Turning people into profits

It may be politically correct for employers to say their workers are their greatest asset but, says Jonas Ridderstrile, firms must now ensure a continuous transfusion of talent if they want to stay ahead of the game

What is your company's greatest asset? Today, most managers would probably reply: our people. But nothing could be further from the truth - and I'm not thinking about the Dilbert cartoon where people came in ninth, right behind paper clips. My argument is that human capital must be regarded as a liability. You cannot own people. To succeed in a world where power increasingly belongs to competent individuals, firms must build processes to secure a continuous transfusion and transformation of talent. Executives must become 'humanagers'.

Marxist Markets

The balance sheet is probably the only 500-year-old supermodel still capable of arousing a few people. But despite its long-lasting allure, it often only captures around 20 per cent of the real value of contemporary companies. Today, knowledge makes all the difference. And just who owns that exactly? George Soros?

Ironically, in our hyper-capitalist times, it turns out that Karl Marx was right. People now control the most critical resources - albeit individually rather than collectively - their own brains. What is crucial at many firms is perhaps not the core competencies so much as the core competents: individuals who make competencies happen.

Competents represent prospective cores rather than retrospective scores. And we find these 'knowledge nomads' all over the map. We find them in sports - Liverpool FC with or without star player Michael Owen; in the media - CNN and Larry King; in business - Bill Gates once said that if 30 people were to leave Microsoft, the company would risk bankruptcy; and we even find them in academia - Harvard Business School and Michael Porter.

While there are clear signs indicating the business community is moving closer to perfect competition in many product/service markets, in the high-end niche of the labour market we are talking about the opposite development. We are being pushed into a world of increasingly imperfect markets.

Core competents are nothing less than 'mobile monopolies', who will stay only as long as organisations can offer them something they want. When this is no longer the case, they will leave to set up their own one-person companies - Me Inc. So, in this gold-collar niche of the labour market, firms may end up as price-takers, at the mercy of those who control the most rare and critical resource. Consequently, power is now in the process of being transferred from the capital owners to the competence owners. The humble, loyal employee becomes dusty history.

To succeed in a world where the intellectual investors are in charge, companies must approach talent in new ways. Turning people into profits is a question of simultaneously applying strategies which revolve around attracting and reducing the power of competent individuals - talent transfusion and transformation.

Talent Transfusion

In an economy where competition in the labour market is increasingly generic, we are all players in a great global attraction game. Success is contingent on exploiting the fact that human beings want to express both their individuality and their need for belonging.

People no longer work out of moral obligation. Life-long loyalty to a company, country or brand is a thing of the past. Today, smart people hire organisations, rather than vice-versa. For stars, an organisation is disposable - a temporary home.

But while competent individuals are becoming much more powerful, that is just about the only thing they have in common. We differ. And sometimes it takes the business community quite a while to realise that. Remember it took the automotive industry some 100 years to realise women are not small men. Treating talent like bulk goods is especially dangerous if you want to attract Generation I - international, informed, informal, impatient and extremely individualistic.

So, attracting talent calls for more personalisation. People can be approached and treated, evaluated and rewarded, and motivated and inspired in a number of different ways. If Madonna or David Beckham will not settle for anything the slightest bit normal or average, why should you or your fellow competents? It used to be XM - extra medium. Now it must be XMe. Instead of being provided with detailed job descriptions, competents should provide managers with motivation descriptions. Recall what JFK once said: "conformity is the jailor of freedom and the enemy of growth".

Talent wants voice and choice. And while most organisations realise the attraction game needs to be played from the neck up, some doubts remain. As a leader, are you really prepared to surrender your ego to the talent of competents? How many companies would recruit a young, female, lesbian, non-Caucasian Muslim, with a degree from the Saddam Hussein School of Management? Remember that talent is not the preserve of middle-aged, white males. Also remember that most competent individuals do not leave companies - they leave managers.

But people also want to belong. Firms with a future will launch strategies focused on organisational tribalisation. In a tribe, people share rewards, ownership, culture, identity and knowledge. Indeed, the list of organisations having to realise power now belongs to their people is getting longer by the minute. Already today, some 30 per cent of the equity in US companies is tied up in promised stock options. At Nokia of Finland, the estimated cost of the stock-options programme is more than $10bn. Robin Hood is not dead. This time though, he is not stealing from the rich to give to the poor. Now, money flows directly from the capital investors right down into the pockets of the competence investors. Shared ownership and rewards also imply the interests of the capital and competence investors are aligned to avoid people viewing the 'battle' for cash as a zero-sum one.

Increasingly, values will constitute such a lowest common denominator to keep the tribe together. Today, we see many successful companies recruiting people with the 'right' attitude, then training them in skills, not the reverse. Look at organisations as diverse as Southwest Airlines and the Hell's Angels. Just imagine Hell's Angels hiring for skills. These organisations do not believe in the idea of bringing in smart people and then brainwashing them at training camps because:

- the half-life of knowledge is coming down really fast

- for most of us it is easier to change our skills than our basic values

One additional advantage of having and communicating a clear set of values is that the organisation becomes self-selecting - it primarily attracts people who share the same attitude. Being 'fuzzy' means that anyone or no-one will knock on the door.

Talent Transformation

Since we are essentially talking about leading liabilities, companies also need to work hard to reduce their dependence on competents.

Today's typical company may not suffer from knowing too little, but rather from not knowing what it knows. A critical task for any organisation aspiring to be successful is to engage in knowledge codification - transforming the core competents into core competencies. To truly boost the value of your company, you must turn human capital into structural capital - in the form of systems and procedures, routines, and so on. We must build an organisational memory. And while human capital is best thought of as a liability, structural capital is definitely an asset on the balance sheet.

A more systematic approach to knowledge management means keeping track of both the current stock and flows of knowledge.

At Accenture, the Knowledge Exchange system - a database containing information on past projects the firm has been involved in - has been around for years. Memorisation means collecting the know-ledge of gold-collar workers or excellent teams and transferring it to an organisational level. By collecting, codifying and communicating the knowledge of core competents to the rest of the organisation, the firm provides the others in the organisation with an opportunity to learn and then use their new insights to help customers. Over time, the company also becomes less dependent on the skills of a few competents.

Not only that, however. Since we are living in discontinuous times, companies must also become much better at forgetting faster. The memory must be designed with a built-in delete button. To make room for the new, we must get rid of the old. But this is easier said than done, particularly since most senior executives are placed at the top because they are experts at what was important yesterday.

A second measure aimed at improving the performance of the firm and lessening the power of competents is increased employee socialisation (not in a Marxist sense). By working in teams or spending time together after work, groups will develop tacit knowledge. People will know things they cannot tell. In Japan, for instance, people sometimes talk about 'nommunication', rather than communication. Nommu is Japanese for drinking. The time spent together in a bar after office-hours can be critical to the development of new ideas and relationships.

The existence of tacit knowledge means it is more difficult for competitors to imitate the knowledge of the firm. Tacit knowledge also makes it harder for people to walk out the door with their skill sets intact. Part of the body of knowledge of a specific competent will be nested in an inter-personal network of relationships with existing colleagues. They can only bring their intra-personal competence with them if the colleagues decide to walk out the door. Socialisation = tacit knowledge = knowledge handcuffs.

Heed your own advice

A final word of caution. I fear that many modern managers are overlooking something pretty important - themselves. Forget about talent-taming for a while. From a personal point of view, your most important job is ensuring that, over time, the structural capital of the organisation becomes your human capital.

You see, the future, as always, does not lie in front of successful individuals, it must rest within them. Go for lifelong employability rather than lifetime employment. Make capital dance.