Investing in People: Financial Impact of Human Resource Initiatives by John Boudreau and Wayne F. Cascio

Nowadays, HR specialists often have to prove that their actions have an impact on the company's efficiency. The authors of the book, relying on their own methodology, propose effective techniques allowing to precisely define the financial results of decisions in the field of HRM and the choices of employees themselves.

Reading Investing in People allows you to:

• use decision theory to invest in the right areas of HRM,

• present in numerical form the hidden costs of absenteeism and staff turnover,

• calculate the effectiveness of selection methods and the value of labor productivity,

• check whether and how employee engagement and attitudes affect business results,

• measure the impact of training programs on the company's profit, calculate the effectiveness of talent management.

Thanks to the use of measures and methods discussed by the authors, HR specialists will be able to propose changes, convincingly justify them to decision-makers, and thus actually improve the quality of work and financial results of the company.

Making HR measurement strategic

In creating the company's personnel policy, not only the directives of the management board but also the perspective of HR departments are important. Currently, only a small percentage of large companies realize that in the world of innovative technologies, the knowledge, experience and know-how of employees allow them to build business competitiveness on the market. Therefore, close cooperation between the management and HR departments is extremely important. On the one hand, "aware" entrepreneurs may require more from HR departments, on the other hand, HR specialists should make employers aware of the important role of a strategic approach to human resources management.

The methods of measuring human capital in companies provide strong arguments in discussions with the management board. In recent years, several such techniques have been developed, but none has gained much popularity, mainly due to the lack of adjustment to the realities of the market and the high degree of complexity.

Thanks to the conclusions and tips obtained from the measurement, HR departments have a chance to develop a partner position in discussions with management boards. Having the analysis needed to build a HR strategy, they will be able to convince the management of the need for well-planned investments in the development of employees' competences.

Analytical foundations of HR measurement

The aforementioned model develops from stages describing the evolution of HR analysis in an organization, from the simplest forms of reporting to the creation of indicators enabling work at a strategic level. According to the authors, in order to build a scalable and reliable analytical system, it is necessary to go through all four stages. So let's take a closer look at each of them.

Stage 1: Operational reporting

This is the early stage of maturity. The priority at this level is the standardization of the process of collecting and storing data. At this stage, the core analytical results are built, keywords of data enabling current HR activities are identified, such as the number of training hours, absenteeism, time needed for implementation for a given position, salary levels in individual departments, etc. At this stage, a dictionary is also created data on descriptions of individual indicators along with its relation to other indicators.

Stage 2: Advanced Reporting

On the maturity transition, move to a more proactive data bar. At this stage of the economic situation, the possibility of observing changes between levels over time, creating norms signaling atypical situations or comparing comparisons by divisions, regions, etc. The collected data can be presented using the so-called dashboards, graphs summary of monitored indicators. The ability to analyze peaks at the peaks in turn opens the way to analyzed data to identify the points underlying underlying trends.

Stage 3: Strategic analysis

At this stage, detailed statistical methods are used. Possibilities that they offer, for example, in the field of data discovery in central points, discussions, as well as the observation of data collected in surveys. At the beginning of the adventure, segmentation enabled the translation of superior ratios, e.g. among sales representatives or managers. It is also possible to build models enabling the determination of value in the field of HR impact on organizational effectiveness it is possible to answer such questions as: or "How much is the topic of increasing sales profits, if the knowledge of sellers about the growth of products increases by 15%? ". It is from this stage that you can talk about the strategic role of HR departments, the impact on the company's success begins.

Stage 4: Predictive analysis

This is the last stage of maturity associated with a greater contribution to the organization's strategy. Once you have already created statistical models taking into account forecasting such as work efficiency, rotation, utilization, absenteeism etc., you can use this knowledge to create far-reaching action activities. For the fourth move, it makes sense to pose difficult questions, such as, for example, “What would happen if our company grew? "Or" What would happen if we implemented a different type of product? ". It becomes possible to analyze various action scenarios along with predicting their consequences and assessing the accompanying risk. The knowledge gathered at the maturity stage is an invaluable resource in strategic management.

Readers will master crucial foundational principles such as risk, return, and economies of scale and use them to evaluate investments objectively in everything from work/life programs to training. Also included are powerful ways to integrate HR with enterprise strategy and budgeting and for gaining commitment from business leaders outside HR.