How do you increase the ROI of your human capital? This continues to be an important question for most organizations. In 2002, a study at Rutgers University, found a correlation between effective people management, annual shareholder value, and return on capital. Other examples of such research are Kaplan and Norton’s work on building the performance scorecard, Huselid’s HR Scorecard and KPIs, and Jac Fitz-Enz, whose book ‘the ROI of Human Capital’ elaborates on the business imperative for businesses to measure the value of their people.
These developments in behavioral science and advances in trending and forecasting have dramatically changed the way organizations measure the bottom-line impact of employee performance. The corporate workplace has been transformed by the new possibilities that HR – Human Capital Management (HCM) technologies have opened up.
Measuring Human Capital Management (HCM)
Organizational scientists at Fortune 500 companies continue to gather a critical mass of data from applied research from within their own enterprises, which measure the ROI of strategic Human Capial Management (HCM) processes. Such studies show that effective HCM practices improve ‘people-based’ outcomes like employee engagement, career planning, and improved skills and knowledge due to customized and flexible training programs. Such practices also lead to alignment of employee roles with organizational strategy and reduce negative measures such as turnover and absenteeism.
These processes need to be supported by sophisticated systems for recruitment, performance management, 360 degree feedback, and online testing. In my experience, organizations with work environments that are supportive and hassle free for employees also perform well on business metrics. Such organizations realize greater productivity through employee performance, and market value.
Investing in Human Capital Management (HCM): The CEO’s challenge
When organizations invest in HCM technologies, the business case should have a clear link to corporate strategy, a market or competitive analysis, a project plan with a firm timeline, and most importantly, financials. This should also include people engagement – be it through social media, big data analytics, or simply employee self-service.
With fewer people, less money, and increasing competition, many CEOs cite organizational innovation and efficient and effective management of the workforce as key competitive advantages, highlighting the importance of human capital management. And effective workforce management is best done when work life is simplified for a productive employee. Employees are more likely to be productive if they can have fun completing their HR processes through their smartphones’ HR apps, learning through blogs, and sharing points of view on Twitter or on LinkedIn. All in a day’s work… and play!
Clearly, no longer are corporate human capital issues the exclusive domain of the people and change services team — a group that was, and many times still is, unfortunately not made a critical player in the strategic decision making processes and whose contribution to the bottom line often goes unrecognized. Leaders who heartily embrace the use of social media for HCM understand that maximizing the value of the workforce is the job of CEOs and business managers. A productive and high-performing workforce is necessary for enhanced shareholder value.
The question for us today is not whether investment in people and HR technologies can drive a firm’s revenue, its profitability, and its market share.
The only question is: Do enough business leaders know about it? And are they doing something about it?