Expense or an asset?

Do a survey of companies. Ask the leadership a question-“What are your biggest assets”? Almost all of them will reply “people”. Do a survey again. Ask the employees working in these companies a question- “Do you feel you are the biggest asset in this company”.

Most responses will be “No”. In fact, if further questions are posed on “how they are treated in the company”, their responses will be “Cog in a machine”, “don’t really care”, “disposable”.

These responses reflect widespread disconnect of what companies profess and what their employees confess. This is also substantiated by the decreasing employee engagement numbers in global HR surveys. According to the Global HR survey, only 23 percent of employees say they are fully engaged in their jobs. A whopping 67 percent of employees feel hardly any attachment to what they do from 9 to 5pm.

The million-dollar question then arises, if companies are just doing lip service when they say employees are a real asset, is it a case of just show-talk? Is it a case of an immaculate delusion? Is it a case of self-denial? Is it a case of corporate hypocrisy? These presumptions could be applicable to some companies, but not all. That of course raises further queries on why are they unable to walk the talk? That is where work needs to be done to make what they say converts into what they do.

The intent might be noble, but the behaviour may be more “situational”. After all, business is more about pragmatism than about idealism. However, it is worth finding out the hurdles that crop up between what might they feel is the right thing to do and what seems to be right, given the situation:

1- Numbers, Figures and P&L- Companies are driven by bottom lines and margins. Every company wants to make profits. The classic way for increasing profits is to either increase revenue or reduce costs.

The accounting methods are such that machines are reported as assets and human resource as costs. Computers, buildings are all business assets and reported in the balance sheet. Human beings are expenses and reported in profit-and-loss statements as expenses. Payroll, training, medical, etc, are all costs. These “costs” bother the company management more than the machine maintenance costs.

A typical example is that when software like SAP needs an upgrade, the top management gets it upgraded despite the millions it needs. In the same case, if human skills need an upgrade, training of a hundred thousand gets turned down many times.

The reason is more of the name and place of both in the financial statements. The software upgrades the computer systems and thus is seen as an asset, while training seems to be a cost eating away profit margins. This visual effect of the placement of these figures produces negative and positive connotation, creating the urge to control expenses.

Thus, the first change needs to be in financial reporting. We need to add another category to the asset column and devise a way to assess the value of the intellectual capital of the organization. Unlike physical assets, people assets do appreciate exponentially over time.

The people-asset column would provide corporate visibility that the people-capacity is being enhanced. Just like you can calculate the brand equity of a product, financial standards board should work on calculating the ROHC, i.e., Return over human capital.

2- The obvious and the easy-When crisis happens most companies turn to quick reactive steps. The first no-brainer is to stop all actions that take a long time to show results. R N D, training, etc., are excellent first cuts that yield “savings” and keep the top management anxiety at bay.

The chopping-and-axing process causes layoffs; it is described as the lean organization objective or, as the employees term it, the lean and mean organization. Increasing revenues is tougher and takes longer, especially in downtimes.

The problem is that such actions make the organization become thinner but not fitter, especially for better times that are going to follow. The more productive the employees are, the more “expensive” they become as they produce more and thus demand higher salaries. In places like China, taking time off is mandatory and now being additionally invested upon.

The realization that a refreshed employee after a two-week break is going to be ten times more productive than a fatigued, stale employee is what these companies are “investing” in. Imagine how particular we are about machine downtime and how indifferent we are on human time off.

3- Leadership dilemma — The problem is that leadership is judged by success. Success in organizations means higher margin, fatter profits and thinner expenses. Many heads of organizations are on the daily count.

Counting the profits, cutting the head count, and crunching the expenses. This is true for many self-made companies, where owners of old time still control the business and feel that their penny-pinching habit made them become big. True, somewhat.

But as they say, what brought you here will not take you there. The only way you grow is by giving space, letting go, allowing new people and ideas to grow the business. That mindset becomes a tussle within the old and new generations.

In some interactions with such mindsets, one was told not to train an employee too much as he will then leave the company. It may sound odd, but it perfectly aligns with the “keep them dependent” mentality. Such leaders are more comfortable with investing in machines as machines do not throw tantrums, do not expect higher salaries, are not going to go on strike, are not going to resign and are complete slaves to when the management wants to put them on and off.

This thought process makes investment in people risky and uncertain. That is why the change in reporting that calculates returns of investing in man versus machines is such an imperative.

The amount of literature written on the ability of a skilled and charged employee’s contribution is tremendous. The numbers of conferences and summits on unleashing human potential are uncountable.

However, employee disenchantment is the highest in history. When numbers are the basis of informed decision-making, and they fail to reflect value addition done by developing people emotionally, intellectually and spiritually, they will lead to wrong decisions, and they have.

The time for making employee worth as measurable as net worth is now. Without employees getting their just place in financial reporting, their development will remain a casualty of leadership myopia.

Copyright Business Recorder, 2024