Leveraging the People Value Chain:
e-Business Necessity

We live in phenomenal times.

Yesterday’s assets are tomorrow’s liabilities. Today’s knowledge becomes tomorrow’s garbage. Distance is dead. Time itself has speeded up. Cycles are faster. Competitors sprout up like bamboo in the tropics. Everything happens on Internet time.

Leaders have shifted their focus from static to dynamic, from physical to virtual, financial results to financial expectations, from machines to people, from goods to services, from analytical to intuitive, and from institutions to individuals.

More than ever, people matter. Human ingenuity is today’s scarce resource. Knowledgeable, can-do people are the heart of competitive advantage. Keeping them informed and inspired is vital.

Just keeping up steals the time we need to plan for the future. We fall further behind with every step forward. A prominent Silicon Valley CEO said, “We’re racing down the highway at 150 miles per hour, and we know there’s a brick wall up ahead somewhere.” That was two years ago, so the speedometer is probably approaching 500 mph today.

Slow down with me for a few minutes to think about something important: what makes an enterprise successful. And what you can do to improve your firm’s overall value.

Improving shareholder value

Shareholder value (AKA market cap) is a function of competitive advantage, and organizations achieve it by focusing on core functions. Everything else is an unnecessary distraction. This is the thesis convincingly described by Geoffrey Moore in his new book, Living on the Fault Line.[1]

Moore describes a world turned upside down by the Internet. Money, software, and service providers were once scarce and are now plentiful. Today’s scarcities are time, talent, and management attention.

Scarce Resources

These drivers of high-tech industries are now visiting us all as the fever-pitch of Internet time drives a seismic fault[2] under commerce of every stripe.

Stock price is no more than what the shareholder expects to get back, discounted for risk and timing.

Industry-specific factors sometimes lower risk and promote longevity. In high tech, it’s great to ride a new wave of technology. Pharmaceutical companies thrive on patented discoveries. Other patterns appear to be universal.

In every business, competitive advantage is a function of market segment leadership, execution focus, and differentiated offerings.

You can increase Market Cap by boosting competitive advantage (differentiating yourself from your closest competitor) and/or maintaining that advantage longer (sustaining advantage with barriers to competitive entry or customer exit.)

"Managing for shareholder value" means focusing on strong, sustainable competitive advantages.

How do you maintain that focus? Remember today’s new scarcities – time, talent, and management attention? Put them to best use. Invest them where you will get the highest return. Concentrate time and talent on core activities. Outsource everything else. (Your context is someone else’s core. ADP can process your payroll cheaper than you can.)

In the new economy, the scarcities of time, talent, and attention all relate to the human ecology of your organization. Focusing on core boils down to leveraging your human capital value chain. It all boils down to getting the right people and getting the most from them.

Moore’s arguments are logical but sometimes the world is not. Before looking into that human value chain, let’s look at the results of a rigorous statistical study of shareholder value.

In the new economy, the yardsticks used by Warren Buffett and his mentor, Benjamin Graham, no longer jive with equity valuations in the market. Today what is off the balance sheet is often worth more than what is on.

New yardsticks

Sixteen months ago, Forbes took up the search for new yardsticks, saying:

“Intellectual capital has yet to be adequately measured. Intangible assets live up to their name. They are typically amorphous, subjective, and hard to pin down. Even intangible assets that seem relatively straightforward--say, the value of a company's computer network--are complicated by, upon closer inspection, a host of other issues, such as compatibility, software, usage, and bandwidth.”[3]

What really counts? An extensive number-crunching exercise[4] isolated these as the most important non-financial determinants of value among large manufacturers:

1.      Innovation

2.      Ability To Attract Talented Employees

3.      Alliances

4.      Quality Of Major Processes, Products, Or Services

For Internet companies, the driving forces are:

1.      Alliances

2.      Innovation

3.      Eyeballs (usage)

These three factors account for 80% of the value of e-commerce companies (!). Building brand awareness has no impact; those Superbowl ads were a waste of money.  Nor does “Stickiness,” the duration of people’s visits to the web site.

Identifying the true drivers of shareholder value shows corporate leaders where to invest their resources.

Innovation. Alliances. Attracting top talent. Providing a superior customer experience. These are people skills.

Isn’t it ironic that in the Internet age, technology is secondary?

Leveraging your people is the key to shareholder return.

The People Value Chain

For decades, executives have said that people are their most important assets. What’s different now is that they mean it. Merrill Lynch makes a convincing argument that:

At no previous time has human capital been so important, meaning finding, developing, and retaining knowledge workers will be mission-critical functions – and high growth sectors – in the new economy.”[5]

The average Fortune 500 industrial has a market capitalization of about $600,000 per employee. The average public company in Silicon Valley has a market cap of $38,000,000 per employee. Are high-tech employees worth sixty times their manufacturing counterparts? The market seems to think so.

Are we investing sixty times more…or even ten times more…in our people? No. Why not? For the last half-century, senior managers have taken people issues personally.

Frustrated by irascible human nature and befuddled by the fact that they are people too, executives been dismayed by their lack of control within their organizations. They flip the switch at the top of the company but the lights don’t go on below. Organizations are cry for better circuitry.

Current doesn’t flow is any portion of a circuit is broken. That’s why executives need to rethink human resources holistically, looking at all the factors that link people to value production.

Now managers must approach people issues systematically. A dollar spent on assessment may save three dollars in retention. A dollar invested in training may lower recruiting costs by five times that amount. Better-trained people produce superior results, increasing compensation, and lowering turnover. Word gets out, and top talent begins pursuing the company rather than the other way around.

The objective is to create an environment that empowers individuals by networking them and giving them the tools to solve problems. Hierarchy is dead. Everyone now needs to make decisions on the basis of a gut understanding of the goals of the business. This replaces bloated bureaucracy with dedicated, sure-footed teams. Lights go on before the switch is thrown.

We used to think of people as costs. The leaner the payroll, the better the business, right? An urban legend of the early sixties told of a factory owner who replaced cantankerous, striking workers with robots. He gleefully toured his efficient, people-free factory. Imagine this guy trying to adapt to Internet time, where some products seems to have the lifespan of a fruit fly.

People are assets we invest in to make them more valuable.

How much can we invest in people?

The issue is no longer how little can we spend on people. It’s how much.

Companies looking for loyal workers who take orders, understand discipline, and put the welfare of the company above their own will be disappointed. Workers like this no longer exist.

Today’s workers are out for themselves. Not selfishly but realistically. Free agents. They recognize that their careers will last many times longer than their employer. Fast Company exhorts them to look out for “Brand You.” Tom Peters encourages everyone to consider herself a separate business. Our market-driven world drives people to increase their personal marketability.

While some decry high turnover, other companies turn the mindset of the new recruit to their advantage. After all, they want innovators, not followers. They prefer self-starters who will do what’s right rather than wait for instructions. They need people who are more concerned with getting the job done than punching the clock.

The wise approach is to make the interests of the worker and the needs of the organization congruent. Both seek to make the worker a more valuable asset.

“Internet Age companies rely on the initiative and smarts of individual employees to foster decisions that are closer to the customer and therefore more responsive to the market. The ultimate goal is flexibility, an open mind, and transparency of organization.”[6]

For too long, we’ve looking at investing in people through the wrong end of the telescope. Instead of trying to keep the cost of training and development down, what if we were to try to keep it up?

How much time should a company invest in training?. The old rule of thumb was one week a year on company time. Add a few professional conferences here and there. For managers, perhaps a trip back to campus to master new techniques or rev up the spirit. For techies, the company foots the bill for technical training but workers have to do most of it on their own time. Maybe throw in an offsite bootcamp to learn a new language.

This notion of a week or two of annual training, like many rules of thumb, is without foundation. It reminds me of the saying that 2% is a good response to a mail campaign, as if there’s some sort of generic mail campaign out there to compare against.

What might happen if an enterprise adopted a no-cap learning policy? Learn whatever you want, however much you want. If you’re growing into a new area of capability, you may spend half your time learning.

Recruits would flock to such a company. Its investment in their future is clear. How would you pay for it all? Use the money now spent on recruiters, finders fees, bidding wars for scarce talent, signing bonuses, and other incentives to coerce someone to join your organization rather than the company down the street.

The people joining you would be the curious, go-getter learners who want to better themselves. Why would you want anyone else?

Retention would soar. Why leave a company that makes you more valuable the longer you stay? A solid learning organization fosters a sense of belonging. People engaged in learning and creating the future together can move beyond the old structure, strategy, and systems philosophy of running the business. Instead, everyone can focus on a common goal, no longer a mere contractual employee of an economic entity so much as a committed employee of a purposeful organization. [7]

Picture two people. Over the last six years, one person has learned your culture, gotten to know the people in your organization, understands your competitive positioning, knows the territory and has figured out the way to get things done in your shop. The other is a new hire who doesn’t know who does what, is unclear about the dynamics of your market, and hasn’t figured out how to program her phone. Put these two in a competition to see who can come up with the best ideas and get the most accomplished. It’s no contest. The person who’s been around a while is four or five times more productive than the new hire – yet they probably cost about the same in salary. It would be less costly and more productive to retain the long-term employee by offering 20 weeks of learning a year.

To attract and retain the great people, create a place to belong, not just a place to work. And how do you tie those middle elements of the human value chain together, the steps of assess, learn, test, and certify? Today’s second-generation eLearning environments do it for you.

Training has earned a bad reputation in executive management. Get over it. Here’s we’re talking about the continuous, integrated, systematic flavor of development called eLearning.

In addition to traditional learning, eLearning encompasses keeping informed, honing existing skills, certifying expertise, building working relationships, forming teams, discovering what you don’t know you don’t know, researching new areas, staying ahead of the competition, improving the quality of decision-making, smoothing down one’s individual rough edges, grabbing information on the fly, planning one’s development path, testing one’s knowledge, capturing and sharing intellectual capital, attracting new recruits, and retaining the people already on board. eLearning plays a role in every step of the human value chain[8]:

The returns on leveraging the human value chain are staggering. On the factory floor, if you could double the output of a particular machine, you’d be hailed as a hero. These days, we’re working with humans instead of machines. And leveraging a truly with-in knowledge worker can produce hundred-fold gains rather than a paltry 100%.

What to do

Sometimes a simple metaphor can capture a complex set of ideas and make them actionable. Sun’s phrase that “The network is the computer” is one example. Happily for us, this is one of those cases. 

The cornerstone of eBusiness is reorganizing to focus on the customer. The People Value Chain is an eBusiness process. To optimize the return on your investment in people, treat the worker as the customer.

I’ve been using the word worker very broadly. eBusinesses think in terms of their economic ecosystem. This includes upstream suppliers and downstream customers as well as traditional employees. To avoid confusion, I’m going to begin talking about learners, for that is the heart of the matter. When I say learner, I’m referring to members of all the various communities and b-webs that contribute to an organization’s success.

You’ve heard the phrase, “Content is king?” It’s wrong. The learner is the customer. We know what that means, right? The learner is king.

Meeting all of the goals we’ve just talked about, right down to having the lights go on when someone flips the switch, will all be met if we simply focus on the learner as the customer.

We’re so accustomed to the school model, with an authority figure at the front of the classroom spoon-feeding us the “right stuff,” that it’s difficult to appreciate what being “learner-centric” really entails.

David Garvin relates the story of a professor at West Point[9] who, having stated the precise number of troops in Korea in 1954, was corrected by a cadet doing some real-time fact-checking on the net with his laptop. At first, the professor was miffed to be corrected. Then he “got it.” Now he challenges the class to provide all the details to support his lectures.

The training most of us grew up with was class of the instructor, by the instructor, and for the instructor. Think back. Who decided what would be on the test?

Collaboration was discouraged. Old ideas were more highly valued than innovation. The curriculum set the limits of what was to be learned.

It’s academic.

That’s fast becoming history.

eLearning focuses on the learner. A network of libraries, collaboration, the Internet, a peer network, virtual classes and seminars, and a learning management system to knit it all together are joined by the converging technologies of the interactive web, real-time chat and messaging, conferencing, and email. eLearning works because it listens to the learners, learns about their needs, and then answers their questions individually and in person. It’s a case of customers driving the development of new products instead of the boys in the lab.

In the past, some corporations planned training in a fashion similar to Stalinist Central Planning. No, I don’t mean purges and Siberia. Rather, I refer to plans created by bureaucrats for a system whose dynamics they did not understand.

The result for the Soviet Union? Shortages. Cheating the system. Unsatisfied demands. Extremely low productivity. And sometimes nothing to eat but potatoes you grew in the back yard.

The result for corporations? Workers who lack the skills to perform their jobs. Workshops no one wants to attend. Coveted workshops are not available. Low productivity. And sometimes nothing but memos to help the sales force learn a new product.

Empowering the learner puts individual self-interest in charge of making decisions about what to learn. Training managers no longer have to guess what people need to learn.

What does the learning customer want? Not training. If people could take a smart pill and magically know everything they needed without one more workshop, web page, or role-play, the pharmaceutical industry would replace training overnight. People don’t want training; they want the skills and knowledge to perform. They want it on their schedule. Less is more. Chunks are better than whole days or even weeks at a time. They want choice and convenience. They want a meaningful learning journey, not a one-shot training fix.

Today’s learners want a satisfying learning experience. They want to be fully engaged. 

Corporations are finding that giving people the freedom to choose what and how they learn brings many of the economic benefits and efficiencies of e-Business. Consider the merits of:

• learner relationship management integrated into career pathing and HR planning
• knowledge management geared to individual interests and job requirements
• self-service e-administration in lieu of forms, copies of forms, and re-entry of forms
• collaboration in learning that transfers to collaboration on the job
• individualized e-procurement from a central online learning store
• mass customization to personalize learning but with economies of scale
• reducing the time to disseminate new product knowledge, processes, competitive information, and customer needs from months to minutes.

Connecting business processes, information, and people creates e-learning solutions

Metrics

eLearning is a business process. The only meaningful metrics for assessing the value of eLearning are business metrics.

For decades, training departments have relied on training metrics. How well did they like the course? Could they pass the test? Could they demonstrate what they learned?

It’s high time to evaluate eLearning on how well it creates value. For a public company, this means market cap. Beyond that, appropriate metrics are measures of competitive advantage – customer satisfaction, speed of execution, track record of innovation, competitive response time, and build-up of intellectual capital. The only other metric that matters is how quickly you can get there.

Let’s sum up.

Leverage Your People Value Chain

To get the most out of your people, treat them like customers. Make it easy for them to learn, to join, to take part. Sell them on the idea. Build lasting relationships with all learners, be they customers, suppliers, or employees. On the clue train,[10] real talk forces out high-fallutin’ buzzwords, and substance trumps fads.

Speed matters. Getting a quick solution is more important than finding the perfect solution. The key is to get a solution that works. Now. Weight the trade-off of time vs. cost toward time by considering the cost of lost opportunity by not acting sooner.

Focus on core. Unless you are in the eLearning business, eLearning is not your core. Hand it off to a reliable partner, but be certain to choose a partner you can trust to stick around.

Nothing is forever. Listen carefully to learners so that you’ll be prepared for the inevitable changes that will come. Maintain flexibility by avoiding standalone, proprietary solutions. Choose easily networked, linked, standards-based structures you can grow with.

Make decisions for your entire b-web. Don’t take a piecemeal approach to an enterprise-wide issue. Leverage your entire people value chain.