Quantitative Goals Beat Softer Targets

December 21, 2001 (PLANSPONSOR.com) - Companies that focus their HR technology initiatives on making specific, quantifiable improvements see increases in the company's market value, while those with softer goals in mind can see negative returns, according to a new study.

The 2001 Human Capital Index (HCI), released by Watson Wyatt also found that when technology is used primarily to:

  • help reduce costs, the market value of the company increases by 2.3%
  • improve employee service, it increases by the same amount, and
  • increase transaction accuracy, market value increases by 1.9%

However, company market value falls by 6.6%, when technology is used to promote a common corporate culture, and drops by 7.7%, when it is used to enhance communication.

The HCI data also measured the impact of HR technology choices on total returns to shareholders over a five-year period. The study found that companies with fewer than 1,000 employees that chose:

  • Enterprise Resource Planning (ERP) systems lost 19% for shareholders,
  • to take the total outsourcing route, lost 12%, and
  • to integrate their HR applications, gained 5% for stockholders

While large companies, with over 10,000 employees, who chose:

  • ERP systems, saw a 92% five year total return,
  • the total outsourcing route, posted a 71% return, and
  • the integration option, posted a 82% return

The HCI study was based on a survey of human resources practices at 750 North American and European companies with a track record of at least three years of total returns to shareholders, 1,000 or more employees and/or a minimum of $100 million in revenues or market value.