Friday, May 19, 2006
Leverage II
Why is it important about using the concept of leverage as it relates to employees? It sounds clinical, but has several impacts on the business. Let's look at a low level example of an employee in an ice cream parlor.
We don't expect a lot from employees in food service. What you'd expect from the average (disengaged) employee at an ice cream parlor is a few polite sentences - What flavor? One scoop or two? That will be $2.50. And, a polite "thank you." This person was hired to scoop ice cream. At least that's the perception. A job description might focus on duties like lifting ice cream buckets, being polite to customers, and making change. A skills matching engine would focus their scooping abilities. Most people in such jobs are disengaged, paying just enough attention to keep busy and glide through their shift.
An employee who is leveraged - meaning the whole person is mentally engaged- creates an entirely different experience. People are greeted as they enter. Customers are complimented on their dress or appearance ("that's a lovely blouse"). Polite inquiries are made ("what sounds good to you today?") and their choice of flavors is complimented ("excellent choice - that's my favorite"). The customer becomes engaged as well. The greetings and banter create a quasi-social exchange which adds to the experience. These customers get more than just ice cream - they get attention. They are welcomed. They are complimented. They are likely to return. Employees who behave this way with customers are also more likely to keep the shop clean, tables from leaning, and keep chairs in good repair. Leveraging an employee in this manner creates repeat business and builds a strong brand.
The bottom line is that the structure in which we work does not leverage people well. Job descriptions focus on skills, not on qualities that capture (or appropriately challenge) whole people. By focusing on such a small facet of a person we harness very little of their energy. We limit the task, the definition of success, and consequently, productivity. We all but guarantee underemployment. We might pay individuals and take up a lot of their time, but we don't engage them. We have an opportunity for leverage, but the way we structure employment works against us.
This structure - the way jobs are organized in companies - evolved during a period when human capital was cheap, and financial resources were scarce. It spread during the industrial revolution, and finance was at it's center. Understanding finance was very important and it evolved into a sophisticated discipline. Human capital was deployed in support of financial investments; and the science of utilizing human capital evolved very little.
Today we are faced with a reversal - financial capital is available while human capital is becoming scarce. This would be a good time to re-design business structures. A shift in perspective is required where value is created by focusing on leveraging human assets first, and supporting them with financial investments.
We don't expect a lot from employees in food service. What you'd expect from the average (disengaged) employee at an ice cream parlor is a few polite sentences - What flavor? One scoop or two? That will be $2.50. And, a polite "thank you." This person was hired to scoop ice cream. At least that's the perception. A job description might focus on duties like lifting ice cream buckets, being polite to customers, and making change. A skills matching engine would focus their scooping abilities. Most people in such jobs are disengaged, paying just enough attention to keep busy and glide through their shift.
An employee who is leveraged - meaning the whole person is mentally engaged- creates an entirely different experience. People are greeted as they enter. Customers are complimented on their dress or appearance ("that's a lovely blouse"). Polite inquiries are made ("what sounds good to you today?") and their choice of flavors is complimented ("excellent choice - that's my favorite"). The customer becomes engaged as well. The greetings and banter create a quasi-social exchange which adds to the experience. These customers get more than just ice cream - they get attention. They are welcomed. They are complimented. They are likely to return. Employees who behave this way with customers are also more likely to keep the shop clean, tables from leaning, and keep chairs in good repair. Leveraging an employee in this manner creates repeat business and builds a strong brand.
The bottom line is that the structure in which we work does not leverage people well. Job descriptions focus on skills, not on qualities that capture (or appropriately challenge) whole people. By focusing on such a small facet of a person we harness very little of their energy. We limit the task, the definition of success, and consequently, productivity. We all but guarantee underemployment. We might pay individuals and take up a lot of their time, but we don't engage them. We have an opportunity for leverage, but the way we structure employment works against us.
This structure - the way jobs are organized in companies - evolved during a period when human capital was cheap, and financial resources were scarce. It spread during the industrial revolution, and finance was at it's center. Understanding finance was very important and it evolved into a sophisticated discipline. Human capital was deployed in support of financial investments; and the science of utilizing human capital evolved very little.
Today we are faced with a reversal - financial capital is available while human capital is becoming scarce. This would be a good time to re-design business structures. A shift in perspective is required where value is created by focusing on leveraging human assets first, and supporting them with financial investments.
Wednesday, May 10, 2006
Leverage
We use the concept of leverage all the time. It's big in real estate, stock options, and investment. The basic idea is that, with a small amount of your capital, you gain control of a larger asset. Making a down payment on a house, a car, or buying an option on a stock are examples of leveraging an investment to control a larger asset. It follows standard business principals of getting the most out of your dollar.
Yet we don't understand the concept as it relates to employees (unless they're executives - but I digress). Our companies are arranged in little boxes, with corresponding job descriptions, duties & tasks. Into these we stuff people and pay them for their time. We strive for internal integrity (see last post) among these boxes and spend (waste) much time administering fairness through the HR group. It is the height of irony that we create these boxes, place people in them, then ask them to "think outside the box". Like it or not, this is today's organization.
For the record, I don't like it. The system promotes a limited view of people and what they can contribute. It is the anti-leverage. We fill jobs by focusing on a few skills to exploit on a repetitive basis, not capture all that a person can do. This threatens motivation of the whole individual. This is anti-leverage.
Consider that by paying a person a little at a time, we focus their entire body (if not mind) on a task of our choosing. This is leverage; we control a larger asset with a little money. Further, consider the productivity of employing the person's whole attention to our tasks, as opposed to just one facet of that person. The differences in productivity, service, output, and the health of the business are profound. To leverage an employee is to engage them fully in the task. When engagement is missing, leverage is missing.
Yet we don't understand the concept as it relates to employees (unless they're executives - but I digress). Our companies are arranged in little boxes, with corresponding job descriptions, duties & tasks. Into these we stuff people and pay them for their time. We strive for internal integrity (see last post) among these boxes and spend (waste) much time administering fairness through the HR group. It is the height of irony that we create these boxes, place people in them, then ask them to "think outside the box". Like it or not, this is today's organization.
For the record, I don't like it. The system promotes a limited view of people and what they can contribute. It is the anti-leverage. We fill jobs by focusing on a few skills to exploit on a repetitive basis, not capture all that a person can do. This threatens motivation of the whole individual. This is anti-leverage.
Consider that by paying a person a little at a time, we focus their entire body (if not mind) on a task of our choosing. This is leverage; we control a larger asset with a little money. Further, consider the productivity of employing the person's whole attention to our tasks, as opposed to just one facet of that person. The differences in productivity, service, output, and the health of the business are profound. To leverage an employee is to engage them fully in the task. When engagement is missing, leverage is missing.
Monday, May 08, 2006
Salary Compression
We're beginning to see market forces impact our recruiting again. New grads with technical skills are pushing the envelope and are receiving higher offers than we pay existing people with 2-3 years of experience.
When I first experienced this in the early '90s I railed against the idea of paying rookies more than experienced people. These other companies were screwing up my numbers. After awhile, you learn to pay what you need to and hope nobody compares salaries. That doesn't work well at all.
What is clear now is that pay grids are designed for "internal integrity" implying they are designed to maintain fairness within the organization. When I first asked about this, the implication was that they were once based on market costs. It seems that once applied, the market changed but the design did not. So much for internal integrity.
While I'd love to see compensation reflect the actual value produced by each job, I realize this is difficult to do. However, it isn't so hard to figure out how to include more employees in the fortunes of the organization (both ups and downs) instead of defaulting to the static pay ranges that dominate business today. The use of stock options is a good example; companies offering options to a wider range of employees have a better chance of retaining them.
But we could take it one step further, in addition to a base salary and stock options, I'd like to see more companies offer a bonus related to the team and company's performance, and the individual's contribution to it. This creates flexibility based on performance, and keeps people reaching for more, not simply expecting it. If part of the bonus relies on team production, teams are more serious about productivity. I see no reason such a program couldn't be spread across an entire organization. As a recruiter, it's a lot easier to sell a pay range than tell a prospect we simply pay less than our competitors.
What happens to bonuses during downturns? The bonus pool would shrink, reducing payouts, and the payroll burden decreases proportionally. While employees would not be happy to miss out on a bonus, they would be riding the fortunes of the company. Just as important, lower payroll burdens may render headcount reductions unnecessary. Once things improve, the company would have a stable of trained, hungry workers ready to expand. This is far more valuable than the norm where, having laid off a workforce, a company needs to hire and train a new group.
When I first experienced this in the early '90s I railed against the idea of paying rookies more than experienced people. These other companies were screwing up my numbers. After awhile, you learn to pay what you need to and hope nobody compares salaries. That doesn't work well at all.
What is clear now is that pay grids are designed for "internal integrity" implying they are designed to maintain fairness within the organization. When I first asked about this, the implication was that they were once based on market costs. It seems that once applied, the market changed but the design did not. So much for internal integrity.
While I'd love to see compensation reflect the actual value produced by each job, I realize this is difficult to do. However, it isn't so hard to figure out how to include more employees in the fortunes of the organization (both ups and downs) instead of defaulting to the static pay ranges that dominate business today. The use of stock options is a good example; companies offering options to a wider range of employees have a better chance of retaining them.
But we could take it one step further, in addition to a base salary and stock options, I'd like to see more companies offer a bonus related to the team and company's performance, and the individual's contribution to it. This creates flexibility based on performance, and keeps people reaching for more, not simply expecting it. If part of the bonus relies on team production, teams are more serious about productivity. I see no reason such a program couldn't be spread across an entire organization. As a recruiter, it's a lot easier to sell a pay range than tell a prospect we simply pay less than our competitors.
What happens to bonuses during downturns? The bonus pool would shrink, reducing payouts, and the payroll burden decreases proportionally. While employees would not be happy to miss out on a bonus, they would be riding the fortunes of the company. Just as important, lower payroll burdens may render headcount reductions unnecessary. Once things improve, the company would have a stable of trained, hungry workers ready to expand. This is far more valuable than the norm where, having laid off a workforce, a company needs to hire and train a new group.
