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HUMAN RESOURCE MANAGEMENT, Spring 2000
customer expectations. The process of using
does improve retention long term and, there-
fore, is worth the investment. Consequently,
it comes as no surprise when other employers
in the same labor market increase their wages
and turnover once again increases. The un-
tested wage theory was only a temporary
solution; there was a negative return.
customer data and financial measures to plan,
test, allocate, and evaluate can and should be
applied to the practice of human resource
management (HRM). Regrettably, it is not.
This article describes three practices that
were implemented at The Kroger Co. The first
used pilot studies of two proposed human
resources practices that were controlled for cer-
tain factors to determine the causal connection,
if any, between the practice and the measured
results. The second used financial measure-
ments to assess the real benefits and returns of
these human resources practices. The third used
customer data to design a selection system for
new employees.
Traditionally, HRM has fallen short in de-
signing its interventions—such as new employee
selection, training, development, assessment
and reward programs—by not providing sub-
stantive input or data to demonstrate customer
needs and expectations. The decision-making
process by the human resource specialist has
been intuitive at best. In organizations that are
willing to rely on such anecdotal support, capi-
tal has been allocated to HRM projects without
support from financial measures or data reflect-
ing customer input. If capital is not allocated
based upon a disciplined application of fi-
nancial measures, the ability of HRM to win
unequivocal support for its initiatives is in
jeopardy. Further, when revenue declines or a
business crisis looms, it is frequently the HRM
practices that were approved without financial
measures or customer input that are the first to
be trimmed or eliminated (see Fitz-enz, 1996).
HRM’s lack of connection to the “real cus-
tomers” of the enterprise is confused by its
perception of employees or other internal de-
partments as its exclusive customers. HRM
measures its effectiveness by seeking input
from these internal customers or by creating
performance measures related to its internal
work processes. Instead, HR should assess its
practices based upon the expectations of the
“real customers” of the enterprise. For ex-
ample, if customer loyalty is based upon the
ability of the enterprise to beat the prices of its
competitors, HR must design compensation
plans that are very cost effective and assure high
productivity. If customers expect employees to
have extensive product knowledge, training pro-
grams should be designed to meet this expecta-
tion. Similarly, if customers value personalized
service, new employee selection processes
should be instituted to ensure that service-
oriented individuals are selected for employ-
ment. If HRM’s link to the real customer is
not apparent, its connection to the overall
business strategy becomes obscured. HRM
must understand and constantly evaluate the
Human Resource Measurement
A human resource officer is arguing for the
funding of a proposed training center. It will
be a state-of-the-art facility. He has done his
homework by studying training centers at
other companies (benchmarks) and review-
ing the setting, facility, location, curriculum,
and technological appliances that will be used
to enhance the learning process. The capital
appropriations committee of his company in-
quires about the expected NPV of this new
facility. He responds that such a calculation
is not possible. His presentation is followed
by the head of logistics who proposes the con-
struction of a new regional warehouse for the
company. Her analysis indicates it will lower
overall product costs significantly and will re-
duce the time it takes to get product from the
plant to the shelf. She has calculated a sig-
nificant NPV for the facility. If the enterprise
allocates capital based upon data and finan-
cial measures, who will get the money?
The field of human resource manage-
ment has seldom used data (collected by
scientific methodology) or financial metrics
in competing for available resources within
the organization. HR managers convince
their organizations that turnover can be re-
duced if entry-level wages are increased.
Accordingly, millions of dollars are expended,
and turnover is reduced. The reduction, how-
ever, is only temporary because no effort was
ever made to test the wage theory under con-
trolled conditions to ensure that it actually