The ROI of Human Capital

Paper Summary:

This paper reviews literature concerning ROI (return on investment) and human capital and looks at examples of companies and how they effectively managed human capital to enhance their ROI. The paper then uses this information to assert that the ROI of human capital can be measured and that this knowledge is essential to the health of a company. The paper also points out that one of the most important aspects of human capital management is effective communication within the company.

From the Paper:

"While TQM (Total Quality Management) and JIT (Just In Time) were industry watchwords in the 1990s, after the change of the millennium, those purely statistical measures of organizational excellence seem limited. The new corporate landscape is littered with the bodies of organizations that did everything right; they just did the wrong things right, and, in retrospect, paid more attention to process than the people who operated those processes. The new watchword seems to involve human measurements, infinitely more difficult than process measurements as required by TQM and JIT types of programs. Even more difficult is providing an assessment of how good capital management practices can affect ROI. It is easy to see that too much downtime on an assembly line can damage ROI; the costs of the equipment are known, as are the profits of its products. But when humans have "down time" it is often not noticeable, never mind measurable. Still, there are factors that are known about operating humans; for instance, communication is essential. IN addition, there are companies with good human capital management styles, and bad. Each of those companies will have a financial picture; correlating the ranking of a company's human capital management function with its financial picture is a guidepost to finding the best practices in human capital management for producing a desirable ROI from investments in human capital."

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