Happy employees create happy customers. And that shows on the bottomline.

By Dhritiman Chakrabarti & Vivek Chachra

''To remain competitive-maybe to even survive-businesses will have to convert themselves into organisations of knowledgeable specialists''
The Coming of the New Organisation by Peter F. Drucker

Never have so may companies felt as intense a need to manage intellectual and knowledge-based assets as they do now. Today, opportunities for creating value are shifting from managing tangible assets to managing knowledge-based strategies that deploy and leverage an organisation's intangible assets.

Expectedly, companies are increasingly stressing the significance of human capital and the creation of breakthrough value through human capital-the most important intangible asset in an organisation. This has led them to view their employees as value creating assets rather than mere cost heads. The result? More and more companies are reviewing and altering their people-practices in an effort to attract, retain, and motivate human capital.

But are great employers the best performers in terms of financial results? Hewitt Associates in association with the Owen Graduate School of Management (Vanderbilt University) attempted to answer that through a collaborative research effort that stretched over five years, starting 1993. The sample? The companies that had made it to the listing of the 100 best companies to work for in the United States.

The results indicated that the median operating performance of companies included on the list was superior to that of other companies. The researchers concluded by noting that top 100 companies may have realised substantial advantage on financial performance over companies with less employee-focused workplace strategies.

With the findings of this survey as the starting point, and in continuation of the 'Best Employers in India' study, Hewitt Associates tried to analyse whether the best employers in India outperformed their peers in terms of financial results. The analysis excluded H-P and Compaq, as these companies didn't share financial data with us.

What the numbers say

The results of the analyses prove that they do. In terms of operating performance-Return on Assets (ROA), Return on Net Worth (RONW), and Return on Capital Employed (ROCE)-the Best Employers clearly outperformed their industry-groups over the past three years.

In the personal care segment, two best employers, Hindustan Lever and Procter & Gamble, show corroborative results. On all three indicators, HLL and P&G lead the industry averages by 60-100 per cent. Further, although there was a decline in industry performance during 1998-1999, both companies grew steadily through this period.

A similar trend was observed in the paints industry. The industry's performance has, at best, been patchy, but Asian Paints, a Best Employer, has maintained a steady growth of ROA, RONW, and ROCE through this period. Financial institutions (FIs) have seen their performance flag over the past three years. The industry's average ROA and ROCE have dropped by over 50 per cent and 10 per cent, respectively, since 1997-98, but ICICI, another Best Employer, has posted steady growth throughout this period. The only PSU among the best employers, BPCL, has maintained its edge over its peers in terms of ROA, and increased its lead over them in terms of RONW and ROCE. That thread runs through the performance-stories of LG, Infosys, and Hughes Software Systems. The Korean consumer durable manufacturer is an outstanding performer in an intensely competitive industry; and Infosys and Hughes Software boast ROA figures that are 100 per cent and 50 per cent higher than the industry average. This trend is duplicated across other indicators as well. The conclusion? All best employers have consistently outperformed their peers over the last three years.

So, what are the best employers in India doing which enables them to consistently outperform their competitors?

Why the best are so

The BT-Hewitt study on the best employers in India studied the people practices of the best employers in great detail. If people practices are ways to achieve alignment of organisational imperatives with the behaviour of individual employees, then what truly sets the Best Employers apart is the belief that the only way in which they can create breakthrough value in the years to come is through their employees. The Best Employers boast several practices that are manifestations of this belief, but some stand out:

• There is a no-holds-barred war on in the market for talent. Ergo, the quality of selection and hiring practices is one of the best ways to judge an organisation's ability to attract the right kind of talent. Not surprisingly, a fit with the organisation's culture and values figures high up in the typical best employer's recruitment check list. The truly noteworthy trend, though, is the emphasis best employers are laying on softer attributes such as attitude, flexibility, adaptability, demonstrated capabilities of leadership, and prior work experience outside industry.

• If it's a well-crafted hiring strategy that attracts better employees, it's only by motivating them and keeping them engaged that an organisation can truly translate human capital into a source of competitive advantage. In contrast to the prevailing belief that ''only guaranteed rewards speak the loudest'', the best employers believe a number of (innovative) initiatives can improve motivation levels among employees: performance-based team incentives, transparency on business performance, employee stock ownership programs (or variants), performance-recognition and retention awards, and better performance management systems.

• Retention of the best and the brightest is the last, and the most vital, link in the process of creating breakthrough value. The best employers make use of a variety of retention devices: long-service awards, assistance in asset-building, post-retirement healthcare facilities, investment education, and employer-paid life insurance. Non-monetary retention initiatives include alternative career tracks, paid sabbaticals, and reimbursement of expenses towards higher education.

• Communication is the glue that binds an organisation together. The best employers spare no efforts in doing this. They encourage frequent interactions between employees and the CEO (and the senior management team). The leadership in these companies repeatedly reiterates that its emphasis is on ''value-enhancement through people''. Overall, the focus of the Best Employers is all too clear: sustained value creation by energising and channeling the imagination, talent, and intellect of people in a focused way.

The authors are consultants with Hewitt Associates, LLC

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