Are Your Human Assets Outperforming the Market?

By Fitz-Enz, Jac | Management Review, February 1997 | Go to article overview

Are Your Human Assets Outperforming the Market?


Fitz-Enz, Jac, Management Review


The apologists for the value of people have pushed the notion of employees as assets or human capital. So, now the question for top management is, "How are your human assets performing against the market?"

Until recently, there has been no consistent and effective way to answer that question. Over the past 11 years, the Saratoga Institute, under the sponsorship of the Society for Human Resource Management, has developed a database on 30 employee-related productivity, time, cost and volume factors. The Institute's Human Resource Financial Report (HRFR) presents and updates norms annually from more than 600 companies in 20 industries. It tells what and how the best performers are doing around the issue of managing their human assets.

A four-year study of the practices of the best performers in Saratoga's 600-plus company population yielded surprising results. Those firms that produced the best human asset management numbers also had the best financial performance. This should not be amazing. What was a surprise was how they outperformed the market.

The top performers shared eight beliefs, traits and stratagems that were not common to the other 90 percent of Saratoga's population. These were not programs or, even, policies. They were and are the antecedents of what some people have erroneously called best practices. It is clear that best practice is not a program but, rather, a way an enterprise forms and manages itself, including the manner in which it conducts its business within a community or society. The eight factors are: values, commitment, culture, communication, partnering, collaboration, innovation and risk, and competitive passion.

Saratoga recommends establishing an index of six to 10 human asset measures that you feel best represent your operation. A sampling:

Human value added. Rather than Revenue Per Employee, try a more sophisticated indicator: Revenue minus cost of goods and operating expenses (excluding pay and benefits). The resulting adjusted profit figure is divided by pay and benefits to produce a ratio of human value added.

Return on compensation. Another view of human return on investment is total compensation (payroll and benefits) as a percent of revenue. Now, the direct connection between compensation and total sales is visible.

Turnover cost. Saratoga's studies show that the internal cost of losing 10 professionals is typically well over $1 million, derived from termination, hiring and job vacancy costs and lost productivity. In addition, there are such hidden costs as lost sales, missed shipments and poor customer service.

Whatever measurements you choose, hold your managers accountable for achieving certain human performance goals, and set functional goals for the human resources department itself. If you commit to human asset management along these lines, the evidence strongly favors improved financial results and effective positioning of your company to meet future challenges.

AMA'S TOKYO CENTER OFFERS WESTERN EXPERTISE

AMA's Global Center in Tokyo has been offering the full range of AMA products and services to our members and client companies for more than three years.

"AMA offers international expertise from all over the world to our Japanese clients," reports Wolfgang Lux, the center's general manager. "That--plus the practical business experience of our trainers--is what sets AMA apart from our competitors in this market," he says.

"Our clients know that they need to learn Western business skills," Lux continues. The great majority of the center's work is to provide seminar training to Japanese nationals--not Western expats living in Japan--who work for Western companies in Japan.

A full 95 percent of the training is delivered in Japanese, and the most popular topics are sales and marketing, and presentation skills. Some of these courses are entirely new, others were adapted from existing AMA programs developed in Europe and the United States.

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