The value of people in large, traditional businesses has changed significantly over the years. In the past, people were considered ‘units of labour’ – some say cogs in the machine. In 2017, the tables are turning rapidly. Talented people with the ability to define, communicate and demonstrate their value, are now able to pick and choose among job and business opportunities (and drive job transformation). As Steve Jobs said : “it doesn’t make sense to hire smart people and tell them what to do; we hire smart people so they can tell us what to do.”
Now, unlike any other time before, the total economic value of talented people is equal if not greater than a business’s CAPEX investments and supply chain mastery. But do companies see it like that and truly pursue a value based business strategy?
To understand the tension between investing in people and networks versus investing in goods, services and supply chain, it’s worthwhile taking a quick look back in time:
Twenty years ago, for example, a typical traditional, large company would have expected to make equal revenue from its investments, goods, and people.
Revenue per full-time employee, revenue per cost of goods sold, and revenue per invested capital were pretty much the same. At this stage in history, people were important, but inventory, operations and investment mattered just as much.
By the late 1990s, the revenue value of human capital started to grow exponentially while capital productivity remained relatively flat. Over the past 20 years, this ratio has continued to grow as the goods-based economy shifts to China. The rise of an information-based economy and global demand for distributed leaders and knowledge workers are prizing knowledge, expertise and access to networks. The power equilibrium has well and truly shifted.
Value based business strategy: What’s the value of working in large businesses?
In 2010-17 we now see circa 82% of employees in more economically developed countries doing some sort of specialised knowledge work. We are also witnessing epic growth in the free-lancing economy as individuals leave large corporates to start up their own businesses based on specialised knowledge and highly sought after skills and ideas.
As managers and employee find themselves under pressure to bring in more revenue for the firm with flat or even declining budgets, two important and divergent workforce trends emerge:
- managers want to attract better people to improve employee performance without really knowing what characteristics they should be looking for
- high performing employees are thinking of ways to leave the corporate world to start up on their own.
At the core of the modern day corporate phenomena are basic human needs: survival of the fittest versus the allure of self-actualisation.
The overall value proposition of employment has fundamentally changed. We find ourselves working much harder to find talented people to join our businesses. Yet most hiring managers are still struggling to define and identify the exact skills, capabilities and characteristics required for new and challenging pricing and commercial roles during the hiring process.
The way we think about pricing strategies and commercial problem solving has fundamentally changed. We find ourselves un-learning unhelpful cost plus habits and breaking siloed department demarcations. Yet most business leaders have not been able to figure out how to get their teams working together for a purpose greater than themselves.
Delays in revenue growth and long term profitability are linked to talent gaps. About one in 10 delays in growth are linked to gaps in the leadership team. Organisations with the best leaders (i.e., functional leaders with specialist skills and/or executive leaders that can build and mobilise networks) have nearly double the revenue growth compared to those with weaker ones.
CEOs and executive teams with a reductionist view of people will inevitability leave substantial amounts of money on the table and a raft of dissatisfied and unhappy employees in their wake. See our blog on business development managers.