Competitive Advantage: Measurement Used as Tool to Leverage Human Capital

Organizations describe competitive advantage in different terms, depending on current environmental factors.  For the foreseeable future competitive advantage will be defined by an organization’s ability to properly manage their human capital processes, including recruitment and retention of top talent.  The federal government projects a 21 percent job-vacancy rate by 2010, driven by baby-boom retirements and declining birthrates.[1]  This demographic fact strikes a cord with employers that they must quantify the factors influencing their internal environment to leverage their talent as a competitive advantage.   

Human Capital as Competitive Advantage  

Research indicates that an organization’s shareholder value is directly influenced by the quality of its human capital practices.[2]  The research shows that the better a company does in managing these practices, the better return the shareholders will realize.  This research also concludes that superior human capital practices are lead indicators of strong financial returns, providing additional support to the notion that human capital is a critical factor in growth and competitive success.  

Employee satisfaction is a key measure in determining the success of an organization’s human capital practices.  Research indicates a high correlation between employee satisfaction and customer satisfaction.[3]  Thus, a company with a high level of employee satisfaction and retention is more likely to excel in customer satisfaction, which translates into higher profits.  The causal link is then made between employee satisfaction, a company’s human capital practices, customer satisfaction, and ultimately increased profit.    

Authors of “Putting the Service-Profit Chain to Work”[4] use the model in Figure 1 to describe the relationship between employee satisfaction and organizational profit.  The figure states that an employee-centric organization will retain customer loyalty, which translates into increased profit.  

Figure 1: The Service –Profit Chain  

We hypothesize that the Service-Profit model does not extend enough into the influencing factors.  Recruitment successes should be part of this chain, influenced by internal service quality and influencing future employee retention.  Figure 2 describes the linkages between The Service-Profit Chain and successful recruitment outcomes.  

Figure 2: The Service- Profit Chain with recruiting outcomes

Our premise is that an employee-centric organization spawns two outcomes which ultimately drive the success of the organization.  One outcome is employee satisfaction, which has been shown to impact profitability by the previously mentioned research.  The second is the successful recruiting efforts that feed off of the employee satisfaction and in turn, bring into the organization individuals with a stronger sense of commitment and loyalty.  This increased quality and loyalty originates from a higher percent of employee referrals and organizational branding that comes from achieving a sought-after work environment.   

Holistic Measurement  

The argument of recruiting, retaining and overall employee satisfaction being an indicator of profitability is predicated on the measurement of these internal factors.  The concept of “employee satisfaction” embodies many influential factors, which can never be improved upon if not measured quantitatively.  These factors include:  

Communication
Growth and Development
Pay and Benefits
Teamwork
Supervisor Quality
Organizational Leadership
Work Environment
Job Satisfaction
Customer Satisfaction
Work/Life Balance
Recognition

The above list of factors is just that – a list of factors – if not measured in a manner that provides a complete snapshot of the organization’s work environment.  The recommended methodology is a holistic process that encompasses all of the influencing factors in a series of surveys that gathers the data from different perspectives.  The combination of four surveys — New Hire, Employee Opinion, 360-Degree Feedback, and Exit — administered over time, can provide an organization with a dynamic view of their workplace environment.  This information enables the effective management of the systems and components that influence employee satisfaction.  

 Below are some key points regarding each survey:    

·        New Hire:  New hires provide a unique perspective of your organization and should be tapped for their views on issues such as: what attracted them to your organization, is the position what they expected, and were the orientation and training effective?  This survey will enable an organization to assess what a new hire values and their perception on how the organization is performing in key areas of the workplace or in components of the employment proposition.  A new employee is surveyed at the time they are hired and at their three-month, six-month, and one-year anniversaries so adjustments can be made quickly and progress can be tracked.  

·        Employee Opinion:  Employee opinion surveys enable management to understand strengths, weaknesses, and opportunities for improvement in the work environment.  Employers can gauge and track levels of employee satisfaction and commitment that ultimately have an impact on internal service quality, external service quality, and ultimately profitability or success.  Understanding of workplace issues and their impact on work units can provide management with the ability to allocate scarce resources strategically to have the greatest impact and return.  

·        360-Degree Feedback: This method assesses individual strengths and weaknesses by asking supervisors, peers, and subordinates to rate the performance of an individual. The results of the 360-degree survey can help direct professional development opportunities.  

·        Exit:  Individuals who separate their employment from an organization have a wealth of information (and are usually willing to share it!) regarding their position, the organization, and their motivations for leaving.  Organizations can use this information to measure trends over time between departments, supervisors, position types, and time periods.  

The next decade will prove challenging to all organizations as we head into an unprecedented demographic event.  The prepared organization will understand, through measurement, its current internal state and initiate steps to maintain or enhance its competitive advantage.  As the impending labor shortage escalates, it will be an organization’s ability to recruit and retain the top talent that will greatly influence its success.

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These materials have been prepared for educational and information purposes only. They are not consulting advice or opinions on any specific matters. Transmission of the information is not intended to create, and receipt does not constitute, a consultant-client relationship between The Hill Group, Inc. and any recipient of this material. Readers should not act upon this information without seeking professional advice.