An Investment Perspective

of Human Resource
management
Learning Objective
• Understand the source of employee value
• Gain appreciation of the importance human
capital and how it can be measured
• Understand how competitive advantage can be
achieved through invesment employees
• Gain appreciation of metrics, their measure, and
their usefullness
• Understand the obstacle that prevent
organizations from investing in their employees
Source of Employee Value
• Technical Knowledge : markets, process,
customers, environment.
• Ability to learn and grow : openness to new idea,
acquisition of knowledge and skill.
• Decision-Making Capability
• Motivation
• Commitment
• Teamwork : interpersonal skill, leadership ability
Types of Organizational Assets/Capital
• Financial : equity, securities and investment,
account receveivable.
• Physical : plant, land, equipment, raw materials.
• Market : goodwill, branding, customer loyality,
product line, distribution network, patent,
trademark, copyright.
• Operational : management practice, structure of
work, technology.
• Human : education, knowledge, skill, competencies,
work habits and motivation, personal relationship.
Ease of measurement

Financial Human

Easier Difficult
 HR Value Chain

Financial/
Employee Organizational Market-based
Outcome Outcomes Accounting Outcome
Outcomes

Attitude Productivity Expenses

Behavior Quality Stock Price
Revenue
Profitability
Common HR Metrics
• HR ROI • Absence rate
• Human capital value • Cost per hire
added • Health care cost /emp
• Profit per emp • HR expense Faktor
• Revenue per emp • Labor cost - % sales/rev
• Time to fill
• Training
• Turnover cost
• Vacancy cost
• Human incident cost
Calculation of Human Capital Measures
Measure Formula
Revenue – (operating expense –
compensation + benefit cost) /
Human Capital ROI compensation + benefit cost
Revenue – operating expense /
number of full time equivalent (FTE)
Profit per Employee employee

Total HR Expense / total operating

HR Expense Factor expense
Revenue – (operating expense –
compensation + benefit cost) / total
Human Capital Value Added number of FTE
Number of employee separations
(during a given time periode) / number
Turnover Rate of employee
Factors influencing an Organization’s
Investment Orientation

• Management Value

• Attitude Toward Risk

• Nature of Employee Skill

• Utilitariansm

• Availability of Outsourcing
Seven Common Misconception about
Human Resource Practice:
Research Finding versus
Practitioner Belief

By
Sara L. Rynes, Keneth G. Brown, and Amy E.
Colbert
 Managers as a class are anything but
stupid. But there is evidence that the
job-specific knowledge bases of many
and perhaps most excutives are quite
substandard. In turn, low knowledge
bases may lead excutive to make
decisions that are less than optimal –
and sometimes not even satisfactory.
(Gannon, 1983)
Research Finding vs Managerial Belief

• HR professionals are most directly responsible

for acquiring and disseminating knowledge
about best practices in ‘people management’
throughout the organzation.
• Implementation of HR practice reside with line
manager, it is the HR function’s role to help
excutives develop a human resource strategy.
(Ulrich, 1997)
Survey Ulrich (1997)
• A 35-item questionare based on HR
Certification Institute’s (HRCI)
• Sent to 5.000 Society for HRM members
• Received 959 recipients – 19% return rate.
• 49% HR Manager, 26 directors, 18%
presidents, 7% other functional area.
• The average respondens had 14 years of
experience in HR.
The Seven Most Misconceptions

• On average, conscientiousness is a better

predictor of employee performance than
intelligence.
• Companies that screen job applicants for
values have higher performance than those
that srceen for intelligence.
• Integrity test don’t work well in practice
because so many people lie on them.
• Integrity test have adverse impact on racial
minorities
• Encouraging employees to participate in
decision making is more effective for
improving organizational performance than
setting performance goal.
• Most error in performance appraisal can be
eliminated by providing training that describes
the kinds of errors, managers tend to make
and suggesting ways to avoid them.
• If employees are asked how important pay is
to them, they are likely to over estimate its
true importance.