HR takes center stage: in the age of intellectual property battles, this long-overlooked corporate function is becoming a critical weapon in the arsenal - Management

Chief Executive, The, Nov, 2003 by Catherine Fredman

With a good cultural assessment process, Washington Mutual can identify potential problems during the predeal due diligence. "We're on the front end to ensure that we don't buy the wrong company and can begin the integration planning months ahead of the need to implement it," explains David. "We're trying to get to 'the ideal deal'--the combination of rewards and processes that create the utmost employee commitment and engagement."

And it's not just "the ideal deal" of today that HR directors must consider. "We spend a lot of time thinking about today's organizational structure and how it ought to look tomorrow and five tomorrows from now," says David. "You have to marry up the talent you have with the talent you think is coming and the talent you need to find."

In the final analysis, companies are elevating the HR role because it helps them make money and raise their stock price. It's no secret that the list of America's 100 best public companies to work for, as ranked by the Great Places to Work Institute, has consistently outperformed the major stock -ndices. Furthermore, Laurie Bassi, CEO of Human Capital Capability, an Alexandria, Va.-based benchmarking company for human capital measurements, found that from 1997 to 2001, four hypothetical portfolios of between 19 and 41 of the firms that made the largest investments in employee development each year subsequently outperformed the S&P 500 index by a factor of two in the year following the training investment.

That's why savvy companies like Home Depot have their HR managers meet regularly with analysts. "At the beginning, I think they wondered what the hell was going on," Donovan recalls. But as he described HR's role in building a high-performance work force, ah attitude adjustment took place. Now, Donovan concludes, "I think they understand the value-add for human resources in our equation." So, too, do more and more CEOs.

HR's Impact on the Bottom Line

Organizations that have a documented HR strategy also have:

* 35% HIGHER REVENUE PER EMPLOYEE

* 12% LOWER ABSENTEEISM

* A MORE EFFECTIVE PERFORMANCE MANAGEMENT AND REWARDS SYSTEM THAN THOSE WITHOUT A DOCUMENTED STRATEGY.

Source: Global Human Capital Survey 2002-2003, PricewaterhouseCoopers, 2002.

The Deloitte & Touche Human Capital Return on Investment study measured the impact of human capital practices (e.g., measuring employee performance, enhancing productivity, managing talent, communicating strategically) on various companies' market-to-book values. The study found that those companies with high human capital index ROI scores:

* ON AVERAGE EARN MORE MONEY FOR THEIR SHAREHOLDERS

* HAVE A 66% HIGHER MARKET-TO-BOOK RATIO

* HAVE A 300% HIGHER FIVE-YEAR TOTAL RETURN TO SHAREHOLDERS

Source: Human Capital ROI Study, Deloitte & Touche, 2002