Maximizing Your Return on People
New tools can show you which investments in employees are driving company performance now and which you should emphasize to advance your strategic goals.
by Laurie Bassi and Daniel McMurrer
ANAGERS ARE FOND OF THE MAXIM “Employees are our most important asset.” Yet beneath the rhetoric, too many executives still regard – and manage – employees as costs. That’s dangerous because, for many companies, people are the only source of long-term competitive advantage. Companies that fail to invest in employees jeopardize their own success and even survival. In part, this practice has lingered for lack of alternatives. Until ...view middle of the document...
Employee and management surveys can be used to gauge and help improve organizations’ capabilities across 23 HCM practices in ﬁve HCM driver categories: leadership practices, employee engagement, knowledge accessibility, workforce optimization, and learning capacity. There is no one-size-ﬁts-all approach to improving organizational performance with human capital management. The HCM practices that have the biggest impact on performance will vary between and within organizations and can change over time. Thus, ongoing evaluation of HCM practices is essential. Managers can use the survey in this article to quickly assess their organizations’ HCM strengths and weaknesses.
in our Forethought article “How’s Your Return on People?” HBR March 2004.) After selecting the HCM best practices that had been previously identiﬁed in organizational-development, HR, and economics research literature as determinants of organizational performance, we developed employee and management surveys to measure their use by organizations. Collectively, the survey questions helped us assess overall HCM activity in dozens of organizations – ranging from service ﬁrms to manufacturers to schools – and identify which measures were most strongly associated with various aspects of organizational performance. This empirical research has revealed a core set of HCM drivers that predict performance across a broad array of organizations and operations. These drivers fall into ﬁve major categories: leadership practices, employee engagement, knowledge accessibility, workforce optimization, and organizational learning capacity. In each of those categories, HCM practices are subdivided into at least four groups. Leadership
This process requires determining a 1 to 5 “maturity” score for each practice. A score of 1 on executive skills, for example, indicates poor performance (low maturity); a score of 5 indicates strong performance (high maturity). (For more on the HCM scoring system, see the exhibit “Your HCM Maturity Level.”) Thus, with multiple surveys over time, evolving maturity scores can reveal progress or regression in each of the HCM practices and help a company decide where to focus improvement efforts that will have a direct impact on performance. We’ve used this tool to analyze and improve the performance of 42 organizations over the past ﬁve years. Our work shows that although organizations should generally strive toward superior HCM across the board, the practices that have the greatest effect can vary within and across organizations and change with time. Like Six Sigma techniques, which reduce defects by managing manufacturing process variations, our HCM methodology can be used to identify and manage process variations in human
Most traditional HR performance metrics – such as employee turnover rates, average time to ﬁll open positions, and total hours of training provided – don’t predict organizational performance.
practices, for example, include those related to...