the investment perspective in human resource management

The Investment Perspective The Investment Perspective In Human Resource In Human Resource ManagementManagement

Investment Perspective in Investment Perspective in HRHR

When employees are viewed as variable When employees are viewed as variable costs, there is little recognition of the costs, there is little recognition of the firm’s contributions to their training and firm’s contributions to their training and the costs of recruiting and training the costs of recruiting and training replacements.replacements.

Human capital is not often included in the Human capital is not often included in the determination of an organization’s determination of an organization’s business capitalbusiness capital

HUMAN CAPITAL: 1) highly skilled, 2) HUMAN CAPITAL: 1) highly skilled, 2) knowledgeable, 3) stable labor force knowledgeable, 3) stable labor force

HR INVESTMENT HR INVESTMENT considerationsconsiderations

MANAGEMENT VALUESMANAGEMENT VALUES• Values and philosophies of senior management Values and philosophies of senior management

are communicated through HR policies and are communicated through HR policies and practicespractices

• How employees are treated is a reflection of How employees are treated is a reflection of their values and communicates whether their values and communicates whether organization view employees from an organization view employees from an investment perspective.investment perspective.

• Those adopting an investment perspective seek Those adopting an investment perspective seek to enhance the value of their human capital, pr to enhance the value of their human capital, pr at the very least, prevent their depreciationat the very least, prevent their depreciation


RISKS AND RETURN ON INVESTMENT IN HRRISKS AND RETURN ON INVESTMENT IN HR• Investment in HR is more risky since Investment in HR is more risky since

employer does not own the resource employer does not own the resource unlike machines or technologyunlike machines or technology

• IN order for investments in HR to be IN order for investments in HR to be attractive, the returns must be great attractive, the returns must be great enough to overcome risks.enough to overcome risks.

• Investment in HR may be long-term and Investment in HR may be long-term and benefits may not be direct (I.e., loyalty, benefits may not be direct (I.e., loyalty, organizational commitment, etc)organizational commitment, etc)


ECONOMIC RATIONALE FOR INVESTMENT IN ECONOMIC RATIONALE FOR INVESTMENT IN TRAININGTRAINING• Specific vs. general training in human capital Specific vs. general training in human capital

theory (Gary Becker, Nobel Laureate - Economics)theory (Gary Becker, Nobel Laureate - Economics)– Specific training - skills that are specific to the Specific training - skills that are specific to the

organizationorganization– General training - skills that are transferable to other General training - skills that are transferable to other

employees and other organizations.employees and other organizations.– Employers are generally reluctant to lay-off employees Employers are generally reluctant to lay-off employees

they have invested in specific trainingthey have invested in specific training– however, the distinction between general and specific however, the distinction between general and specific

training is misleading. Few skills are non-transferable.training is misleading. Few skills are non-transferable.


UTILITY THEORYUTILITY THEORY• Attempts to determine the economic Attempts to determine the economic

value of human resource programs, value of human resource programs, activities and procedures. activities and procedures. – To what extent can the results of HR To what extent can the results of HR

programs be quantified?programs be quantified?– ROI considerations particularly in training ROI considerations particularly in training


OUOTSOURCING AS AN ALTERNATIVE TO OUOTSOURCING AS AN ALTERNATIVE TO INVESTMENT IN HRINVESTMENT IN HR• Investments in HR should support Investments in HR should support

organizational strategy (vertical alignment)organizational strategy (vertical alignment)• Strategic outsourcing is advocated whereStrategic outsourcing is advocated where

– world-class capabilities and a strategic advantage world-class capabilities and a strategic advantage can not be developedcan not be developed

– outsourcing is clearly cheaperoutsourcing is clearly cheaper– dependency on suppliers can be avoided dependency on suppliers can be avoided

• Many HR functions have been outsourced: Many HR functions have been outsourced: executive search, executive compensation, etc.executive search, executive compensation, etc.

Mergers and AcquisitionsMergers and Acquisitions

What are the negative implications What are the negative implications of mergers and acquisitions to the of mergers and acquisitions to the investment perspective in HR?investment perspective in HR?

Identify at least three ways in Identify at least three ways in which the investment perspective which the investment perspective in HR can still be upheld even in HR can still be upheld even during mergers and acquisitions.during mergers and acquisitions.

INVESTMENT IN TRAINING INVESTMENT IN TRAINING & DEVT& DEVT

Investments in employability Investments in employability • job security from being employable job security from being employable

not from being employednot from being employed• social security vs. job securitysocial security vs. job security

Increased investment and time Increased investment and time spent in trainingspent in training• apprenticeship trainingapprenticeship training• mandatory training timemandatory training time


On-the-job TrainingOn-the-job Training• cross trainicross traini• self-instruction (CBT)self-instruction (CBT)• personal career and development planspersonal career and development plans

Investments in Management DevelopmentInvestments in Management Development• Job rotation programsJob rotation programs• cross-functional assignmentscross-functional assignments• executive development programsexecutive development programs• mentoring and coaching programsmentoring and coaching programs


Prevention of skill obsolescencePrevention of skill obsolescence• rapid changes in technologyrapid changes in technology• expectancy theory vs. human capital expectancy theory vs. human capital

theorytheory– employee’s expectation of their ability to employee’s expectation of their ability to

acquire new skills and the perceived reward acquire new skills and the perceived reward instrumentality of such skills explain instrumentality of such skills explain employee’s motivation for skill acquisitionemployee’s motivation for skill acquisition

– Many models in preventing skill obsolescence - Many models in preventing skill obsolescence - HP, Intel, IBM, Motorola; the emergence of HP, Intel, IBM, Motorola; the emergence of corporate universities. corporate universities.


Reductions in career plateauingReductions in career plateauing• occurs when employees have occupied a job occurs when employees have occupied a job

for some period, have mastered all aspects for some period, have mastered all aspects of the job, and have few prospects for of the job, and have few prospects for promotionpromotion

• creates resentment and a sense of futilitycreates resentment and a sense of futility• natural consequence of lck of organizational natural consequence of lck of organizational

growth or change growth or change • can be reduced by constant inventory of can be reduced by constant inventory of

potentials vs performancepotentials vs performance

Performance

Potential

WH

PC

DW

STARS

INVESTMENT PRACTICES FOR INVESTMENT PRACTICES FOR RETENTIONRETENTION

Organizational Cultures emphasizing Interpersonal Organizational Cultures emphasizing Interpersonal Relationship Values Focusing on Technical EmployeesRelationship Values Focusing on Technical Employees

Effective Selection Procedures Effective Selection Procedures Equitable compensation and benefitsEquitable compensation and benefits Job enrichment and satisfactionJob enrichment and satisfaction Practices providing for work-life balancePractices providing for work-life balance Creating confidence in the organization’s futureCreating confidence in the organization’s future Focusing on Technical EmployeesFocusing on Technical Employees Liberal HR Policies (e.g. Transfer)Liberal HR Policies (e.g. Transfer) Effective management of diversityEffective management of diversity Prevention of sexual harassmentPrevention of sexual harassment

INVESTMENT PRACTICES INVESTMENT PRACTICES FOR RETENTIONFOR RETENTION

Organizational Cultures emphasizing Organizational Cultures emphasizing Interpersonal Relationship ValuesInterpersonal Relationship Values• respect for peoplerespect for people• team orientationteam orientation• ““fearless” culturefearless” culture• positive relationships with superiorspositive relationships with superiors• absence of conflictabsence of conflict• participation in decision makingparticipation in decision making• informal culturesinformal cultures• information sharinginformation sharing• organizational support for employeesorganizational support for employees

Improved Retention: median was 14 mos longer


Effective Selection ProceduresEffective Selection Procedures• Person-job fitPerson-job fit• Organization-person fitOrganization-person fit• Careful selectionCareful selection• Valid testsValid tests• Improved interviewing techniquesImproved interviewing techniques• Realistic job previewsRealistic job previews

Improved Retention


Equitable compensation and benefitsEquitable compensation and benefits• Fair performance appraisalFair performance appraisal• equitable ratios of inputs to outputsequitable ratios of inputs to outputs• exclusion of politics in compensation decisionsexclusion of politics in compensation decisions• communication of compensation structures and communication of compensation structures and

proceduresprocedures• performance-based compensationperformance-based compensation• pay incentivespay incentives• benefits that are valuedbenefits that are valued


Job enrichment and satisfactionJob enrichment and satisfaction• Building increased responsibilityBuilding increased responsibility• AutonomyAutonomy• Knowledge of resultsKnowledge of results• meaningful workmeaningful work• Enhanced job latitudeEnhanced job latitude• Job satisfactionJob satisfaction

– When high performing employees feel When high performing employees feel undervalued, they tend to have higher undervalued, they tend to have higher turnover ratesturnover rates


Practices providing for work-life balancePractices providing for work-life balance• Alternative work schedulesAlternative work schedules• Child-care servicesChild-care services• family leavefamily leave• TelecommutingTelecommuting• FlextimeFlextime

– Unreasonable workloads found to be Unreasonable workloads found to be associated with turnoverassociated with turnover


Creating confidence in the organization’s Creating confidence in the organization’s futurefuture• setting clear directions for the future and building setting clear directions for the future and building

confidence in the vision of the future improve confidence in the vision of the future improve retentionretention

Focusing on Technical EmployeesFocusing on Technical Employees Liberal HR Policies (e.g. Transfer)Liberal HR Policies (e.g. Transfer) Effective management of diversityEffective management of diversity Prevention of sexual harassmentPrevention of sexual harassment

INVESTMENT PRACTICES FOR INVESTMENT PRACTICES FOR RETENTIONRETENTION

Organizational Cultures emphasizing Interpersonal Organizational Cultures emphasizing Interpersonal Relationship Values Focusing on Technical EmployeesRelationship Values Focusing on Technical Employees

Effective Selection Procedures Effective Selection Procedures Equitable compensation and benefitsEquitable compensation and benefits Job enrichment and satisfactionJob enrichment and satisfaction Practices providing for work-life balancePractices providing for work-life balance Creating confidence in the organization’s futureCreating confidence in the organization’s future Focusing on Technical EmployeesFocusing on Technical Employees Liberal HR Policies (e.g. Transfer)Liberal HR Policies (e.g. Transfer) Effective management of diversityEffective management of diversity Prevention of sexual harassmentPrevention of sexual harassment

INVESTMENTS IN JOB-INVESTMENTS IN JOB-SECURE WORKPLACESSECURE WORKPLACES

Recognition of the costs of downsizing Recognition of the costs of downsizing and layoffsand layoffs• often, it is more cost-effective not to often, it is more cost-effective not to

downsize downsize • often not practical because of LIFO practiceoften not practical because of LIFO practice

Avoiding business-cycle-based layoffsAvoiding business-cycle-based layoffs• offering employment guaranteesoffering employment guarantees• loaning out employees during downturnsloaning out employees during downturns• cost sharing practicescost sharing practices

INVESTMENTS IN JOB-INVESTMENTS IN JOB-SECURE WORKPLACESSECURE WORKPLACES

Offering alternatives to layoffsOffering alternatives to layoffs• direct HR Planning toward employment stabilitydirect HR Planning toward employment stability• placing emphasis on training and retrainingplacing emphasis on training and retraining• lean staffing even during prosperitylean staffing even during prosperity• maintaining stability with buffers (OT, PT)maintaining stability with buffers (OT, PT)• Correcting poor performance and terminating with Correcting poor performance and terminating with

warrantedwarranted• Selecting new employees for long-term Selecting new employees for long-term • Using probationary periods effectivelyUsing probationary periods effectively• Hiring non-specialists when possibleHiring non-specialists when possible• Training for skills needed for next stage of product cycle Training for skills needed for next stage of product cycle

lifelife

NONTRADITIONAL NONTRADITIONAL INVESTMENT in HR INVESTMENT in HR APPROACHES APPROACHES

Investment in disabled employeesInvestment in disabled employees Investments in employee healthInvestments in employee health Countercyclical hiringCountercyclical hiring

the investment perspective in human resource management

Documents

training specific

hr investments

hr policies

hr functions

training devton

training devtinvestments

training replacements

results of hr programs