How to quantify the value of good humans / HR DD
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I happened to be on an industry roundtable call today where an active investor was speaking about his approach to investment and M&A and he said “my investments come down to good humans”. Having gone through the HR DD section and reading about the value of cultural diligence and how a culture clash can break a deal, his comments were timely. I have witnessed culture clash in my own company as we have gone through different ownership, and we have lost some important people along the way as a result. That begs the question: how do you value or define “good humans”? In this context, star performers, open-minded people, people willing to change and get on board with something new? Those are all skills that are valuable, but how do you ascribe a dollar value to that, or how do you quantify the risk of losing some of those good people?
I think this is heavily dependent on industry. In some industries, you can look at things like how much does the organization outperform the average in terms of sales etc. This would give you some value of the talent that exists. In other organizations, there may be ways to look at the values of patents, technology being sold or other really direct, measurable ways to assess the personal performance.
In most organizations though, it may be very difficult to find a specific measurable financial impact that captures company performance. I think you would want to at least look at identifying who the critical talent are. Many orgs have already identified which people are pillars of the organization, either due to the position or their talent. For those that have not, performance appraisals may be a good source (if they’ve been applied well) or even management interviews.
I think the only way to ascribe a dollar value where there isn’t a clear link or metric, would be to use assumptions – how much would sales or production or reputation be impacted if every top performer left and was replaced with an average performer. There will be a lot of subjectivity and guess work but this will at least let you demonstrate the value the good performers are adding.
Great question. Very curious to know if anyone has a sort of formula or assessment they’re using to determine this.
That’s a very good question, not easy to target one answer specifically. I would be looking at classic HR metrics and how they are aligned with the company trying the attack. You could also look at engagement survey, global appraisal processes, NPS and eNPS. Depend also on what is your strategy after the merger or acquisition.
No specific direct metric. However, we are often looking for clues during diligence that help us to identify the influencers within and assess whether they will help or hinder change. We need the influencers but we have to watch for those who will take too long to move along the change journey or resist and negatively impact the org.
I think, the value of good human will be quantified by cost and revenue that that a person bring back for company
For cost: salar, allowance and some costs is hard to quantify: training cost, cost for problems stemmed from that person (unhappy working environment, mistakes at work…)
For revenue: profit created by that person (it is easy to estimate for sale person and harder for other position), some profit is hard to quantify: happy working environment that the person bring back, willing to help, support co-workers….Current valuation methodologies does not offer a concrete algebraic formula to be able to factor in the value derived from human. This reinforces the idea that valuation is at the cross-road of both, science – with empirical approach notably through DCF modeling – and more subtle subjective approach where we try to determine an execution premium arising from a particular individual or a group of individuals at the helm of the business.
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