Leon Gettler: Pricing a company’s human capital

Pricing-a-company-human-capital

 

How much is human capital, the measure of the economic value of an employee’s skill set, actually worth? It’s an important question when you think about all the money that’s spent on education, not to mention the opportunity cost of getting some sort of tertiary qualification instead of working. It’s particularly important for managers because the most effective companies and countries will be those that manage human capital in the most effective and efficient manner.

How do we know that? According to CFO magazine, two metrics – Return on Human Capital Investment and Total Cost of Workforce to net operating profit, which includes all direct and indirect cash and equity compensation for employees, employee benefits, perks and rewards, retirement costs and costs of training, recruiting, employee relations, severance and legal settlements – are powerful predictors of a company’s value.

Jeff Higgins, the CEO of the Human Capital Institute says a company’s share price these days is not just driven by net profit but by productivity. “Some might say Return on HCI (Human Capital Investment) and Human Capital ROI Ratio are synthetic profit metrics, but we see them as productivity metrics – the return on people’s productivity. And when those numbers improve, your stock price jumps.”

And that’s why managers have to measure it.

Commentator Sarah Ganly says the way it’s measured and priced really depends on the company, the line of business and management priorities. But it still has to be priced regardless.

“The role of management in organizing human capital slightly changes from organisation to organisation, but all organisations must value their human capital, or they will have a high turnover rate which will be detrimental to their business,’’ Ganly writes.

Commentator Alan Kohler talks to Carol Royal, director of Masters of Technology and Innovation Management at the Australian School of Business about how to measure it. She says you have to look beyond the financials.

She says managers need to measure leadership systems, governance, career planning and pathways, talent retention and creation, and remuneration. “Performance measurement for these areas really should be in place for an organisation to be sustainable,” says Royal. “The rhetoric at the top needs to be matched with the practice throughout the organisation. When they are out of line, then you can’t be managing effectively because the business is espousing one thing and doing something else.”
She says you need to evaluate and price the systems by which people are managed. “How are they recruited into the organisation and subsequently trained and developed?

How is knowledge managed around the organisation? What are the career plans in the organisation? Are the human capital systems appropriate and internally consistent? Do they complement each other? For instance, supermarket giant Woolworths does not always recruit the best and the brightest. At entry level, it recruits 16-year-old school leavers.

“‘What they do well is invest money in high-potential school leavers and train them up to be very effective store managers and beyond. They are very generous with their training and development. Woolworths has a set of management systems that are internally consistent and consistent with its strategy,”’ says Royal.

How would you price human capital?

 


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Leon Gettler: Buzzword bull

 

On the same page, thought leadership, paradigm shift, out of the loop, result-focused, total quality, ballpark, ticks in boxes, value-add, touch base, think outside the box, stretch the envelope, put this one to bed, close the loop, at the end of the day, hot button, interface, killer apps, focus collectively as a group, user friendly, bells and whistles, benchmark, slippery slope, win-win, bandwidth, brainstorming, teamwork, shared goals, human capital, strategic fit, zero sum game, leveraging, tool kit, tool set and upscaling.

These are just a few examples of all the management jargon and buzzwords creeping into everyday language these days. If you want to get a feeling for how prevalent it is, check these Dilbert cartoons. “Let’s schedule a scenario-based-roundtable discussion about our enterprise project management.” The askthemanager site lists other annoying phrases like, for example, low hanging fruit (in other words, easy), take it offline (as opposed to discuss it later),  action item (meaning task) and so on. Sound familiar?

Unfortunately, more managers are using these sorts of expressions. Now, every profession has its jargon but management jargon is particularly insidious because it creeps into our day to day work. More than 60 years ago, in his essay Politics and the English Language,  George Orwell said the aim of jargon was to mislead. He wrote: “When there is a gap between one’s real and one’s declared aims, one turns, as it were, instinctively to long words and exhausted idioms, like a cuttlefish squirting out ink”. The other problem, he said, was that it stopped people thinking. “Every such phrase anaesthetises a portion of one’s brain,” Orwell said. He could have been talking about some of those business buzzwords.

The Australian Institute of Management has addressed this by releasing a version of Buzzword Bingo and some handy software, delightfully called Bullfighter, which detects jargon and complicated language and then suggests an alternative word or phrase.  Forbes has even developed a bracket where people get to vote via Twitter on the single most annoying example of business jargon and, by doing so, thoroughly embarrass all who employ it.

Not bad ideas, they’re a good start. But tackling business jargon actually takes a lot of work. As a manager, you need to understand the impact it’s having on people and the reasons why people use it. “People use jargon because they want to sound smart and credible when in fact they sound profoundly dim-witted and typically can’t be understood, which defeats the purpose of speaking in the first place,” author Karen Friedman told Forbes.

In an interview with the Harvard Business Review, author Dan Pallotta says that business jargon is “not a value-add” (which is jargon in itself but let’s play a straight bat to that).  He says jargon puts barriers up that prevent us from understanding anything. Managers who want to avoid jargon need to be authentic, he says.

Pallotta goes into more detail here: “You’ll save yourself a lot of trouble if you internalize this. Observe it, deconstruct it, and appreciate just how ridiculous most business conversation has become.  You will gain tremendous credibility, become much more productive, make those around you much more productive, and experience a great deal more joy in your working life if you look someone in the eye after hearing one of these verbal brain jammers and tell the person, ‘I don’t have any idea what you just said to me.’ ”

What are some of the worst examples of management jargon you’ve come across? How should it be managed?


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