The ROI of Human Capital

Measuring the Economic Value of Employee Performance

The ROI of Human Capital

Author:Dr. Jac Fitz-enz
Pub Date: February 2009
Print Edition: $19.95
Print ISBN: 9780814436738
Page Count: 336
Format: Paper or Softback
Edition: Second Edition
e-Book ISBN: 9780814413357

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CHAPTER 1: Human Leverage

‘‘We can have facts without thinking but we cannot have

thinking without facts.’’


The Shift

No longer is management of the human resources department

a human resources issue. When personnel and training

came into being during the 1930s, it was in response to

the growing strength of organized labor. The main contribution

of personnel and industrial relations was to deal with

that incursion. After World War II, as corporations expanded,

there was a need for someone to handle the administrative

issues around employees. Personnel got the job. By

the late 1960s, it was becoming clear that there were more

complex challenges, so personnel changed its name to

human resources. Today, the game is human capital management.

Conceptually, this is recognition that people are

the bedrock of the organization as we stumble into the Intelligence

Age. The fundamental question has become, how do

we improve the return on our investment in human capital?

We find ourselves in a world where yesterday is a distant

memory and tomorrow is an uncertain dream. The only reality

is now. Yet, by taking the long view of any issue, we

better understand not only where we have come from and

where we are now but perhaps where we might be headed.

Consider how a technology such as telecommunications has

evolved. It started as a box on the wall with a crank and a

gizmo to talk into. Some people believed that it was a fad

and that they didn’t need one. Today, it is a gizmo stuck in

your ear or a pad hung somewhere on your body and don’t

try to tell your teenagers that they don’t need one.

So what does this have to do with managing organizations

and especially with understanding how people—that

is, human capital—need to be addressed within our organizations?

Here is where it goes three-dimensional. The issue

is not only the structure of organizations and the people

within them. Now the external entity, the customer, has entered

the organization in a new and as yet not clearly understood

way. Whether we recognize the fact or not, the

customer is as much a part of our companies as are our

physical and human assets. The three types of capital—

structural, human, and relational—are rapidly merging into

just structural and human with what was the external relations

(the customer) now imbedded in everything we do internally.

Let me try to explain it by paralleling it with the evolution

of electronic technology. Computers became a reality with

the production of ENIAC, which was the first truly workable,

large-scale computer. By large, I mean room size.

ENIAC was born in 1945 as a mass of vacuum tubes that

truly took up the space of a room. Twenty years later, IBM

came out with the System/360 that brought computing into

the business world in a somewhat user-friendly way. Two

decades later, minicomputers were common and the micro-

computer appeared. The first portable computer weighed

more than 20 pounds. Today, laptops weigh less than 5

pounds. BlackBerrys and similar devices weigh only 5

ounces and provide more computing power than ENIAC. So

what? Stay with me, there is an end and a point to this


As the computer and lately the telephone evolved and

merged capabilities, the critical challenges also advanced

from hardware to software to services. The product capability

has grown to the point where the customer and the product

are virtually inseparable. Today’s telephone/computer is

no longer in a room, on our desk, or in a purse or briefcase.

It is attached to our ear. Already that gizmo is taking simple

switching voice commands. Tomorrow it will do our computing

verbally as we walk, drive, or sit on our patio. Arguments

over any topic from who won the Stanley Cup in 1948

to where was da Vinci when he painted the Mona Lisa to

what was Tonto’s pet’s name will be settled without lifting a


Ten years ago, I told people at PeopleSoft that they

needed to move toward services as the next natural evolutionary

step. They told me to get lost. Lou Gerstner saw the

future and had the power to shift IBM toward service. In

2007, over 60 percent of IBM revenues came from services.

The reason that the customer is now part of our organization

is that we no longer sell a product or provide a service.

We design, sell, and service a customer experience. We are

stuck in the customer’s ear, literally and figuratively. No

matter what our product, because of the customer’s emerging

capabilities and the expectations that are coming with

them, we are selling experiences.

Steve Berkowitz, former CEO of and later senior

vice president of Microsoft’s online business group, hit it

squarely in words that are paraphrased here:

We have to deliver the basics but that isn’t going to get us to

the top. Customers go where their emotions take them. We

have to give the customer the richest experience they want

NOW. In order to do that, I say we have to live 24/7 with the


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