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Effective
organizations are increasingly realizing that of the varied factors that contribute to performance, the human element is clearly the most critical. This is regardless of size and nature of an organization, the activities it undertakes, and the environment in which it operates.
Managers
are becoming increasingly aware that a critical source of competitive advantage often comes from:
Ingenious product design or service, Best marketing strategy, State-of-the-art technology, The most savvy financial management, and Appropriate systems for attracting, motivating, and
Adopting
a strategic view of HR involves considering employees as human assets and developing appropriate policies and programs as investments in these assets to increase their value to the organization and to the marketplace. Employees as assets would mean: Something of value and worth. Human Resource is considered an investment.
Five
major kind of assets or capital that organizations can leverage to aid in performance and add value to operations are:
Financial Assets Physical Assets Market Assets Operational Assets Human Assets
Given
that employees and their collective skills, knowledge, and abilities represent a significant asset for organizations, measuring its value and contribution is a critical issue.
Huselid
(1990s) identified what were called high performance work systems (HPWS) and demonstrated that integrated, strategically focused HR practices were directly related to profitability and market value.
Watson
Wyatt Worldwide found that the primary reason for organizational profitability is the effective management of human capital.
This involve providing employees with rewards
that are commensurate with their contributions and a well managed employee retention.
Huselid, and Ulrich examined that a variety of human resource management quality indices, they found that the top ten percent of the organizations studied enjoyed 391 percent return on investment in the management of their human capital. Dyer and Reeves attempted to define the HR value chain.
Becker,
Attitudes Behavior
Productivity Quality
Stock Price
EMPLOYEES OUTCOME
ORGANIZATIONAL OUTCOMES
FINANCIAL/ACCOUNTING OUTCOMES
Value Chain - The processing, converting, improving or adding value to a particular product, from its original state, thereby giving more appeal, utility or value to a new product that promises a level of satisfaction to prospective clients or customers.
Absence Rate Cost per Hire Health Care Cost per Employee HR Expense Factor Human Capital Return on Investment Human Capital Value Added Labor Costs as a Percentage of Sales or Revenues
Profit per Employee Training Return on investment Turnover costs Turnover Rate Workers compensation cost per employee Workers compensation incidents rate. Workers Compensation Severity Rate
The extent to which an organization can be characterized as investment oriented may be revealed through answers to the following questions:
Does the organization see its people as being central to its mission/strategy? Do the companys mission statement and strategic objectives, both company wide and within individual business units, espouse the value of or even mention human assets and their roles in achieving goals? Does the management philosophy of the organization encourage the development of any strategy to prevent the depreciation of its human assets or are they considered replicable and amortizable, like physical assets?
Management values Management values and actions determine organizational investment in assets. It is critical to understand how the organizations strategy mandates the investment in particular assets relative to others. Attitude Toward Risk Higher-risk investments are generally expected to have a greater potential return; lower-risk, safer investments are generally expected to have modest return.
Nature of Employee Skill Certain organizations require employees to develop and utilize very specialized skills that might not be applicable in other organization; with this idea it becomes less risky.
Utilitarianism - Organizations evaluate investments by using utility analysis, a.k.a. cost-benefit analysis. The cost of any investment are weighted against its benefits to determine whether the prospective investment is either profitable or achieves target rate of return. Availability of Outsourcing The final factor impacting an organizations willingness to invest in its people is the availability of cost-effective outsourcing.
Obtain
the annual report for a Fortune 500 company of your choice. Review the material presented and the language used in the text. Write a one-page memo that assesses how investment oriented the organization appears to be toward its human assets.