For what it’s worth? … [Guest Article by Robert Terry - ASK Europe]

We are proud to present the first guest article on our website. This article was written by Robert Terry, Managing Director of ASK Europe.

We hope that more of such excellent articles will follow in the future. If you would like to make a contribution to our site, you can e-mail us: research@weknowmore.org.

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For what it’s worth? …

If we really are – as the cliché runs – all metaphorical prostitutes, then while we have our feet up we might want to reflect on our business model. So, in the spirit of a related cliché, let’s think about the price. When it comes to deciding the worth of human capital, our achievements – the good stuff on our CVs that gets us the job interview – undoubtedly matter. Like a Profit & Loss Account or a Balance Sheet, however, they are primarily historic evidence of our ability – a snapshot in the rear view mirror. Unlike their fiscal counterparts, they are also self-edited: where we are ‘in the red’, the metaphorical Tippex can be discreetly applied. Those to whom we sell ourselves buy us on a combination of a basis of this historic “evidence” and of their estimate of what they expect us to be able to do for them in the future. They are – quite literally – punters.

That the valuation process is less than logical and far from cut and dried is illustrated by British Airways’ recent appeal to its staff to volunteer to work unpaid. While this appears to be – and your own judgement may say that it actually is – a shallow, despicable strategy, it is also an example (albeit perverse) of a company valuing the ‘human capital’ of its trained staff. In this case, of course, valuing means ‘calculating the price of’ as much as it means ‘respecting, cherishing or nurturing’. Appropriately for an airline, British Airways is also reacting to turbulence: it expects to come out of the current downturn and is therefore weighing the various costs of recruitment, retraining and redundancy. In the meantime, it is hoping that a downturn across its industry will mean that its employees cannot escape to competitors, taking their human capital with them, and that it can therefore avoid the very real cost of actually paying them to stay until recovery happens.

The BA example is, of course, out of the ordinary. Our value as people is mostly measured by the market place calculation of the benefits that have to be paid to us (salary, working conditions and hours, perks) in order to secure our services. As employees, we can earn only what someone is prepared to pay us (although our individual motivations may lead us to accept higher or lower figures). It is generally assumed that the figure in some way reflects the benefit we can bring to a business, although any calculation here is usually a bottom-line one along the following lines:

• profit divided by staff = x
• salary plus other benefits plus percentage of over heads = y
• which is bigger, x or y? (And where y > x, y/n -> exit. Repeat.)

How we estimate the benefit someone brings to a business is a complex argument, not least as some employees will always be purely an overhead (can your time or output be charged to a customer?) while performing a function the business has presumably decided at some point is required. But no matter how abstract the equation becomes, goodwill – in more than one sense – doesn’t necessarily come into it. And while that may sound like a cynical remark (and familiarity really does breed contempt, just as age is an ingredient of wisdom), there are reasons why it is rarely factored in.

David Bowie may have sold his future recording royalties as ‘Bowie Bonds’ (and been accused of triggering global economic meltdown as a consequence, which surely overvalues his influence on the world), but – for most of us – estimating our on-going worth is a slippery fish to wrestle with. Some of the difficulties that arise are undeniably reasonable: there are many risks attached to employing people, only some of which – death and sickness – can be insured against. But employees can equally be subject to pressing family issues, unfortunate affairs with secretaries or legal mishaps. They can also lose heart, go off their jobs, or develop alternative aspirations: they are human.

But it seems that organisations genuinely do struggle to value people in a positive sense. We can say that an existing workforce that is made up of competent people who happily and efficiently co-exist, have been trained in the business’s methods and systems, have relationships with customers and suppliers, and the past experience to help them make sound decisions quickly. And we would say that such a workforce has a value. To replace it would cost recruitment fees, training fees, salaries for the time taken to train, the part of their salaries that is unproductive until relationships and experience are gathered, the lost opportunities due to lack of training and so on. But this is a value only in the sense of, for example, putting a workforce on an insurance policy: “how much would a new one cost”?

Yet our value as workers and employer is also in our skills, our attitudes and behaviours, our experience and particularly our knowledge. Even knowledge may not be the best word here: wisdom – knowing when to use which knowledge and in which way – may be closer. Like another important aspect of our benefit to an organisation – the effect and impact of our working relationships – wisdom and knowledge are abstract commodities. We can assess then by implication – by measuring productivity, by using psychometric tools to identify potential strengths and weaknesses – but we are groping at outlines rather than drawing sharp definitions. Human capital has no single definitive unit of measure. Even IQ means little in the abstract: intelligence is neither quite wisdom nor its application.

How far might we benefit from finding a better approach to valuing and weighing human capital? The de-layering of the management structure of many organisations over the last couple of decades, for example, resulted in a lot of ‘middle management’ being ‘let go’. But what was the value of the knowledge and experience that they took away? Given the commentary on the impact of the lack of this level of experience in the financial industry during the current banking crisis – where many commentators contend that few knew how to spot or respond to a crisis as none had been employed long enough to have worked through the last one – isn’t this an important question? And if a key element of an organisation’s forward competitiveness and profitability resides between the ears of those on its payroll, where is the (ahem) wisdom in outsourcing when the knowledge and experience behind the function is – albeit perhaps nominally – the nominal property of the company paying the worker?

The level of investment in KM strongly implies that organisations value knowledge: why else spend large sums on extracting, storing and disseminating it? The development and implementation of IT – and especially of knowledge management systems – has also impacted on the ‘value’ of people. 30 years ago, for example, a tax advisor was expected to learn and recite all the tax rates and rules and calculate liabilities quickly in their heads: this was a core skill, which their salary or charges reflected. Now a junior employee needs only to enter some key client data into the computer to arrive at the same calculation.

But other types of knowledge are not so easily automated. Is our wisdom and our final value as individuals in the workplace ultimately one of those abstract human qualities that lie enigmatically beyond the scope of IT or of quantifying? (It occurs to me that many of the blockbusting sci-fi films that have grabbed our collective attention are technological dystopias: AI; 2001; Terminator; I, Robot – much as we hope technology will solve all our issues, some element of human essence cannot be captured within it. There’s a critical difference between crunching data and interpreting it.) It’s hard to tell whether this acknowledgement that individual human capability may elude our ‘bottling skills’ is an admission of the current frontiers of applied IT, or that current employment practice – that employees no more expect a ‘job for life’ than organisations anticipate offering one – must accept that ‘knowledge’ will move on. Organisations capture what they can before the target moves on. (Our human response to this bottling process and its impact on our relationships with each other raises a whole new host of issues too, as Mark Gould points out in this and many other blog postings.)

Unlike our metaphorical colleagues in an older profession at the start of this article, our value should increase with age: our aesthetic charms may fade, but our experience, skills and knowledge will accumulate. While one focus of organisations has been to extract knowledge from people and find ways of cataloguing in ways that make it accessible (and, it is hoped, still meaningful), the learning & development function wrestles not to squeeze knowledge from employees but to squeeze more wisdom in. (And without effective means of quantifying the outcomes and displaying evidence, it will increasingly struggle to fund its activities.)

A school child once innocently responded in an examination to the question “What is the best way to keep milk fresh?” with the guileless but logical answer “By leaving it in the cow?” This could be a great example of that old English saying ‘out of the mouths of babes …’ Or it could be a hint to place slightly higher value on the cows.

As individuals, our abilities and wisdom are a lifetime’s investment: they are, effectively, our critical bargaining cheap in the modern labour market. But we must each battle to continuously raise the value of x in response to every change in our employers’ calculations of y if we are to stay on the right side of the equation. In the meantime, organisational learning & development activity strives to help us increase x, while cost accounting, KM and prevailing management trends look to tip the equation in the other direction.

Organisations are rarely making such a long-term investment: people appear on the balance sheet as a present cost, but not as a future value. Although investing in the development of existing staff is typically cheaper than recruiting and inducting new ‘talent’, the latter option is usually seen more favourably. And shedding staff is frequently seen as a valuable exercise in cost cutting.

Surely if we want to invest wisely for the organisational future, we need to arrive at a better estimation of the likely value of that in which we invest. Wanting to value human capital tomorrow while seeking to cut human costs today is to muddle a chicken and egg argument – and then sell the chicken.

Robert Terry, Managing Director of ASK Europe.