The economics of good HR

Friday, 20 September 2013 00:32 - - {{hitsCtrl.values.hits}}

Commercial Bank of Ceylon Chairman Dinesh Weerakkody speaking at the CPA-AMDISA International Management Conference 2013 observed that good HR practices would help to increase the value of a firm’s human capital and ultimately improve a firm’s competitiveness. Further, he observed that the knowledge, expertise, experience and training that a firm’s employees possess will eventually differentiate one organisation from another.

He also pointed out that in most firms the total cost of the workforce represents nearly 70% of the operating expenses. Therefore, the economics of good HR for a firm is the value of the firm’s HR practices and functions to all stakeholders of a firm. If HR practices are robust and functions smoothly, then it helps to improve employee productivity, line manager’s ability to implement strategy, increase customer share, enhance investor intangibles and improve community reputation. Furthermore, he highlighted that in 2012, the Singapore Ministry of Manpower commissioned The RBL Group and PWC to oversee research project on talent management in Asia. The objective was to develop practical knowledge and showcase approaches that can assist Singaporean organisations to increase the value of their human capital and ultimately improve their competitiveness. The findings 1. There was a significant gap in talent development in Asia: It appears that Asian leaders invest resources in areas that matter least. Asian companies are more proficient at screening, steering, and motivating, while demonstrating less proficiency at the talent domains that have the highest impact on business performance: i.e., identifying and grooming leaders, developing employees, managing promotions, and communicating with employees. 2. Talent was essential to business success in Singapore, India, and China. Talent explains an extraordinary 69 percent of business performance in China, suggesting that “bang for buck” spent on talent in China will be much higher than in other regions. 3. Leadership was the HR domain with the highest overall impact on business performance: Identifying and grooming leaders has more impact on driving business performances than any of the other HR domains. 4. High performing companies consistently build stakeholder value by creating a clear business case for investment in leadership, investing in their leadership pipeline. 5. The right talent directly impacted strategy formulation and innovation. Creating opportunities for the youth Weerakkody also observed the need for creating more and more opportunities for young people to engage in education and for strengthening the primary and broad based secondary education as a means to improve a nation’s productivity and income distribution. A more common alternative is for the government to reduce the direct costs for schooling by making quality public schooling available free or at subsidised rates. Moreover, he highlighted that most interventions generally consist of making schooling available free and sometimes even compulsory. Weerakkody pointed out that the difference between social and economic returns from education at a macro level is probably higher at the primary and secondary levels than at the university level. Many positive spillovers come from literacy acquired at lower levels of schooling, while the returns from training at the university level are almost fully captured by the higher income of university graduates. Vocational training also has high economic payoffs, if it improves worker productivity. More importantly, evidence suggests that vocational training is most cost-effective if the trainees have a solid base of primary and secondary education.