The ROI of Human Capital: Measuring the Economic Value of Employee Performance, Second Edition

166 THE ROI OF HUMAN CAPITAL

degree of success. The goal is not to change the world over-

night. It is just to decrease the variance and increase the

certainty a bit at a time.

In general, people do not understand simple probability

statistics. Let’s use gambling as an example. The casinos in

Las Vegas make billions every year on just a percent or two

in favor of the house. However, when we apply that concept

to organizational improvement programs we can find simi-

lar incremental gains but not the same type of success. The

reason is that a couple percent of improvement in quality or

productivity in one part of the organization does not accu-

mulate to the same percent corporate-wide. In fact, in some

cases, the effect is only in the local process with no effects

elsewhere. To obtain that percent gain across the organiza-

tion and drop it to the bottom line we have to work holisti-

cally.

AModelandSystem

Consider that each year, barring some national or global

economic anomaly, most companies have anywhere from a

financial loss to a small profit. That leaves no more than

about 20 percent that have a good to better-than-average

year. Every population has only 10 to 20 percent on the top

end of the traditional bell-shaped distribution curve. It is a

law of distribution that never changes under normal condi-

tions. To be on top, all we have to do is to beat two out of

ten competitors. If we can increase our return on human

capital a couple of percent a year more than the competi-

tion, we will be in the top 5 percent of our industry. The best

way to do this consistently is to manage our greatest lever-

age point, which is people, more effectively than the other

two competitors. The secret is not to focus on transaction

efficiency. To attain this position we need the following: