ROI on People through a Strategic HR Mr .S. Balasubramaniam CFO Zensar

1. People & ROI
4 July 2008
NHRD, Pune

2. Who are we?
People Management has become the most crucial
function in an Organisation, taking over from all
the others for the success and sustainability of the
others,
Business.
A series of factors are responsible:-
Competition
Liberalisation
Globalisation
Talent Shortage
CAN WE CREATE VALUE WHILST WE DO ALL THIS?

3. How did we get here?
Personnel
IR
Staff
HR
People

4. Does HR create Value?
Investment in HR practices
Increased Employee Commitment
Lead Indicator of Customer Commitment
d d
Lead Indicator of Profitability
But what is the Value that we create?

5. Other Spin offs
Intuitively and otherwise also we know that firms
which invest in HR practices are MORE LIKELY to
have better fi
h b tt financial returns th fi
i l t than firms th t
that
don’t
&
HR Practices shape
Organisation Culture
Identity
Reputation
Brand

6. How does HR impact
THE CRUCIAL QUESTION- WHAT IS THE ROI?

7. The Organisational Impact
ROI – RETURN ON INTANGIBLES !!

8. Why Intangibles
Intangibles
Shareholder value NOT DETERMINED BY
FINANCIAL results ONLY
Represent the hidden value of the firm
Getting Increasingly important for firms as
diverse as in Technology, Manufacturing,
Pharma, Retail

9. How did it come about?
Upto mid 80s the Firms value was worth about the
book value as adjusted to Inflation
. A Fundamental Shift in the perception of the
Firms Value
TRADITIONALLY Shareholder value – Earnings
been between 75% to 90%. Can be predicted by
90%
the FIRMS earnings.
CURRENTLY, it is only 50% in both up and down
markets.
markets
Study by 2 Accounting Profs- Baruch Lev and Paul Zarowin, Stern University
of Business, New York University
Business

10. Value and Intangibles
Increasingly a large proportion of the firms value
not tied to “present” earnings
TIED to INTANGIBLES
INTANGIBLES represent value directly not derived
from the physical assets
f th h i l t

11. HOW IMPORTANT ARE
INTANGIBLES?
“INTANGIBLES ARE NOT NEW TO A FIRM’S
OVERALL MARKET VALUE BUT THEY ARE
BECOMING INCREASINGLY IMPORTANT PORTION
OF A FIRM’S TOTAL CAPITALISATION”
Dave Ulrich & Norm Smallwood
HR’s New ROI-Return on Intangibles
ROI Return

12. What leads to Intangibles
Many Leadership actions.
Often therefore focused on those that are easy to
measure:-
measure:
R&D
Technology
Brand
THAN ON INVESTMENTS in organisation and people

13. How people as Intangibles
Organisation and people become an Intangible
Asset when they give investors confidence in
future earnings and when they can b made
f t i d h th be d
tangible.
Value is Eroded when:-
Leadership’s confidence is lost by investors
e.g. Ethical violations are the most visible.

14. First steps
Learn who the investors are
Who and why shareholders are interested in the
Company?

15. Investor Literacy Test
Who are the 5 major Shareholders?
Why do they own you? Dividends/Growth
h d h d d h
Price/Earnings for the last decade/Vis-a-vis the
Industry and the gap between the Highest P/E
y g p g
ratio

16. Investor Literacy Test
Who are the Analysts and what do their reports
say?
?
How are you including key investors and
analysts in design and delivery of HR
practices( SP/LD/R & R)?
Succession Planning
Leadership Development
Recruitment and R t ti
R it t d Retention
How good is your Corporate Governance?

17. THE FRAMEWORK
HOW DO WE CREATE THE PEOPLE INTANGIBLES IN
OUR ORGANISATIONS?

18. The Intangibles Framework Level 1
Focus Area Action Potential
•Build and defend
Build
Keeping your reputation.
Your External and Internal
Promises Stakeholders

19. The Intangibles Framework Level 2
Focus Area Action Potential
•Define the Growth
Strategy & the
Tradeoffs
T d ff
•Customer Intimacy
Compelling •Product Innovation
Strategy
gy •Geographic-
•Geographic
Expansion

20. The Intangibles Framework Level 3
Focus Area Action Potential
Provide Concrete support for
Aligned Intangibles by building core
Technical Competencies in Research,
Competencies
p Technology, Sales/Marketing,
gy g
Logistics, Mfg. and the like

21. The Intangibles Framework Level 4
Focus Area Action Potential
Develop Capabilities of:
Shared mindset
Building Value Talent
T l t
Through Collaboration
Organisation Speed
& Accountability
y
People Learning
Leadership
THROUGHOUT THE ORGANISATION !

22. THE STEP UP APPROACH
The whole process is progressive.
Keeping Promises Trust Credibility
Trusted leaders can envision a future state that
captures imagination & generates enthusiasm
Compelling Strategy Builds confidence in the
future

23. A Sequential Process
TRUST VISION LACKS AUTHORITY
L
A
CORE C
COMPETENCIES
K VISION WOULD BE UNREALISED
O
CAPABILITIES F CORE COMPETENCIES AND VISION
LAY DORMANT

24. On the Contrary
Kept Promises Allows Credible Vision
Credible Vision Informed Investments
that ensures Core
Competencies
Core Competencies Enable Capabilities to be
p
realised

25. What are the Capabilities
Talent
Speed of Change
Shared Mindset
Accountability
y
Collaboration
Learning
Leadership

26. HR Professionals
Work on Communicate
Capabilities to Investors
Create
C t
Shareholder
Value

27. To Ultimately,
Capabilities make the Intangible into Tangible
They Delight the Customers
They establish the reputation amongst Investors
Provide Long Term Sustainable Value
d bl l
HR Professionals should be architects and thought
leaders in defining and creating capabilities

28. What are the Steps?
Conduct an Intangible Audit to understand where
the Leaders should focus to deliver Value
Define, Assess
Define Assess. Invest and Improve on each of the
4 levels of Intangibles

29. Align HR Practices and Investors
Takes a different focus from the traditional
practices.
INVESTORS AND STAFFING
INVESTORS AND TRAINING AND DEVELOPMENT
INVESTORS AND APPRAISALS AND REWARDS
INVESTORS AND GOVERNANCE AND
COMMUNICATIONS

30. INVESTORS AND STAFFING
What if the Investors can vote on Individuals hired and /or
Promoted?
In some ways through Surrogate voice in the Board
What if Large Institutional Investors participated in the
interview of senior officers?
What if Institutional Investors review the competence model
p
used as candidates ?
Brings rigor and discipline in the process
A bit awkward in the beginning, but over time the investor
bring insights to the HR decision making process

31. Investors and Training and
Development
p
What if a representative of the largest investor sat through
the last of the 3 day leadership program?
How would he react to a decision on BUY/HOLD/SELL
H ld h tt d i i
decision?
Get to know first hand the Leadership team in real live
cases, and facing competitive issues in candid
conversations and leave with a clear and specific actions
of the specific actions that would be taken
p
Impacts-> leadership understands the strategic choices and
how it would go about it.

32. Investors and Appraisals and
Rewards
The trend to link the Management behaviours to
investor focused rewards
Link a large percentage of total compensation into
stock based incentives.
incentives
Boundaries between Managers and Investors
g
removed when Managers become Investors
Adds a wider and deeper mindset throughout the
firm, the more the managers act and think like
Investors

33. Investors and Governance and
Communication
Investors in Publicly traded companies have been
traditionally hands off.
However, they explore the Intangibles.
Will diagnose how well the organization makes
decisions, allocates responsibilities and meets
, p
commitments.

34. What is the pay off
As investors view the organisation from the HR
filter, they gain confidence in the organisation’s
ability t d li
bilit to deliver f t
future earnings.
i
HR professionals too often are not sure to make
this connection, and the fear of the financials
keeps them from being fully engaged.
The emerging focus on intangibles opens the way
for HR professionals to more readily link their
work to Shareholder value.

35. In the Ultimate Analysis
Intangibles gives the Organization that unique
identity and the differentiator
APPLE Speed in Innovative Products
FEDEX Overnight Delivery
Southwest Ontime Performance
Zensar Innovation

36. Thank you !
suby@zensar.com..
suby@zensar com

37. On to
Q&A