The ROI of Human Capital
Measuring the Economic Value of Employee Performance
Author:Dr. Jac Fitz-enz
Pub Date: February 2009
Print Edition: $34.95
Print ISBN: 9780814439487
Page Count: 336
Edition: Second Edition
e-Book ISBN: 9780814413357
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CHAPTER 1: Human Leverage
‘‘We can have facts without thinking but we cannot have
thinking without facts.’’
No longer is management of the human resources department
a human resources issue. When personnel and training
came into being during the 1930s, it was in response to
the growing strength of organized labor. The main contribution
of personnel and industrial relations was to deal with
that incursion. After World War II, as corporations expanded,
there was a need for someone to handle the administrative
issues around employees. Personnel got the job. By
the late 1960s, it was becoming clear that there were more
complex challenges, so personnel changed its name to
human resources. Today, the game is human capital management.
Conceptually, this is recognition that people are
the bedrock of the organization as we stumble into the Intelligence
Age. The fundamental question has become, how do
we improve the return on our investment in human capital?
We find ourselves in a world where yesterday is a distant
memory and tomorrow is an uncertain dream. The only reality
is now. Yet, by taking the long view of any issue, we
better understand not only where we have come from and
where we are now but perhaps where we might be headed.
Consider how a technology such as telecommunications has
evolved. It started as a box on the wall with a crank and a
gizmo to talk into. Some people believed that it was a fad
and that they didn’t need one. Today, it is a gizmo stuck in
your ear or a pad hung somewhere on your body and don’t
try to tell your teenagers that they don’t need one.
So what does this have to do with managing organizations
and especially with understanding how people—that
is, human capital—need to be addressed within our organizations?
Here is where it goes three-dimensional. The issue
is not only the structure of organizations and the people
within them. Now the external entity, the customer, has entered
the organization in a new and as yet not clearly understood
way. Whether we recognize the fact or not, the
customer is as much a part of our companies as are our
physical and human assets. The three types of capital—
structural, human, and relational—are rapidly merging into
just structural and human with what was the external relations
(the customer) now imbedded in everything we do internally.
Let me try to explain it by paralleling it with the evolution
of electronic technology. Computers became a reality with
the production of ENIAC, which was the first truly workable,
large-scale computer. By large, I mean room size.
ENIAC was born in 1945 as a mass of vacuum tubes that
truly took up the space of a room. Twenty years later, IBM
came out with the System/360 that brought computing into
the business world in a somewhat user-friendly way. Two
decades later, minicomputers were common and the micro-
computer appeared. The first portable computer weighed
more than 20 pounds. Today, laptops weigh less than 5
pounds. BlackBerrys and similar devices weigh only 5
ounces and provide more computing power than ENIAC. So
what? Stay with me, there is an end and a point to this
As the computer and lately the telephone evolved and
merged capabilities, the critical challenges also advanced
from hardware to software to services. The product capability
has grown to the point where the customer and the product
are virtually inseparable. Today’s telephone/computer is
no longer in a room, on our desk, or in a purse or briefcase.
It is attached to our ear. Already that gizmo is taking simple
switching voice commands. Tomorrow it will do our computing
verbally as we walk, drive, or sit on our patio. Arguments
over any topic from who won the Stanley Cup in 1948
to where was da Vinci when he painted the Mona Lisa to
what was Tonto’s pet’s name will be settled without lifting a
Ten years ago, I told people at PeopleSoft that they
needed to move toward services as the next natural evolutionary
step. They told me to get lost. Lou Gerstner saw the
future and had the power to shift IBM toward service. In
2007, over 60 percent of IBM revenues came from services.
The reason that the customer is now part of our organization
is that we no longer sell a product or provide a service.
We design, sell, and service a customer experience. We are
stuck in the customer’s ear, literally and figuratively. No
matter what our product, because of the customer’s emerging
capabilities and the expectations that are coming with
them, we are selling experiences.
Steve Berkowitz, former CEO of Ask.com and later senior
vice president of Microsoft’s online business group, hit it
squarely in words that are paraphrased here:
We have to deliver the basics but that isn’t going to get us to
the top. Customers go where their emotions take them. We
have to give the customer the richest experience they want
NOW. In order to do that, I say we have to live 24/7 with the
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