Maximizing your return on People
Submitted to: Miss Deep Kiran
Submitted by: Arsal Amjad
Maximizing Your Return on People
by Laurie Bassi and Daniel McMurrer
Managers are fond of the maxim “Employees are our most important asset.” Yet beneath the rhetoric, too many executives still regard—and manage—employees as costs. That’s dangerous because, for many companies, people are the only source of long-term competitive advantage. Companies that fail to invest in employees jeopardize their own success and even survival. In part, this practice has lingered for lack of alternatives. Until recently, there simply weren’t robust methods for measuring the bottom-line contributions of investments in human capital management (HCM)—things like leadership development, job design, and knowledge sharing. That’s changed. Over the past decade, we have worked with colleagues worldwide to develop a system for assessing HCM, predicting organizational performance, and guiding organizations’ investments in people. Using the framework we describe here has the obvious and immediate practical benefit of improving organizational performance. More broadly, though, as the links between people and performance come into focus, organizations will also begin to appreciate the long-term value of investments in human capital—and the folly of dwelling on narrow, near-term goals.
When we researched the key HCM drivers of organizational performance, we found that most traditional HR metrics—such as employee turnover rate, average time to fill open positions, and total hours of training provided—don’t predict organizational performance. (One important exception is training expenditure per employee, as we described in our Forethought article “How’s Your Return on People?” HBR March 2004.) After selecting the HCM best practices that had been previously identified in organizational-development, HR, and economics...