Measuring Human Resource Value: An Analysis Based on the Hotel Industry

Abstract

The importance and value of employees in service industries has been recognised by senior executives for many decades and they are aware that the service provided by human resources is the key to competitive advantage in the market place. This is particularly true of the hotel industry where employees form an integral part of the “hospitality product”. In labour intensive industries human resources are also costly to develop and maintain and increasing global competition in the 1980s followed by a world‐wide recession in the early 1990s has focused attention more acutely on the effectiveness of investments made in human resources. This had led to the rediscovery of human resource costing and accounting as a means by which organisations can monitor the impact of their employment practices on business performance. This article discusses the findings from research on the human resource accounting practices of hotel companies operating in the UK. The research indicates that very few hotel companies studied undertook any systematic analysis of their human resource investments and the economic contribution of employees remains unknown. This raises questions regarding the extent to which human resources are truly “valued” by hotel organisations and how much time and effort is devoted to ensuring that human resource investments and employment practices add value to the business.

Conceptualizing and measuring the economic value of human capital of the third kind

“…Most of the studies of human resource accounting dealing with the valuation of human capital either explicitly or implicitly use the individual as the unit of human capital (Flamholtz, 1971;Lev and Schwartz, 1971;Maher, 1996;Morrow, 1996;Sveiby, 1997). Flamholtz (1971) proposed a model of the valuation of individuals.…”

“…Similarly, Lev and Schwartz (1971) also proposed a model for individual valuation which assumed that the aggregate value of human capital was the sum of the values of the individuals. Maher's (1996) study of human resource value in the hotel industry did not address this issue explicitly, but seems to view the value of the "workforce" as the sum of the value of the individuals comprising it. Morrow's (1996) study of football players as human assets treats the value of total human capital as the sum of the value of the individual player's contracts.…”

Why the concept of human resource costing and accounting does not work

“…In referring to the actual use of HRCA, Maher (1996) found in a study of the British hotel industry that HRCA tools were used only on an ad hoc basis among human resource managers whereas two Swedish studies (Lundberg and Wiklund, 1994;Swedish Association of Local Authorities, 1994) report an extensive use of the concept. In an American survey of industrial/ organisational psychologists, Macan and Highhouse (1994) found that 46 per cent of the respondents who had presented an HR activity to management reported using utility estimates.…”

Current development in human resource costing and accounting

“…Nevertheless, Highhouse and Macan (1994) found in a survey of industrial/organizational psychologists that, 46 per cent of the respondents who had presented an HR activity to management reported using utility estimates. In contrast, Maher (1996) found that few hotel companies in the UK undertook any systematic analysis of their human resource investments.…”