HR Leadership Means Linking People To Organizational Goals

It’s important to make sure that we’re standing on firm ground when we say there is a link between effective people management and positive business results. In 2003, culminating four years of extensive research, Bruce Pfau, Practice Director for Organization Effectiveness at Watson Wyatt Worldwide, co-authored a book called The Human Capital Edge that, for the first time, empirically linked specific HR practices with the measurable creation of shareholder value. His research began with two objectives – to determine the size of the impact of HR on shareholder value and to determine if certain HR practices had more impact than others on this value. Equally interesting was the challenge he set for his research to end the “lead-lag controversy” in HR. Many studies had previously shown that companies with superior financial performance often were noted as also having superior HR practices. Pfau sought to find out which came first. What he found was this:

1. Superior human resource practices are a lead indicator of good financial outcomes – this he said argued for increased investment in human capital practices.

2. There is a real difference between those firms that have good human resource practices and those that don’t – in his study, shareholder value creation in companies with superior human capital practices was three times that of companies with inferior practices.

3. Most controversially, he found some HR practices generate more value than others and some actually negatively impact value. The most telling theme here? Those HR practices most clearly and closely aligned with specific business results paid off most handsomely.

Perhaps for some these findings don’t seem so astonishing today – after all, they’ve been in the public domain now for the better part of a decade. However, many smaller businesses discounted the practicality of the findings to their world. Of course Fortune 500s would get these results! They could certainly afford to invest proportionately more in their human resource programs. But the point is, no matter what size the organization, if HR activities such as managing compensation, professional development, employee communications and so forth aren’t tied directly to an organization’s desired results, then the price you pay in workforce instability, poor motivation and misdirected activities will be significant.

	HR Leadership Means Linking People To Organizational Goals
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Apr 05, 2007 02:44 PM HR Leadership Means Linking People To Organizational Goals It’s important to make sure that we’re standing on firm ground when we say there is a link between effective people management and positive business results. In 2003, culminating four years of extensive research, Bruce Pfau, Practice Director for Organization Effectiveness at Watson Wyatt Worldwide, co-authored a book called The Human Capital Edge that, for the first time, empirically linked specific HR practices with the measurable creation of shareholder value. His research began with two objectives – to determine the size of the impact of HR on shareholder value and to determine if certain HR practices had more impact than others on this value. Equally interesting was the challenge he set for his research to end the “lead-lag controversy” in HR. Many studies had previously shown that companies with superior financial performance often were noted as also having superior HR practices. Pfau sought to find out which came first. What he found was this: 1. Superior human resource practices are a lead indicator of good financial outcomes – this he said argued for increased investment in human capital practices. 2. There is a real difference between those firms that have good human resource practices and those that don’t – in his study, shareholder value creation in companies with superior human capital practices was three times that of companies with inferior practices. 3. Most controversially, he found some HR practices generate more value than others and some actually negatively impact value. The most telling theme here? Those HR practices most clearly and closely aligned with specific business results paid off most handsomely. Perhaps for some these findings don’t seem so astonishing today – after all, they’ve been in the public domain now for the better part of a decade. However, many smaller businesses discounted the practicality of the findings to their world. Of course Fortune 500s would get these results! They could certainly afford to invest proportionately more in their human resource programs. But the point is, no matter what size the organization, if HR activities such as managing compensation, professional development, employee communications and so forth aren’t tied directly to an organization’s desired results, then the price you pay in workforce instability, poor motivation and misdirected activities will be significant.
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