Investment Perspectives of HR

Human Resource is one of the most important resources in an organization. The success or failure of an organization largely depends on how human resource is used to utilize other resources available to the organization. As a result, the focus of human resource management has shifted towards increasing the return on investment by maximizing the productivity of human resource. Therefore, evaluating the quality, costs and benefits of HR are very crucial to organizations much like any other capital investment.

Since human resource is a crucial resource in organization, human resource practitioners and management scholars have promoted the concept of adopting an investment perspective in human resource. It involves developing policies and programmes in human resources in order to increase its value to the organization and to the market, just like other asset in the organization.

The notion of viewing human resource as human asset, and adopting an investment perspective enable the organization to invest in people in order to earn the best return from them.

When an organization views human resource as an investment, rather than a variable cost, it has to consider costs, risks and return when making human resource decisions. The organization has to consider the suitability of the candidates to the jobs, and to train them much like servicing machineries. The opportunity cost of releasing the employees for training has to be considered along with the cost of conducting such trainings when comparing the return from those trainings such as potential increase in loyalty and motivation.

Once an organization has developed a competitive advantage in human resource, the competitors may try to attract those competent employees. The competitor might even be at a better position to offer a higher pay, as they do not have to spend on training and development. Therefore, organizations have to develop their human resource management policies and strategies in such a way to retain the employees and to transfer the knowledge from employee to employee within the organization. Moreover, viewing human resource management from an investment perspective allows organizations to be more proactive and protect their own the knowledge as they are being created.

Adopting an Investment Perspective

1. Characterizing employees as human assets implies the strategic management of human resources should include considering HR from an investment perspective.
2. Cost/Benefit basis analysis may be used to evaluate HR programs, such as training and development.
3. Investment perspective toward human assets facilitates their becoming a competitive advantage as most other resources/assets can be cloned, copied or imitated by competitors.
4. A strategic approach to HR, however, does not always involve a human relations approach to employee relations, as noted in the Managing Employees at United Parcel Service example
5. Investments in employees must be undertaken in tandem with strategies to retain employees long enough to realize an acceptable return on investments in employees. This requires valuation of the employee as an asset, which can be difficult to do.