An Investment Perspective of Human Resources Management 1

An Investment Perspective of Human Resources Management 1– 1

The Strategic View of Human Resources Ü Employees are human assets that increase in value to the organization and the marketplace when investments of appropriate policies and programs are applied. Ü Effective organizations recognize that their employees do have value, much as same as the organization’s physical and capital assets have value. Ü Employees are a valuable source of sustainable competitive advantage. 1– 2

Sources of Employee Value Ü Technical Knowledge Ü Markets, Processes, Customers, Environment Ü Ability to Learn and Grow Ü Openness to new ideas Ü Acquisition of knowledge and skills Ü Decision Making Capabilities Ü Motivation Ü Commitment Ü Teamwork Ü Interpersonal skills, Leadership ability 1– 4

Adopting an Investment Perspective Ü Human assets are competencies and have become a source of competitive advantage HCL Technologies MANTRA: “EMPLOYEES FIRST CUSTOMERS SECOND”. - Vineet Nayar, CEO 1– 5

Adopting an Investment Perspective (Cont. ) Ü Required skills become less manual, more knowledge- based Ü Appropriate, integrated, strategy-consistent approach is needed 1– 6

A Dilemma Ü Failure to invest in employees causes Ü Inefficiency Ü Weakening of organization’s competitive position Ü Human assets are risky investment Ü Require extra effort to ensure that they are not lost 1– 7

Retention Strategies v Employee growth and training and development v Pay for performance programs 1– 8

Hygiene factors (extrinsic factors) Motivators (intrinsic factors) Better pay and working condition Recognition, appreciation and providing challenging work These factors just keep the employees from becoming dissatisfied The best way to motivate a person is to provide with motivator factors Adding more of these factors will not generate extra motivation for enrich the job and get the employees further motivated

Valuation of Asset and Types of Organizational Assets/Capital 1– 10

Research Findings Ü HR practices directly related to profitability & market value Ü Primary reason for profitability: Ü Effective management of human capital Ü Integrated management of human capital can result in 47% increase in market value Ü Top 10% of organizations studied experienced 391% return on investment in management of human capital 1– 11

Exhibit 1 -3 HR Value Chain 1– 12

HR Metrics Are Complex Ü 90% of Fortune 500 organizations evaluate HR operations on basis of three metrics: Ü Employee retention and turnover Ü Corporate morale Ü Employee satisfaction Ü These metrics do not necessarily illustrate how HR impacts Ü Profits Ü Shareholder value 1– 13

Mercer Model of Measuring HR Impact Ü Identify a problem HR can impact Ü Calculate actual cost of the problem Ü Choose HR solution that addresses the problem Ü Calculate the cost of solution Ü Calculate value of improvement 6 to 24 months after implementation Ü Calculate specific return on investment Ü ROI in human assets often not realized until some time in future 1– 14

Exhibit 1 -4 Factors Influencing Investment Orientation 1– 15

Investment Orientation Factors Ü Senior Management Values & Actions Ü Managers need “investment orientation” toward people Ü Attitude Toward Risk Ü Investment in human resources inherently riskier Ü Human assets never absolutely “owned” Ü Nature of Skills Needed by Employees Ü The more marketable employee skills, the riskier the firm’s investment in skill development 1– 16

Investment Orientation Factors Ü Utilitarian (“Bottom Line”) Mentality Ü Attempt made to quantify employee worth through cost-benefit analysis Ü “Soft” benefits of HR programs difficult to objectively quantify Ü Availability of Outsourcing Ü Given availability of cost-effective outsourcing, investments in HR should produce highest returns & sustainable competitive advantages. 1– 17

Investment Orientation Factors: Models of Strategy Ü Industrial Organization (O/I) Model Ü External environment is primary determinant of organizational strategy rather than internal decisions of managers Ü Environment presents threats & opportunities Ü All competing organizations control or have equal access to resources Ü Resources are highly mobile between firms Ü Organizational success is achieved by Ü Offering goods & services at lower costs than competitors Ü Differentiating products to bring premium prices 1– 18

Investment Orientation Factors: Models of Strategy Ü Resource-Based View (RBV) ÜAn organization’s resources & capabilities, not external environmental conditions, should be basis for strategic decisions ÜCompetitive advantage is gained through acquisition & value of organizational resources ÜOrganizations can identify, locate & acquire key valuable resources ÜResources are not highly mobile across organizations & once acquired are retained ÜValuable resources are costly to imitate & nonsubstitutable 1– 19

I am convinced that nothing we do is more important than hiring and developing people. At the end of the day, we bet on people, not on strategies. ” – Lawrence Bossidy 1– 20

Thank You!