HR’s new ROI: ‘Return on intangibles’

Rating a firm's hidden values
By Dave Ulrich and Norm Smallwood
|Canadian HR Reporter|Last Updated: 03/25/2007

The search for conclusive, indisputable proof that HR departments, practices and professionals have a positive return on investment is never ending.

There is little doubt that investments in HR practices will increase employee commitment and increased employee commitment is a lead indicator of customer commitment, which in turn is a lead indicator of profitability. Firms that invest in some HR practices are more likely to have financial returns than firms that do not. And HR practices shape an organization’s culture, identity, reputation and brand.

But there’s another ROI HR can hang its hat on — not return on investment but “return on intangibles.” Intangibles represent the hidden value of a firm — the shareholder value not determined by financial results. Intangibles are not new to a firm’s overall market value, but they are becoming an increasingly important portion of a firm’s total market capitalization. Below are six actions HR professionals can take to create intangible value.