Business has long struggled with the notion of "human capital," but do companies really know the value of their people? All too frequently, companies lay off thousands of workers to boost share price while, at the same time, their annual reports promise that "people are our greatest asset!" Now, for the first time, human capital experts Brian Friedman, James Hatch, and David M. Walker show how companies can deliver on this promise. They reveal how Arthur Andersen's breakthrough five-stage framework, "Human Capital Appraisal," enables managers to measure, manage, and leverage their companies' investment in people.
The authors describe specifically how managers can evaluate the current effectiveness of a firm's human capital strategies and the efficiency of its current Human Resources programs. They explain how to measure the amount of time and money management spends to recruit, develop, and manage human resources. Then they focus on how a firm can assess the return on this investment, minimize risk, and leverage the value of its human capital resources. Finally, the authors demonstrate how such leading companies as Colgate Palmolive, The Chicago Tribune, Mobil Oil, The Body Shop, Holy Cross Hospital, Hyatt Hotels, IBM, and British Petroleum are realizing the value of their people through human capital programs. This unique, proven, and proprietary methodology makes this invaluable book required reading for every chief executive, human resources director, and line manager.
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About the Author
Brian Friedman is Global Managing Partner of Arthur Andersen's Human Capital Services Practice based in London and has actively pioneered Human Capital Appraisal in countries as diverse as Japan, South Africa, and India as well as in the United States and the United Kingdom.
Read an Excerpt
From Promise to Reality
All organizations now say routinely, "People are our greatest asset." Yet few practice what they preach, let alone truly believe it.
Peter Drucker, "The New Society of Organizations,"
Harvard Business Review, September-October 1992
"People are our greatest asset." Do these words ring hollow for you? If so, you are not alone. As Peter Drucker observed at the dawn of this decade, this phrase has become a cliché and borders on a lie. Indeed, reengineering guru Michael Hammer has called it "the biggest lie in contemporary American business," and it is hard to disagree. The seeming clash between company words and actions in the human capital domain has embittered more than a few employees-and has created ample material for mass media attacks on business. Turn on any business show or flip to any business page, and no matter where you are in the world, if the subject of employment comes up, you are likely to hear charges of corporate hypocrisy.
How can companies truthfully say that they "value" employees, scold the critics, if firms are willing to lay off thousands of workers to boost share price? And how can employers claim that they put their employees "first," critics add, when the salary of a single CEO is higher than the entire training budget for the next five years? Clearly, say these doubters, human resources rank low in companies today "just after carbon paper," as the cartoon character Dilbert has observed.
But are companies really lying when they say that human resources are their greatest asset? Or are they merely indulging in some wishful thinking asserting an ideal that could become a reality if given the proper tools? In our view, based on extensive work with major corporations and other organizations all over the world, the problem is not that companies don't value their people; it is that they don't know how to they have not found a reliable way to appraise the worth of what they have, or to increase its value through better management.
This lack of know-how is not merely a problem for the "human resources department" (HR) to handle. Nor can it be blamed on HR. Human factors in the workplace cannot and should not be departmentalized and thus marginalized. Because of its high impact on both company operations and on company value, this issue matters greatly to all managers and to boards of directors.
The message of this book is simple: In order to value people, companies must move beyond the notion of human resources and toward the notion of human capital. The very term resource (from the Latin resurgere, to rise again) implies an available supply that can be drawn upon when needed. In the corporate context, people seem like water in a well that will never run dry. Fire today, hire back tomorrow; easy come, easy go. But are people really a "resource" in this sense? Or are they more like a form of capital something that gains or loses value depending on how much and how we invest in it?
In the following chapters, after a brief review of the history and current crisis state of human capital practices around the globe, we will introduce a unique and useful methodology for the management of human capital. This method, which we call Human Capital Appraisal (HCA), shows how companies can increase the returns on their investments in the people they employ.
f0 The model is based on five stages and five areas that can be visualized as a "52" grid. As readers will see by turning to Chapter 3, the stages go from strategic clarification to assessment (including measurement of fit, cost, and value), to design, to implementation, and to monitoring against strategic goals. The areas span a full range from the actual movement of people in and out of organizations to the myriad systems that help them perform while they are there.
By having an overall sequence for measuring and enhancing human capital, and by including a full range of human capital areas in this process, companies can improve their returns on investment in this area by far the most critical for companies today.
THE IDEA OF "HUMAN CAPITAL"
By its very name, the notion of "human capital" sees people not as a perishable resource to be consumed but as a valuable commodity to be developed. This idea is not entirely new. It dates back at least to the timeless Parable of the Talents told in the Judeo-Christian literature and no doubt in other cultures. For companies, the moral of the parable and the moral of this book is that people become more valuable when we invest in them. Moreover, we can measure returns on that investment. The significance of this insight should become more apparent after the following brief tour of the human capital notion.
A BRIEF HISTORY OF THE HUMAN CAPITAL CONCEPT
All human beings have intrinsic value, this idea is as old as written history. In the twenty-fourth century B.C., the Egyptian writer Ptahhotpe observed that even slave women evidently the lowest rung of society in his day might have something to contribute to society. ("Good speech is more hidden than malachite, yet it is found in the possession of women slaves at the millstones," he wrote.) In the thousands of years that have rolled by since this ancient Egyptian recorded his views, many great minds have expressed similar thoughts. It was not until the middle of the present millennium, however, that the notion of capital emerged and, recently, the notion of human capital.
So what is human capital? Parsing the phrase can provide some answers.
Human (from the Latin hominem, for man) means of or relating to people. It signals our biological species: To be human is to be a person not an animal, a god, a machine.
Capital (from the Latin caput, for head) has many nuances. In its simplest usage, it means the first, biggest, or best. In modern accounting, it means net worth the remaining assets of a business after all liabilities have been deducted.
For the past three centuries, the notion of capital has evolved from the individual, to the corporation, to the national arena.
When first used in an economic context, the word capital meant wealth at the individual level. Randle Cotgrave's dictionary of the English and French languages, published in 1611, defines capital as " wealth, worth; a stocke; a man's principal or chief substance."
With the rise of joint stock companies in the seventeenth century, however, the term moved from the individual to the organizational realm. Capital, whether as an adjective modifying stock or as a noun in its own right, came to mean funds used to launch an enterprise (such as a joint stock company or a professional practice). Adam Smith, in The Wealth of Nations (1776), speaks of a company's "capital stock," and Edmund Burke, in The French Revolution (1790), admonishes a man that he "began ill....You set up your trade without a capital."
Soon the notion of capital transferred from the realm of the company to the even larger domain of the nation. The utilitarian economist Jeremy Bentham, in Emancipation (1793), speaks of capital as the money circulating in a nation. "In proportion to the quantity of capital a country has at its disposal, will...be the quantity of its trade."
By the early nineteenth century, the term extended beyond money or stock to value itself. Capital no longer meant merely funds, but something above and beyond funds a unit of value linked to the work expended to create it. John Ramsay McCulloch, in Principles of Political Economy (1825), wrote of "the accumulation...of the produce of previous labor, or, as it is more commonly termed, of capital or stock." [Emphasis added.]
This linkage between money and work would take Europe by storm a few decades later in the most famous book ever written on the concept of capital Karl Marx's Das Kapital (1867). In Das Kapital (or, in English, Capital), Marx argued that labor was the source of all value, and that investments made in land or technology only transferred value, but did not add value. He proposed communism as an economic system.
Marx declared this principle at the same time the Industrial Revolution was forcing an entirely different view in the capitalist world the view that human beings were dispensable and interchangeable; that they were a necessary means to an end, not an end in themselves. It was in this dreary era that the notion of "human resources" was born. Jac Fitz-enz, founder of the Saratoga Institute in Saratoga, California, describes this genesis in his recent study, How to Measure Human Resources Management: "Since the value systems of nineteenth century industrialists focused on new ways to engineer and manufacture, the people function and the worker in general were not highly valued. Employees were treated like production parts and personnel like inventory clerks."
Ironically, it was the communist system that ultimately devalued human labor and ingenuity, and it was the capitalist system that increased its worth. Human capital has little meaning in a controlled economy; it can be the engine of wealth and growth in a free one. Yet during this waning twentieth century, capitalism has not achieved its full potential in this regard. We have had effective financial capitalism, but ineffective human capitalism. Even in highly developed modern economies such as the United States, the twentieth century has not completely broken away from the notion of the employee-as-commodity,
From Frederick Taylor's Principles of Scientific Management (1911) to Albert Dunlap's Mean Business (1998), the idea of human replaceability runs like a thin, darkening thread in the tapestry of industrial ideas reminding individual employees ever more starkly of their relative unimportance in the grand scheme of corporate doings. At first the concept was more a theory than a practice. Through the 1960s, cradle-to-grave employment was the norm for many. By the 1970s, though, job security became job insecurity. We became, in the words of social scientist Warren Bennis of the University of Southern California, "the temporary society." Today, the concept of a "permanent job" has become an oxymoron. The closest we come to it is the "permatemp" notion to use a term coined at Microsoft, the U.S. computer colossus.
No one has been spared this merciless notion not even CEOs, whose average job tenure today is far shorter than in any past era. A bit of recent (late 1997) humor reveals CEO awareness of the trend. In accepting a well-deserved award from a group of peers (one of many that year), the CEO of a major public company had the room roaring with laughter when he ended his speech by reminding his listeners of the maxim, "Today a peacock, tomorrow a feather duster."
The Feather-Duster Phenomenon
The feather-duster phenomenon has persisted at all levels of corporate life despite other gains from the great managerial movements of the past few decades. Today's senior managers practiced strategic planning in the 1970s, total quality management (TQM) in the 1980s, and reengineering in the 1990s. Each of these movements made significant positive contributions to corporate performance, but as the old saying says, the good is often the enemy of the best. These movements and countless others before them could have had even better results if they had taken the value of human capital into full account.
In each of these movements, companies saw human resources as an interchangeable or even a disposable means to some greater end: market dominance, higher product and service quality, or more efficient processes. The great reality that all these movements missed was the fact that companies cannot achieve positive and lasting results unless they also learn to manage and enhance the value of their employees as a workforce.
Pursued apart from the basic issues of human capital, no corporate tool can work to its full effectiveness not planning, not quality, not even reengineering, despite its measurable success. In fact, both Michael Hammer and James Champy have had to add a missing human element in recent sequels to Reengineering the Corporation (1993).
Their classic, now barely six years old, has sold over two million copies worldwide, and companies that followed its advice have done measurably better. By overhauling and restructuring companies to respond to change in service of customers, adherents of reengineering have improved their efficiency and their financial performance. Nonetheless, both authors have issued corrective postscripts.
In Reengineering Management: The Mandate for New Leadership (1995), Champy declared in his very first sentence: "Reengineering is in trouble." Although the ideas of reengineering are sound, Champy said, managers resist applying them. Therefore, he said, management itself not just companies must be reengineered. In Beyond Reengineering: How the Process-Centered Organization is Changing Our Work and Our Lives (1996), Hammer added another twist. The original reengineering book and movement had been about reengineering tasks; the new reengineering, he said, will be about reengineering processes.
These postreengineering guides contain much wisdom, but they continue to assume an unlimited supply of qualified personnel as a backdrop to management creativity. Thus, still today, to finish the Drucker quote we began earlier, "Managers still believe, though perhaps not consciously, what nineteenth-century employers believed: people need us more than we need them."
Do you as a manager or director believe this? If so, you are missing a key part of the concept of human capital: companies need people. To say that there is human capital within a company (or other organization) implies many things:
- Human beings employed in their work are not merely people moving assets around they themselves are assets that can be valued, measured, and developed like any other asset held by the corporation.
- Human beings are dynamic assets that can increase in value over time, not inert assets that depreciate in value.
- Human beings are prime among all assets. Capital, remember, is synonymous with net worth the remaining assets of a business after all liabilities have been deducted.
- As such, human beings and the systems created to recruit, reward, and develop them form a major part of any company's value as much or more than other assets such as cash, land, plants and equipment, and intellectual property.
- Company value, and therefore shareholder value (the value of a company's stock), can suffer when human capital is mismanaged.
Over the past few decades, ideas like these have been slowly gaining acceptance in the marketplace. In corporations around the globe, running alongside the dark thread of human replaceability has been the bright thread of human value and its growth over time in the form of human capital. Although there is no single accepted definition of human capital, there is a growing recognition that the old notion of human resources and the old way of managing those resources no longer serve the purpose of the modern company.
CHALLENGES TO HUMAN CAPITAL
In private conversation at a recent gathering of U.S. corporate directors, a manufacturing executive made this observation:
Companies are willing to invest millions in machines, which depreciate in value over time, but they are reluctant to make an equivalent investment in people, who appreciate in value over time. For me, there is no contest. I would rather spend $10,000 in training now and have it be worth $100,000 or more in 10 years, than invest $100,000 in a machine that will be worth $10,000 or less in 10 years.
This executive did not need a book to tell him this he knew it from his experience. His idea is so simple, so sensible, so true. Why then do companies still see employees as resources to be mined rather than as capital to be developed?
We see two main sets of challenges impeding the spread of the human capital notion: first, limitations imposed by measurement and accounting systems; and second, limitations imposed by managers themselves both in their perspective and in their motivation.
Challenge One: Limitations of Measurement and Accounting Systems
The notion of capital is an accounting notion, yet there is no standard way of measuring its value and no current movement to do so. As such, the notion of human capital has remained a vague concept rather than a sharp tool. One might exuberantly call for the accounting profession to recognize human capital as consultant Kevin Thomson (1998) recently did in calling for recognition of emotional capital but this may not be realistic, at least in the near term.
As partners in one of the world's oldest and largest accounting and consulting firms, we appreciate the broadly collective and deeply traditional nature of accounting. To become "generally accepted" in a nation much less around the globe new principles must go through many years of dialogue and refinement. Consider, for example, the notion that derivative financial instruments should be valued at their market value. In the United States, it took the Financial Accounting Standards Board (FASB) ten years before it passed a rule based on this concept.
If it takes a decade to pass a new rule on a point that concerns only a minority of companies, how much more time would a change in mandatory accounting for human capital take? We do not expect to see it in our working lifetimes. Nonetheless, companies can begin measuring and reporting on human capital on a voluntary basis in their financial statements. Throughout this book, we will offer tools and concepts that will be useful in pursuing this goal.
Challenge Two: Limitations of Managerial Perspective and Motive
The tougher challenge is the challenge of perspective. Managers often find it difficult to assess human capital within their own organizations because they are a vital part of that capital connected to that capital through the work of the organization and through direct reporting lines. This makes it very difficult to take an objective stance in relation to a company's human capital as a whole, or from programs created to obtain, manage, and enhance it. How can one be at arm's length from an entity that includes oneself?
Beyond the challenge of managerial perspective is the related challenge of managerial motive. Change is difficult for everyone, including the managers in charge of it. Why should managers change their view of employees seeing them as valuable capital rather than as expendable resources when the old view of HR is serving them well enough today? Why should companies shake up their functionary HR operations as long as they are doing an adequate job? The bad news is that some HR managers will never change unless they have to. The good news is that the time has come: Managers must rise to the human capital concept or sink in the wake of its arrival.
HUMAN CAPITAL ARRIVES
Yes, the notion of human capital has arrived en masse. The Amazon site on the World Wide Web lists over two hundred books addressing the subject. Although many of these use the old human resources terminology, there is growing evidence even in these that the term is taking hold. The Lexis-Nexis database (also on the Web) lists over four hundred articles on the topic. And for every word in print, there are hundreds in the technosphere. According to the popular Netfind search engine, the phrase "human capital" appears now in nearly two million websites around the world.
With this great abundance of materials, can there be anything new to say? The answer is yes. A recent posting on the Internet (from www.csu.edu, found in January 1998) says it all:
Are there any studies (beside macroeconomic) which show that investing in human capital directly produced a financial return on investment? I am trying to encourage an employer to make an investment in his people, both in terms of job-related training, and personal development.
Clearly, despite all the information available, individuals like the anonymous one making this posting still need to prove to their employers or (if they are advisers) clients that human beings merit investment. Human capital today is a concept in search of a context.
Fortunately, this context is emerging. Researchers are beginning to provide quantitative proof that investments in human resources pay off.
For many years, efforts to measure returns on investment in human capital seemed doomed to failure. Early attempts to correlate human capital investments with stockholder returns came to naught. For example, in their 1977 paper, "Human Capital and Capital Market Equilibrium," Eugene F. Fama of the University of Chicago and William Schwert of the William E. Simon School of the University of Rochester found that:
extending popular two-parameter models of capital market equilibrium to allow for the existence of non-marketable human capital does not provide better empirical descriptions of the expected return-risk relationship for marketable securities than those that come out of simpler models.
relationships between the return on human capital and the returns on various marketable assets are weak, so that the model that includes human capital leads to estimates of risk for marketable assets indistinguishable from those of simpler models.
This paper threw down a gauntlet that said, in effect, "We dare you to find a correlation between company value and investments in people." Many scholars have taken up this challenge in succeeding years; the Fama-Schwert paper has been cited in at least thirty-six scholarly papers since then, by Schwert's count (recorded on his website at Rochester).
Meanwhile, on the macroeconomic front, the importance of human capital was beginning to surface in a big way. In 1979, the Nobel Prize in Economics was awarded to Theodore Schultz of the University of Chicago and Sir Arthur Lewis of Princeton University for their revolutionary theories of labor cost. Their writings disputed the old idea of a fixed supply of labor. Labor may be scarce or abundant and in some economies unlimited they said, affecting labor costs. The disparity between developed nations with their limited supplies of labor and less developed nations with their unlimited supply has created a kind of modern-day economic colonialism. Schultz and Lewis both wrote many papers exploring the implications of this dynamic.
Although neither of these insightful economists is alive today Lewis died in 1990 and Schultz died in 1998 their legacy lives on. The February 28, 1998, Chicago Tribune obituary for Schultz hails him as "the father of human capital." The description is no exaggeration although the concept of human capital has been slow to catch on. From 1979 to 1989, relatively few articles and books gave serious attention to human capital (among them Schultz's Investing in People, published in 1982). But in the 1990s, the idea of human capital began to catch on. In 1992, Gary Stanley Becker won the Nobel Prize in Economics for his own theories of human capital, helping to fuel continued interest in the concept. A geometric growth pattern of articles on the topic began that continues to this day, with every year matching or doubling previous records. If current trends continue, there could be well over one hundred articles on human capital appearing in periodicals during 1998 alone.
Most of these articles address only macroeconomic issues of national policy education or labor, often in a narrow context studying, for example, "dental hygienists" or "low-income workers in Bombay." Only a few have taken a microeconomic view that could help an individual company and its managers. For these articles, as well as macroeconomic treatments of the subject, see the Bibliography. The main gist of these microeconomic articles is that it is better to invest in human capital than to reduce or replace it.
A RESEARCH REVIEW
Over the past few years, several scholars have had success in finding correlations between investments in human capital and company performances.
In a Brookings Institution colloquium on the state of human capital in the mid-1990s, Jonathan Low, deputy assistant secretary for work and technology policy at the U.S. Department of Labor, reported that five different groups were planning to set up screens or create funds based on workplace practices and investments in human capital. Low cited a study by Wayne Cascio of the University of Colorado on the negative effects of massive downsizing. Three years after downsizing, sample companies had subsequent earnings increases of 183 percent, whereas comparable firms in the same industries that did not downsize had earnings increases of 422 percent. Cumulative stock returns over three years were 4.7 percent vs. 34.3 percent. Low concluded that pension fund managers "would be justified in encouraging a second look at such tactics."
Other studies, recently highlighted by Stanford University professor Jeffrey Pfeffer in The Human Equation: Building Profits by Putting People First (1998), show similar results. Pfeffer cites Mark Huselid (1995), whose study of 3,452 firms found lower staff turnover, higher sales per employee, and higher stock price/book value ratios for firms that had programs to develop and motivate employees, and programs to link employee performance to pay and promotions.
Firms with practices designed to increase employees' on-the-job knowledge, skills, and abilities and to reward onthe-job achievements clearly outperform their peers without such practices. Statistically speaking, a single standard deviation increase in such practices led to a 7.05 percent decrease in employee turnover, $27,044 more in sales per employee, $3,814 more in profits per employee, and $18,641 more in market value or "shareholder wealth" per employee. A more recent study by Huselid (1997), conducted in the bull market of the 1990s, found even more dramatic results for stock values a $41,000 increase per employee.
Ongoing research by Linda Bilmes, a former consultant with a Big Six accounting firm and now a U.S. deputy secretary of commerce, shows that companies with "employee-friendly" policies do better than peer companies lacking such policies. In a pilot study with consultants based in Germany, she studied one hundred German companies from 1987 to 1994, measuring employee focus in terms of both traditional human resources policies and opportunities for "intrapreneurship" within the company.
Traditional HR policy measures were as follows:
- The extent to which the corporate philosophy recognizes the contribution of employees as reflected in mission statements and publications.
- The number of layoffs relative to the industry average and efforts to help relocate redundant employees.
- General human resources policies, including recruitment, performance evaluation and feedback, and promotion opportunities.
- The expenditures per employee on training, and continuing levels of training.
Intrapreneurship measures were as follows:
- The flexibility of work hours.
- Project organization, including the prevalence of teams, number of levels of hierarchy (the fewer the better), and independence of working units.
- The opportunities for employees to learn skills in new areas and the speed with which a firm can transfer staff to new fields.
- The extent to which employees share in company performance through profit sharing, performance pay, and bonuses.
Bilmes and her colleagues found a high correlation between improvement in returns to shareholders and investment in both traditional and intrapreneurship programs. Unfortunately, the Bilmes study also found that relatively few companies are making this investment at a significant level. Right now, Bilmes is broadening her research to cover a wider span of countries.
Welbourne and Andrews
In a study of five-year survival rates for companies going public in 1988, Theresa Welbourne and Alice Andrews (1996), also cited in Pfeffer, found higher survival rates for companies that have (based on their prospectuses and other public disclosures):
- Strategy and mission statements citing employees as a competitive advantage.
- Employee training programs.
- A company official responsible for human resources management.
- A relatively high level of full-time rather than temporary or contract workers.
- High self-assessment on employee relations.
They also found higher survival rates for companies that have broader participation in such initiatives as stock ownership, gain sharing, and stock option awards. In addition to citing these general studies, Pfeffer cites more focused research on the apparel, automobile, oil refining, semiconductor, service, and steel-manufacturing industries to show dramatic results. His conclusion: "Substantial gains, on the order of 40 percent or so in most of the studies reviewed, can be obtained by implementing high performance management practices."
Families and Work Institute
In April 1998, the Families and Work Institute released a study linking job satisfaction to workplace support. When asked what contributed to their sense of well-being on the job, 37 percent of employees cited work conditions, such as flexibility, family-friendly policies, supervisor support, and lack of discrimination. The study, entitled National Study of the Changing Workforce, also linked worker-friendly programs to profitability.
THE CURRENT "CRISIS" STATE OF HUMAN CAPITAL
Clearly, the high value of human capital and the heavy cost of neglecting it is not a matter of emotion or faith, though both of these realms will always give clues in support of human value. Rather, the value of human capital is a matter of hard-and-fast economics.
As we approach the twenty-first century, as outlined in Chapter 2, relatively stable economies such as Europe and North America are experiencing low rates of unemployment, inflation, and interest creating a rare golden age in some countries. Meanwhile, even in the currently unstable economies of parts of Asia, heavy foreign investment continues, indicating confidence and facilitating recovery. Given the growing importance and scarcity of human capital and the plenitude of financial capital, companies worldwide will have a natural tendency to use financial capital to obtain and leverage their human capital.
This new appreciation of human capital could reverse the dangerous course that business has taken over the past few decades. In his new book, The Loyalty Effect, Frederick F. Reichheld documents a lack of loyalty throughout the corporate world, with a growing mistrust between corporations and employees. But rather than condoning this trend as most business observers do today, he decries it:
Some executives are concluding that the corporations of the future in the postcapitalist society will need to be more like nomadic tribes, pitching their tents anywhere on a moment's notice, land less like plodding agriculturists, rooted to one place and one core competence. This may seem a reasonable response to the increasing disorder and confusions of the business world. And the picture it paints of dynamic flexibility and adventurous energy may be very attractive. But consider how little progress nomadic tribes have made compared to the great civilizations with their enduring institutions, their sciences and cities, their ability to cope with change from a stable base.
Reichheld has put his finger on the pulse of a problem, but it may be worse than he thinks. Comparing the fast-changing companies to nomadic tribes may be too kind. Tribes nomadic or not have a measure of stability and unity in their leadership, their populations, and their values. Many companies today show no such stability least of all in their treatment of human capital. The current state of human capital is in crisis in the true sense of the word, tracing to its Greek roots krinein, to separate. A crisis is a time when elements that were formerly unified have fallen apart and need to be rejoined. How true this is of human capital today!
In a growing number of accounting, consulting, investment banking, and law firms, ruthless raids on talent have become an accepted business practice as victims turn into perpetrators just to survive. (As one raid-plagued consultant recently vowed, "I'm going to do to them what they've done to me.") What can break this vicious cycle?
It bears repeating: the value of companies can suffer when human capital is mismanaged that is, when the stages of the human capital management process are not aligned with the areas within that process. In the following chapters, after a brief review of worldwide human capital trends, we offer both positive and negative examples of this truth as we present our Human Capital Appraisal approach a new way to restore wholeness to human capital.
In order to value people, companies must move beyond the notion of human resources and toward the notion of human capital, a notion that sees people not as a perishable resource to be consumed but as a valuable commodity to be developed. This concept has been developing gradually for centuries, ever since collective enterprises began. In recent decades, despite continuing allegiance to older ideas, we have seen a gradual rise in commentary and research on this topic including most recently the finding that investments in human capital result in higher returns to shareholders.
Such findings place companies at a crossroads. Clearly, investments in human capital pay off. The question is, how should these investments be made, and how can return on these investments be measured? The question has become increasingly urgent at this time, when economic fundamentals and current "hot" business issues point to a scarcity of human capital in the developed world. The remainder of this book offers information and resources that can help managers realize the full value of human capital in their organizations.
Copyright © 1998 by Arthur Andersen LLP
Table of Contents
- Human Capital: From Promise to Reality
- Global Human Capital: A World of Wealth
- Human Capital Appraisal: A Five-Square Approach
- Clarification: Defining the People Impact of Business Strategy
- Assessment: Measuring the Fit, Cost, and Value of Current Human Capital Programs
- Design: Creating New Programs for Human Capital
- Implementation: Making Human Capital Programs Work
- Monitoring: Tracking Human Capital Initiatives Against Strategy
- Assessing Human Capital Fit: Strategies for All Seasons
- Assessing Human Capital Cost: New Frontiers
- Assessing Human Capital Value: The Ultimate Question
- Human Capital: The Road Ahead
- Case Studies
- Implementation Worksheets for Twelve Initiatives
- Pensions: Strategic, Best Practice, and Market Fit
- Pensions: Cost Analysis
- Pensions: Fit-Cost-Value (FCV) Report and Recommendations
- Arthur Andersen's Worldwide Human Capital
About the Authors