Jac Fitz-enz
Amacom, 2000
Excerpts:
“Nineteenth-century capital theory claimed that wealth was leveraged from investments in tangible assets such as plant and equipment. It held that workers were entitled to compensation only for their labor since the incremental values of the business came from investment in capital equipment. This type of thinking lit the fire under people like Karl Marx and Samuel Gompers.
Some managers believe in their hearts that rank-and-file workers are not a whole lot smarter than Skinner’s pigeons who learned to peck levers to obtain food pellets. Those managers believe that providing tangible incentives, the human equivalent of food pellets, is the answer. However, it doesn’t matter how tasty the incentives might be; a pigeon who doesn’t know which lever to peck is not going to get a pellet.
Standard accounting fails to solve today’s mandate at two levels. First, accounting looks inside the organization. Its primary role is to conserve the assets of the enterprise. Second, it is focused on the past. If we want an internal, backward look, accounting does the job. Conversely, today we need to focus on the issues that will create wealth, the actions that will extract value from the marketplace. And we need to focus on the future.
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Figure 1‑3. Fifty years of management panaceas. Intellectual Capital‑ Learning Organization Rightsizing ‑ Balanced Scorecard ‑ EVA TQM ‑ Reengineering ‑ 7 Habits ‑ Delayering Downsizing ‑ Customer Service ‑ Benchmarking Kaizen ‑ Empowerment ‑ Continuous Improvement Corporate Culture ‑ Change Management ‑ MBWA Intrapreneuring ‑ Relationship Marketing ‑ Excellence Quality Circles ‑ Diversification ‑ One Minute Managing Work Simplification ‑Needs Hierarchy ‑ Statistical Process Control Organization Renewal ‑ value Chain ‑ Portfolio Management Managerial Grid ‑ Matrix ‑ Hygienes and Motivators ‑ Theory Z Theory X & Y ‑ Plan ‑ Organize ‑ Direct ‑ Control ‑ Human Relations Management by Objectives ‑ Management Science ‑ Decision Tree |
When we look at any metric, we are looking at an effect, not a cause.
Saratoga Institute studied 500+ companies for years and derived eight practices of exceptional companies.
The Foundation
1. Balanced values. What is the human and financial value of….?
2. Commitment. Stick to it.
3. Culture. The ability to attract, motivate, and retain talent. Fortune:
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Top Performer Priorities |
Average Performer Priorities |
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Teamwork Customer focus Fair treatment of employees Initiative and innovation |
Minimizing risk Respecting the chain of command Supporting the boss Making budget |
4. Partnering
5. Collaboration
6. Innovation & risk
7. Communication
8. Competitive Passion
“Bringing people and organizations along as fast as technology is the primary challenge.”
“The principal criticism of human capital measurement is that it is neither as consistent nor as accurate as financial information. This is because people have started measurement programs by adopting unproven external metrics or by making up their own. When the system is not standardized, everyone who comes along is free to change it to suit their personal needs. Then there is no way to compare their view with that of others, since the definitions are idiosyncratic. They build a modern Tower of Babel. However, when a standard set of metrics is established and used consistently over a long period, they are as accurate as a financial system.
One of the major barriers to measuring qualitative, intangible human capital factors is the belief that we cannot demonstrate cause and effect. Many unknown and unknowable forces constantly in action make it impossible to prove anything in business. Nevertheless, being clear about our destinations, knowing the positive and negative forces along the way, and understanding the process necessary for the journey increase the odds that we will travel by the most expeditious route and arrive ahead of the hunch players.
The future is harder to prepare for than the past. A business koan. Email jac at source@netgate.net.
The book concludes with a Composite human capital scorecard, many of whose measures don’t add up for me.
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Figure 11‑1. Composite human capital scorecard. |
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CORPORATE |
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Human Capital Revenue Revenue divided by FTEs Human Capital Cost Average cost of pay, benefits, absence, turnover, and contingents |
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Exempt Percentage Number of exempt FTEs as a percentage of total FTEs Contingent Percentage Number of contingent FTEs as a percentage of total FTEs Accession Rates Replacement hires and hires for new positions as a percentage of the workforce Total Labor Cost Revenue Percentage All labor costs as a percentage of total revenue |
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Human Capital ROI Revenue ‑ (expense ‑ total labor cost), divided by total labor cost Human Capital Value Added Revenue ‑ (expense ‑ total labor cost), divided by FTEs |
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FUNCTIONS |
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Readiness Level Percentage of key positions with at least one fully qualified person ready Commitment Level Percentage of employees committed to the corporate vision and expecting to stay at least three years Depletion Rate Percentage of exempt separations among top‑level performers Performance Level Average performance score compared to revenue per FTE |
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Human Economic Value Added Net operating profit after tax ‑ cost of capital, divided by FTEs Human Market Value Added Ratio of market value to book value, divided by FTEs |
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Satisfaction Percentage Percentage of employees scoring in top quintile of satisfaction survey Corporate Climate Percentage of employees scoring in top quintile of culture and climate survey Outsource Ratio Ratio of employee pay and benefits to outsourced and contingent worker cost Training ROI Return on training investment |
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HUMAN RESOURCES |
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Acquisition |
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Cost per hire Time to fill jobs Number of add hires Number of replacements Quality of new hires |
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Maintenance |
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Total labor cost as percentage of operating expense Average pay per employee Benefits cost as percentage of payroll Health care cost per employee |
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Development |
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Training cost as percentage of payroll Total training hours provided Average number of hours of training per employee Training hours by function, job group |
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Retention |
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Total separation percentage Voluntary separations: exempt/ nonexempt Exempt separations by length of service Cost of turnover |