People are Our Most Important Asset
Organizations are too often prisons for the human soul.
—Charles Handy, Foreword of Organizing Genius
We called for workers, but people came.
—Max Frisch, Swiss author, referring to
European guest worker programs
Arguably the most condescending of the maxims deconstructed in this book is the proclamation that People are our most important asset. Institutionally self-serving, this declaration takes many semantic forms and is by no means used sparingly. An array of corporate communication tools lauds the power of the people behind successful ventures and products. All hail those on the front lines servicing customers and providing solutions in the field. Executives praise associates, team members, staff, and rank and file as critical parts of one big corporate family. People are the glue. They make the organization hum, click, go, and outduel competitors. Sometimes, albeit rarely, these sentiments are genuine.
Unfortunately, the false praise heaped on an organization’s personnel is frequently used to co-opt public opinion and appease unhappy, perishable employees. It is often politically correct lip service spouted by senior managers far removed from these living, breathing assets. Indeed, aside from being rolled up into the intangible assets or goodwill component of a business valuation (e.g., in the case of an acquisition), employees are very seldom accounted for as assets in financial accounting. Over 20 years ago management sage Charles Handy scribed, “For a long time now, corporate chairmen have been saying that their real assets were their people, but few really meant it and none went so far as to put those assets on their balance sheets.”1 A survey published in 2012 asked 180 accounting professionals the following hypothetical question: Should human capital be accounted for and reported on the balance sheet? Only 13 percent responded affirmatively, with 87 percent answering no. Subjectivity and difficulty with measuring the value of human capital were common reasons given for responding in the negative.2 Nevertheless, employees do materialize on the books as direct labor costs and general and administrative (G&A) expenses.
Before proceeding I must make the following distinction: Most firms view their products (and services), intellectual property (IP), business models, and shareholders as more important than the bulk of their employee assets. The best workers and managers will be hard pressed to succeed without solid products, systems, and brands. Relatedly, Jeffrey Pfeffer and Robert Sutton of Stanford’s Graduate School of Business noted that “Great systems are often more important than great people.”3 However, isn’t it common to think that people are necessary to create and contribute within these systems? Yes, but once products, business models, and systems are established, I contend that most employees are considered less critical than those factors that are the focus of the enterprise. I do not qualify or trivialize this proposition as nothing personal, but instead acknowledge it is a matter of the strategy and performance metrics that drive a typical firm’s behavior. Believe me, as an employee myself, I take no pleasure in this realization.
Let’s look at a few examples. You could replace nearly everyone at Facebook, yet its flagship social networking site would likely continue to perform adequately in the marketplace for some time. Facebook’s market strength and network effects dwarf the value provided by the bulk of the company’s current employees. Given Facebook’s sizable financial assets, it is more likely to acquire its next blockbuster product than develop it organically. In matters of a technology or company acquisitions, Facebook would rely on select employees to accomplish any deals (e.g., those with discovery, valuation, and due diligence skills).
Likewise, and hypothetically, Alphabet’s Google would continue to dominate the search business in the near term even if the majority of its employees’ work were outsourced. The legacy of the restructured Alphabet will likely showcase its business model—which yes, contains a people component—as more vital to organizational performance than the majority of its employees. With the exception of a subset of key people with particular skills, knowledge, and vision, most employees are replaceable. In practice, this is how many organizations view their employees.
Importantly, many tech workers at Facebook and Alphabet are more valuable in the new knowledge economy due to their specific and relatively scarce skill sets. Research and development organizations also contain many vital employees. On a larger scale, employees at service-intensive businesses such as package delivery concerns (e.g., United Parcel Service drivers and handlers) and hotels (e.g., housekeepers at Hilton) are critical to daily operations. However, these semi-skilled employees are only vital from the standpoint that they are organized and able to collectively walk off the job.
Suppose a firm decides to outsource production of a long successful product. Many may think this decision is a mistake—losing tribal and tacit knowledge, the idiosyncrasies of the process, and application of secret sauce that only comes from years of experience. The original crew that made the products was excellent, but as the product line matures, in-house manufacturing may no longer be strategically aligned. The new subcontractor is good enough. The firm gives up some control in exchange for headcount reduction and cost savings. Note that I am not condoning rampant outsourcing but merely conveying its reality. Outsourcing is often a short-sighted remedy resulting in the permanent loss of internal competencies.
Consider the aforementioned term headcount. It’s a convenient way of categorizing employees into a neat unit of measure, like SKUs (stock keeping units). Each employee exists as a unique yet impersonal part number. Many dutiful workers cling to the fairytale of a social contract between employee and organization. Yet even the concept of an employee has a short history. Noted management author Gary Hamel bristles with the following perspective:
One doesn’t have to be a Marxist to be awed by the scale and success of early-20th-century efforts to transform strong-willed human beings into docile employees. The demands of the modern industrial workplace required a dramatic resculpting of human habits and values. To sell one’s time rather than what one produced, to pace one’s work to the clock, to eat and sleep at precisely defined intervals, to spend long days endlessly repeating the same, small task—none of these were, or are, natural human instincts. It would be dangerous, therefore, to assume that the concept of “the employee”—or any other tenet in the creed of modern management—is anchored on the bedrock of eternal truth.4
The philosopher John Locke weighed in on labor’s contribution over three centuries ago with, “For ‘tis labor indeed that puts the difference of value on everything.”5 An astute observation for its time and still relevant today. Manual labor, thoughtful analysis, creativity, and human decision making still produce value, yet the truly differentiating producers of significant value are a small minority of all those employed.
My apologies for beginning this chapter with a bit of gloom and doom. I promise I’ll provide some positivity later in the chapter. My point here is not to depress you but to awaken you. Your job and career are your responsibility. The majority of employees will be vulnerable to career flux and displacement. If organizations can reduce costs by limiting headcount, that is exactly what they will do. You are likely not your employer’s most important asset!
No Labor of Love
A Gallup poll measuring the engagement of U.S. workers has received a lot of attention for its consistency and sobering depiction of the workplace. For the past 15 years, Gallup reports less than one-third of workers in the United States have reported being engaged on the job. Gallup considers an engaged employee to be “involved in, enthusiastic about, and committed to their work or workplace.”6 Note that disengaged does not necessarily mean ineffective. Many a miserable employee is still pretty darn good at what they do—they just are not enthusiastic about doing it. However, the level of disaffection in the U.S. workforce is alarming given how we spend so much of our lives at work. Furthermore, Gallup reports the worldwide figure outside the United States for those occupationally engaged is a woeful 13 percent.7 A recent Conference Board publication commented on the ramifications of this lack of engagement with, “Employees cannot be brand ambassadors and advocates if they are disengaged.”8 Indeed, a 2015 report by the global consulting firm Deloitte revealed that “Upwards of half the workforce would not recommend their employer to their peers.”9 Relatedly The Economist, citing survey data from the consultancy Accenture, reported that:
31% of employees don’t like their boss, 32% were actively looking for a new job, and 43% felt that they received no recognition for their work. The biggest problem with trying to do more with less is that you can end up turning your sheep into wolves—and your biggest resources into your biggest liabilities.10
Still another report from Deloitte, surveying over 7,000 business leaders and human resources (HR) managers in 130 countries, revealed 85 percent of respondents ranked employee engagement as a top priority. However, just “46 percent of companies report they are ready to tackle the engagement challenge.”11 Equally disturbing is the nonchalance with which we digest these figures. Misery is largely absorbed as an unconscious given by today’s worker bees and harried managers. The consistency of survey results indicates disengagement is the norm.
Additional data from the Society of Human Resource Management (SHRM), reported in 2015, point to still more discontent in the workplace. Six-hundred respondents revealed what factors were “very important” to them with regard to job satisfaction. The top four aspects (out of 43 in total) were respectful treatment of all employees at all levels (72 percent); trust between employees and senior management (64 percent); benefits (63 percent); and compensation (61 percent). When later queried on their own level of satisfaction with these aspects, they responded “very satisfied” in only one-third or less of the cases (i.e., 33, 28, 27, and 24 percent, respectively).12
A Harris Interactive Poll found 73 percent of employees surveyed reported feeling stressed at work. The leading contributor to the stress was low pay, narrowly beating out several other gripes (i.e., coworkers, commute, and workload).13
The chronically disengaged, underemployed, and unemployed are eerily akin to the zombie genre’s undead moniker. Even with official unemployment rates at historically low levels in the United States, nearly two million have dropped out of the workforce and are not included in government figures. Bloomberg Businessweek reports the level of discouragement is worse in the Euro Zone with over 11 million not looking for work.14 The polarization of the American job market has come about from massive job creation at the part-time, low wage, gig, and flexible end of the spectrum (e.g., fast food, hospitality, and car services) while the number of better compensated jobs decreases.
This vocational malaise is compounded by our culture’s traditional view of work. Much of our identity and social currency are tied to our jobs. For instance, when meeting someone for the first time, it does not take long for one party to blurt out, “So, what do you do for a living?” As Charles Handy glumly observed, “We seem to have made work into a god and then made it difficult for many to worship.”15 Employee angst appears to be the rule rather than the exception. Dependent care demands, outsourcing, automation, and a decline in private sector labor unions have contributed to the growing anxiety of the American worker.
Wages have been relatively stagnant for decades, especially when compared to economic growth and corporate profits. The Bureau of Labor Statistics continues to report lower unemployment numbers without the expected rise in real wages.16 Firms have done well managing the cost of HR but not the investment aspect of human capital. Steven Greenhouse, author of The Big Squeeze: Tough Times for the American Worker, laments how, “The share of corporate income going to workers has sunk to its lowest level since 1951.”17
Greenhouse, the work and labor correspondent for The New York Times, documents a host of labor-related unpleasantries in The Big Squeeze, including time card manipulation by unscrupulous supervisors; off-the-clock work expectations placed on hourly employees; hostile work environments; locking in of overnight employees (e.g., Walmart’s Sam’s Club); and a litany of downsizing, rightsizing, outsourcing, and offshoring. Greenhouse also chronicles the drop in pensions in favor of 401(k) plans as well as increases in employee contributions for health care benefits. The growing use of independent contractors (e.g., FedEx Ground drivers and Uber drivers), temporary and permatemp workers, and illegal immigration’s impact at the low end of the wage spectrum have all put downward pressure on wages.18
There is another boogeyman to reckon with when it comes to the lackluster gains in real wages—productivity growth.19 George Mason University economics professor Tyler Cowen commented in March, 2016 that “Labor productivity [in the U.S.] has been growing at an average of only 1.3 percent annually since the start of 2005, compared with 2.8 percent annually in the preceding 10 years.” Perhaps the bulk of productivity gains from the Internet and digitization were realized in the earlier years of the information age.20 A Conference Board report in 2015 conveyed similar gloom with respect to productivity, claiming, “In the past seven years (2007–2014), the rise in the efficiency of global production has been reduced to about a quarter of what it was during the prior seven years (1999–2006), with little recovery in sight before 2025.”21 The report stressed the need for continuous improvement of worker skillsets in order for productivity rates to increase substantially.
Work like an Amazonian
It’s easy to appreciate the accomplishments of Amazon founder and CEO Jeff Bezos, but it isn’t easy to work for him. Infamous for high pressure white collar work environments as well as draconian treatment of warehouse workers, Amazon appears both refreshing and Dickensian. Refreshing for its brashness, results orientation, and accountability, but medieval for its harsh treatment of the so-called most important asset. Amazon’s main strength is not product superiority or people en masse. Amazon’s online retail business performs well due to dominant online branding supported by data-driven marketing and logistics productivity. A massive assortment of products is also critical to the firm’s value proposition. The bulk of Amazon’s people assets, meanwhile, are as disposable as a broken down fork truck in the warehouse.
Scathingly chronicled in a 2015 New York Times front page story, Amazon’s demanding work culture is symptomatic of global competitive realities. Reporters Jodi Kantor and David Streitfeld claim the firm’s high performance climate produces high employee turnover. Bezos sets a tone that challenges the status quo and encourages criticism of colleagues’ suggestions. Yet stoked to the extreme, unidimensional Amazon employees end up unaffectionately referred to as Amholes.22 Bezos appears to appreciate the value of human employees and sets about extracting as much of that value as is humanly possible. Most customers enjoying a good deal on an Amazon purchase may not approve of the firm’s methods, but they will likely ignore the plight of those who got them their products so efficiently.
Some workers thrive in Amazon’s go-getter culture. Yet Amazon’s demanding meritocracy (a positive) reflects a hardboiled disposability not unlike that portrayed in Upton Sinclair’s 1906 meat industry expose The Jungle (not so positive). The Jungle’s main character, burly Lithuanian immigrant Jurgis Rudkus, excelled in the throughput-obsessed meatpacking complex until a workplace injury disenfranchised him on the merits of unbridled capitalism.23
Even with the allure of healthy performance bonuses, Amazon’s work culture is not for everyone. For many it is a question of organizational fit. Bezos is unapologetic when discussing the culture at Amazon, writing in his 2016 Letter to Shareholders, “We never claim that our approach is the right one – just that it’s ours – and over the last two decades, we’ve collected a large group of like-minded people. Folks who find our approach energizing and meaningful.”24 Similarly, the Jim Collins’ classic Good to Great recounts the heyday and growth of Nucor Steel and its incentive-laden culture with the following: “Nucor rejected the old adage that people are your most important asset. In a good-to-great transformation, people are not your most important asset. The right people are.”25
The early 20th century saw the rise of scientific management techniques championed by Frederick Winslow Taylor and the many disciples of the classical school of management thought. Often referred to as Taylorism, this was primarily a movement of industrial efficiency. Taylorism promoted piece rate incentives for workers, encouraged use of helpful fixtures and tools, optimized workflow, and implemented time and motion studies to improve throughput. However, Taylorism gets knocked (mostly unfairly) for treating workers like machines and not accounting for the human relations perspective. Today, scientific management principles continue to help increase productivity of workers and processes, resulting in improved competitiveness.
Alternatively, The Economist recently highlighted Taylorism’s modern dark side, including the use of high tech measurement devices to monitor workers and their productivity—whether on site, on the road, or working from home. Workplace monitoring fits well with another weathered axiom, “what gets measured gets managed [done].”26 Harper’s Magazine published a report in 2015 arguing that electronic monitoring of workers adds undue stress and may decrease job performance. Heavy reliance on productivity metrics may result in wage theft—where supervisors get work done by employees who are not on the clock (e.g., before or after shifts, on breaks). The Harper’s report cites a 2014 survey by Hart’s Research that revealed 89 percent of fast food workers queried claimed they were victimized by wage theft at some level.27 Wage theft is most likely to occur when managers are incentivized to keep labor costs at or below budget. Bear in mind many of these labor and expense budgets were likely pushed down onto the field supervisors charged with their compliance.
Harper’s investigated the use of telematics for monitoring UPS drivers and their trucks, revealing demanding expectations for driver productivity. The report implies that telematics were introduced by management partly as a safety measure (e.g., seatbelt compliance, truck speeds, and whereabouts). However, Harper’s describes UPS investor conference calls that tout the fleet’s surveillance program as instrumental for operating efficiencies.28 Paradoxically, the acknowledgement of all this monitoring somewhat weakens the argument against the maxim People are our most important asset. There certainly appears to be significant resources expended to ensure the efficient deployment of human capital in many firms—at least in businesses with significant labor costs. Again, perspective matters. Investors and operations managers view the data gleaned from surveillance as helpful. Meanwhile, the rank and file feel watched and overly scrutinized. This type of environment breeds ill will and mistrust between workers and management.
A 2015 study published in the journal Management Science probed the misconduct and productivity of workers at nearly 400 casual dining restaurants from five different firms. Researchers used “theft monitoring information technology” to measure worker theft and sales performance. The study’s authors reported “significant treatment effects in reduced theft and improved productivity that appear to be primarily driven by changed worker behavior rather than worker turnover.” One of the drivers for the productivity increase was said to be workers’ perception of “general oversight.”29 The study did not specifically mention employee attitudes toward the added surveillance.
A recent McKinsey Quarterly article postulated that millennials will be less bothered by monitoring in the workplace than older employees. Millennials have been voluntarily sharing intimate details about themselves for years online. However, privacy issues may steer data collection of employee activity toward “aggregated and anonymized (rather than individual) data.”30
Domo Arigato, Mr. Roboto
A 2014 Pew Research Center survey asked nearly 1,900 experts the following query: Will networked, automated, artificial intelligence (AI) applications and robotic devices have displaced more jobs than they have created by 2025? The answer: 48 percent responded affirmatively while 52 percent felt technological advances will help create additional jobs. This result is a bit of a coin toss, and the survey is only asking for a prediction just over 10 years out. Many survey respondents see massive unemployment and bigger increases in income inequality in the future.31
Two Oxford scholars, Carl Frey and Michael Osborne, released a study in 2013 cataloguing the probability of 702 occupations being automated. Professions requiring significant finger dexterity and strong perception and cognition are safest from the cost savings promised by automation. These researchers also found a negative relationship between salary and the likelihood of being automated. Education level revealed a similar pattern. From their forward looking model, Frey and Osborne estimate that “47 percent of total U.S. employment is in the high risk category” and susceptible to being automated in roughly 10 to 20 years.32
In their recent book The Second Machine Age, MIT’s Erik Brynjolfsson and Andrew McAfee declared that:
There’s never been a better time to be a worker with special skills or the right education, because these people can use technology to create and capture value. However, there’s never been a worse time to be a worker with only ‘ordinary’ skills and abilities to offer, because computers, robots, and other digital technologies are acquiring these skills and abilities at an extraordinary rate.33
Humans are better at nonstandard tasks, while computers do what they are told and excel at rule-based work, such as managing retirement accounts. Many investment funds are mandated to keep certain percentages in equities, bonds, and cash. With simple rules to follow, robo-advisers are seen as a perfect, low-cost solution for long-term investing. A human adviser may only be necessary to upsell products, persuade clients to invest more, or just function as a receptacle for client rage during periods of poor returns.34
A recent New York Times Magazine article on robo-advisers included the following comment from former Barclay’s CEO Antony Jenkins, “I predict that the number of branches and people employed in the financial-services sector may decline by as much as 50 percent.”35 The good news is hopefully the cost to clients goes down. The bad news is obvious if the robo-adviser takes your job. To survive the oncoming purge, a human adviser will have to become more of a consultative seller of investment products rather than a transaction-oriented executor—that’s the robot’s responsibility.
Not surprisingly, Amazon has invested heavily in automation, including the 2012 acquisition of robot maker Kiva Systems for $775 million.36 Additionally, companies such as Fetch and Harvest Automation have been pursuing the warehouse labor market with bin-toting bots that scoot alongside human stock pickers. According to Bloomberg Businessweek, these warehouse robots can be purchased outright for $15,000 to $25,000 or rented for as little as $1.40 per hour.37
Japan, long home to leading makers of factory robots, has made future advances in robotics a national priority. In addition to robots that cut down on labor costs for manufacturers, Japan is keen to develop automated personal aids and hospitality “workers.” An aging population, shrinking labor force, a fascination with technology, and strong manufacturing base for robot componentry indicate future advances in Japanese robotics are likely. Conventional thinking usually exempts high-touch health care workers as replaceable via robots, but Japanese expertise and aging demographics may alter that mindset.38
In the early 1980s, I was a no-touch material handler in a midsized community hospital. Any material you could put on a cart—I handled it. It was a good job, except on every shift I had to deliver massive laundry carts to 10 nursing stations. It was like pushing reluctant elephants that dragged their feet. Too big to see around and too heavy to stop quickly if you were about to run over a patient or visitor (hospital staff knew enough to scatter). Short of putting two workers on each cart, this was a classic process in need of motorized augmentation. But alas, no mechanized assistance ever came to the rescue. For years I struggled with the great linen mammoths, comforted only by visions of Sinclair’s Jurgis Rudkus in his slaughterhouse to give me perspective.
Automation has resulted in countless cases of improved efficiency, safety, and quality while reducing instances of backbreaking toil. My residential trash collection service is a good example. For years my municipality had three men on a truck until the service was outsourced to a private firm with a modern fleet (which had only two employees per truck). Now there is only one operator per truck; thanks to mechanical arms that effortlessly collect the trash. Service is much more efficient and workplace injuries have plummeted. The task is now accomplished faster, safer, and with fewer employees. It’s progress, notwithstanding the job displacement.
People Get Ready...
Plenty of historical precedence suggests that I may be over-reacting to projected job losses as a result of advances in automation. Millions of displaced farm workers were absorbed into factory work during industrialization. The industrial revolution added jobs and helped improve quality of life in much of the world. Trains have proved to be a great boon to transportation efficiency. Cars and trucks replaced wagons and people on horseback, but the equine species endures.
However, globalization and the unprecedented pace of technological advances have put us in a more anxious state regarding the future of work and management. The market seeks the most cost efficient means of innovation and production. A massive number of jobs will likely disappear in the coming decades. Society will need coping strategies. Some of these strategies will not involve traditional jobs, or jobs at all. A parallel can be drawn to the Works Progress Administration (WPA) created to put people to work during the Great Depression, only this time we may be responding to the Great Automation.
MIT’s Erik Brynjolfsson and Andrew McAfee offer some suggestions (not necessarily endorsements) for dealing with changes in the employment landscape, including the following:
- Product labeling that reads MADE BY HUMANS. In the spirit of the organic food, union label, and buy American campaigns, perhaps consumers will be inclined to buy products with a certified human touch.
- Government make-work and employment programs like the Depression-era Civil Conservation Corps.
- Investment in technology that assists human workers versus innovation seeking to replace humans.
- “Vouchers for basic necessities,” and variations of guaranteed income for those not working.39
Related to the above suggestions, there is a movement centered in the United Kingdom promoting a 21-hour full-time workweek. Championed by the New Economics Foundation, the program intends to address social justice (i.e., fuller employment and HR), natural resources and sustainability, and economic markets.40
Since 2000 France has fiddled with a program that mandates a 35-hour week. The intent of this initiative is to increase employment with an annualization of working hours to accommodate business fluctuations. The French government and industry continue to tweak the program, but results have been mixed.41 A potential benefit of these and other less hours-less unemployment schemes is knowledge. These experiments may help policy makers and industry leaders craft responses to unemployment resulting from advances in automation. But as many labor laws in Europe have demonstrated, if you make it too difficult or expensive to furlough workers, industry will resist hiring.42
There have been many positive exceptions to conventional people management regimens. In The Future of Management, Gary Hamel points to exemplars Google, Whole Foods, and W.L. Gore. Google fosters an experimental culture, discretionary use of time, high bonus potential, small teams, and lots of peer feedback. Whole Foods instills employee empowerment coupled with accountability, team-based bonus compensation, and a transparent no-secrets management philosophy. Lastly, W.L. Gore promotes self-selection for team assignments, flexible dabble time, peer-review employee appraisals, and a high-trust low-fear work climate.43
A model employer in retail is Costco. The firm is routinely praised for its consistent productivity and relatively high wages. Fortune reports Costco’s employee turnover at 10 percent, a pittance compared to the retail industry average of 55 percent. The company claims longer employee tenure results in better customer service. Costco is ranked #1 among specialty retailers and #16 overall on Fortune’s World’s Most Admired Top 50 All-Stars.44
Vineet Nayar, CEO of Indian IT services company HCLT, unabashedly prioritizes employees and organizational structure over customers. In Employees First, Customers Second, Nayar credits the empowerment of value zone employees (those in contact with customers) as a key competitive strength. He also lauds a culture of introspection, change, and transparency for helping his organization stay focused on the right things. Tactics used by HCLT include 360-degree employee reviews—largely removed from HR—as well as “employee first councils.” These councils resemble college clubs and help decentralize the firm. Nayar credits the councils with increasing employee passion and improving the corporate culture.45
Laszlo Bock, Google’s head of People Operations (Google speak for HR), describes the firm’s HR function enthusiastically with, “More than anything, what unites us in People Operations is a vision that work doesn’t need to be miserable. That it can be ennobling and energizing and exciting. This is what drives us.”46
In his book Work Rules!, Bock conveys an infectious enthusiasm for the HR function, yet he is also pragmatic. Bock laments traditional, status quo compensation schemes and their attempts at fairness by declaring, “Most companies design compensation systems that encourage the best performers and those with the most potential to quit.” He adds, “Pay unfairly: your best people are better than you think.”47 Indeed, top performers and rising stars at many companies are grossly underpaid and likely serving on too many projects. Visibility and challenging assignments may motivate these stars in the short run, but eventually resentment and burnout seep in.
Let’s be clear, Google can well afford to be progressive in its HR thinking thanks to their success and enormous resources. In contrast, the HR function at non-elite firms is often ignored and under-resourced. I joke that many HR departments are neither human nor resourceful, but this is very often the case. Scores of HR functions have been outsourced by companies over the last several years with no sign of the trend abating. Many upper management teams view HR simply as a support function that costs the firm money.
The Academic-Practitioner Divide on Human Resources
Scholars have not ignored the plight of les miserables on the job. However, the academy has not been able to galvanize much reaction from within its own ranks nor has it truly connected with the larger body of management practitioners that it hopes to enlighten.
The party line among academics that examine the impact of HR practices on organizations is that these practices, in general, have a positive effect on their respective firms. OK, this makes sense. The better the firm is at recruiting, training, providing benefits, formally appraising performance, and giving regular raises, then the better the firm is likely to perform financially and be viewed positively by employees. However, a conundrum exists concerning reverse causality and causal order. Is the firm performing well because it has wonderful HR management practices, or are HR practices more robust because the company has been performing well financially? Which came first, the chicken or the egg? While many techniques have been used to test for reverse causality, this remains a problematic issue in management research.48
A longitudinal study of 336 small to medium-sized enterprises (SMEs) in the United Kingdom concluded that HR practices “positively enhanced sustained competitive advantage.”49 Sounds impressive. However, the study, published in the International Small Business Journal, used a subjective indicator for this so-called sustained competitive advantage. Hard numbers on financial performance were not forthcoming from respondents. While a sustained competitive advantage is a rare breed and likely not a reality for most of these SMEs, the study did show a positive relationship between HR practices and perceived firm performance relative to competitors.
Another study reviewed nearly 250 research papers focused on either HR management or HR development, and their relationship to organizational performance. The study, appearing in Human Resource Development Review, emphasized the similarities and complementary nature of the two HR perspectives. Furthermore, the author unscientifically opined that HR was “the most important of all organizational resources.”50 This claim was not substantiated in the paper. The study emphasized the need for more scholars to study linkages between HR and organizational performance, as well as the importance of the HR function to have a strategic voice in the firm. Lastly, the author hoped the two HR disciplines (i.e., management and development) “would help in fully translating the ‘people are our most valuable assets’ rhetoric into reality.”51 As a responsible behavioral scientist, the study author appears unconvinced for now, and rightfully so.
A 2015 Harvard Business Review issue contained several informative articles on the importance of the HR function. One article, boldly titled “People Before Strategy,” captured the essence of HR’s need to become more relevant, stating:
In keeping with recasting HR as a value creator rather than a cost center, performance should be measured by outputs that are more closely linked to revenue, profit margin, brand recognition, or market share. And the closer the linkage, the better.52
OK, aside from measuring sales representative productivity, the above prescription is nearly impossible to fulfill. This same article went on to suggest that predictive analytics serve as a value adder for HR—an excellent suggestion showing HR is hip and data driven. The article also proposed comparing the role of the Chief HR Officer to the Chief Financial Officer (CFO). This raises an interesting question: Why is it that Finance, essentially a support function in most firms (like HR), does not get the same evil-eye scrutiny and “scraps from the table” treatment that has befallen HR? Senior management apparently sees more value in staff that presides over cash, debt, and income statements versus personnel and systems responsible for cultivating human capital. Does that seem sensible? Aren’t both important?
Forbes reported in 2015 that only 14 percent of surveyed companies had analytics capabilities for HR. Forbes also claimed that just “fifteen percent of senior business leaders say they changed a business decision in response to an HR insight in the past year.”53
Consulting firm Deloitte surveys employees and leaders throughout the world regarding human capital. In 2014, Deloitte reported that “sixty-five percent of executives in our survey rated ‘overwhelmed employee’ an ‘urgent’ or ‘important trend;’ while forty-four percent said that they are ‘not ready’ to deal with it.” Deloitte’s recommendation to alleviate the overwhelmed is to simplify the work of these employees.54 Good suggestion. However, nearly half the managers queried are too overwhelmed themselves to help the overwhelmed. Fifty-seven percent of nearly 500 HR executives rated their capability as “weak” in terms of “helping employees manage information and schedules.”55 Again, firms are doing a good job of listening to employees and sensing their collective angst, but the fundamental problem is a lack of mobilized resources to help the besieged masses.
In their comprehensive Global Human Capital Trends 2016 report, Deloitte cited improvements in the HR function worldwide, but commented that just 1 year earlier HR was in need of an “extreme makeover.” Deloitte went further with, “HR skills were weak, companies were not spending enough on developing HR professionals, and HR itself was too focused on service delivery and not enough on building consulting skills.”56 Ouch! Shame on all those HR do-gooders trying to deliver services to their employees in need.
I believe the majority of senior managers would like to help alleviate the plight of their downtrodden employees. Unfortunately, the added cost of doing so and the financial metrics of short-time horizons dissuade management from increasing funding for actionable HR intervention. Conventional fiscal prudence dictates that more HR functions will likely be outsourced. And perhaps specialized HR firms are better equipped to deal with the complexities of human assets. However, the general management ranks seem unconvinced that increases in HR spending will result in improved organizational performance.
Even in its disadvantaged state, the HR function has lots of talented, dedicated professionals. If given the chance, they could bolster the human condition of their HR (i.e., the select superstars and everyone else). Organizations should adopt best-in-class HR practices where it matters strategically. Senior management should invest wisely in people—at least until the robots come for them, too.
Contra Maxims for People as Assets
A select few of our people may be our most important assets. Involve and engage your employee assets. Ask your employees how to improve business performance. Every employee needs a compelling value proposition. Most employees are not as vital as the business models that they serve.
Notes
1. Charles Handy, The Empty Raincoat: Making Sense of the Future (London, United Kingdom: Hutchinson, 1994), 23.
2. Passard Dean, Kaitlin McKenna and Vyas Krishnan, “Accounting for Human Capital: Is the Balance Sheet Missing Something,” International Journal of Business & Social Science 3, no. 12 (2012): 61–64. For a helpful explanation of problems with quantifying human capital, see Andrew Mayo, “Financial Statements and Human Capital,” Management Extra, June 2008. Middlesex Business School. http://www.mayolearning.com/assets/Uploads/Publications/ICAEWMay-08-Measuring-Human-Capital.pdf For an academic economist’s valuation method, see Andrea Eisfeldt and Dimitris Papanikolaou, “The Value and Ownership of Intangible Capital,” American Economic Review: Papers and Proceedings 104, no. 5 (2014): 189–194. http://doi.org/10.1257/aer.104.5.189
3. Jeffrey Pfeffer and Robert Sutton, Hard Facts, Dangerous Half-truths & Total Nonsense (Boston, MA: Harvard Business School Press, 2006), 96.
4. Gary Hamel, The Future of Management (Boston, MA: Harvard Business School Press, 2007), 130.
5. Karen Vaugh, “John Locke and the Labor Theory of Value,” Journal of Libertarian Studies 2, no. 4 (1978): 311–326. Cited from Peter Laslett (Ed.), Locke’s Two Treatises of Civil Government, 2nd ed. (Cambridge, MA: Cambridge University Press, 1967), 313.
6. Annamarie Mann and Jim Harter, “The Worldwide Employee Engagement Crisis,” 7 Jan 2016, http://www.gallup.com/businessjournal/188033/worldwide-employee-engagement-crisis.aspx (accessed Feb 23, 2016).
7. Ibid.
8. The Conference Board, Staying Ahead of Change and Preparing for 2020: Insights from the 2015 Corporate Brand and Reputation Conference, 6 Nov 2015, https://www.conference-board.org/pdfdownload.cfm?masterProductID=9998 (accessed Mar 29, 2016).
9. Josh Bersin, Dimple Agarwal, Bill Pelster and Jeff Schwartz (Eds.), Global Human Capital Trends 2015: Leading in the New World of Work (Deloitte University Press, 2015), 36, http://d27n205l7rookf.cloudfront.net/wp-content/uploads/2015/08/DUP_GlobalHumanCapitalTrends2015.pdf
10. The Economist, “The Enemy Within,” 25 July 2015, 53.
11. Bill Pelster and Jeff Schwartz (Eds.), Global Human Capital Trends 2016: The New Organization: Different by Design (Deloitte University Press, 2016). http://www2.deloitte.com/global/en/pages/human-capital/articles/introduction-human-capital-trends.html (accessed Mar 10, 2016).
12. Society for Human Resource Management, 2015 Employee Job Satisfaction and Engagement (Alexandria, VA: SHRM, 2015), https://www.shrm.org/Research/SurveyFindings/Documents/2015-Job-Satisfaction-and-Engagement-Report.pdf (accessed Mar 24, 2016). SHRM note on engagement: The 2015 SHRM Report also surveyed for employee engagement aspects, but utilized a different scale and format than the Gallup poll discussed in the chapter. The SHRM Report indicated employees were “moderately engaged”—a much more positive finding than the Gallup results. This may be attributed to differences in methodology and the definition used for the engagement construct.
13. Chicago Tribune, “Poll Shows 3 in 4 at Work are Stressed,” 26 Aug 2012, http://articles.chicagotribune.com/2012-08-26/business/ct-biz-0827-workplace-stress-20120827_1_workplace-stress-annoying-co-workers-everest-college (accessed Mar 24, 2016).
14. Carol Matlack and Giovanni Salzano, “Discouraged Workers Dog Europe’s Recovery,” Bloomberg Businessweek, Mar 21–27, 2016, 16–18.
15. Handy, Empty Raincoat, 26.
16. Bureau of Labor Statistics (2016). Real Earnings – January 2016. Retrieved 2 Mar 2016 from http://www.bls.gov/news.release/pdf/realer.pdf
17. Stephen Greenhouse, “The Mystery of the Vanishing Pay Raise,” The New York Times, 1 Nov 2015, SR3.
18. Steven Greenhouse, The Big Squeeze: Tough Times for the American Worker (New York, NY: Knopf, 2008).
19. Chad Syverson, Challenges to Mismeasurement Explanations for the U.S. Productivity Slowdown, Working Paper (Cambridge, MA: National Bureau of Economic Research, 2016), http://www.nber.org/papers/w21974 (accessed Mar 6, 2016).
20. Tyler Cowen, “A Slowdown that Silicon Valley Doesn’t Believe,” The New York Times, 6 Mar 2016, BU6.
21. The Conference Board, Prioritizing Productivity to Drive Growth, Competitiveness, and Profitability. Strategic Overview, June 2015, https://www.conference-board.org/pdfdownload.cfm?masterProductID=9644 (accessed Mar 28, 2016).
22. Jodi Kantor and David Streitfeld, “Amazon’s Bruising, Thrilling Workplace,” New York Times, 16 Aug 2015, 20–22.
23. Upton Sinclair, The Jungle (New York, NY: Barnes & Noble Books, 2003) [originally published in 1906].
24. Ryan Mac, “Jeff Bezos Calls Amazon ‘Best Place in the World to Fail’ in Shareholder Letter,” Forbes, 5 Apr 2016, http://www.forbes.com/sites/ryanmac/2016/04/05/jeff-bezos-calls-amazon-best-place-in-the-world-to-fail-in-shareholder-letter/#4eda899c62f4 (accessed Apr 6, 2016).
25. Jim Collins, Good to Great: Why Some Companies Make the Leap . . . and Others Don’t (New York, NY: Harper Business, 2001), 51.
26. The Economist, “Digital Taylorism: A Modern Version of ‘Scientific Management’ Threatens to Dehumanize the Workplace,” 12 Sep 2015, 63.
27. Esther Kaplan, “The Spy Who Fired Me: The Human Costs of Workplace Monitoring,” Harper’s, Mar 2015, 31–40.
28. Ibid.
29. Lamar Pierce, Daniel Snow and Andrew McAffee, “Cleaning House: The Impact of Information Technology Monitoring on Employee Theft and Productivity,” Management Science, May 2015, DOI: 10.2139/ssrn.2318592
30. Aaron De Smet, Susan Lund and Robert Schaninger, “Organizing for the Future,” McKinsey Quarterly, Jan 2016, http://www.mckinsey.com/business-functions/organization/our-insights/organizing-for-the-future?cid=other-eml-ttn-mip-mck-oth-1604 (accessed Apr 4, 2016).
31. Pew Research Center, AI, Robots, and the Future of Jobs, Aug 2014, http://www.pewinternet.org/files/2014/08/Future-of-AI-Robotics-and-Jobs.pdf
32. Carl Frey and Michael Osborne, The Future of Employment: How Susceptible are Jobs to Computerization? 17 Sep 2013, 38, http://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdf
33. Erik Brynjolfsson and Andrew McAfee, The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies (New York, NY: W.W. Norton, 2014), 11.
34. TD Ameritrade. Advertisement in The Atlantic (April, 2016), 20. Advertisement for Amerivest Managed Portfolios. Full page ad depicts baby boomer-types doing awkward robot dance moves. Copy heading reads: “Outsourcing more robot jobs to humans.” Body copy includes “. . . . if you ever need a little [italics mine] assistance, our experienced service team is available to discuss your portfolio. Because let’s face it, no one wants to talk with a robot.” Advertisement is touting the automated, rule-based criteria of the portfolio while human interaction is permitted (but only a little bit).
35. Nathaniel Popper, “Stocks & Bots,” The New York Times Magazine, 28 Feb 2016, 56–62, 71.
36. Spencer Soper, “The Robots Chasing Amazon,” Bloomberg Businessweek, 26 Oct–1 Nov, 2015, 30–31.
37. Ibid.
38. Bill Bremner, Isabel Reynolds, Ting Shi and Rose Kim, “Japan Unleashes a Robot Revolution,” Bloomberg Businessweek, 1–7 Jun 2015, 16–18.
39. Brynjolfsson and McAfee, Second Machine Age (New York, NY: W.W. Norton & Company, 2014), 246–247.
40. Anna Coote, Jane Franklin and Andrew Simms, 21 Hours: Why a Shorter Working Week Can Help Us All to Flourish in the 21st Century (London, United Kingdom: New Economics Foundation, 2010).
41. The Economist, “France’s Labour Reforms: Working Nine to Four,” 5 Mar 2016, 48–49.
42. Ibid.
43. Hamel, Future of Management.
44. John Kell, “Dancing in the Aisles,” Fortune: Investor’s Guide 2016, 15 Dec 2015, 26.
45. Vineet Nayar, Employees First, Customers Second (Boston, MA: Harvard Business Press, 2010).
46. Laszlo Bock, Work rules!: Insights From Inside Google That Will Transform How You Live and Lead (New York, NY: Twelve, 2015), 234.
47. Ibid.
48. Gerhard Kling, Charles Harvey and Mairi MacLean, “Establishing Causal Order in Longitudinal Studies Combining Binary and Continuous Dependent Variables,” Organizational Research Methods, (2015): 1–30. DOI: 10.1177/1094428115618760
49. Maura Sheehan, “Human Resource Management and Performance: Evidence from Small and Medium-sized Firms,” International Small Business Journal 32, no. 5 (2014): 545–570.
50. Meera Alagaraja, “HRD and HRM Perspectives on Organizational Performance: A Review of Literature,” Human Resource Development Review 12, no. 2 (2012): 117–143.
51. Ibid.
52. Ram Charan, Dominic Barton and Dennis Carey, “People Before Strategy: A New Role for the CHRO,” Harvard Business Review, July–August 2015, 8.
53. Forbes, “The HR Guide to the Galaxy,” 25 May 2015, 90–91.
54. Tom Hodson, Jeff Schwartz, Ardie van Berkel and Ian Winston Otten, The Overwhelmed Employee: Simplify the Work Environment (Deloitte University Press, Mar 7, 2014), http://dupress.com/articles/hc-trends-2014-overwhelmed-employee/ (accessed Mar 15, 2016).
55. Ibid.
56. Pelster and Schwartz (Eds.) Global Human Capital Trends 2016.