Human Resource Intangibles in Foodservice - 1 - - 1

Human Resource Intangibles in Foodservice - 1 - - 1 -

The foodservice industry as a whole needs to break free of the current human resources paradigm of high turnover and low retention of employees, which is costing the industry billions in replacement costs, lost productivity, service quality, employee know how and experience (Pine, 2000). Gordon, in a 1991 paper on Industry Determinates of Organizational Culture concluded that, “corporate cultures, consisting of widely shared assumptions and values, are, in part molded by the requirements of the industry in which they operate” (p. 410). The foodservice industry, and more specifically the restaurant segment, suffers from Gordon’s exact proposition that the industry norms shape the corporate culture/thinking of individual entities, when it comes to valuing employees and preventing turnover. It is only when the restaurant industry engages in a paradigm shift and under goes a fundamental change in philosophy that it will be able to harvest the full potential of its employee’s intangible value.

Research Purpose: The development of a framework to demonstrate the economic value added (EVA) of an intangible human resource component.

Research Question: Should hospitality firms invest in human resources components (e.g. training, selection, retention, education and development) as sustainable competitive methods that have positive cash flow streams and generate EVA?

The Academy of Management Journal published in 1996 a Special Research Forum on Human Resource Management and Organizational Performance, which attempted to foster a better understanding of the role of human resource decisions in developing and maintaining firm performance and competitive strategy. Out of this forum several empirical studies of note, Huselid (1995), Delaney and Huselid (1996), Becker and Gerhart (1996), provided survey-based evidence of a positive link between human resource practices and market values. Current theoretical approaches in business strategy have given a lift to the concept of human resources generating a sustainable competitive advantage (Becker and Gerhart, 1996). This is in accord with the resource based view (RBV) of the firm, that businesses can develop sustained competitive advantage only by creating value that is rare and not easily imitated by the competition. It is for this reason that HR strategies could become important sources of competitive advantage in the future, “the challenge for management will be creating value through people rather than using them as objects to add value” (Olsen and Zhao, 2002: 7).

A 1995 study by Huselid evaluated at length the links between of High Performance Work Practices systems and firm performance and the results indicate that these “practices have an economically and statistically significant impact on both intermediate worker outcomes (turnover and productivity) and short and long-term measures of corporate financial performance” (p 635). A 1996 study on the impact of HRM practices on perceptions of organizational performance was conducted to determine if positive associations exist between HRM practices, (such as training and staffing selectivity), and perceptual firm performance measures (Delaney & Huselid). In general the findings suggest that progressive human resource management practices, (including selectivity in staffing, training, and incentive compensation), are positively related to perceptual measures of firm performance.

The idea that individual worker performance has implications for business level results has been widespread among scholars and practitioners for many years (Huselid, 1995). An employment system that creates a distinct sustainable competitive advantage is an “intangible asset” that is not carried on the balance sheet, as are traditional assets (plant and equipment). Intangible assets are now worth on average three times more than firm’s hard assets, according to the Harvard Business School’s Harvard Management Update Newsletter (Wagner, 2001).

Human capital is basically the ability of employees to generate economic output through the application of their education, knowledge and skills; it refers to employees’ know-how, capabilities, skills and expertise. Intangible economic value is the potential and ability of employees to add additional value above and beyond the cost of the products and services they create while engaged in work activities or work related activities. “The growth of intangible value and the drive to increase this value has not left HR unaffected. The most striking change in the new economy is the realization of the intangible economic value of Human Capital, and how that translates into fundamental business imperatives to attract, retain and develop that Human Capital” (McCormick, 2002:1). The challenge in the future will be to prove the importance of strategic human resource practices and measure their value. Hypotheses: A High Performance Work Practices System, (including selectivity in staffing, recruitment, training, development, retention and incentive compensation), will lead to higher intangible economic value for an organization. Human Resource Intangibles in Foodservice - 2 - - 2 -

Becker, B and Gerhart, B, (1996), Impact of Human Resources Management on Organizational Performance: Progress and Prospects, Academy of Management Journal, 39: 779-802. Delaney, John and Huselid, Mark (1996), The impact of human resource practices on perceptions of organizational performance, Academy of Management Journal, 39: 949-967. Gordon, George, (1991), Industry Determinants of Organizational Culture, Academy of Management Review, 16 (2): 396-415. Huselid, Mark (1995), The impact of human resource practices on turnover, productivity, and corporate financial performance, Academy of Management Journal, 38: 635-667. McCormick, Kevin, (2002),The rise and rise of e-HR, http://hr.monster.com.hk/articles/6327/

Olsen, M. D., and Zhao, Jinlin, (2002), Forces Driving Change in the Foodservice Industry and Competitive Methods of Multinational Foodservice Firms, IH &RA white paper.

Pine, Bradley, (2000), Lending a Hand, Restaurants USA, April.

Wagner, Cynthia, (2001), Making Tangible Assets More Tangible, The Futurist, May 2001.