Mark Huselid | Module IV

Current financial and managerial accounting systems evolved during a time when tangible capital (both financial and physical) was the primary constraint in increasing the profitability of most businesses. During this time, access to money and equipment could represent a source of significant competitive advantage for an organization. In our current economy, however, where knowledge and other intangibles are increasingly the dominant assets, conventional accounting systems do not provide the kinds of information required to effectively measure these new forms of capital.

One of the most important distortions of conventional accounting systems is to encourage short term thinking with respect to the management of intangibles (since expenditures in these areas are treated as expenses rather than investments in assets). In contrast, investments in buildings and machinery are capitalized and depreciated over their useful lives. As a result, short run profit pressures encourage investments in physical capital at the expense of potentially value-creating investments in human capital.

a firm’s HRM Architecture (its people, and by extension, the infrastructure used to manage those people) is relatively more important than ever before
the economic impact of more effective HRM Architecture on firm performance is substantial
much (but not all) of the economic value created through HRM is due to its crucial role in strategy implementation
measurement systems, carefully tied to the firm’s competitive strategy and operational goals, can provide a source of competitive advantage that is very difficult to imitate

According to Dr. Huselid, developing a competency in measurement is important because, if done correctly, it can add value at the level of the firm. But few managers (HR or otherwise) have strong competencies in this area. HR managers, who have been asked to learn about finance and accounting in recent years, now must develop a competence in measurement as well.