Today's HR practices have the heft to sway investment decisions

PUBLISHED : Saturday, 15 July, 2006, 12:00am
UPDATED : Saturday, 15 July, 2006, 12:00am

THESE DAYS IT is not enough for leaders and human resources managers to keep repeating that a company's biggest asset is its people.

Because organisations are now spending on average more than a third of their revenue on human capital expenses, investors and shareholders are paying extra close attention to the HR practices of companies. The likely result is that managers will soon be compelled to follow up on what they say.

'There is a lot of rhetoric but not that much action. That is why I am giving speeches,' said Talent2 managing director Andrew Banks at a recent seminar organised by the Australian Chamber of Commerce. He warned that investment companies have noted that HR practices were significantly affecting the bottom line and were therefore looking in detail at how companies managed their people before investing.

'Companies with weak HR practices are not valued any more. Good HR practices create more value,' Mr Banks said.

In the new economy the workforce has become a profit centre. The focus has shifted from return on assets to employee productivity returns because organisations with effective human capital practices were showing three times greater returns to shareholders and 35 per cent higher revenues per employee than those with weak practices, he said. HR practices are therefore increasingly becoming a factor in the pricing of mergers and acquisitions.

'Companies that want to remain successful will have to do it. If they don't, at the end of the day they will be punished by the market, the staff turnover and the customer,' he said.

'High staff turnover in a company may raise a red flag from a risk perspective and provide an early warning that the company may experience difficulties in reaching its financial goals.'

Market leaders and HR will be required to adjust at several levels as new global trends in the economy and the human capital market emerge.

Mr Banks forecast a slowing in labour force growth, which would further affect the movement of jobs to people, thus increasing the importance of outsourcing to another company or even to another country, including the now popular BRIC countries, namely Brazil, Russia, India and China.

Over time, steady staff turnover would pose a threat to intellectual property, making it paramount for companies to create an 'employer of choice' brand that would attract and retain the best talent.

Managing productivity better for increased revenue will mean drilling down to what the company expects from every single job. Firms will also have to leverage technology to increase staff learning and engagement and offer better leadership programmes.

The changes will have an impact on careers as well. Mr Banks expected baby boomers to continue to dominate executive and board ranks even by 2020, but pointed out that having three generations in the workforce meant having the management skills to deal with three different mindsets - those of baby boomers, generation X and generation Y.