. What better way to get a 360 perspective on organisation performance than to conduct a Second P&L Account?

We at Strategi Solutions are committed to ensuring that people in organisations are properly managed, led and developed to ensure all members of the workforce can achieve their potential. If you would like to talk to one of our consultants about the ideas in this blog or other Human Resource and Learning &Development areas, please contact, Anni Hollings, L&D Manager, Rob Fisher Director of HR Services or Louise Woolridge, Head of HR Services and we would be pleased to arrange a meeting.