Abstract
AbstractIn many organizations the labor workforce is the single most important factor for business performance, but also the most difficult to analyze. Traditional analyzing and forecasting methods do not explain the phenomenon how human capital affects business economics, and therefore they are not too widely used in strategic management. This article introduces Human Capital Production Function (HCPF) as an analyzing method that combines the tangible and intangible assets of human capital with financial scorecards in a way that explains the meaning of human resources for business performance. Intangible assets can be measured using tacit signal method which can be connected to organization system intelligence. The article studies HCPF validity in longitudinal business case data and tests the use of HCPF in scenario-analyzing in a statistical average business services company in the Singapore region.
Highlights
Business objectives are usually stated in terms of revenue, profit, profitability and return on investment
The production function is used in economic calculations for analyzing the relationship between organization resources and output that is the result from using the resources
Human Capital Production Function validity is studied at longitudinal research case study in a company of approximately 1,000 employees consisting 19 business units of builders’ merchants localized stores with well-trained specialist staff
Summary
Business objectives are usually stated in terms of revenue, profit, profitability and return on investment. Forecasting is used for setting targets and creating business plans. One way to learn more about the firm’s resources and what they mean to business performance is scenario analyzing. Scenario analyzing includes causal relationships between selected variables which together form different realistic business outcomes. Its foundation lies in the idea that labor and capital are related so that the equation returns to scale are constant according to the following formula Q = a Lb K(1-b). The Cobb-Douglas production function has been criticized because it does not serve the needs of individual firms but rather the aggregations of industries or even the whole economy (Keat & Young 2003). Some studies reveal that industry specific factors determine roughly 8% to 19% of a firm’s profitability, whereas firm specific factors determine an average of 42% of the companies’ return on assets (McGahan & Porter 1997, Huwawin et al 2003, Roquebert et al 1996, Misangyi et al 2006)
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