It is well known that employees and their skills, abilities represent a significant asset for organization. It is an serious issue for any organization to measure this value as well as its contribution to the organization.

1. VALUATION OF ASSETS

2. There are basically five(5) kinds of assets/capital
that organization can leverage to aid in
performance and add values to operations
 Financial assets/capital.
 Physical assets/capital.
 Market assets/capital.
 Operational assets/capital.
 Human assets/capital.
Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM

3. Ease of
measurement
Easier
Examples
• Equity
•Securities & investments
•Account receivable
• Financial
• Physical
•Plant
•Land
•Equipment
•Raw materials
• Market
•Goodwill
•Branding
•Customer Loyalty
•Distribution Networks
•Patents,trademarks,copyrights
• Operational
•Management Practices
•Structure of work
•Technology
• Human
More difficult
-Education
-Knowledge
Jayant Isaac,Asso.Professor –
-Skills
Mkt.,Sys.,& HRM
-Competencies
-Work habits & motivation
-Personal relationships

4. 
Financial & Physical assets are relatively easy to
measure via accounting practices. Most of these assets
are tangible and having clear market value.

Market & Operational assets are bit more
challenging to measure, but accounting practices have
been developed that generally can place subjective value
on such assets.

Human assets are very difficult to measure as
education, knowledge ,skills, competencies etc have no
boundaries and thus to measure Human assets/capital is
very difficult
Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM

5. Understanding
Human
and Measuring
Capital
It is well known that employees and their
skills, abilities represent a significant asset
for organization. It is an serious issue for
any organization to measure this value as
well as its contribution to the organization.
This relationship was first demonstrated
by HUSEILD in the mid 1990s.This study
identified what were called HPWS i.e.
High Performance Work System.
Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM

6. HPWS
According to HPWS the integrated,
strategically focused HR practices
were directly related to Profitability and
market value .
Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM

7. Watson Wyatt W
Philosophy
According to Watson the primary reason
for organizational profitability is the
effective
management
of
human
capital/assets.
This shows that rewarding the employees
involved in profit making and on the other
side ensuring that the investments in
employees are not lost to the competitors
by actively managing employee retention.
Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM

8. Various study in the effective management
of Human Resources leads to the
conclusion that it result in the increase in
market value of the organization
Extending to these findings Dyer &
Reeves attempted to define what
can be called as HR “Value Chain”
According to this the performance could
be measured in via four(4) different sets of
outcomes: Employee,
Organizational,
Financial, Market Based
Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM

9. HR Value Chain
Employee
Outcome
Attitudes,
Behavior
Organizational
Outcome
Productivity,
Quality
Financial
Outcome
Expenses,
Revenues,
Profitability
Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM
Market
Based
Outcome
s
Stock Price
(+ / -- )

10. HR Value Chain.
The HR Value chain is based on cause
and effect relationship. Each outcome
ignite success in a subsequent outcome,
establishing a casual link between HR
Practice and an organizational market
value.
Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM

11. Given this proven link between INTEGRATED &
STRATEGIC HR PRACTICES and bottom line
performance, HR practitioners have developed HR
Metrics which specifically illustrate the value of HR
Practices and activities , particularly related to
Accounting profits & market valuation.
This task has proved so far to be very much difficult to
measure the Human capital/asset as evaluating an HR with
respect to Accounting Profits & Market valuation is bit
complex procedure.
Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM

12. Most of the TOP companies in the
WORLD
evaluate
their
HR
operations on the basis of 3 limited
metrics:1.Employee Retention and Turn over.
2.Corporate Moral.
3.Employee Satisfaction.
Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM

13. Such Staffing metrics simply document the
extent to which HR Performs traditional
Job functions without necessarily
illustrating
how
HR
impacts
company profits and shareholder
value.
Moreover a focus on such Staffing
Metrics involves a demonstration of how
employees can be treated as assets
that can be managed, invested in
and leveraged for profit.
Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM

14. Some Senior HR Executives of the fortune
500 companies still believe that it is very
hard to measure accurately the Human
Capital/assets as valuation of the Human
capital is value laden and hence it is
ignored by many organization.
As the complex nature of valuation of
Human capital/assets and hard tasks are
involved to measure the value of Human
Capital/assets one helpful model is
developed by Mercer that allow to study
the Measurement of HR Capital/assets.
Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM

15. 





The Model developed by
MERCER involves Six(6)
Steps
Identification of Specific Business Problem
Calculation of actual cost of problem to the
organization.
Choose HR Solution that addresses all or part of
the problem.
Calculate the cost of solution.
After 6 to 24 Months calculate the value of the
improvement for the organization.
Calculate ROI (Return on Investment).
Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM

16. As the returns on other types of assets/capital,
the ROI in human assets/capital are often not
realized until some point in the future.
The Key decisions makers
should wait for these result
conclusion.
have to be patient
before reaching to
and
any
The HR Executives should also need to have a
good communication with the Chief Financial
Officers as the valuation of HR can be send to the cost
centre and the data provided by the HR Executives will
help the CFO during Cost Cutting operations.
Hence
measuring
Human
Resource
capital/assets is an challenging job which is
difficult but possible as it provides the senior
management with the value added feedback of their HR
assets.
Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM

17. Factors affecting an organizational
investment orientation
There are basically five(5) major factors
that affect the Investment oriented
Company in its management of Human
Resources
1. Management
Values
2. Attitude
Towards Risk
4. Utility theory
3. Nature of
Employee
Jayant Isaac,Asso.Professor –
Skills
5. Outsourcing
Mkt.,Sys.,& HRM

18. Management Values

Management may or may not have appreciation
of the value of it Human assets relative to other
capital assets such as Brand names ,Distribution
Channels etc.

Senior management values and action
determine the organizational investments in the
human assets.

Management values its people will be a critical
Jayant Isaac,Asso.Professor –
factor in its willingness toHRM
Mkt.,Sys.,& invest in the HR.

19. Attitude towards Risk

This is the second factor, the most fundamental lesson
that a trade exist between risk and return.

If the risk is higher then it is expected to have higher
potential of return, lower risk or safe investment are
expected to have moderate rate of returns.

But investment in HR is far more risky then
investment in physical assets as HR cannot be owned by
the organization.

An organization can attempt to gain some ownership
through long term contracts ,incentives as well as
additional professional development opportunities etc.
Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM

20. Nature of the Employee Skills

This is the third factor:
Certain organizations will require Employees to develop
and utilize very specialized skills that might not be
applicable to another organization: another Employer
might have employees utilize and develop skills
that are highly marketable.
For Example :if an employee have custom made
Information system to handle administrative HR
functions, employees using that system might not
transfer those skills to the other employer. However ,if
an employer uses a popular software program
for which there is high demand for skilled employees
among the competitors ,the investment in employees
becomes more risky.
Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM

21. Utility Theory

In consideration of Investments in HR in terms
of Hiring or development of current employees .
Utility Theory attempts to determine the
Economic value of Human Resource Programs
activities and procedures .
It is also known as cost-benefit analysis : here the
cost of any investments are weighted against the
benefits to determine whether the prospective
investment is either profitable or not.
 Example: To heir managers for specific jobs on the basis
of selection test
Hired with test
Hired without test
Productivity Higher
Lower
Investment
More
Less

Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM

22. Outsourcing



Outsourcing is an alternative to the investment in
HR.
When the specialist who perform specific
functions much more efficiently exists outside
the organization the Outsourcing is encouraged.
Example: McDonalds invest little in their
people, as organization in this industry
tends to invest more in new products
rather HR and that is the reason the fast
food chains go for outsourcing
Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM

23. NON-TRADITIONAL
INVESTMENT APPROACHES
 INVESTMENT IN DISABLED
EMPLOYEES
 INVESTMENT IN EMPLOYEE HEALTH
 COUNTERCYCLICAL HIRING
Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM

24. INVESTMENT IN DISABLED
EMPLOYEES

This HR investment involves providing support programs
that return disabled employees back to work place.

Company relies on Long term disability insurance policy.

The law also favors on the investment in Disabled
employees.

Disabled workers may become even more attractive
source of labor when there are labor shortages.
Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM

25. INVESTMENT IN EMPLOYEE
HEALTH
 Investment in employees health increase
the productivity of the employees.
 Companies provide nutritious food and
good medical care to its employees.
 This results in the feeling of commitment
and thus it increases productivity of the
employee.
Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM

26. COUNTERCYCLICAL HIRING
 Hiring the workforce during the economic
downturns.
 The Employer gets better workforce in
less pay packages.
Jayant Isaac,Asso.Professor –
Mkt.,Sys.,& HRM