Reflecting on your experiences from either your current employment or past employment, and on your readings from Chapter 1, please respond to the following questions. Give examples to illustrate your responses.

PLEASE ANSWER BOTH QUESTIONS.

1. Why do line managers often fail to realize the value of human assets vis-à-vis other assets?

2. What can HR do to make senior and line managers take more of an investment approach to human assets?

USE NOTES BELOW FOR HELP.

CHAPTER 1 SUMMARY

AN INVESTMENT PERSPECTIVE OF HUMAN RESOURCE MANAGEMENT

A. OVERVIEW

This chapter introduces the concept of treating human resource management processes, practices and procedures from a strategic point of view.

The skills and knowledge possessed by individuals can be valuable assets to any organization, and should be treated as such. Organizations should understand how to value/measure and manage from an investment point of view all assets, including those related to their employees.

However, many factors can influence the investment orientation of an organization. Understanding the risks and benefits to the organization of investing in human capital is of great importance.

B. LECTURE OUTLINE

OPENING CASE - NORDSTROM

A strategic competitive advantage for Nordstrom includes a successful human resource (HR) approach, involving heavy investment in their sales force of associates. Nordstrom consistently produces above-industry-average profits and has continued to be profitable when its competitors have declined or fallen flat.

INTRODUCTION

The human element is often the most important element of performance. Thus, appropriate resources and investments must be committed by any organization to facilitate systems for attracting, motivating and managing human resources. Adopting a strategic view of HR involves considering employees as "human assets," and developing appropriate policies and procedures to manage them as valuable investments.

SOURCES OF EMPLOYEE VALUE

1. Technical Knowledge

2. Ability to Learn and Grow

3. Decision Making Capabilities

4. Motivation

5. Commitment

6. Teamwork

ADOPTING AN INVESTMENT PERSPECTIVE

1. Characterizing employees as human assets implies the strategic management of human resources should include considering HR from an investment perspective.

2. Cost/Benefit basis analysis may be used to evaluate HR programs, such as training and development.

3. Investment perspective toward human assets facilitates their becoming a competitive advantage as most other resources/assets can be cloned, copied or imitated by competitors.

4. A strategic approach to HR, however, does not always involve a human relations approach to employee relations, as noted in the Managing Employees at United Parcel Service example

5. Investments in employees must be undertaken in tandem with strategies to retain employees long enough to realize an acceptable return on investments in employees. This requires valuation of the employee as an asset, which can be difficult to do.

VALUATION OF ASSETS

TYPES OF ORGANIZATIONAL ASSETS/CAPITAL - from easiest to most difficult to measure

1. Financial

2. Physical

3. Market

4. Operational

5. Human

UNDERSTANDING AND MEASURING HUMAN CAPITAL

1. Employees are both a significant resource and significant cost for an organization, thus employee contributions to the bottom line must be measured.

2. Watson Wyatt Worldwide found the primary reason for organizational profitability is the effective management of human capital.

3. Dyer and Reeves defined the HR "value chain," arguing performance could be measured via four different sets of outcomes: employees, organizational, financial and accounting, which have a sequential cause-effect relationship on each other.

4. Employees are increasingly attempting to develop and measure meaningful HR metrics to aid them in developing effective strategies for managing human capital.

5. Fortune 500 firms often evaluate HR in limited, non-monetary ways, including dimensions of retention, turnover, corporate morale, and employee satisfaction

6. Accounting practices tend to favor valuation methods stressing past and current asset value, while much of the value of human assets lies in the future. Thus, organizations must be future-oriented in valuing HR.

7. Measuring Human Assets/Capital at Dow Chemical example illustrates how Dow as developed two meaningful metrics; expected human capital return and actual human capital return.

Six step model of valuation of HR initiatives

1. Identify specific business problem that HR can impact

2. Calculate actual cost of the problem

3. Choose an HR solution that addresses all or part of the problem

4. Calculate the cost of the solution

5. After implementation, calculate the value of the improvement

6. Calculate the specific return on investment (ROI)

7. HR must provide senior level management with value-added human capital investments.

8. Moneyball and the Oakland Athletics example illustrates how nonconventional staffing metrics analytical techniques resulted in championship teams despite these teams having one of the lowest payrolls in the "industry."

HUMAN RESOURCE METRICS

1. Wall Street analysts still generally fail to acknowledge human capital in assessing the value of an organization and the effect that human resources can have on stock price

2. This is rooted in the fact that there are no "standard" metrics or measures of human capital, much as there are for other organizational assets.

3. Exhibit 1.4 lists some Common HR Metrics while Exhibit 1.5 displays the means of calculating five common metrics. However, the appropriate metrics for any given organization will be dependent on that organization's strategy.

4. Labor Supply Chain Management at Valero Energy describes how Valero has applied principles of supply chain management to its staffing and employee development functions.

FACTORS INFLUENCING "INVESTMENT ORIENTATION" OF AN ORGANIZATION

Exhibit 1-6 describes the major factors which influence how investment oriented an organization is:

Management values

Utilitarianism

Attitude toward risk

Availability of outsourcing

Nature of employment skills

CONCLUSION

1. Effective strategies to manage human assets utilize HR practices and policies are in sync with the organization's overall strategy and encourage the organization to invest in its best opportunities.

2. Organizations should retain employees at least to the point of achieving an adequate return on investment.

3. Organizations often do not follow an investment perspective of HR because it involves making a longer-term commitment to employees, and all human assets and their contribution to the bottom line must be assessed, which can be difficult.

4. Once an organization develops a competitive advantage through its employees, the positive outcome is likely to be enduring, and difficult to duplicate by competitors.

5. Although investment in human assets can be risky and the return long to develop, investment in people continues to be the main source of competitive advantage for organizations.