“Our assets walk out of the door each evening. We have to make sure that they come back the next morning,” said N.R. Narayana Murthy, CEO, Infosys. In today’s knowledge economy, the single most important and powerful factor that differentiates one organization from another is the human resources (HR) or human assets. While humans can be physically replaced, the skill-sets and knowledge of a person leaving an organization cannot be exactly replaced by the successor. This is why loss of human resources is considered as the greatest loss to any organization.

The individual skills and expertise of humans in various fields are indispensable in enhancing the corporate values of organizations and their clients. Dr. R.A. Mashelkar, former Director-General of Indian Council for Scientific and Industrial Research (ICSIR), and ex-Chairman of the Standing Committee on IT of World Intellectual Property Organization (WIPO), Geneva, once rightly said, “Tomorrow’s wars will be fought not by conventional weapons, guns, missiles and so on, but in the knowledge markets, with new thermonuclear weapons called information and knowledge.” Humans are the storehouse of information, knowledge, and experience, and can leverage the growth of an organization by translating their intangible knowledge and experience into tangible wealth. Apart from the ability to convert experience into knowledge, humans also possess the ability to acquire new knowledge through the process of learning. This knowledge assumes immense potential when it is properly harnessed and disseminated for the organization’s benefit.

With attrition rates steadily increasing, the biggest challenge for any organization today is to retain its talented human assets from leaving the organization. The average annual attrition rate in BPO sector in India is about 30-35 percent, unlike the U.S., where the attrition rate is about 70 percent. When an employee leaves an organization after getting trained, the organization loses about Rs.60,000. A 30 percent attrition rate for a call center, with about 300 employees, costs the company Rs.60 lakhs per annum. The attrition rate in Indian pharma sector is also very high with about 30-35 percent per annum, compared with the global attrition rate of 10-12 percent.

The replacement costs of employees are very high globally. It will cost at least 150% of a person’s base salary to replace him or her. In the U.S., the average cost of replacing an employee is $17,000, while those earning more than $60,000 per annum cost over $38,000 to replace. The cost of temporary replacement is also quite high at 39 percent. Replacement of a critical care nurse can cost up to $185,000. Moreover, it takes about 20 weeks, on an average, for a new employee to become fully productive. Hence, the importance of human assets can hardly be over-emphasized.

It is very essential for an organization to create and promote a culture of knowledge and innovation, and respect the human assets, upon which their very survival depends. A study by Huselid and Becker found that the strategic impact of HR systems on organizational performance is highly significant, and can have a positive impact of about $38,000-73,000 per employee on market value.

December 16, 2007

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