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What's the real value of your human assets?

Top managers have never lost their fondness for declaring that people are the 'greatest asset' that their corporations possess. Like other popular maxims, this one doesn't survive close analysis.

After listening to the papers at a seminar on effecting organisational change, in fact, it seemed that the 'greatest asset' was more like a liability. The constant difficulty faced by the would-be change-masters was the refusal or reluctance of the people whose readiness to accept personal change was essential for the wider change of the organisation. Considered as an asset, indeed, people have notable drawbacks:

1. You can't sell them - the 'asset' is totally illiquid
2. The assets' behaviour, unlike that of a machine, is unpredictable, often unmanageable
3. The asset doesn't last - it may be lost to you permanently at very short notice
4. People may reduce value, rather than add to it
5. They are not reliable: their loyalty to the company, customers, colleagues, the boss - so surveys show - is considerably less than to themselves and their families

CONTRAST WITH THE BRAND

Plant and equipment form far more tractable assets, being saleable, controllable, fixed, value-adding (if you have got the cost-price equation right) and loyal to anybody who services their inanimate needs. But buildings and machinery are not the most telling contrast, since they are valueless until put to profitable use. The really striking contrast is with the brand, which has incontestable asset value.

1. You can sell the brand, often for enormous sums
2. It is highly manageable, if you know what you are doing
3. It has great staying power - even after it has been officially killed off
4. It intrinsically adds value - a branded commodity is worth more than the commodity unbranded
5. It is yours, all yours, for as long as you want it.

In the context of organisational change, the company is the brand. The crucial importance of the corporate brand was a theme running through the papers and discussions at the seminar mentioned above. Invited by Unisys, the seminarists sought the answers to some truly searching questions. The issues discussed included:

1. What will tomorrow's company be like?
2. What will tomorrow's world be like?
3. What are the psychological requirements of change?
4. What are the implications of change for the individual?
5. What rules govern successful change programmes?

The move from today's (or yesterday's) company to tomorrow's, and what that demands, has been explored often in Thinking Managers. The dominating truth is that tomorrow is already here. What I have called 'Silicon Management' and its child, the '4F company', have already arrived. It's only a matter of time before all companies follow all or most of this pattern, and the ones that change soonest to the new design will almost certainly emerge victorious from the competitive wars. Delay can be lethal. In the words of an executive jet ad (which deserve to be immortal) 'Your five-year plan is already two years late'.

Many companies are the opposite of 4F (Fast, Flat, Friendly and Focused). The laggards are 4H: Heavy, Hierarchical, Hostile and Heterogenous. In a fast-moving world, that combination cannot form a winning corporate brand - an organisation that stands for qualities and purposes with which all its employees, its customers and other interested parties can identify.

In fact, the options are rapidly disappearing: 4H is being made unviable, and 4F made the only acceptable format, by events and trends outside any management's control. One trend is the pressure for 'shareholder value'. For all its nonsenses, this concept does enshrine the truth that companies can rise above the generality by adopting more effective policies. The paradox is that directly pursuing the assumed constituents of shareholder value - higher earnings, greater return on capital, larger Economic Value Added - doesn't deliver the goods.

Several studies support this crucial paradox, including the book Built to Last by James Collins and Jerry Porras. They compared leading companies and also-rans by the statistic dearest to the heart of shareholder value fans: a rising share price. The study found that, if you had invested $1,000 in the leaders in 1926 , you would have been worth $6.4 million in 1990. The same amount invested in the also-rans made under a million, while the general stock market achieved only $415,000.

MISSION AND VALUES

The characteristics of the successes were led by a sense of mission, followed by continuity of values; actions consistent with values; and investment in people. Objectives beyond profit and investment for the long term figured less importantly, but were still significant. With virtually no exceptions, the also-rans exhibited none of these characteristics. In other words, virtue in organisations is far, far more than its own reward.

The rewards won by virtuous organisations, moreover, are increasingly being gained outside the frontiers of the old domestic markets. Since 1970, the global economy has more than doubled in size, and global trade has more than trebled. But foreign direct investment has multiplied sevenfold. All this has happened without much impact as yet from the Internet, which is going to make the entire world one market. As Bob Tyrrell of New Solutions told the Unisys conference:

'The bottom line of all this is that individuals, politics and business are increasingly "benchmarking" against what's achieved elsewhere'. He points out, too, that people used to talk about the 'incumbent's advantage', but that they now more often talk about the 'tyranny of the installed base'.

Companies are tyrannised by two kinds of installed base. One consists of the accumulated customers and the products and processes with which the customer base has been served successfully down the years. As Thinking Managers has previously reported, Harvard's Clayton M. Christensen, in his book The Innovator's Dilemma, has most convincingly explained another paradox. The better that managements are at looking after the installed base, the worse they are at safeguarding the future of the business. IBM and Digital Equipment, with their respective fixations on mainframe and mini-computer customers and products, not only confirm Christensen's thesis, but also demonstrate the grave consequences of obeying the installed tyrant.

The penalties are intensified by the second installed base: the ideas, shibboleths, practices and rules that accumulate just as the customers do and which even more thoroughly restrict the company's ability to respond to change by changing. Not long ago I talked to the then chairman of Royal Dutch-Shell, Cor Herkstroeter, and the chief executive of Siemens, Heinrich von Pierer, about their worthy efforts to uplift performance by changing the culture. Both were relying on methods like linking pay directly to achievements and making managers responsible, with no excuses, for the performance of their parts of the business.

However worthy the methods, the results have been lamentable. Shell is undergoing one of its worst trading experiences, while Siemens is disposing of businesses with sales of $10 billion after fiascos in both personal computers and semiconductors - two of the greatest growth businesses of the end-century. In the effort to change, all Siemens managers were given little lapel badges reading top, an acronym for 'time-optimised process'. The top programme aimed to raise productivity, innovation and growth by speeding up all processes and optimising their efficiency.

OUTSIDE STIMULUS

That sounded sensible enough. But major doubts were left in my mind. How far did Shell and Siemens managers share the new aspirations voiced by the men at the summit? How far and fast were behaviours actually changing lower down? In both cases, adverse stock market comment was an important factor in stimulating the efforts at reform. The trigger role of this outside and irrelevant stimulus suggested that the process of continuous change, both evolutionary and radical, was not part of the organisational culture. The leaders may have fallen foul of Kaisen Consulting's two golden rules:

1. Organisational change is often blocked by having the wrong people in key roles.
2. The full potential from change is often not achieved because change strategies fail to address people's psychological needs.
Who are the right people to lead change? See if you agree with this model. Compared to managers generally, the ideal change manager...

1. Is more intelligent
2. Has a higher drive to achieve
3. Is more resilient
4. Is more driven to get 'buy-in'
5. Has greater vision.

If you do agree, you're wrong. Psychologist John Crump of Kaisen Consulting told the Unisys delegates that, however persuasive this model seems, it isn't actually correct. Research shows overwhelmingly that the five characteristics given above are not the key requirements for bringing about change. Instead of (1) higher intelligence (2) higher drive (3) greater resilience (4) greater urge to get 'buy-in' (5) greater vision, there's a quite different quintet. How well do you fit the pattern of the truly ideal change manager?

1. Can you think divergently?
2. Do you have a drive to transform?
3. Can you exercise strong cognitive control over your emotions?
4. Are you forceful and independent-minded?
5. Can you change frames of reference and create new ones?

As you can see, these are more complex qualities. Their relevance to change-makers is obvious. But are not these also the attributes that today's management requires for all purposes, not only organisational change? Now, that may simply be another way of saying that state-of-the-art management is built around the new need for continuous and radical change. This in turn implies that Crump's warnings on 'key change driver roles' apply to all managerial positions, except those purely concerned with adminstration.

He warns you to beware of people with low tolerance of ambiguity, who put a high value on logic and analysis, are threat-sensitive, status conscious, with closed minds and a high need for consensus. There's evidently plenty of room for argument around this list. Logic and analysis are indispensable to good management, including that of change: the problems arise when they replace all other inputs, including emotion. Likewise, consensus is essential; the problems arise when the search for agreement overrides the need to be right.

BLOCKING PRESENCES

However, the kind of manager described above is all too familiar in great companies like Shell and Siemens. Their presence in large numbers easily explains why change programmes take so long and have such disappointing results. You are guaranteed to find 'the wrong people in key roles', where they will inevitably block change. That blockage is reinforced by the way organisations go about change, according to Kaisen Consulting's research. Most of their activity deals with the intellectual dimension: 'people's need to understand and make sense of their environment' (the consultants call this Mind).

Some, but not much attention is paid to individuality (Spirit): 'people's need to feel they have freedom and control over their own destiny'. Even less attention goes to the emotional dimension: 'people's need to feel significant and valued' (Heart). A vicious circle appears to operate. Because the human assets are psychologically difficult, their psychological requirements are glossed over, which makes them psychologically difficult - and so on. The critical question, though, is whether you are dealing with invariable characteristics or variables. You cannot change people's personalities. But that isn't the issue. Can you change their behaviour?

Linda Holbeche of the Roffey Park Management Institute lists six things that individuals can do when caught up in organisational change. They can come to terms with change, get to know themselves, look for creative options, build goals, learn new skills and be prepared to make happen what they want to happen. None of these behaviours makes impossible demands on people. These are plainly variables. You can choose to behave or not to behave in these six ways - which comes back to the issue of those difficult, disobliging human assets. Why do they choose wrongly?

The answer lies in the organisation. Get the corporate brand right and you greatly enhance the performance of the human assets. That means, for a start, forgetting about 'assets'. Treat people as individuals who are free agents and who are capable of adding value to the real assets of the business, which include the corporate brand. Externally, that means the sum of all the perceptions formed by all the audiences, led by the customers, but including suppliers and opinion-formers. Internally, that means the sum of the perceptions of all those working for the business.

At Unisys itself, the effort to change perceptions and reverse years of downsizing and failure (previously described in Thinking Managers) has followed elements of the 4F pattern. Branding took the form of replacing a 'nebulous, unclear identity' with Focus on three distinct businesses: the focus replaced previous 'meandering'. A 'stereotypical workforce' was turned into a diverse one by Friendly policies that include targeted recruitment, appropriate rewards, supportive cultures and a highly impressive training and education effort. As issues of survival were replaced by those of growth, lazy and sluggish management gave way to 'hungry' and Fast ways, and Flat structures replaced rigid hierarchy.

MARKED CONTRAST

This fits neatly with the Built to Last model of corporate branding An old Procter & Gamble hand, Charles Decker, writes wisely (in 99 Principles and Practices of P&G's Success, published by HarperCollins) that people 'form relationships with brands... The performance of the product, what it does and how it does it, is the core identity. But the brand also has a distinctive personality and character that makes an emotional and trust-based connection [with people] and distinguishes it from competitive brands'. These relationships, in an excellent corporate brand, are founded on the principles of corporate longevity discovered in the Built to Last research. How does your own corporate brand match up?

1. Does the company have a clear sense of mission that is shared by everybody in the organisation?
2. Are there continuous values which are also shared?
3. Are actions and behaviours consistent with those values?
4. Does the company invest in people through its recruitment, training, development and welfare policies?
5. Does it have objectives going beyond profit?
6. Does it invest for the long term?

Getting six Yes answers (as you should) doesn't mean that the company is 'nice'. There's nothing nice about the way Rupert Murdoch runs News International. There should be. But the mission and the values are clear, and, while just as clearly led from the top, are understood the whole way down. The leader, moreover, insists on leadership. People at many levels are expected and allowed to take initiatives and to see them through. Nothing is half-hearted, and strategies are sustained until they succeed. This all helps to achieve a shared acceptance of change.

The answer to the conundrum of the human assets lies here. They achieve real, realisable value through what they, and they alone, can contribute to the value of the corporate brand. Win their hearts, minds and spirit, and everybody wins.

Robert Heller