CHAPTER 1:

AN INVESTMENT
PERSPECTIVE OF
HUMAN
RESOURCE
MANAGEMENT
 The Strategic View of Human
Resources
 Employees are human assets that increase in value to the
organization and the marketplace when investments of
appropriate policies and programs are applied.

 Effective organizations recognize that their employees do

have value, much as same as the organization’s physical
and capital assets have value.

 Employees are a valuable source of sustainable

competitive advantage.

1–2
1–3
 Sources of Employee Value
 Technical Knowledge
 Markets, Processes, Customers, Environment

 Ability to Learn and Grow

 Openness to new ideas
 Acquisition of knowledge and skills

 Decision Making Capabilities

 Motivation
 Commitment
 Teamwork
 Interpersonal skills, Leadership ability

1–4
 Adopting an Investment Perspective

 Human assets are core 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.)

 Required skills become less manual, more knowledge-based

 Appropriate, integrated, strategy-consistent approach is needed

1–6
 A Dilemma

 Failure to invest in employees causes

 Inefficiency
 Weakening of organization’s competitive
position
 Human assets are risky investment
 Require extra effort to ensure that they
are not lost

1–7
 Retention Strategies

 Employee growth and training and development

 Pay for performance programs

1–8
Hygiene factors (extrinsic
factors)
Better pay and working condition
These factors just keep the
employees from becoming
dissatisfied
Adding more of these factors will
not generate extra motivation for
the employees
Motivators (intrinsic factors)
Recognition, appreciation and
providing challenging work
The best way to motivate a person
is to provide with motivator factors
Adding more of these factors will
enrich the job and get the
employees further motivated
Valuation of Asset and Types of
Organizational Assets/Capital

1–10
 Research Findings

 HR practices directly related to profitability & market

value

 Primary reason for profitability:

 Effective management of human capital

 Integrated management of human capital can result in 47%

increase in market value

 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

 90% of Fortune 500 organizations evaluate HR

operations on basis of three metrics:
 Employee retention and turnover
 Corporate morale
 Employee satisfaction

 These metrics do not necessarily illustrate how

HR impacts
 Profits
 Shareholder value

1–13
 Mercer Model of Measuring HR
Impact
 Identify a problem HR can impact
 Calculate actual cost of the problem
 Choose HR solution that addresses the problem
 Calculate the the cost of solution
 Calculate value of improvement 6 to 24 months after
implementation
 Calculate specific return on investment
 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

 Senior Management Values & Actions

 Managers need “investment orientation” toward people

 Attitude Toward Risk

 Investment in human resources inherently riskier
 Human assets never absolutely “owned”

 Nature of Skills Needed by Employees

 The more marketable employee skills, the riskier the
firm’s investment in skill development

1–16
 Investment Orientation Factors

 Utilitarian (“Bottom Line”) Mentality

 Attempt made to quantify employee worth
through cost-benefit analysis
 “Soft” benefits of HR programs difficult to
objectively quantify
 Availability of Outsourcing
 Given availability of cost-effective
outsourcing, investments in HR should
produce highest returns & sustainable
competitive advantages.

1–17