Abstract
The utilization of employees often is the only measure for success of engineering services units. The question how many days of paid services can be billed to a customer is so dominant that other aspects are completely neglected. However, focusing on maximizing just one, financial, value – revenue by employee - might not be sufficient to guarantee sustainable success. The aim of this dissertation is to develop a management instrument for an engineering services unit based on the balanced scorecard approach. Even though the value of human capital often receives only little attention, employees are the key differentiator of an enterprise. The knowledge, experience and attitude of people can not easily be copied by competitors. Since human capital’s contribution to business success is difficult to measure, it often plays no role in management systems. This situation can only change if the value of human capital can be determined and represented. The term “human capital” is explained in more detail in the first part of this work. What is human capital and why is it becoming increasingly important? Several approaches to determining human capital are described and analysed.
In the second part of this work, a Balanced Scorecard is developed on a step-by-step basis for an engineering services unit. Particular attention is paid to the human capital aspect. However, the purpose of this work is not to develop a scorecard that serves only to assess and control human capital variables. Examples of such dedicated Balanced Scorecards are the HR-Scorecard and the Human Capital Management Scorecard. However, these Scorecards may complement the traditional Scorecard, but cannot replace it. They are focused on human resource figures only and thus are not linked with other measures, such as financial indicators. The Balanced Scorecard to be developed for the engineering services unit should reflect the strategy of the business unit. The idea is to use this Balanced Scorecard as a management tool in future. Therefore the Balanced Scorecard design will follow the traditional approach but put special emphasis on human capital.
Table of Contents
1 Introduction
2 Definition of Human Capital
2.1 What separates Human Capital from other assets
2.2 Human Capital - the un-word of the year 2004
2.3 The gap between book value and market value
3 Human Capital Measurement
3.1 Human Capital Accounting
3.1.1 Weighted personnel cost method
3.1.2 Method of future remunerations
3.1.3 Flamholtz’s Approach (Human Resource Accounting)
3.2 Deductive Summarizing Approaches
3.2.1 Market Value to Book Value
3.2.2 Tobin’s q
3.2.3 Calculated Intangible Value
3.3 Inductive Analytical Approach
3.3.1 Intangible Assets Monitor
3.3.2 Intellectual Capital Navigator
3.3.3 Balanced Scorecard
3.3.3.1 Nomen est Omen
3.3.3.2 Perspectives of Balanced Scorecard
3.3.3.2.1 The Financial Perspective
3.3.3.2.2 The Customer Perspective
3.3.3.2.3 The Business Process Perspective
3.3.3.2.4 The Learning and Growth Perspective
3.3.3.3 Human-Resource-Scorecard
3.3.3.4 Human Capital Management Scorecard
3.4 Human Capital Key Figures
3.4.1 Economic Value Added and Human Economic Value Added
3.4.2 Human Capital Value Added and Human Capital Return On Investment
3.4.3 Human Asset Worth
3.4.3.1 Employment Cost
3.4.3.2 Individual Asset Multiplier
4 Profile of the Business Unit “Engineering Services”
5 Design and Implementation of a Balanced Scorcard
5.1 Defining the Vision
5.1.1 Procedure: A journey into the Future
5.1.2 Formulating the Vision for the Engineering Services Business Unit
5.2 SWOT-Analysis
5.2.1 Procedure
5.2.2 Strengths of the Business Unit
5.2.3 Weaknesses of the Business Unit
5.2.4 Opportunities Coming from the Business Unit Environment
5.2.5 Threats Coming from the Business Unit Environment
5.2.6 Supplementary Interviews
5.3 Strategy
5.4 Perspectives and Key Figures
5.4.1 Financial Perspective
5.4.2 Customer and Partner Perspective
5.4.3 Process Perspective
5.4.4 Human Capital Perspective
5.5 Implementing the Balanced Scorecard
5.5.1 General Conditions
5.5.2 Communication and Training
5.5.3 Software Support
6 Conclusion
Objectives and Core Themes
The objective of this dissertation is to develop a management instrument for an engineering services unit based on the Balanced Scorecard approach, with a primary focus on human capital. The study investigates how human capital can be effectively measured and managed to contribute to sustainable business success, moving beyond traditional financial indicators.
- Development of a strategy-aligned Balanced Scorecard for an engineering services unit.
- Evaluation of various methodologies to determine the value of intangible assets and human capital.
- Integration of human capital as a key strategic component in a Balanced Scorecard framework.
- Identification of critical success factors for engineering services through SWOT-analysis and expert interviews.
- Proposal of specific key performance indicators to manage employee contribution and organizational success.
Excerpt from the Book
1 Introduction
Today it has become common for managers to claim that their employees are their greatest asset. The simple truth is: they are right. In an increasingly service and knowledge-based economy physical production factors are losing importance. “Unlike financial and physical ones, intangible assets are hard for competitors to imitate, which makes them a powerful source of sustainable competitive advantage” (Kaplan and Norton 2004, page1). Intangible assets include brands, customer goodwill, intellectual property and, first of all, human capital. Having a headstart in terms of know-how often means having a competitive edge. Therefore, human capital is becoming critical to business success. However, without a clear basis of measurement the avowal of the managers that their employees bring value to the organization is little more than empty rhetoric. People can potentially add huge value to the enterprise but tapping this source of value needs both measurement and management. The value added can only be shown externally if human capital is measured and effectively managed internally.
In order to be able to make the right decisions, it is important to know the value of human capital. This realisation is nothing new, as is shown in the following example. In 1642, Austria and Sweden agreed the following “price list”: Field marshal 20 000 Taler; Colonel 1 000 Taler; Cavalry captain 200 Taler; Infantry captain 150 Taler; Non-commissioned officer 16 Taler; Private 8 Taler. This table was to enable quick decisions as to whether the costs of taking a prisoner exceed the value of the individual person. Fortunately, the Thirty Years War is long since past and the term human capital is today predominantly used in an economic context. However, in order to also make the right decisions in business life, it is important to determine the value of the human capital of a company.
Summary of Chapters
1 Introduction: Discusses the transition toward a knowledge-based economy and the critical importance of measuring human capital as a primary source of sustainable competitive advantage.
2 Definition of Human Capital: Defines human capital as the sum of skills, knowledge, and attributes of the workforce, emphasizing its role as the key differentiator for modern organizations.
3 Human Capital Measurement: Analyzes various methods for valuing intangible assets, ranging from traditional accounting approaches to deductive and inductive measurement frameworks.
4 Profile of the Business Unit “Engineering Services”: Outlines the strategy and specific environment of an engineering services business unit operating within the digital manufacturing sector.
5 Design and Implementation of a Balanced Scorcard: Details the step-by-step process of building a human-capital-oriented Balanced Scorecard, including vision formulation, SWOT-analysis, and strategy definition.
6 Conclusion: Summarizes the study’s findings and reinforces that the Balanced Scorecard is an effective management tool, provided it is tailored to the specific organizational needs and human capital requirements.
Keywords
Balanced Scorecard, Human Capital, Intangible Assets, Engineering Services, Intellectual Capital, Performance Measurement, Strategy Execution, Human Resource Management, Competitive Advantage, Value Added, Digital Manufacturing, SWOT Analysis, Key Performance Indicators, Organizational Strategy, Employee Development.
Frequently Asked Questions
What is the core focus of this research?
The work focuses on developing a tailored management instrument based on the Balanced Scorecard approach specifically for an engineering services unit, with an emphasis on measuring and managing human capital.
Which central topics are addressed?
Central topics include the definition of human capital, methods for measuring intangible assets, strategic goal setting through the Balanced Scorecard, and the specific application of these tools to engineering services.
What is the primary objective of this dissertation?
The primary objective is to create a management framework that effectively links human capital development to business strategy and long-term organizational success.
Which scientific methods are employed?
The research uses a descriptive and analytical approach, combining literature review on intangible asset measurement with practical workshops and structured interviews to perform a SWOT-analysis and develop specific scorecards.
What is discussed in the main part of the document?
The main part covers the theoretical frameworks for human capital measurement, the development of a Balanced Scorecard through vision and strategy alignment, and the definition of specific financial and non-financial performance metrics.
Which keywords characterize this work?
Key terms include Balanced Scorecard, Human Capital, Intangible Assets, Performance Measurement, Strategy Execution, and Value Added.
How does the author view the gap between book value and market value?
The author argues that traditional accounting fails to capture the real value of a knowledge-driven company, as internally generated intangibles are often expensed rather than treated as investments, leading to a disconnect in financial reporting.
Why is the "Learning and Growth" perspective replaced by a "Human Capital" perspective in the author's model?
The author considers human capital to be the single most important asset for engineering services and therefore elevates it to a standalone perspective to ensure it is systematically measured and actively managed.
- Quote paper
- Uwe Eigenmann (Author), 2005, Design and implementation of a Human Capital oriented Balanced Scorecard in an engineering services unit, Munich, GRIN Verlag, https://www.grin.com/document/41544
