Unless they’ve been asleep at the wheel, employees with more
The question that many companies want
This story is based on an actual case. ConstructCo is a subcontractor in the highly competitive commercial building market. Its executives knew that profitability and growth depended on its being very competitive on price. Since labor was a major component of their total cost structure, the company’s building crews had to be highly productive. ConstructCo’s executives believed that length of service increased productivity. However, long-term employees performing jobs with high physical demands also tended to be costly in terms of health claims, disability, and absenteeism. Those highly tenured employees were paid considerably more than people with less experience or years of service were. What was the economic value of long-term service to the company after overall employment costs were accounted for?
The only way to answer that question was to dig out the facts by using ConstructCo’s HR and payroll records and measures of productivity. After controlling for other influences, such as location and on-the-job training, the answer became clear: Employment costs eventually outpaced tenure-
A key principle for managing human capital effectively is the importance of focusing on value. It is easy to measure workforce costs. It is decidedly more difficult and unfamiliar to measure the value created by human capital attributes and practices. Difficult and unfamiliar as it may be, measuring value is now possible. Facts, not assumptions or expectations, are the key to discerning which people practices and attributes drive value. With such knowledge managers can make wise choices about where to invest and what to do and ground those choices in the unique system that is their organization. Remember the following points:
Cost is not the same as value. Organizations are adept at measuring the costs of their human capital, but few have a precise sense of the value it creates.
Sources of value include human capital attributes such as tenure, experience, and professional credentials and organizational practices such as reward systems,
Tools and procedures exist to get the facts about which human capital attributes and practices most drive value in an organization.
Facts about the value created by human capital enable an organization to manage that intangible asset with greater sophistication and effectiveness than previously was thought possible.