The idea that an organisation’s workforce is an ‘asset’ rather than simply a business cost is now broadly embraced by corporate leaders everywhere. Quite a few of them even declare, in their annual reports, that it is their organisation’s ‘greatest asset’. How remarkable then, that in those very same annual reports a proper accounting of the size, composition and management of the greatest asset is nowhere to be found.

This omission should be of concern to the investment community and those charged with regulating capital markets, because the evidence is mounting that substantial value is at stake in getting human capital management right. For example, a study of the US manufacturing sector found strong, positive relationships between sustained advantages in workforce productivity and the market value of companies, as measured by Tobin’s Q, the ratio of the firm’s market value to the replacement value of its capital assets. In effect, a consistent advantage in workforce productivity was found to function as an intangible asset for companies. But what explains differences in workforce productivity?

In our experience, human capital management is a significant, measureable driver of variations in workforce productivity in organisations, and often the most important avenue to sustained productivity advantages.

For example, in a large hospital system, statistical analysis showed that about 63 percent of the variation in relative workforce productivity across hospitals within the system and over time was attributable to human capital management, and not to differences in financial capital, technology or the vintage of equipment.

Oct-Dec 2016 Issue

Mercer Workforce Sciences Institute