Making Your People Outperform Theirs
Consider Google (GOOG) . Google is really just leased buildings and people. It doesn't have special access to capital, uniquely valuable real estate or state-of-the-art factories. Google wins when its employees consistently outperform their peers at Microsoft (MSFT) and Apple (AAPL) . Good talent, effectively managed, is Google's only source of sustained competitive advantage.
But Google is not unique. For the vast majority of companies, real estate and salaries are their biggest costs. Isn't it strange that companies know so much about assets such as real estate and manufacturing, but know so little about their human assets?
Imagine a global head of manufacturing telling his CEO, "We really don't know if our manufacturing capabilities are improving year-over-year. In fact, we don't know what 'improving' means." Yet, that's what HR executives routinely tell their CEO. They don't know if the value of their human assets is improving; they don't even know what "improving" means.
It's time to hold HR accountable for human assets. More specifically, for making sure that "their people outperform their competitors' people." This requires rigorous measurement and management in three areas:
- Key Position Performance
- High Performance Organization
- Executive Team Performance
Key Position Performance
Some positions contribute more to business success than others. Policies such as "every employee will get two weeks of training" are unwise. Outperforming competitors requires disproportional investments in key positions. Examples of key positions include:
Sales representatives: "Our sales people must be superior, in the eyes of the customer, to our competitors' sales people."
Product Development: "Our product development people must produce more value than our competitors' product development people."
Executive Leaders: "Our senior leaders must be more effective than our competitors' senior leaders."
Assessing sales representatives is easy. Engage a third party to ask customers to rank the quality of sales reps from your industry. Success is about relative performance. Being "world class" is interesting, but "industry best" matters.
Measuring product development (PD) capabilities is a bit more difficult. Consider metrics such as: profits from new products per PD employee, or product satisfaction, or even number and type of industry awards.
To measure executive quality, ask executive search firm partners to rank-order industry competitors by leadership capabilities. Or, better yet, have the firm conduct a deep assessment of your first- and second-tier executives. Ask them to compare each executive's leadership capabilities to an industry benchmark.
High Performance Organization
There are several ways to assess organization effectiveness. The first is to measure efficiency. This can be done by using available industry measures such as profit per employee or SG&A per employee. Both are reasonably good reporting measures, but they are at too high a level to improve efficiency. Improving efficiency requires that measures, and accountability, be pushed as low as possible -- ideally down to the first-level supervisor.