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Tuesday, May 14, 2013

The New Economic Reality: Do We Have the Courage to Create It?



In the US, organizations have 2 gears for running a business. During good times, hire people. When the economy slows, fire people. In almost every case, this strategy results in a downward spiral for the economy. While there are infinite alternatives to this tactic, no one has taken sufficient time to explore and develop it. At the same time, in the 21st Century, change happens faster than ever. As a result, many of the existing economic structures have become obsolete. Therefore, the time is now to explore new possibilities.

If you think about it, there has to be a
rock that no one has looked under. Under that rock are effective alternatives to the firing frenzy. Perhaps the solution is a matter of how we view human capital.

In my company, I do business with many former CEOs of Fortune 500s. One day I decided to engage a retired CEO of a well-known Fortune 100. I presented the idea that companies lay off people when the economy slows and that exacerbates poor economic conditions. When 100 companies lay off 10,000 people, 1 million consumers lose their purchasing power. That results in more companies laying off people and an unhealthy economy. That is analogous to 17th Century doctors who did not wash their hands before operating on patients. The result was more patients died from infections. Doctors were killing off their own patients because no one figured out that washing your hands was essential to the health of the patient. In the future, they may think our method of firing people when the economy slows was suicidal?

With that said, in my conversation with this former CEO, I asserted there has to be a possibility no one has considered. Through that possibility, employees would be so valuable it would be more expensive to lay them off than it is to keep them. His first response was the problem is that no one thinks about that until they are under pressure from slow growth. At that point, the natural response is to fire people. Furthermore, he said, no one has paid a group of people to meet in a room and remain there until they find an effective solution to your question.

If that is the case, I am opening the conversation up to the business community. Imagine your employees provide a value to the enterprise that by far exceeds the value of what you pay them. To lay them off would cost exceedingly more than the value you receive from them. In fact, your employees would be so valuable that you are able to transfer that value to your balance sheet. It would sit in the balance sheet as human capital. For example, in the event you wanted to sell your company, human capital would increase the value of the organization by $100 million for a company with $1 billion in revenues.

While this seems far-fetched or mathematically impossible, in an age of knowledge workers and service companies, it is a possibility. In our current paradigm, it appears impossible. It is just a matter of structuring an enterprise to leverage human capital in a way that it has not been done. The result would be a formidable company in a global economy.
 
In the 90 minutes I spent discussing this topic with the retired CEO, he and I peeled the subject down in layers, like peeling an onion. We may have uncovered a blanket solution for businesses. Except, it was not “THE” solution. The solution he and I agreed on was training. In his most recent experience, he spoke of a company where he sits on the board. He bought the company when he was still CEO at the Fortune 100. At the time, it had 43 employees. It was later spun off. The company has continued to grow even during the economic down turn and it now has over 100,000 employees. He attributed that to the amount of money they invested in employee training. 

If training is one of ways to make employees more valuable, it time to reconsider what training looks like. If the goal were to make them so valuable that to lay them off is more expensive than it is to keep them, what would you train them to do or think that they are not doing or thinking now?

When this problem is solved, the US will have a New Economic Reality.

What do you think? I’m open to ideas. Or if you want to write me about a specific topic, let me know.

2 comments:

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