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Mello_5e_CH01_PPT2.pptxChapter 1: An Investment Perspective of Human Resource Management
© 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The Strategic View of Human Resources
Employees are human assets
Increase in value to organization and marketplace when investments of appropriate policies and programs are applied
Effective organizations recognize that employees have value
Much as organization’s physical and capital assets have value
Employees are valuable source of sustainable competitive advantage
© 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Exhibit 1.1: Sources of Employee Value
© 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Sources of Employee Value
Technical Knowledge
Markets, processes, customers, environment
Ability to Learn and Grow
Openness to new ideas
Acquisition of knowledge and skills
Decision Making Capabilities
Motivation
Commitment
Teamwork
Interpersonal skills, leadership ability
© 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Adopting an Investment Perspective
Determines how to best invest in people
Costs
Out-of-pocket
Opportunity
Human assets become competitive advantage
Required skills become less manual, more knowledge-based
Appropriate, integrated, strategy-consistent approach is needed
© 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
A Dilemma
Failure to invest in employees causes
Inefficiency
Weakening of organization’s competitive position
Human assets are risky investment
Require extra effort to ensure that they are not lost
© 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Exhibit 1.2: Types of Organization Assets/Capital
© 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Research Findings
HR practices directly related to profitability and market value
Primary reason for profitability:
Effective management of human capital
Integrated management of human capital can result in 47% increase in market value
Top 10% of organizations studied experienced 391% return on investment in management of human capital
© 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Exhibit 1.3: The HR Value Chain
© 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Human Resource Metrics
Wall Street analysts still generally fail to acknowledge human capital in assessing the value of an organization and the effect that human resources can have on stock price
This is rooted in the fact that there are no “standard” metrics or measures of human capital, much as there are for other organizational assets
Exhibit 1.4 lists some Common HR Metrics while Exhibit 1.5 displays the means of calculating five common metrics. However, the appropriate metrics for any given organization will be dependant on that organization’s strategy.
© 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Exhibit 1.4: Common HR Metrics
© 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Exhibit 1.5: Calculation of Human Capital Measures
© 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
HR Metrics Are Complex
90% of Fortune 500 organizations evaluate HR operations on basis of three metrics:
Employee retention and turnover
Corporate morale
Employee satisfaction
These metrics do not necessarily illustrate how HR impacts
Profits
Shareholder value
© 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Mercer Model of Measuring HR Impact
Identify problem HR can impact
Calculate actual cost of problem
Choose HR solution that addresses problem
Calculate cost of solution
Calculate value of improvement 6 to 24 months after implementation
Calculate specific return on investment
ROI in human assets often not realized until some time in future
© 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
HR Analytics
Analytics is the systematic collection, reporting and analysis of various metrics which are critical to effective performance
Analytics often involve the process of benchmarking where the organization compares actual performance to goals and/or to the performance on a similar metric by competing organizations
Exhibit 1.6 shows some examples of the types of relationships which HR analytics can document and analyze
© 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Exhibit 1.6: Using Analytics to Understand Relationships
© 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Investment-Oriented Organization
Sees people as central to mission and strategy
Mission statement and strategic objectives espouse value of human assets in achieving goals
Management philosophy encouraging development and retention of human assets
Does not treat human assets in same ways as physical assets
© 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Investment Orientation Factors (1)
Senior Management Values and Actions
Managers need “investment orientation” toward people
Attitude Toward Risk
Investment in human resources inherently riskier
Human assets never absolutely “owned”
Nature of Skills Needed by Employees
The more marketable employee skills, the riskier the firm’s investment in skill development
© 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Investment Orientation Factors (2)
Utilitarian (“Bottom Line”) Mentality
Attempt made to quantify employee worth through cost-benefit analysis
“Soft” benefits of HR programs difficult to objectively quantify
Availability of Outsourcing
Given availability of cost-effective outsourcing, investments in HR should produce highest returns and sustainable competitive advantages.
© 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Exhibit 1.7: Factors Influencing an Organization’s Investment Orientation
© 2019 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
