The time has come for people who need people
Tuesday 30 July 1996
The talents of the workforce of most companies may not be as evident as those of footballers, but other businesses are increasingly coming to resemble football clubs in the sense that their two main assets are a brand name and the intellectual capital of the people who work for them. In the last 10 years there have been considerable efforts to measure the value of brand names and to grow and develop these. By contrast, the study of companies' intellectual capital is woefully thin: companies have hardly begun to measure the value of the intellectual assets locked up in the heads of their staff, let alone develop plans to extract more of this value.
Instead they regard the specialist skills of talented people as something they have to acquire, paying whatever the market rate requires. You can see this very obviously in areas like investment banking, or in Hollywood: the star system in both areas has become much more like football. But of course a policy of just paying the going rate and hoping to retain staff that way runs into grave problems. For a start the rate is bid up and up, leaving less and less of the added value available to shareholders. When firms are successful at developing home-grown talent, rather than buying it in, they frequently find that it walks round the corner to a competitor. And in any case these experts often have a different agenda from the conventional hierarchical managers. They do not necessarily want the rewards that corporations by force of habit offer.
As a result a few of the more thoughtful companies have been seeking to develop the intellectual capital of their staff and a few of the more forward-looking management theorists have been trying to help them work out how to do so. As might be expected for any movement which is still in its infancy there is as yet no rule book, no manual on how to manage knowledge. But gradually the literature is amassing. For example early next year Cambridge University Press will bring out a book, Managing Knowledge, by Professor Keith Bradley of the Open University Business School, which will look in particular at the supply side of intellectual capital: how companies can measure it, extract it, and develop it.
A key point here is the present notion that expertise is a fixed supply. When companies need a certain set of skills they go out into the marketplace to buy these. Suppose instead they were to measure what they had already; then see how what these skills had might be transmitted within the company; and then apply best practice across the entire group. Do this and the firms might well find they did not need to buy in so many skills, for they would instead be able to generate the skills internally.
That might seem a very simple example, and it is. But until a company knows what skills it has, it cannot begin to develop these.
There is a further advantage. The more it knows what it has, the less likely it is to suffer what Professor Bradley calls a "punctuated break", a sudden discontinuity where a group of skilled people up and leave. The financial services industry in particular seems to suffer from the punctuated break. The more attention that investment banks put into valuing their human assets the less likely they are to experience this.
But measuring, developing, and extracting value, however desirable, is only one aspect of handling human capital. For pure people businesses the whole notion of the hierarchical company, where knowledge and authority is with the chief executive and the directors, has become less and less relevant.
Many industries, Professor Bradley argues, are likely to become more like the US entertainments industry, where the stars are the key commodity and the studios do an assembly job of bringing together a range of different skills to make a picture. This is very complicated. It looks as though Elizabeth Hurley will star in the sequel to Pretty Woman - be the new Julia Roberts, so to speak - but the choice will bring benefit not just to her but also generate publicity for the other ventures in which she is involved, most notably Estee Lauder cosmetics.
Indeed if you look at the Hollywood model for business and assume that this will become much more dominant in other businesses, it seems clear that two groups of people are going to become more important. One is portfolio managers, the other, the agents.
Portfolio management usually conjures up the image of an investment trust or a pension fund. But in the case of Hollywood, when the big studios are putting together the finance and the team for a film that is very much what they are doing. They make a series of investments - say 30 a year - into which they pop some money; but a lot of their skill lies in laying off the risk as far as possible by picking appropriate partners.
They also have to hire appropriate skills, and here is where the agents come in. It is not just a question of buying what is in the window. The talent in the window knows its full value and will extract so much of that value, that not a lot will be left over the for the studio. So the very complex task of a whole series of agents is to match supply and demand: to enable the skilled people to extract the maximum they can for those skills, but also to assist the studios in picking the appropriate talent - picking the best bargain.
Managing people businesses is much more complex than managing asset businesses. In the case of a football club the scale is sufficiently small to be able to be run by a couple of talented people. Picking talent is perhaps more an art than a science and basically needs a good eye; managing talent is pretty much common sense. But managing larger people businesses is, as the investment banks have found, far more complicated and dangerous. Both football clubs and investment banks are to some extent protected by their brand names, but if the people side goes wrong the value of the brand collapses.
So what should a people business, worried that it is about to face one of Professor Bradley's "punctuated breaks" do? First and most obviously it should start to measure and assess its human capital, and then see what should be done not just to retain that capital, but rather to increase the value and extract it for the company. But that is only the start. I suspect there is a second and even more difficult task, which is to look at the way it buys the skills. Should these be bought in on contract, using a network of agencies to select those most appropriate?
As for Alan Shearer, he can expect a string of calls from agencies anxious to help him maximise his earning potential for years to come.
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