Calling employees 'assets' is not a viable strategy for growth.
April 27, 2016
By Michael Leimbach
This story was one of the most popular on CLOmedia.com for 2016.
It is difficult to go any length of time and not hear a company president or CEO use this well-worn expression: “People are our greatest assets.”
Baruch Lev, director of the Intangibles Research Project at New York University Stern School of Business, has stated that “people are the most important asset of most companies.” The idea of employees as assets is so embedded in workplace culture that we have not stopped to ask the question: Are people assets? Are we limiting our approaches to talent development because we view talent as an asset?
American Heritage Dictionary defines an asset as “a valuable item that is owned.” According to generally accepted accounting principles, an asset is “a resource controlled by the company from which future economic benefits will flow.”
The most rapidly growing assets are classified as intangibles — brands, patents and trademarks. Lev has shown that, as recently as the 1980s, the value of most multinational companies was fully accounted for by their tangible assets. Today, he estimates 80 percent of an average company’s value is related to intangible assets.
Confusion arises when people define employees as intangible assets. Unfortunately, many chief learning officers tend to use the term casually. This failure to speak the language of business may result in other executives discounting the learning leader’s understanding of business strategy.
This tendency to see people as intangible assets is somewhat understandable. Prior to the 20th century, workers were largely regarded as disposable commodities. They were little more than the other materials that went into making the final product. If one quit — or, more likely, died — they were easily replaced. But with complex machines and highly coordinated assembly lines, organizations recognized the need for uniquely trained workers. One was not so easily exchanged for another.
Treating employees as assets and maintaining or increasing their value with learning and development made sense in the 20th century. The employee as asset model worked because, like machines, people did not leave organizations. Employees often stayed with a single company most of their work career. This assumption fueled a great deal of learning investment, making it difficult for learning professionals to abandon the concept.
Learning still has value, but while the early 20th-century employee might have been viewed as an asset, the same cannot be said for today’s knowledge workers. Therefore, one is hard-pressed to find similarities in how talent and assets act. Consider the following:
- Ignore the “owned” part of the dictionary definition. Outside of professional sports, companies cannot buy, sell or trade people and therefore in no way “own” talent assets.
- Talent can leave a company for a better opportunity, but other intangible assets cannot decide to move to another company.
- Assets gain and lose value gradually, but losing a key employee can change a company’s prospects in an instant. It was said that when Larry Ellison left Ampex to form Oracle, Ampex lost half its value over night.
Companies rarely try to steal their competitors’ buildings or equipment, but they have no qualms about stealing talent. A 2014 Talent Trends LinkedIn survey revealed that globally, 45 percent of professional employees were contacted by a recruiter in the previous year, and a full 75 percent said they were open to talking to recruiters.
The Changing World of Work
Moving from the era of industrialization to the era of globalization and technology has led to significant changes in the nature of career and employee development. Today, neither employees nor organizations recognize an implied lifelong employment contract.
Stability, job security and loyalty have been replaced with shorter tenure and contract or cyclical work. This view of employees as assets belongs to a fictional employer-employee paradigm incompatible with, and inadequate for, the challenges in today’s business world. Further, viewing people as assets limits thinking.
Of course, saying talent is not an asset does not mean it has no value; talent has tremendous value. But if it’s not an asset, then what is it? To answer that question, consider this definition of leadership Wilson Learning created in collaboration with leadership expert Steve Buchholz: “The purpose of leadership is to engage others in investing their full energy to the creation of value and success” (Editor’s note: The author works for Wilson Learning). This definition came out of work with thousands of leaders in hundreds of organizations globally.
Consider some of the key words:
Full energy: Each day, employees make a decision to do the minimum necessary to accomplish their work objectives or give their full potential.
Engage others: Use of full energy does not result because a leader demands it, but rather because they inspire and motivate people to pursue excellence.
Invest: People only use their full energy when they see the potential to invest in themselves via new experiences, skills and, yes, more money.
Considering these elements, employees look more like shareholders than assets. Shareholders choose to buy a company’s stock; employees choose to invest their energy and talents. Shareholders can sell their stock at any moment; employees can take their talents to another company. Shareholders provide the financial energy to grow a company; employees provide the talent energy to grow a company.
Employees are the source of human capital just as shareholders are a source of financial capital. To clarify, employees are not human capital in the sense of asset ownership; they are the source of human capital as it relates to the stakeholder investment.
The CLO’s New Dynamic
Viewing talented employees as investors has a number of implications for talent management and development. In many ways, it could fundamentally change how the CLO role is viewed today.
First, leaders need to better understand what employees are investing. Much like financial investors invest their discretionary income, employees invest their energy. This effort is at their discretion — they choose whether to invest it in an organization. An employee can’t be made to invest their energy any more than someone can be made to invest financially in a company.
Employees also invest their skills and talents. Employees spend time, effort and money developing their skills and specialized talents, and they are looking for a return on their investment. In fact, one key difference between financial investors and talent investors is the uniqueness of each talent investor’s investment. A financial investor’s money is fungible, but each talent investor is different. Employees will choose to invest their unique talents and discretionary energy if they feel they are receiving an appropriate return on talent investment.
Successful companies understand what kind of financial investor they need, and attract those investors. Investor relations departments spend considerable money positioning an organization’s value for financial investors. They maintain regular contact with them, communicating the organization’s goals and actions. They listen to financial investors and make sure the company’s goals are aligned with the investors’ goals. The growth of socially responsible and “green” objectives is one result — some investors are driven by more than financial gain. Successful companies pay attention.
Similarly, organizations need to put more effort into attracting the right talent investors. Successful companies actively court talent, and sell the prospective employee on the company’s value. These companies also recognize that, like financial investors, talent investors are interested in more than just money. Understanding what motivates the right kinds of talent and aligning the organization’s goals to the talent’s goals will help create growth and success.
Talent Equals Growth
Once companies have a financial investor’s capital, they must use that money wisely to grow and communicate that to the investor. Financial investors use such information to determine if the organization is making effective use of their investment, putting money in the right places, solving the right problems, and creating the right kinds of value.
Organizations also must provide talent investors with information. Are the right people working on the right problems? Are barriers to effective talent utilization quickly eliminated? Is leadership creating a culture of engagement and challenge?
Frederick F. Reichheld, author of “The Ultimate Question 2.0,” wrote, “It’s silly to invest aggressively in training if your employees defect after two or three years and apply their superior productivity to your competitor’s bottom line.” Thus, from a talent-as-asset perspective, it is counterproductive to put significant resources into learning and development.
From an investor perspective, learning and development can be critical, as long as learning leaders provide the right kinds of learning. When it comes to new skills, it is just as important to ask “what do our talent investors want?” as it is to ask “what does our organization need?” Learning and development is part of the talent investor’s return on investment, as long as they see personal value in it, and as long as they can see a meaningful return.
Companies that work to retain their financial investors in the long term have stronger performance. The same is true for talent investors. Development is often a worthwhile retention tool. Learning leaders must put greater effort into understanding why talent stays with a company and what they can offer employees to sustain their engagement and performance. It is not all about salary, bonuses and benefits.
At the same time, organizations need to know what kinds of talent they need to retain to accomplish their growth objectives, and then identify what kind of development support that talent needs. In an era when so many professional-level employees are open to being recruited, companies that invest in learning and use development to reduce turnover and retain the right talent create greater long-term value for all investors, financial and talent.
It is no longer effective to view employees as assets. Gallup, Willis Towers Watson, and other talent consultancies continue to document that employee engagement is low and has been for some time. Deloitte’s “Global Human Capital Trends 2015” report revealed that at any one time, 12 percent of employees are actively searching for jobs outside their company. Clearly these conditions would not exist if employees felt and acted like “their company’s greatest assets.”
Effective leadership is about engaging employees to willingly invest their full energy and talents to create organizational success. To make that happen, leaders have to stop saying, “people are our greatest assets,” and start acting like, “people are our greatest investors.”
Michael Leimbach is vice president of global research and development for Wilson Learning Worldwide. To comment, email editor@CLOmedia.com.