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The ROI of Human Capital: Measuring the Economic Value of Employee Performance

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Perhaps you have already read The 8 Practices of Exceptional Companies. Fitz-enz adds substantially to his international renown with this more recent book in which he suggests all manner of ways to measure the economic value of human capital. In the Preface, he suggests that (in business terms) human capital be described as a combination of factors such as these:

* The traits one brings to the job: intelligence, energy, a generally positive attitude, reliability, commitment

* One's ability to learn: aptitude, imagination, creativity, and what is often called street smarts", savvy (for how to get things done)

* One's motivation to share information and knowledge: team spirit and goal orientation

As Fitz-enz then explains, Chapter 1 takes the first steps toward a methodology for measuring the return on investment (ROI) of human capital. Chapter 2 launches the process of finding the ROI of human capital from an unusual "starting point": rather than begin with process improvement at the lower organizational levels, focus at the highest possible levels on "the goals of the enterprise." Chapter 3 is the "bridge" between the enterprise and the human capital management levels. Chapter 4 brings us to "the drivers of all enterprise success": people." Chapter 5 integrates the three levels (enterprise, process or function, and people), combining them "in one end-to-end system of human capital valuation reporting." Chapter 6 moves to the next level: trending and predicting. Chapter 7 dissects five of the most common human resources and human capital initiatives, demonstrating HOW to find economic value in the workings of each. Chapter 8 reports on two of the longest-term, largest-scale studies of human capital management. Chapter 9 explains what is required for an organization to take a quantum leap" over its competition. Chapter 10 provides a "compilation" of eleven "guiding principles" which serve as "The Foundation Stones of the Human Capital Measurement Pathway." And then in the final chapter, Fitz-enz brilliantly sums up the basic measurement system. Note in particular Figure 11-1 ("Composite human capital scoreboard") which provides an excellent model to guide and inform the efforts of any organization, regardless of its size or nature.

With very few exceptions, an organization's greatest assets do indeed "walk out the door" at the end of each business day. For those who are eager to measure human capital more accurately, who then wish to create for their organization a much greater return on investments in its human resources, this is an absolutely indispensable resource to help achieve those objectives.

"In the closing years of the twentieth century, management has come to accept that people, not cash, buildings, or equipment, are the critical differentiators of a business enterprise. As we move into the new millennium and find ourselves in a knowledge economy, it is undeniable that people are the profit lever. All assets of an organization, other than people, are inert. They are passive resources that require human application to generate value. The key to sustaining a profitable company or a healty economy is the productivity of the workforce, our human capital...Drucker claims that the greatest challenge for organizations today and for the next decade at least is to respond to the shift from an industrial to a knowledge economy...This shift toward knowledge as the differentiator affects all aspects of organizational management, including operating efficiency, marketing, organizational structure, and human capital investment...Since employee costs today can exceed 40 percent of corporate expense, measuring of the ROI in human capital is essential. Management needs a system of metrics that describe and predict the cost and productivity curves of its workforce" (pp.1-3).

Within this general framework, Jac Fitz-Enz argues that without measurement we cannot:

* communicate specific performance expectations.

* know what is going on inside the organization.

* identify performance gaps that should be analyzed and eliminated.

* provide feedback comparing performance to a standard or a benchmark.

* recognize performance that should be rewarded.

* support decisions regarding resource allocation, projections, and schedules.

In short, he argues that "if we don't know how to measure our primary value-producing assets, we can't manage it".

On the other hand, in Chapter 1, he displays many of the management panaceas that have hit the market in the past fifty years as follows:

** 2000 ? ? ? ? ?

-Intellectual Capital-Learning Organization

-Rightsizing-Balanced Scorecard-EVA

** 1990 -TQM-Reenginering-7 Habits-Delayering

-Downsizing-Customer Service-Benchmarking

-Kaizen-Empowerment-Continuous Improvement

** 1980 -Corporate Culture-Change Management-MBWA

-Intrapreneuring-Relationship Marketing-Excellence

** 1970 -Quality Circles-Diversification-One Minute Managing

- Work Simplification-Needs Hieracchy-Statistical Process Control

- Organizational Renewal-Value Chain-Portfolio Management

** 1960 -Managerial Grid-Matrix-Hygienes and Motivators-Theory Z

-Theory X&Y-Plan-Organize-Direct-Control-Human Relations

** 1950 -Management by Objectives-Management Science-Decision Tree

I highly recommend this 'must' reading study to all executives and HR practitioners.

This book is a must reading for all human resource professionals and a must in all libraries. I found this book very interesting and being a human resource professional myself, this told me methods and introduced me to many tools in which the human resource can be quantified and accountability can be broughtinto this department, especially HR department. Wonderful book and it makes Human capital accounting sounds practical, feasible and logical. Worth every penny

Jac Fitz-enz presents a breakthrough approach to measuring your return on investment (ROI) in human capital. This book could have been dull, dry and dusty in someone else's hands, but instead is absorbing and a pleasure to read. Using studies done by the Saratoga Institute - his own facility - and drawing upon the work of other researchers as well, the author places this new methodology in the context of today's business challenges, including e-commerce. He pinpoints satisfaction as the baseline value employees pursue, and shows how you will profit by working toward employee fulfillment. We from getAbstract highly recommend this book to those in human resources, and to managers, executives and entrepreneurs who run their own businesses.

This review was written and published by Barbara Jacobs forBOOKLIST, a national book review service.... Wall Street has long shunned the notionthat employee satisfaction or dissatisfaction impacts the corporation's bottom line. Esteemed consultant and prolific author (The 8 Practices of Exceptional Companies, 1997) Fitz-enz balances the scorecard with his metrical and sometimes lyrical evaluation of employees---aka "human capital"---which he calls ROI. In fact, this is a scholarly tome well worth reading by more than the HR crowd; in it, he sets forth guidelines to measure the effect of human performance as well as improvement initiatives such as restructuring and outsourcing. Some are mathematical formulas, which, after a careful drilling down through, are less intimidating. Others reflect a wise and commonsensical review of other management gurus' findings, a recap and then a reapproach. One example of why benchmarking fails is that the initiative is defined in too broad a scope---or, in the author's words, "don't take on world hunger." Solid business wisdom that allows for humanity and humor. ---Barbara Jacobs

By Jac Fitz-Enz, 2nd edition (AMACOM, 2009)

How do successful organizations recruit and retain high contributors that increase the bottom line? Through strategy.

The twenty-first century has brought along an immense wave of innovations, including a new need for the structure of human resource departments. Upon reading through the first few pages, it is clear that the old strategies and methods utilized by human resource managers and professionals requires a fresh approach and Fitz-Enz does not wait to near the end of the book to propose his grand ideas. Recruiting high contributing employees is more than mere work performance, it is about developing fully satisfied and consistently engaged employees that will result in a high return on investment (ROI) and low turnover. The value of an employee is ultimately calculated using four potentialities: productivity, promotability, transferability, and retainability. Fitz-Enz notes that the human capital return on investment truly begins with a complete examination of the capacity of an organization to deal with the external world.

"Prediction is a fine but dangerous art," Fitz-Enz states on page 165. When computing current patterns and trends, careful examination and statistical testing are necessary to verify the hypotheses with the actual outcomes. Fitz-Enz cautions organizations to always be prepared, competent, and ready in the event of an unforeseen emergency. Having these key attributes, coupled with leadership, engagement, knowledge management, customer satisfaction, and loyalty, organizations will have the future capability to ensure continued success. Fitz-Enz touches on the history and rebirth of some American organizations, emphasizing the significance of using the past as a textbook.

Chapter ten opens with a quote by Norman Vincent Peale, "Change your thoughts and you change your world." Fitz-Enz focuses on core organizations in today's world and how they changed the game in terms of organizational competitiveness. Learning has to be taught by doing. During the last chapter of the book, Fitz-Enz shares his own philosophies and skills that organizations can utilize to enhance their performance and peace of mind. Fitz-Enz closes with suggestive words of encouragement, "People will remember the difference you made." This book is invaluable for business executives, students, and entrepreneurs that want to learn how to modify current human resource practices to better perform in today's world.

The speed at which this book was delivered was amazing! The content of the book and the condiditon in which it was recieved, surpassed my expectations.

Thank you

... but only an average read for a seasoned Leader. Although, if you are looking for another read for the month it has some valid reminders.

This book is one of the most interesting publication come across. As a BIG 5 Consultant to implement HUman Capital Solutions, its important to have a new world picture for Human Resource. Away from the traditional practices of reporting HR performance and standard set of reports, this book highlights the new views and ideas.

It is worth to have in your bag, when you are going for a HR assignment. It impress the HR professionals...