TM - December 2007 - (Page 15)

[leading edge] by Dr. Jac Fitz-enz F F What a Difference You Make or a very long time, human resources professionals have been attempting to make the case that investing in human capital can have a positive effect on the enterprise’s performance and financial outcomes. Any reasonably sane person knows that institutions of all types depend on people to give them life. All other resources are simply depreciating assets. So, why doesn’t management throw its whole-hearted power behind human resources? Placing the Bet This takes us back to the first point, showing the value of a human capital investment. There are two ways to describe value. One, point to past investments and show their economic return. I use economic, rather than financial, because very often an HR service can drive an economic value that, only later, through astute management, may transform into a financial return. An example of economic value is an employee’s acquisition of skill or effects of various hiring, onboarding, compensating, developing, engaging and retaining programs. Leading Indicators Two Reasons Through nearly 40 years in the human resources Managing human game, I have encountered two barriers to HR’s effecbehavior is much more tiveness. First, HR doesn’t complicated than buying know how to explain in physical assets and business terms the many values investments in turning them on. human capital generate. Almost all data generated in organizations is about the past. Accounting, sales and manknowledge through some developufacturing report past results. mental effort. This is potential value. Human resources shows numbers of It becomes financial value when people hired, trained and lost that skill or knowledge is exercised through turnover in past periods. in doing the job better, faster or Yet, from these data, we make future cheaper. HR needs to learn how to investments in all types of resources. show what difference its services This worked well enough during sta- produce in financial terms. ble markets, but is it adequate for tomorrow’s bet? Second, managing Covering the Bet human behavior is much more com- The second barrier to overcome is plicated than buying physical assets learning what future values may and turning them on. result from longer-term human Making a Choice The good news is, we already have a large number of potentially leading indicators in our databases. To turn a lagging indicator like turnover into a leading indicator, we simply have to drill down. Who left? Why did they leave? At what point in their careers did they leave? Answers to these types of questions, when applied to mission critical skill positions, foretell both the consequences if we don’t change how we manage them, as About the author Dr. Jac Fitz-enz is founder and CEO of the Human Capital Source and Workforce Intelligence Institute. He can be reached at editor@TalentMgt.com. well as the value of managing more effectively. This takes the guessing out of investing. Intangibles such as leadership or engagement can be measured and valued by breaking them down into visible actions. What is it that good leaders do, and what are the results? What do engaged employees do, and what is their performance? I’ll delve into this more in later columns. Tomorrow’s Bottom Line Let’s take them in reverse order. Executives know that people are not easy to manage. No matter what they do, there is no ironclad, linear connection between action and reaction. With a machine, they know that when they flip the “on” switch, the machine will start and do what it is advertised to do (most of the time). So, given a choice between investing in predictable equipment or investing in variable people, the choice is often to go with the reliable entity. If it were your money, where would you place your bet? capital investments. This is akin to buying stocks or betting on sporting events. No matter how much research we do, there will always be an element of risk. HR is a riskaverse profession that has to loosen up. Decision science and computer technology give us the capability to talk with high degrees of confidence about the future of human capital investments. Currently, available research has laid a foundation on which we can build leading indicators and measure intangibles. Now we know how to predict with a high rate of success the Future competitive advantage will most certainly go to those who know how to show the difference between effective and ineffective management of human capital. HR needs to improve its data management skills. The leaders already know that leading indicators and intangibles are the grist of planning and management. Fortunately, that data is at hand, waiting to be applied. 14 December 2007 talent management magazine www.TalentMgt.com http://www.TalentMgt.com

Table of Contents Feed for the Digital Edition of TM - December 2007

Talent Management - December 2007 Editor's Letter Contents Letters to the Editor Human Performance Leading Edge Capabilities The Engaged Difference: What People Want Analytics in Talent Management: The Sports View The Use of Merchandise for Employee Recognition Taking Aim at Performance Appraisals Talent Management Drives Organizational Change Generational Diversity: Mastering the Boomer-X-Y Divide Dashboard: Security-Savvy Workforce: Designing a Security Awareness Program That Works Application: Hilton Hotels Corporation:Checking Out the Merits of Paperless Efficiency Insight: Unlimited Engagement: Innovative Corporate Communication at Deloitte & Touche USA Advertisers' Index Editorial Resources Foundations

TM - December 2007

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