Purpose – A pressing research question in human resources (HR) is how to determine the value HR adds to a firm. This article seeks to address this issue Design/methodology/approach – As summarized here, benchmarking techniques, ROI tools, behavioral analyses and other types of quantitative efforts have attempted to provide answers, but such methods also have downsides. In the present paper, the long‐established finance concept of net present value (NPV) is applied in order to determine the value that HR activities provide to an organization's business strategy. Findings – A specific example is used to illustrate how NPV can be used to value the HR activities in a firm pursuing an innovation business strategy. An explanation is also given of how NPV can be used in making decisions related to HR outsourcing. Practical implications – NPV is used to operationalize the strategic net benefit (SNB) of HR's costs and contributions to a firm's business strategy. Originality/value – The long‐established finance concept of net present value (NPV) is applied in order to determine the value that HR activities provide to an organization's business strategy.
Journal of Human Resource Costing & Accounting – Emerald Publishing
Published: Jan 1, 2005
Keywords: Human resource management; Human resource strategies; Net present value; Costs; Benefits