The ROI of Human Capital
Measuring the Economic Value of Employee Performance
Understanding the intangible benefits of human capital contributions to business development to vital for future success.
The ROI of Human Capital: Measuring the Economic Value of Employee Performance is a book written by Dr. Jac Fitz-enz Ph.D. Fitz-enz is considered by many to be the father of modern efforts to measure human capital contributions related to the success of organizations. Dr. Fitz-enz is Chairman and founder of the Saratoga Institute of Santa Clara, California. The Saratoga Institute is known for its efforts in human resource management research and employee performance benchmarking studies.
Human Productivity - Measuring the ROI (Return On Investment) of human capital centers on the idea that people represent the vitality of any company or organization. Fitz-enz points out that there is no overarching measurement system to determine the value employees bring to corporate profit. Human costs and productivity can be measured in three broad areas of organizational, functional and human resource management. The author’s purpose is to provide a template for measurement of the value people can bring to their work.
Quantifying ROI - Measuring the ROI of human capital requires management to meld the activity of people with financial support information. Financial data can tell you what has happened, but you need input from people to tell you how it happened. The combination of these inputs can be used as a leading indicator of business success that can’t be measured in a profit and loss statement. Organizational, relational and human performance data must be integrated and is necessary for a business to remain viable. Measurement of human capital and its contribution to overall business success is missing from most corporate financial statements. Corporate managers have been slow to realize people are assets and not liabilities. Thus ROI can be defined and measured.
Organizational Processes - Fitz-enz describes organizations existing as a complex set of intertwined processes. Value can be improved through improvements to the five process areas. These areas of interest are instructions, interference, personal performance, feed back and consequences. Improvement in one area will yield benefits in multiple other areas.
This effort by Dr. Fitz-enz represents a concept that would seem apparent to most of us. People are the major cause of success in any enterprise. This attempt to place value in human effort is consistent with the focus of many progressive businesses. Research supports the value of continuing employee education to an organization. This topic has also been addressed by the by the Brookings Institute focused on the national need to understand the impact of intangible sources of value to the economy.
