Maximizing the return on your human capital investment, from Watson Wyatt

Although some people disdain HR as a soft-headed haven for "people" persons, truly high performing companies know that HR is a key ingredient of profitability. But what's the ROI?

Since 1998 Watson Wyatt has set out to document the expected ROI on the full spectrum of HR functions. This year marks the release of their third report (following 1998 and 2002). The key theme from 2002's report was how superior HR today corresponds strongly to growth in shareholder value tomorrow. The 2005 report continues in that vein but with more specific commentary on exactly which HR practices generate the most ROI. Take a guess which of these HR functions tops the ROI list:

• Communication
• Benefits
• Recruiting
• Employee Development

Ready for the answer? Recruiting headlines the 2005 Watson Wyatt report as the most powerful differentiator of shareholder returns--specifically, time to fill. Companies that average two weeks to fill a position outperform those that take seven weeks by almost 50 percent in "total return to shareholders" (the change in a company's share price over three years, plus dividends, as a percent change from its opening value).

Excellence in training, by comparison, boosts return to shareholders about 20 percent. And as reported here earlier, some kinds of training actually produce negative returns.

Watson Wyatt's emphasis on time-to-fill in general, and employee referrals in particular, is especially good news for services like Jobster, which aim to connect those looking to hire to the world of vetted candidates. My colleague Mal Watlington has been watching this space for some time and you can learn a lot about it by starting here and then browsing this. See also Mal's commentary on Watson Wyatt's 2005 report.

For another perspective on talent management, see this report by Robin Athey of Deloitte. I will say more about this in a future post.