HR Practices – Human Capital Index Study

A Human Capital Index study was conducted twice (1999 and 2001) by Watson Wyatt, a global human-capital consulting firm to understand the correlation between how organisations manage their human capital and its effect on their financial performance. The Human Capital Index study included analysing HR practices and financial performance of 750 companies across Canada, Europe and US. The Human Capital Index research was done twice to correlate the results.

Human Capital Index research involved evaluating HR practices and financial performance of 750 companies across Canada, Europe and US.

Key findings of the study:

$ Three times higher share holder returns for organisations with superior HR practices
$ Good HR practices result in positive financial performance to a much great extent as compared to what good financial performance do to effective HR practices
$ Certain traditional HR practices like 360-degree appraisal or developmental training if not conducted well can harmfully change an organisation’s financial performance

HR practices that in fact steer financial performance based on data from 51 companies surveyed included:

Total 43 HR practices were mostly divided into 6 general groups

Five groups of HR practices in which a significant improvement can lead to as much as 47% increase in market value. The sixth group that can reduce stakeholder value.

The Human Capital Index study clearly showed that better HR practices are no more a sanitation factor. HR practices are vital factors that decide an organisation’s performance.

Additional Reading:

1. “Human Capital Index: Human Capital As a lead Indicator of Shareholder Value”, Watson Wyatt Publication.
2. “The Hidden Human resources: Shareholder Value”, by Pfau B., Kay I., Optimize Magazine June 2002.
3. “How HR Drives Profits”, by Caudron S., Workforce Magazine.