An investment perspective of HRM Learning outcomes: Context of SHRM Investment perspective Valuation of Assets Understanding and measuring human capital

An investment perspective of HRM

Learning outcomes:• Context of SHRM• Investment perspective• Valuation of Assets• Understanding and measuring human capital• HR Value chain• Factors influencing how “investment oriented” an organization is

• Nordstrom:– How can retailer gain a competitive advantage in a cutthroat

marketplace?– Nordstrom, has consistently produced above industry average profits

and continued to be profitable when its competitor’s profit were falling or flat.

– Nordstrom’s success lies with the different way its manages its employees

– Sales employees???– Superlative customer services– Heavy investment in the organization’s sales force– Extensive training


Effective organization:

• Source of competitive advantage is not only from product design or service,

marketing strategy or financial services but having appropriate systems for

attracting, motivating, retaining and managing organization’s HR.

• Adopting a strategic view of HR, in large part, involves considering

employees as human Assets.

• Appropriate polices and programs as investment in human assets to

increase their value to the organization and market.

•What an asset actually is; something of value and worth

•Employees do have value and worth

•Sources of employee value


Sources of employee value• Technical knowledge:

– Markets, customers, processes, environment

• Ability to learn and Grow– Openness to new ideas, acquisition of knowledge/skills

• Decision making capabilities• Motivation• Commitment• Teamwork

– Interpersonal skills– Leadership ability


Adopting an investment perspective• Physical and Capital assets in organizations such as plant, property, machinery, and technology are acquired and subsequently managed most effectively by treating them as investments.

• Return of such expenditures?• Expense of new training program for employees• Costs against potential benefits of training• Taking investment perspective towards HR is critical


Invest in physical assets:• Facilities• Products• Services• Technologies• Markets

Human assets can not be duplicated and become competitive advantage!!!!

Critical for organization to select to invest in physical or human assets

What do you think????????


Valuation of Assets:


Ease of measurement

More Difficult

Financial

Physical

Market

Operational

Human

Equity, securities, investment, receiveables

Plant, land, equipment, raw materials

Goodwill, branding, product line, customer loyalty, trademarks

Management practices, technology, structure of work

Education, knowledge, skills, competencies, personal

relationship

Understanding and measuring human capital

• HPWS???– Demonstrated that integrated, strategically focused HR

practices were directly related to profitability and market value.

– Organizational profitability is the effective management of human capital

– Human capital can result in up to 47 percent increase in market value

– Variety of HR management quality indices found that organizations enjoyed 391 percent on ROI in human capital

– Its HR value chain……


HR value chain:• Performance could be measured via four

different sets of outcomes;– Employee– Organizational– Financial– Market basedSequential cause – and – effect relationship


• HR value chain


Employee outcomes

• Attitudes• Behavior

organizational outcomes

• Productivity • Quality

Financial/ accounting outcomes

• Expenses• Revenues

• profitability

Market based outcomes

• stock price

• Factors influencing how “investment oriented”An organization is???– Management values– Attitude toward risk– Nature of employee skills– Utilitarianism– Availability of outsourcing


• Management Values– Management appreciate the value of its human

assets relative to capital assets such as brand names, distribution channels, facilities and equipment.

– Organization see its people as being central to its mission?

– Role of human assets in achieving goals?– Management philosophy encourage the

development of employees?


• Attitude towards risk:– Trade off exist between risk and return– Higher risk investments generally are expected to

have a greater potential returns– Lower risk, safer investment– Invest on human asset is more risky than physical– Investment on employees in necessary for success

or invest on physical resources for competitive advantage


• Nature of employees skills:– Specialized skills– Applicable widely in industry– Specialized training– Retention strategy– Marketable skills– Demanded skills or less marketable


• Utilitarianism:– Mentality of the organization– It should be useful and practical rather than

attractive– Cost benefit analysis– Difficulty to quantify


• Availability of outsourcing– Cost effective outsourcing– Investment produce a sustainable competitive

advantage– Employees in fast food industry– McDonalds, invest in their people or physically?


Documents

An investment perspective of HRM Learning outcomes: Context of SHRM Investment perspective Valuation of Assets Understanding and measuring human capital