Measuring the Value of Human Capital Investment - Accounting and Finance Assignment Help

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Executives rarely know whether company spending on human capital is financially justifiable. A new tool can help them learn whether they are getting significant return on their investment, as this recent case history of SAP America reveals. C orporate leaders frequently make speeches extolling the value of their human capital, asserting that ‘‘our most important assets wear shoes and walk out the door every evening.’’ But in actuality, corporations often treat people as costs to be managed, especially when earnings numbers are at stake. Even when they do invest in people, they rarely apply the discipline to these spending decisions that they would to budget requests involving technology, product development, plant construction, and so on. Why the disconnect between most leaders’ genuine concern that their corporation recruit and train top talent and their failure to be disciplined about their HR investments? One reason is that executives lack the tools they need to accurately measure the return on investment in human capital. A recent Accenture survey revealed, in fact, that many companies don’t even make the attempt at such measurement. Fewer still attempt to link their spending on human capital processes to actual improvements in the company’s business results. Over the past three years, however, we have developed and used a new measurement tool that assesses the maturity of an organization’s human capital development processes, benchmarks the processes’ performance against other organizations, and determines the relationship of each process to bottom line business results to help executives make significantly more informed choices about their investments in human capital. The tool, known as the human capital development framework, now has been tested in more than 60 organizations[1].

In this article, we highlight how one organization in particular used it to help turn around a struggling business. SAP America’s new strategy In 2002, SAP America, Inc., the North American division of the global software corporation, was in the doldrums. It had consistently missed financial targets for five years, sometimes by as much as 50 percent. It had lost market share, and revenues were declining. Not surprisingly, the division’s customer and employee satisfaction scores were the lowest in the corporation. In addition, the organization did not have strategic alignment between its major parts. To get the business back on track, executives envisioned a change in strategy. The division found itself in a very competitive situation in a perceived maturing market for software sales to large US firms. The executive team knew they would need to expand into the mid-market and sell not just software, but customer-focused solutions and services. This shift would require a change in the division’s culture, to one that brought more accountability.

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