Wednesday, August 5, 2009

From Expense to Asset: How Layoffs Can Kill Your Organization

Thank you to Express Employment Professionals for hosting an educational event led by Russ Moen, VP, Human Resources. The 4-hour event, "The Leader's Role in Creating Fulfilling Jobs", took its lead from the book Three Signs of a Miserable Job by Patrick Lencioni.

One topic discussed was the value of people. In financial terms, human resources usually show up under "expenses" when looking at a balance sheet. In today's economy, many businesses are hyper-focused on the bottom line, looking at where they can best cut costs. For many businesses, employee-related costs result in 65% to 95% of all expenditures within a fiscal year. From a bottom line point-of-view, employees are a financial disaster. When times get tough, it looks like the fastest, most effective way to trim costs is to let folks go.

Our economy has changed significantly in the past 40 years. According to Moen, a review of a company's stock value in 1982 could be tied 65% to tangible assets (i.e. equipment, real estate, cash) and 35% to intangible assets (intellectual property, patents, systems). As we shifted from an industrial society into the information age, 2002 brought an average of 80% (yes, eighty) of stock value tied to intangible assets.

What happened? People took on growing value. In an information-based economy, innovation, service, and intellectual property contain the majority of a company's assets. Where does innovation, service, and intellectual property originate? In the minds of people. The information age has turned people from expenses to assets. People are your bottom line. Without them businesses cannot create value.

I think that choosing the right people for your organization applies not to the tasks that they can perform, but to the way they think. Diversity of race, religion, and gender don't matter as much as diversity in thought, creativity, and problem solving. The value of the people on your team has less and less to do with the cost of acquisition and benefits costs, but rather with the return on investment due to increased productivity, surge in innovation, increase in filed patents, and ability to be nimble and responsive to changing market economies.

The current market correction is showing how come companies have over-inflated the value of commoditized tangible assets and downplayed the value of the people and their innovations. I regularly see small businesses struggling to survive who are sitting on a wealth of intellectual property or innovative systems that they could share with the market to increase cash on hand and business value. Conversely, I have also seen many organizations bloat their books with intangible assets that don't exist.

What is the value of people to your organization? Where does their contribution to your success show up in your financial statements?
Posted by Tracy Corley
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4 comments:

  1. Great article! Most companies seem to be reacting to this economy with a knee jerk reaction of lay people off. Then the workload falls on fewer people. You then create a work environment that is stressful and hostile as everyone panicks trying to remain employed but hating their job. This environment will not keep good employees but will drive them to either find another position and/or become a competitor. Employees have been mistreated and over worked in the past and then the workplace evolves creating unions, laws to protect workers etc...Employees once again are at a place where reinventing what the workplace should be is the next step in coping with this uncertain work environment.
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  2. Right on Tracy! The notion that people and teams can create value, enhanced productivity and surges in innovation - all while being nimble and responsive is SO true. What I'd add to the conversation is the notion that without inspired leadership - leaders who understand that employees are people first and employees second, the outcomes you mentioned are out of reach long term. If, and this is a big if, if the team leader is inclined to look at employees as the ONLY real differentiator in the world of work, and correspondingly seeks to transform the world of work into something uplifting and ennobling for their employees, we've got an opportunity to generate massive breakthroughs in business performance. Where do you put passion on the balance sheet?
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  3. Back when social responsiblity was all the buzz, organizations started putting out quarterly and annual Social Responsibilty Reports. Maybe we'll see the rise of a new kind of Balance Sheet?
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  4. Tracy - What a fabulous recap of Russ Moen's presentation. When employees are viewed as an asset instead of an expense, they have the potential to become an asset that actually appreciates in value. How? Show them you care. Tell them why their work is important to the organization. Notice "out loud" when they do more with less. Thank them every single day for their extra efforts.

    How we treat employees during the tough times may very well determine whether or not they stay when times turn around.

    Drawing from the Carrot Principle book, for employees to be engaged, they need to answer these 3 questions: 1) What's important around here? 2) How can I make a difference 3) What's in it for me when I do make a difference?
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