Sunday, September 13, 2009

Out of place; out of (my) mind

One of these things is not like the others,
One of these things just doesn't belong,
Can you tell which thing is not like the others
By the time I finish my song?

The song above, from Sesame Street, was a catchy one. And it ended up in the strangest places too. My brother was harassed with this song by his sergeant during Air Force boot camp when his dresser drawer wasn't organized properly.

Lately, I've been noticing things in the strangest places too:

- A sign on the wall of a Victoria's Secret that is under construction. "Reopening Fall 2009. Visit us at our temporary location next to The Disney Store." (Women's lingerie next to a children's toy store?)

- A Chinese er hu (a two-stringed "violin") playing the melody to Dave Brubeck's famous anthem Take Five. (Paul Desmond be damned!)

In the business world, we're in the midst of one of the largest acts of "out of place" ever witnessed. Specifically, a lot of companies are more worried about the short-term reaction of Wall St. instead of their longer term viability. As a result, there is a notable lack of investment in the nurturing and development of their staff or worse they are laying off people en masse to save a few dollars.

Last year when it became apparent that the economy was tanking, ZDNet reported on a study by IBM and the Human Capital Institute (HCI) that linked this nurturing activity with financial results. Specifically, they said:

"Last spring, researchers from IBM and HCI surveyed 1,900 professionals in over 1,000 public- and private-sector companies, from a range of industries, geographies and organizational sizes. Respondents scored their companies in 30 specific competencies, which fell into six key practices of talent management: strategy development, attracting and retaining, motivating and developing, deploying and managing, connecting and enabling, and transforming and sustaining.

Companies with high scores across the board were more likely to have strong financial performance, based on reported change in operating profits between 2003 and 2006. 'It's not the first research to show a correlation between talent management and financial results,' admits Allan Schweyer, executive director of HCI and one of the authors of the report, 'but it's one in a handful, and I think it really adds to that body of evidence that is helping organizations to build a solid business case for investments in talent management.' "

Regardless of the correlation between internal development and financial performance, many companies are instead more focused on their stock price than anything else. And when the economy is causing top line revenue numbers to shrink, the next target in the quest to increase bottom line results is operational cost. To you and me, this means the cost of paying salaries, benefits, etc. of the employees that make the company run. And the easiest way to reduce this cost is to lay people off regardless of whether it makes sense or not.

Yet this makes no sense. I know plenty of intelligent people via LinkedIn who are struggling to find work in spite of the fact that they were great contributors in previous positions. Even I am a member of this crowd (as of the time I write this, August 8, 2009). Yet because of shortsightedness (or, worse, financial astigmatism where the balance sheet for the next quarter has been distorted to appear far more important than it really is) companies are sacrificing their ability to operate efficiently in order to meet artificial targets like "whisper numbers."

The cost to replace talent that has been lost is very real too. Using calculators such as the Cost of Employee Turnover Calculator, you can plug in your own numbers to get a resulting cost. The numbers may surprise you. I used the following:

  • $150k for the salary of the person lost;
  • $100k for the cost of the HR and training person;
  • 90 days (1 quarter) that the position was vacant;
  • 20 hours for resume screening;
  • 10 hours for interviewing;
  • 20 training days; and
  • 180 days (1 half year) before 100% productivity is reached
The total cost of one position using these (somewhat conservative) numbers? $109k. Yet the intangible cost is far greater, especially if you consider the knowledge loss that occurs.

"But isn't that covered by the 'days until 100% productivity' number?" you ask. Perhaps. But consider the synergistic relationships that can occur between sales teams as an example. One team may be responsible for one product line, yet if a different product line will satisfy the need of the customer a Sales Manager with some tenure at the company will be able to make the appropriate referral. A new person may lose the business instead and the company's bottom line suffers as a result.

The cost of human capital is far greater than the dollars that are reflected in the bottom line when people are let go. Although current economic conditions dictate that money should be saved wherever possible, some thought about the long term effects of decisions made today should be given. Otherwise, the recoveries of individual companies that do not will take longer than necessary in addition to the detrimental effect their decisions have on the lives of those affected. This is a lose-lose situation that is only made worse by the fact that it is avoidable.

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