Thursday, September 29, 2011

The human resource is the number one competitive advantage

The Human resource is the number one competitive advantage

From September 21, 2011 through September 24, SHRM, Society Human Resources Management will held its annual convention in the Conquistador Hotel.

I had the honor of having been one of the keynote speakers in the conference along with other distinguished professionals such as Dr. Jose Vargas Bidot, who needs no introduction, Johnny C. Taylor Jr. CEO of Thurgood Marshall College Fund, Richard Flint, a well- known international speaker, and Gustavo Biasotti who will talk about the world famous Harvard model of negotiation. The program was full of very interesting and valuable sessions on all sorts of topics from how to build an effective team, how to coach them, the importance of values when you have to make decisions, the latest on labor laws all the way on how to compensate employees.

SHRM should be congratulated for having organized such a great program. There were attendees from the US, PR and Central and South America.

I firmly believe that the employees in any organization are an untapped source of competitive advantage. In most organizations they are definitely underutilized.

In some of my conferences I ask the question, “Raise your hand if you feel that your company is utilizing all your strengths and abilities in order to further the objectives of the company”.

I have had sessions where not one single person raised his hand.

Seventy five per cent of employees in the US and there is no reason to think that it is any different in Puerto Rico, have indicated that they are not working at their full potential according to a Harris survey.

There are a multitude of reasons for this situation but there are probably three major factors that I believe employers should keep in mind. These three are:

Internal communications

Very often employees have no clue on what the strategy of the company is or what goals is the company pursuing. In fact, you ask them what the Unique Selling Benefit of the company is and they don’t know.

I once was meeting with the President of a well- known supermarket chain in Puerto Rico and we were discussing the importance of marketing to the public the unique selling benefit of the supermarket, in other words, what they were better at than any competitor, their competitive advantage.

At that point I took a risk by telling the President that I would bet that not even his executives, there were 3 in the room, would know what their unique selling benefit is.

He said that he was certain they would know and at that moment I handed a blank sheet of paper to every executive and the president. I asked them to please write down the unique selling benefit of the supermarket chain.

I collected the papers, and lo and behold, everyone had a different answer. Needless to say, the President was very surprised if not shocked.

It is extremely important that the leadership of a company communicate important information to the employees in the trenches. They are the ones dealing with clients face to face and they need to be informed on what is happening and their feedback is important in determining the direction the company should be taking.

The second factor is training.

There is no question that lack of training is a big factor that keeps employees from working at their full potential. Many companies hire employees, explain what their job is and throw them to the wolves with no training whatsoever.

I once had a President of a company tell me that he was tired of spending so much money training employees for them to leave after they were well trained. I then said to him that it was definitely a problem but asked him if he had thought of the consequences of not training them and them staying.

If you are training employees and they are leaving, you have an employee retention problem that needs to be addressed.

The cost of human capital, which is the sum of the employees’ wages, health care benefits, retirement, payroll taxes, etc., is usually the single biggest expense in most organizations. It is an investment that you make month after month. A small investment in training your employees is the way to maximize the huge investment you are making in your labor force.

I have conducted numerous workshops with employees and the difference between groups that are well trained and those that are not, is huge. The well trained employees can act on suggestions and ideas that come up in the session while the ones that are not trained like the ideas but they simply don’t know how to execute them. They are not trained to do so. Very often employees don’t know what they don’t know and what is worse, management doesn’t know what they don’t know either.

You have to take a look at your training program and you need to make sure that your employees, your most valuable assets, are well trained to do what they need to do to make your company successful.

Last factor is how you compensate your employees

Often when employees are not giving their best effort it is because the company’s reward structures are not aligned with the creation of value to the client. Most of the reward structures for management and often employees are based on how well the company is doing financially.

Rarely are reward structures based on the value that the enterprise and its employees create for the client. The old saying “what gets rewarded gets done” is probably a good indicator that maybe companies are rewarding the wrong things, or at minimum, there is not a good balance in the reward structures.

The posters in the walls of companies, the marketing brochures, the mission statement , even the speeches given by the executives saying that the client is king or the number one priority, don’t align with management’s behavior or the reward system which is based on financial considerations not adding value to clients.

When you look at how a company rewards its people, you will get a good idea of what is important to that company. Management behavior will tell the employees what is important more than their words. What they do has more importance than what they say, behavior is everything.

If you are leading an organization, it would be a good idea to get your management team together and discuss three things:

1. How much does turnover cost you in one year? Remember that the cost of turnover is estimated by some management experts to be seven times an employee’s salary. Figure out the salaries of those employees who voluntarily left the company and multiply by seven.

2. In your industry, what is the lifetime value of a client, in other words, how much is a typical customer worth over 20 to 25 years?

3. How much have you invested in training employees in one year?

These three numbers are very important and they are associated. The issue is not whether a business will pay, only when it will pay. The familiar phrase, “you can pay me now or you can pay me later” is very appropriate to the situation.

Too many organizations have a short term mentality; they are focused on this month’s bottom line or the next quarter’s earnings per share. Even though that is important, if you are obsessed with those numbers, your long term thinking or perspective will be seriously affected.

An investment in training can have profitable results in many ways but short term thinking can result in cutting the investments that can ensure long term competitive advantage.

And, what is important is the long term, the sustainability of the organization.