principles behind making the most of your people.
Dealing with HR professionals
In the past, firms used to have a personnel department that looked after matters to do with personnel. Nowadays we have the strategic human capital division. So what do they do? Look after matters to do with personnel. Whatever they call themselves, treat them well. Managers do not need enemies, let alone ones in the HR department.
People matters fall into two categories: operational and strategic.
Operational matters include things like payroll, employment law and regulations, and are normally outsourced to payroll firms, accountants, and lawyers.
Strategic matters are the ones to which managers and HR have to pay attention. There are three strategic goals for any staff strategy:
• Minimize the cost of production
• Maximize the quality of production
• Enable growth (and occasionally enable downsizing)
Inevitably, these three goals are often in conflict, and different parts of the firm will be pulling in different directions, so HR has an important job to do.
You will find that every three years or so, all the HR strategies will change: you will find that there is a new way of recruiting, evaluating, and developing people which is much better than the old way. This three-year cycle is driven by the average length of service of the HR chief: every time they are replaced, then all the policies will change as well, so that the new chief can show that they are different and better than the past. This means you gain zero mileage by challenging the way HR do things: they will be highly protective of their territory and it will change anyway without your intervention. Work with their system, not against it. HR are useful allies and dangerous enemies.
HR are useful allies and dangerous enemies
HR strategy and minimizing the cost of production
In any firm, the cost of production naturally goes up. Staff want more pay. They want promotions which make them even more expensive. And to prove that they have big jobs to justify their titles, managers seek to employ more staff and increase their territory. This is as true of a consulting firm as it is of a manufacturing firm. If anything, it is worse in a consulting firm, because all the big egos think that they deserve immediate promotion, which would wreck the economic model of the firm if everyone’s wish was granted.
Managers need to measure the cost of production across the firm and in every department. Staff departments in particular hate this, because they say that you cannot measure the productivity of lawyers or people in HR. Oh yes you can: you can always find measures of productivity. If nothing else, you can measure each department’s costs as a share of revenues or overheads, and headcount as a share of total staff. They may be imperfect measures, but unless the department can find a better measure, use that one.
The obvious way to control the cost of production is to control headcount. Most firms do this reasonably well. The big strategic decisions here include outsourcing, offshoring, bestshoring, and all the other euphemisms for firing people in expensive countries where their jobs can be done for a fraction of the price elsewhere in the world. At the heart of this is a truly strategic debate: “What are we best at doing and what can other people do?” For instance, Apple employs over 30,000 people in Asia, of whom less than 100 are direct employees. Apple’s skill is not in making all its products, but in designing and marketing them. Everything else can be outsourced. Most firms are finding that there is less and less they need to do directly. This is a lesson first taught by Adam Smith observing the pin makers of Gloucester: specialization and the division of labor works.
The second method of control is wage inflation. Again, this is sufficiently obvious that it is fairly well controlled. The third way to control the cost of production is by controlling the staffing
Dealing with HR professionals
In the past, firms used to have a personnel department that looked after matters to do with personnel. Nowadays we have the strategic human capital division. So what do they do? Look after matters to do with personnel. Whatever they call themselves, treat them well. Managers do not need enemies, let alone ones in the HR department.
People matters fall into two categories: operational and strategic.
Operational matters include things like payroll, employment law and regulations, and are normally outsourced to payroll firms, accountants, and lawyers.
Strategic matters are the ones to which managers and HR have to pay attention. There are three strategic goals for any staff strategy:
• Minimize the cost of production
• Maximize the quality of production
• Enable growth (and occasionally enable downsizing)
Inevitably, these three goals are often in conflict, and different parts of the firm will be pulling in different directions, so HR has an important job to do.
You will find that every three years or so, all the HR strategies will change: you will find that there is a new way of recruiting, evaluating, and developing people which is much better than the old way. This three-year cycle is driven by the average length of service of the HR chief: every time they are replaced, then all the policies will change as well, so that the new chief can show that they are different and better than the past. This means you gain zero mileage by challenging the way HR do things: they will be highly protective of their territory and it will change anyway without your intervention. Work with their system, not against it. HR are useful allies and dangerous enemies.
HR are useful allies and dangerous enemies
HR strategy and minimizing the cost of production
In any firm, the cost of production naturally goes up. Staff want more pay. They want promotions which make them even more expensive. And to prove that they have big jobs to justify their titles, managers seek to employ more staff and increase their territory. This is as true of a consulting firm as it is of a manufacturing firm. If anything, it is worse in a consulting firm, because all the big egos think that they deserve immediate promotion, which would wreck the economic model of the firm if everyone’s wish was granted.
Managers need to measure the cost of production across the firm and in every department. Staff departments in particular hate this, because they say that you cannot measure the productivity of lawyers or people in HR. Oh yes you can: you can always find measures of productivity. If nothing else, you can measure each department’s costs as a share of revenues or overheads, and headcount as a share of total staff. They may be imperfect measures, but unless the department can find a better measure, use that one.
The obvious way to control the cost of production is to control headcount. Most firms do this reasonably well. The big strategic decisions here include outsourcing, offshoring, bestshoring, and all the other euphemisms for firing people in expensive countries where their jobs can be done for a fraction of the price elsewhere in the world. At the heart of this is a truly strategic debate: “What are we best at doing and what can other people do?” For instance, Apple employs over 30,000 people in Asia, of whom less than 100 are direct employees. Apple’s skill is not in making all its products, but in designing and marketing them. Everything else can be outsourced. Most firms are finding that there is less and less they need to do directly. This is a lesson first taught by Adam Smith observing the pin makers of Gloucester: specialization and the division of labor works.
The second method of control is wage inflation. Again, this is sufficiently obvious that it is fairly well controlled. The third way to control the cost of production is by controlling the staffing
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