Tuesday, July 11, 2006

Human Capital: Long-Term Assets, Short-Term Plans

I am participating in the Blog Swap, an experiment concocted by those creative folks over at Recruiting.com and Job Syntax. As part of the blogswap, I will be providing guest posts once per week on other blogswap participants' blogs. Likewise, I will publish one guest post per week here on this blog.

The first guest post for the Nobscot Weblog has been written by Colin W. Kingsbury, Chief Evangelist for HRMDirect.

Colin shares some unique thoughts on truly managing employees as human capital. I'm not sure I agree with the tactic, but I'm sure you'll find his ideas thought provoking. Thanks, Colin!

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Long-Term Assets, Short-Term Plans

Today the biggest and fastest-growing expense for most companies is people. Forget about the right person at the right price: in many industries it's a challenge finding someone adequate at a price you can bear. And as more job titles move into the "high demand" column, retention and cost containment will make this a two-front war. We're reminded daily that it's not getting easier, either. The economy continues to grow robustly at home and overseas, and the Boomers continue their inexorable march towards retirement. Indeed, it's a fair chance that in five and ten years we'll be looking back on how easy things were in 2006.

Businesses that depend heavily on inputs such as jet fuel or electricity have two choices: sign a contract to buy at a fixed-price over a long term, or purchase what you need as you need it at "spot market" prices. Which you choose will depend mostly on where you think prices will go. Southwest Airlines has remained profitable through the worst economic conditions ever seen in their industry in large part because they signed a series of long-term fuel purchase contracts back when oil was under $30, while most of their competitors were unwilling or unable to commit themselves to such a bet. You may not like their cattle-car approach but as a business they make pretty much every other airline look so incompetent it seems almost unfair.

How many people do you know that have a contract with their employer that obligates both parties to a commitment of a year or more? Almost certainly none below the VP level. In fact, many companies are trying to make the relationship even more arm's length by the use of contractors and project-based staffing. In other words, companies buy all their talent on the spot market.

Here's a crazy idea: What if you took the top 10-15% of people in the positions you know are only going to get harder to fill, and offered them a two-year contract that was binding on *both* parties? Take your top couple of software developers or salespeople, the sort of roles almost impossible to fill. Why wouldn't you want to guarantee that you'll have this person around for another two years, without having to give them a 20% raise?

But the truth as we all know is that very few companies would ever do this, because when it comes to understanding the deployment of human capital, most companies are close to clueless. We seek ways to make our staffing ever more "flexible" not because we are coming up with better ways to redeploy talent more effectively, but because it makes it easier to correct our failures.

Southwest was of course better-prepared to deal with an increase in fuel costs than any of their competitors. Delta, American, or United desperately needed that kind of break as the rest of their business came crashing down around them. And yet the way it played out, it was the strongest and smartest who were able to exploit the opportunity the market offered. Like oil, talent is a scarce resource that isn't getting any cheaper until we come up with a replacement for it.

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What do you think? Feel free to leave a comment or you can reach Colin at: ckingsbury@hrmdirect.com.

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