Two recent studies are helping to clarify the sometimes complicated ways human capital provides value for businesses, and how HR strategy can make a financial impact for companies. A Workforce2020 Study, which Oxford Economics conducted globally with support from SAP SE, explored the connection between high-performing companies and several factors related to their workforces.
“All organizations create business strategies,” said Mike Ettling, president of the HR Line of Business, SuccessFactors, on CNNMoney.com, discussing the study. “But to translate those business strategies into business outcomes requires committed, involved, productive people. The human resources function has therefore never been more important to organizational success.”
Companies with stronger growth are better at recruiting and retaining high-quality workers, the study found. ”Fifty-five percent of high-performing companies say that they are satisfied with the quality of job candidates recruited for most positions, compared to only 46 percent of firms with below-average profit margin,” the study found. These companies are more proactive about creating strategy and programs to encourage employee success and growth.
Their prioritization of such issues rises all the way to the top. “Executives at high-growth companies are significantly more likely to say that workforce issues drive strategy at the board level (64 percent versus 49 percent),” the study found. “Nearly a quarter of underperformers say that workforce issues are an afterthought in business planning today and will remain so three years from now.”
High-performing companies are also using data analytics to extract more information about their workforces, and then using it in ways that affect their bottom lines, the study found. “Lower performers expect to be significantly more likely to suffer from a lack of data required to do their jobs effectively in the future,” the WorkForce2020 study found. “This includes data related to the job market, industry, customers and financials, as well as visual representations of complex data.”
In a closely related Investor Responsibility Research Center Institute study, authors Aaron Bernstein and Larry Beeferman examined how HR policies can affect business investment results, including factors like return on equity, return on investment, and profit margins, according to a news release. “The research offers compelling evidence that human capital management can be material to a company’s financial performance,” according to the release. “However, investors face significant challenges in attempting to incorporate human capital metrics into investment analyses.”
Bernstein and Beeferman suggest developing levels of disclosure and standardization in order to publicly report on their HR policies. “It is intuitive that companies that have sound human resources policies and invest in employee training will perform better. Now, we have a meaningful connection between human capital management and financial performance,” said Jon Lukomnik, IRRCi executive director, in the release. “For this information to become actionable for investors, there needs to be a level of disclosure and standardization that does not exist… Perhaps this will change now that we can clearly see significant relationships to financial performance.”