Enterprise Software

Invest—and reinvest—in your "human capital"

Do you know how valuable your employees really are? The managing partner of a recruiting firm shares his outspoken views on retaining your longtime workers.


By Dudley Brown

The headlines have become the refrain of our time:
  • Company A swallows Company B, and thousands of workers are laid off.
  • Company C re-engineers, downsizes, or "right sizes." (You choose the euphemism. It means that longtime employees are out of work.)
  • Months behind on a project, Company D hasn’t planned for growth and must hire hundreds at exorbitant rates.
  • Company E brings in a new CIO, and suddenly it’s time to slash the headcount to goose the stock price.

It’s all in the name of profitability, of course.

Of course not! Let me let you in on a little secret: Longtime employment is the outcome of a well-managed company. Massive layoffs reflect bad management decisions.
Writer Dudley Brown is a managing partner at the recruiting firm BridgeGate LLC in Irvine, CA. In this editorial, Brown shares his views on why you should retain longtime employees.
The cost of poor people management
When business suffers, workers are punished with job losses, while senior management descends with golden parachutes. The crowning insult is that people who understand the company best and have the knowledge to fix it have just been let go.

This loss of productivity is palpable, but it doesn't necessarily show up in departmental budgets. Companies mistakenly outsource strategic assignments when they should assign contractors to the mundane, tactical undertakings. Companies abhor spending, but the total long-term costs of layoffs are incalculable. Building new relationships and bringing part-timers up to speed are among the expenses. It's one of the enduring paradoxes of the Information Age. We maintain and support our computer hardware better than our workers.

Recently, publications and pundits have been preaching the benefits of "free agency." It’s supposed to give workers the ability to chart their own course. This kind of churn is supposedly a good thing for a recruiter like me. My company exists to place people in jobs. But I preach the values of longtime employment because it simply makes good business sense.

Apply ERP to your workforce
Management guru Peter Drucker says organizations have become externally focused. In contrast, IT has been deployed mostly to help companies focus inwardly. IT has been preoccupied with managing the cost of a company's least valuable assets—materials and machines.

Since the 1980s, companies have invested enormous sums by understanding and automating processes around ERP—optimizing the manufacture and distribution of goods. Enterprise software companies like Baan and SAP have grown by developing software that helps companies overhaul internal processes to increase quality, lower unit costs, and improve time-to-market.

It’s time to apply the ERP model to knowledge workers. Deploy the right number of people at the right place at the right time. Drucker reasons that just as hard assets were vital to companies in the Industrial Age, a company's value in the Information Age is a multiple of:
  • Its knowledge
  • Its brands
  • Its intellectual property

While investors value these attributes highly, management frequently doesn't. Companies haven't expended enough energy on human capital. Though every CEO talks about how "talent" is deemed to be king, few have organized their business around this concept.

Human capital supply chain management means planning the company's hiring economically and strategically:
  • Recognize "the stars" and communicate to these employees that they are valued.
  • Provide ongoing internal retraining for the company's best people.
  • Make a pact with employees that they matter to the organization. Spell out what management expects and what employees will receive in return.
  • Reward proficiency in new skill areas.

Reaping the benefits
The nation's best-managed companies already know the value of retaining longtime employees. Among the firms that appreciate the years of service from their staff: Hewlett-Packard, Cisco Systems, 3M, and PricewaterhouseCoopers.

If you want to find an effective model for human capital management, look at companies that successfully manage their business relationships. Consider Toyota, for example. Japan's leading automaker essentially maintains no inventory; components are delivered on a just-in-time basis. To accomplish this, Toyota tightly limits the number of its suppliers but forges deep relationships with them. Toyota doesn't get into the muffler business itself, but it invests in the company that makes its mufflers. The relationship is embedded into the manufacturing process. How many American companies have ever made a financial investment in a recruiting or contracting partner?

Companies need to develop lasting associations with those who have access to human capital. Management needs to understand the value of the people who are already on board and increase their value by continuously reinvesting in them. Manage the human supply chain as Toyota does its mufflers.
How has your company put ideas like these into practice? When is it appropriate to get rid of “dead wood” employees? To share your thoughts, post a message below. To suggest a story idea, send us a note .

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