How to leverage your Human Capital ROI.

Author:Fitz-enz, Jac

Realizing the best way to invest in your prime resource--your employees

The following article is excerpted from the new book The ROI of Human Capital: Measuring the Economic Value of Human Performance, published by AMACOM, a division of the American Management Association, New York. Dr Fitz-enz is the founder of the Saratoga Institute, Santa Clara, CA, and is widely recognized as a leader in the field of human resource benchmarking.

Almost everyone agrees that people are the prime resource today. So, it follows that we have the best chance of leveraging our investments if we build on that resource. All successful strategies have resource leverage at their heart. Some experts offer five ways to leverage resources:

* Concentrate resources on strategic goals.

* Accumulate resources efficiently.

* Complement resources from different areas for higher order values.

* Conserve resources wherever possible.

* Recover the investment in resources rapidly.

In simple terms, this reads as focus, be efficient, combine, save, and manage for ROI. At this point, I trust that you are sold on the premise that people do add value and that this value can be measured in financial terms. So, the most important question for you is, What can you do to get a better return on your investment in your human capital?

There is no shortage of theories and models of management and leadership. I myself have listed over 40 management theories that have hit the market in the last 50 years, and they are just the ones that attracted some attention. Each year, several hundred books are published on management and leadership. The total number of titles published on the broad topic of organizational management in the last 30 years of the 20th Century reached nearly 10,000.

The irony of this flood is that we don't know much more about leadership and management of people today than we did 2800 years ago with Homer's Odyssey and Sun Tzu's The Art of War. The Golden Rule and common sense seem to be as good as many recent theories, and better than most of them. Most research is characterized either by minute studies with little generalizability or by broad, unsupported hypotheses that are impossible to put into practical terms. Academicians who could not organize a two-car parade regurgitate earlier theories without adding any fresh insights. Consultants and writers offer old material under new titles. In the end, our knowledge has not been advanced.

The only research that impresses me is that which is drawn from the daily struggle of human beings trying to make the most of their situations. The less esoteric it is, the more I like it. In this vein, two massive longitudinal studies of the views and experiences of thousands of employees stand out. The Gallup organization conducted one study, and the other emerged from the ongoing work of the Saratoga Institute. As we often find in life, different people working on the same issue from different angles, unknown to one another sometimes reach similar conclusions at about the same time. Gallup has been studying employee needs and managerial behavior for two decades. Using a standardized questionaire, it has interviewed over 80,000 managers. The Saratoga Institute has used a consistent script interviewing 70,000 employees who left their organizations voluntarily over the past four years. Both studies covered a wide range of organizations, from the Fortune 500 to midsize companies across several industries. Whe n the results are viewed together, we find a great degree of similarity regarding employee needs and managerial behaviors. Taken together, the data suggest that there are factors that predict higher-than-average voluntary turnover across a broad range of settings. This is the stuff of human capital leverage.

Managerial perspective

Buckingham and Curt Coffman detailed the Gallup study in their book, First, Break All the Rules (Simon and Schuster, 1999). Their focus is on what good managers do when working with employees. Underlying those behaviors are data drawn from over a million employee interviews conducted by Gallup over a 25-year period. The authors ploughed into this mass of data in search of the core elements of a good workplace. The determination of goodness was based on a balance of human, production, and service criteria against which the interview data were matched. (My own study of exceptional companies, detailed earlier in the book, found that the top performers balanced human and financial values. Applying standard statistical techniques, they looked for patterns and discriminating questions. If they could cull the key items, they would be able to identify the things that made a difference.

You will notice that issues of pay and benefits are not included. This does not mean that they are not important. But, as Mr Herzberg found in the 1950s, fair pay and benefits are a given. If your compensation program is not competitive, you won't attract and retain talent. Even if it is better than average, it will not overcome other more important deficiencies. Beyond that, here is what people are saying:

* Tell me what is expected.

* Give me the resources necessary to do the job.

* Fit me into a job that is right for me.

* Recognize my...

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