|What Is Your Return on Investment in People? |
By Scott Anderson, managing partner of OI Partners—West Michigan
Wednesday, 2nd October 2013
The largest contributing factor to your organization’s day-to-day performance and profitability is hiding in plain sight on your annual financial statement, absorbed as a huge expense within the more easily measured operating results and key ratios.
While many, if not most, organizations affirm that “people are our greatest asset,” try finding it on a consolidated balance sheet. The auditors diligently monitor and record the value of current assets, property and equipment less depreciation, notes receivable and other assets to determine something called Total Assets (not including, of course, our greatest asset).
Paradoxically, no organization actually owns its greatest asset, so we really cannot beat-up on the already beleaguered accounting profession for failing to measure its value. However, just because ROI in People – or human capital, to use the emerging phrase – represents a kind of performance not measured by generally accepted accounting principles, should we not pay closer attention to it?
Evidence is mounting that directly links the disciplined management of human capital to significant increases in shareholder value, during good and bad times alike. In their book, The Human Capital Edge (McGraw-Hill, February 2002), researchers Bruce Pfau, Ph.D. and Ira Kay, Ph.D. compellingly document how specific human capital management practices can drive the bottom line up (or down) by millions of dollars.
Perhaps not surprisingly, the companies tracked by Pfau and Kay that maximized shareholder value concentrated on recruiting and retention excellence, total reward and accountability, collegial / flexible workplaces, open communication and focused HR technology. The strategy clearly works, and it is a lot less perplexing than say, quantum mechanics. Nonetheless, even the best strategy is only as good as its implementation.
That brings us to the role of leadership. In order to achieve the kind of financial results presented in The Human Capital Edge, senior leaders will need to ask themselves: “If our human capital really is an asset, is it appreciating or depreciating? If it is just another cost of doing business, are we getting our money’s worth? How do we know?” Perhaps then, as Human Asset Portfolio Managers, they can begin to introduce a new business literacy, one which affirms that only through its people can an organization’s wisdom and creative energy flow.
Scott Anderson is the managing partner of OI Partners(West Michigan). A leadership resource in securing the advantages of organizational change, the firm specializes in Leader Development, Performance Improvement, Career Realignment and Transition/Outplacement.