Importance Of Measuring The Impact Of Human Capital

Questions:

1. Importance of measuring the impact of human capital?

2. Strengths and weaknesses of common people measurement approaches?

3. Strengths and weaknesses of proposed human capital analytics approach?

Answers:

Introduction

In the article, “The Missing Link: Measuring and Managing the Financial Performance of the Human Capital Investment”, author argued that common HR metrics like costs per hire, turnover rate, FTE numbers, etc. have become obsolete. These metrics are not able to measure the effectiveness of human capital. This is one of the reasons that Human Resource Management is not able to evolve as a strategic business function (Chatzoudes, 2011). The objective of this paper is to discuss the impact on human capital on the business. This paper would discuss the measurement approaches as highlighted by the author in the article.

Importance of measuring the impact of human capital

The investment on employees development can be integrated into the organization as an aspect of the HR strategy; investing on human resources development and equipping its human capital to be at a better intellectual position and with the required competency level. Organizational learning has to go hand in hand with the development of the HR practices (Pilbeam and Corbridge, 2010) that assist and "Support the achievement of corporate objective" (Pilbeam and Corbridge, 2010). The measurement of human capital would help organizations to develop growth and development strategies for short-term and long-term.

Strengths and weaknesses of common people measurement approaches

It can be said that the measurement of human capital is a subjective matter. Organizations can have a defined manner to measure the human capital, or employees (people) at different levels can also measure the impact of human capital investment. The major strength of people measuring the human capital is simplicity. The people are well versed with the system and they would find it easy to use metrics within the system. The weakness of people measuring the human capital is applicability. There could be instances when people would measure the outcome, but the application is not good. It would happen in situations where the outdated metrics are used.

Strengths and weaknesses of proposed human capital analytics approach

In the article, author rightly said that analytics and business intelligence have emerged as powerful tools to measure the impact of human capital investment. The major strength of analytics approach is that it helps to map the human capital investment with the financial capital. This approach could help to drive the revenue, margins, human capital value, and shareholder value. The human capital analytics approach enable organizations to focus on data and facts rather than judgments and opinions. The analytics approach also help organizations to integrate the strategic nature of human resource management and transactional nature of human resource management (Guest, 2011). With the use of analytics approach, human resource managers can measure the ROI (Return on Investment). The ROI approach helps organization to quantify the benefits of any investment that they make on human capital.

The weakness of this approach is that this approach does not consider the qualitative information. There could be cases when human resource capital investment has to be made based on the qualitative information and experience of human resource executives. Another weakness of this method is the application of this method. The human resource managers must have the desired skills and expertise to implement the analytics approach (DiBernardino, 2011). I believe that organizations and human resource managers should use a combination of quantitative and qualitative methods. The analytics approach is certainly a powerful too for HR managers. However, organizations should also rely on experience of managers. I also believe that there could be situational factors that could influence the decision of human capital investment.

Conclusion

I believe that senior management should develop a platform where human resource managers and executives can use quantitative and qualitative information to make decision around human capital investment. Organizations must work at developing and creating a culture where individuals openly and freely share information. There must be a level of trust and spirit of cohesiveness and teamwork. This would ensure that the investment on human capital is justified. In the article, author highlighted that investment on human capital could help organizations to focus on strategic nature of human resource management. It would help organizations to achieve their business-level goals and objectives.  

References

Crook, T. R., Todd, S. Y., Combs, J. G., Woehr, D. J., & Ketchen Jr, D. J. (2011). Does human capital matter? A meta-analysis of the relationship between human capital and firm performance. Journal of applied psychology,96(3), 443.

DiBernardino, F. (2011). The Missing Link.

 Guest, D. E. (2011). Human resource management and performance: still searching for some answers. Human Resource Management Journal, 21(1), 3-13.

 Maditinos, D., Chatzoudes, D., Tsairidis, C., & Theriou, G. (2011). The impact of intellectual capital on firms' market value and financial performance. Journal of intellectual capital, 12(1), 132-151.

 Pilbeam, S. & Corbridge, M. (2010) People resourcing and talent planning: HRM in practice. 4th ed. London: Prentice Hall International.