The Business World: Employ clever people and make work fun
The hardest trick of all for companies is to create a greenhouse where staff can develop new businesses under the protection and with the support of the parent
Wednesday 17 February 1999
One of the great boom areas in international business is organising events - product launches, "thank yous" for good customers, days out for staff and their families, and so on. If done well, they can be wonderful; done badly they can be toe-curlingly embarrassing. The one thing all have in common is that events are expensive, time consuming and just a little dangerous.
So why do companies take this risk? This answer. I think, lies in two words: "human capital".
Most businesses are very well aware that their key asset lies in the minds of the people they employ. Add up the identifiable value of the total assets of any company, the factories, the product stream and the licensing agreements. Then look at the company's market capitalisation. There is invariably a gap, sometimes a huge one. In the case of some of the fastest-growing types of business - investment banking, management consultancy, software development - there are virtually no conventional assets at all. All the value is in the people.
This raises string of profound questions for company leaders. How do you manage these assets? How do you build the stock of human capital? How do you extract the value of this capital for shareholders? Or, at its simplest, how do you get clever people to work for you?
Unsurprisingly, companies produce a string of different answers to these questions. Many devise elaborate incentive programmes, which has been reasonably easy in a strong share market: you give people shares. One company, Skandia Life in Sweden, has tried to measure the stock of capital in the heads of its employees and deploy the knowledge as widely as possible across the group. It produces a human capital report alongside its financial reports to make its commitment more explicit.
Other groups like Andersen Worldwide, the accountants and consultants, or Motorola, the communications group, have "universities" which are devoted to improving the skill level of their employees. Enormous resources are put into this: the Andersen campus near Chicago feels just like an exclusive US liberal arts college.
Quite aside from the general benefit to the group of putting resources into training, there is a simple business rationale for such ventures. I once asked an executive why his company spent so much on training. What stopped people taking this expensive training and going off and working for some one else?
"You don't understand." he replied. "It is because we spend so much on training that people stay with us. We employ clever people who know their value and who could walk out of the door whenever they want. But provided we go on increasing that value - adding to their human capital - they will stay with us. It is the moment we stop that they take their brains away."
Staff retention is a wholly respectable reason for paying attention to training. But every company can devise a cutting-edge training scheme. Every company can develop incentive schemes. And I suppose every company can dream up yet more glamorous venues for parties, for there are plenty of specialists to help them. As human capital becomes yet more important to company survival, what will be the qualities that distinguish the great from the OK?
I have two suggestions. The first is the great companies will seek to make the whole job fun - not just the events designed to reward key staff. Now of course not every aspect of a company's activities is going to be enjoyable. We all have to do things we don't like doing. But anyone who has spent much time with different companies will quickly pick up the warning signs: an excess of deference to senior staff, and an evident fear of criticism are two good indicators that something is not quite right.
The second is to create fluid structures of employment. To persuade clever people to work for you is not just a matter of offering a better package than the opposition. The rival may not be the company next door, but rather the person starting up their own business.
If a person can make more money (and have more fun) working for themselves, why should they work for an employer at all? The answer for some people may be that there is nothing that can be done. The new communications technologies built around the Internet are almost certainly tipping the balance of power away from most large companies (not all - look at Microsoft) and towards very small ones. But many people will be prepared to carry on working for an employer provided they can bring their personal business under the wing of the group they work for.
These are enormous challenges for business leadership, they represent a seismic shift that is taking power away from the corporation and towards the individual. Few businesses are accustomed to thinking of making their work fun; and fewer still could accommodate employees with an explicit split in their loyalties between their own private work and their job.
But the hardest trick of all, and therefore the one that one that brings the biggest benefits if a firm can pull it off, will be to create a greenhouse where staff can develop new businesses with the support of the parent.
The new industries of tomorrow almost always start with a few individuals and a good idea. They do not start in the established commercial giants. Just as Microsoft was not founded as a sub-division of IBM, the new industries will be created by clever people outside today's commercial giants.
But need that happen? The great prize awaiting every large business in the world is to grow the human capital industries of tomorrow. To win it, they need to create fluid employment structures to retain the cleverest people: then build the greenhouse to develop their ideas.
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