Maximizing People on Return

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TOOL KIT New tools can show you which investments in employees are driving company performance now and which you should emphasize to advance your strategic goals.

Maximizing Your Return on People
by Laurie Bassi and Daniel McMurrer


Reprint R0703H
This article is made available to you by McBassi & Company. Further posting, copying or distributing is copyright infringement. To order more copies go to www.hbr.org or call 800-988-0886.

New tools can show you which investments in employees are driving company performance now and which you should emphasize to advance your strategic goals.

TOOL KIT

Maximizing Your Return on People
by Laurie Bassi and Daniel McMurrer

COPYRIGHT © 2007 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

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 longterm value of investments in human capital— and the folly of dwelling on narrow, near-term goals.

Measuring Management
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 organizationaldevelopment, HR, and economics research literature as determinants of organizational performance, we developed employee and management surveys to measure their use by organizations. Collectively, the survey ques-

harvard business review • march 2007 This article is made available to you by McBassi & Company. Further posting, copying or distributing is copyright infringement. To order more copies go to www.hbr.org or call 800-988-0886.

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Maximizing Your Return on People •• •T OOL K IT

Laurie Bassi (lbassi@mcbassi.com) is the CEO and a cofounder of McBassi & Company, a survey firm in Golden, Colorado, and a former professor of economics at Georgetown University. Daniel McMurrer (dmcmurrer@ mcbassi.com) is the vice president of research at McBassi.

tions helped us assess overall HCM activity in dozens of organizations—ranging from service firms to manufacturers to schools—and identify which measures were most strongly associated with various aspects of organizational performance. This empirical research has revealed a core set of HCM drivers that predict performance across a broad array of organizations and operations. These drivers fall into five major categories: leadership practices, employee engagement, knowledge accessibility, workforce optimization, and organizational learning capacity. In each of those categories, HCM practices are subdivided into at least four groups. Leadership practices, for example,...
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