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Human value management


by Jac Fitz-Enz, Prentice hall, 1990


The book makes the case for a human resource function, closely related to the strategy of an enterprise and with concern both for the individual and the company. Adding value includes a duty to eliminate all waste, including the right use of people to that end.

(Summarised by Edgar Wille in June 1999)

(These book summaries aim to represent some of the key aspects of what the author has written. They do not necessarily represent the views of the summariser or of Ashridge. Equally the author of the book summarised must not be held responsible for any misperceptions of the summariser. A summary does not have space for all the illustrative cases which provide the richness of a book and there is no substitute for reading the whole book. There is an element of simplification in a summary so that the message may seem more obvious than it necessarily is, though the most powerful ideas are often simple and obvious in their essence.)

Are human resource departments justified?

Jac Fitz-Enz begins his book with the recognition that human resource (HR) departments are not seen as central to organisational life, either in their own eyes or by their organisations. He starts with the assumption that there is a role for a department to handle human resource issues. And he uses the words "Human Resources" to describe a department, a function, a profession which needs to justify itself.

He does not in general use the phrase Human Resources to describe the people without whom there would be no business and no HR or Personnel Department anyway. Somewhat unfortunate are his words: "No one is going to eliminate human resources". He obviously means the department not the people. He is not defending the right of people to exist or implying that employers would get rid of them if they could. Neither is he proposing that there is no responsibility for people in other departments of a business, though his book does not particularly emphasise the role of every manager as a personnel manager and people developer.

However we have to be pragmatic and accept that the situation has not yet been generally reached where HR professionals exercise the role of internal consultants within a company to help all managers fulfil the people roles which they cannot abdicate to a specialist department. If HR departments are going to continue for some time then a book must be welcomed which suggests how their role can be exercised more effectively in supporting the business as a whole and managers individually.

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The dual human resource role

In the author's view the HR department has the dual role of guardian of the employees and champion of the organisation. To fulfil this he considers it needs to improve its quality. He proceeds to demonstrate the negative impression the department has in the market place. He doesn't suggest that human resource management is the job of every manager. However he tries to lift the vision of the human resource department:

"to make the organisation a place where people can achieve their personal goals while at the same time helping the institution accomplish its mission."

He sees this proactive approach constantly impeded by continual reactive necessities.

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Human value management

Fitz-Enz therefore offers a philosophy of human value management which links with the concept of the business value chain and the purpose of a business to add value to its business customers and find its competitive advantage in making them more competitive.

Fitz-Enz defines creating value as "a matter of eliminating waste. Anything that does not add value is waste." This is perhaps a rather negative view of adding value, but is certainly a significant element in reaching the positive value adding. You can't succeed with positive differentiation if costs are too high.

Whoever manages human resources has to look at all the activities and behaviours of people with a view to eliminating activity which does not add financial, human or productive value. Then, more positively, resources can be transferred to areas where they will add such value.

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Personnel management as a business function

This approach which looks at personnel management as a business function has been responsible for the tendency to re-title the function as human resource management. It is not just cosmetic; it is trying to mark out a business philosophy. Moving toward understanding this centrality of value to the whole business in human resources management is crucial for all businesses.

Nowhere does it pose a greater dilemma than in businesses in countries moving into the market economy from the previous centrally planned economy. To keep everybody in work meant gross over-manning, which made their countries less able to earn their living in the community of nations. Currently they are wrestling with the elimination of lack of value in human resource usage, trying to balance human need in the individual sense, with the equally human need to create wealth in which all will ultimately share.

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Change and the human resource function

The rapidity of change in all parts of the world and in all aspects of business underlines the need to take this business oriented approach to seeing human resource management as human value management.

Among the significant changes with human value management implications are the trend toward globalisation, the use of information technology and the growth of a whole range of partnerships as a major route to achieving competitive advantage. People have to make the response to these trends in ways which will benefit their organisations. Particularly information technology (IT) is seen as crucial in empowering ordinary people to make a bigger contribution, (eg Zuboff in "The Age of the Smart Machine"). The Total Quality movement is also very much a people one and is about how people add value by ensuring that the customers receive the goods and services in ways which equal or exceed their expectations.

Such is the background against which Fitz-Enz suggests that HR professionals will add value if they see a responsibility for being involved in such areas and exercising influence in them. They need to be advocates and creators of change.

There is a section in the book on how to overcome resistance to change and how to change culture, which is seen as a matter of human value management. The human resource function is seen as an engine to encourage innovation and creativity, to move beyond the status quo, and to ensure that promotion and rewards go to the innovators and creators.

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People add value

Human value management is described as being to

"create value through and with people".

The Japanese approach of training people to create quality goods and services and seek continuous improvement illustrates this. Continuous improvement means asking all the time "How can I add value to what I am doing today?". The value increase may be, in the financial area, lower costs, higher profit; in the production area, higher output of top quality from the customer's point of view; in the human area, satisfied people using their talents to the full.

Customer focus, vision communication, empowerment of people, getting people to be cost conscious - everything must add value. If it doesn't, drop it and see if someone notices the difference.

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Rewarding value-adding performance

Jac Fitz-Enz goes on to emphasise the need to reward value-adding performance. (Deming and some other total quality practitioners would suggest that such rewards should be collective, because the effort which achieves success is not just individual. Purely individual incentives can run counter to the team effort which creates quality. They can be divisive - but that is an issue involving considerable debate. Other issues are how you measure performance and the lack of incentive in automatic increases for everyone.)

The difficulty of measuring leadership shows the difficulty of evaluating performance. The comment of the author: "leading is a composite, not a single discrete act," illustrates the difficulties faced by the competence movement which attempts to break down actions into discrete elements, capable of measurement and use in performance evaluation and qualification awarding.

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Identifying added value

According to Fitz-Enz "Value equals sales minus purchased goods and services". It is increased when cost of capital is cut and pretax earnings increased; it is enhanced when funds invested in people or equipment make people more productive.

HR people are there to help management make that investment wisely, so that value is added by human activity. Adding value by enhanced employee effectiveness is different from personnel administration, which was the traditional area in which personnel departments were engaged.

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Strategic thinking

The author illustrates how adding value means thinking strategically. It means asking and answering questions like:

  • who are we?
  • what is our purpose?
  • on what will we focus?
  • what are we able to do?
  • what is absolutely necessary?
  • how will we operate?
  • what have we achieved?
  • how can we close the gap between what we are and what we must become?

A strategic management audit is proposed on how people management is securing talent, innovation, loyalty, entrepreneurship and productivity; its approach to rewards, research and development, delegation, bureaucracy, marketing and the long term view. Strategy is defined as:

  • visioning.
  • positioning.
  • researching.
  • assessing.
  • deciding.
  • acting.
  • evaluating.

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The task for HR professionals

Much of the second part of the book applies the above seven verbs to the work of human resource management, always with the question; what value is being added to the business?

I would summarise colloquially these activities involved in adding value through people as:

  • getting them.
  • keeping them.
  • growing them.
  • saying goodbye to them humanely.

These are the actions by which human resource professionals add value.

The author offers a human resource effects matrix which looks at the various functions of a business and expresses what success might look like in them, eg

  • production - output, scrap down, shipping on time.
  • selling - units sold, margins, repeat sales.

He suggests that HR specialists should be involved in helping managers to ensure that people are in place and trained who can achieve these objectives. He considers that this value approach must be behind everything HR people do. This means a comprehensive consultancy role, inextricably involved with the purpose of the business, instead of personnel people standing on the side lines.

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Evaluating the success of human resource professionals

There is a substantial section in the book on evaluating the effectiveness of human resource activity defined in the way outlined.

Five indices are suggested:

  • cost.
  • time.
  • quantity.
  • quality.
  • employee reactions to the HR policies and actions.

A process is proposed for evaluating the outcomes of HR policy and their impact on the business.

For everything that people do and the things and methods they employ these questions should be asked:

  • How much did it cost?
  • How long did it take?
  • How many?
  • How good?
  • How satisfied were the people involved? (providers and recipients)

The focus should be on results not the activities; being busy doesn't prove anything. It may or may not add value.

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The evaluation debate

In considering evaluation of the human resource function, the writer proposes an answer to the vexed question as to how sure you can be that what you are evaluating was the cause of the improvement. There are so many other circumstances operating.

He says you should gather data about the pre action situation. After it has been changed you gather data about the same situational variables in the areas where you intervened. Compare and you will see whether value has been added. It sounds simple but once you take the approach of integrating human resource matters with the whole business it may be even more difficult to isolate what was due to HR specialist intervention.

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Integrating the human resource function

Also the more the human resource responsibility is accepted by all managers, the more difficult it will be to unpick the threads to identify who did what. In fact the more difficult it becomes to say "This is because of what human resource people did", the more likely it is that their integration with the business has been successful.

The author gives an example of how to evaluate training in specific situations, but he is still in some difficulty in giving monetary values. This is particularly true when overall development of staff is the objective. The more business is a seen as a collective endeavour to add value in everything that is done, the less the need to isolate a particular department's contribution. Is the value added, by whomsoever, at the lowest possible cost?

And as far as possible responsibility should lie with line managers and their teams at the heart of the operation. This is the route ahead for human resource specialists, rather than the tendency of our author to justify the role of a particular department devoted to human value management.

The same comments apply to a set of numerical ratios which he proposes for use to see if the human resource function is adding value. It is still rather focused on the working of the human resource department, but perhaps it is a path worth investigating to test whether an organisation is getting value for money out of its people, rather than out of a specialist people department.

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The debate continues

In spite of my reservations about the tendency of this book to focus on justifying the HR department, rather than the value added by people, we are faced with the reality that personnel or human resource departments do exist and if they can focus on the business rather than a series of separate administrative actions, then the benefits to the organisation will be considerable.

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