Measuring the value of human capital investments: the SAP case

Abstract

Purpose

Over the past three years Accenture developed and applied a new measurement tool that assesses the maturity of an organization's human capital development processes, benchmarks the processes' performance against other organizations, and determines the relationship of each process to bottom line business results. It is designed to help executives make significantly more informed choices about their investments in human capital. This article aims to look at this tool.

Design/methodology/approach

The tool, known as the human capital development framework, now has been tested in more than 60 organizations. This case describes how one organization used it to help turn around a struggling division.

Findings

Results of the initial implementations of the framework suggest that financial performance improves as a company improves its scoring in those critical human capital processes with strong relationships to financial success. As an organization moves from one benchmarking quartile to the next in these processes within the framework scoring, its capital efficiency – or the ratio of total annual sales to the capital invested in the operations of the business by shareholders and creditors – improves from 10 to 15 percent.

Practical implications

The framework outlined in this article provides a tool that enables company leaders to make clear‐eyed assessments of the payoff from human capital investments. It helps organizations diagnose their strengths and weaknesses in key human capital practices, to set investment priorities and track performance, and to establish an empirical link between human capital investments, business practices, and overall business performance.

Originality/value

Those organizations in the study with more mature human capital processes have better financial performance than those organizations with less mature processes. Specifically, those organizations that focus on processes devoted to three key areas – creating a people strategy aligned with the business strategy, providing supportive work environments, and developing employees by giving them ample opportunities to learn and grow – achieve far greater economic success than those that do not.

Citation

Cantrell, S., Benton, J.M., Laudal, T. and Thomas, R.J. (2006), "Measuring the value of human capital investments: the SAP case", Strategy & Leadership, Vol. 34 No. 2, pp. 43-52. https://doi.org/10.1108/10878570610652626