The annual reports of many publicly listed entities proudly state that people are their greatest assets. It has been said so many times now that it has become something of a cliché. Often these are the same entities that when cost cutting is required, first look to lay off staff, cut wages or reduce their spending on training.
What would the corporate world look like if organizations truly believed that people were their greatest assets? What if accounting standards allowed companies to place a value on their employees based on their experience, knowledge and skills? The more diverse the experience, knowledge and skills the higher the value of the employees, as the company has a greater resource of potential creativity and innovation that it can draw upon. What if people could be classified as an asset and included on the Balance Sheet of a company? Would companies treat their staff differently? Would they be willing to invest more time and money in their employees, in an effort to increase their value to the organization?
The purpose of this hack is to present an alternative way of viewing what should be the heart and soul of every organization, the diversification of its people.
The increase in flow of people internationally means that most western workforces are more culturally diverse now than at probably any time in history and those that aren’t soon will be. Due to globalisation the western world is no longer a white Anglo-Saxon homogeneous community, if it ever was, but rather a melting pot of different cultures, languages, beliefs and traditions. This diversity means that people are not a homogeneous group, but rather a group of unique individuals. Organisations are challenged by diversity on three levels; an increasingly diverse work force, a multicultural customer base and a global market place.
While the diversity of modern society may be evident on the shop floor of the local supermarket and in the playgrounds of our local schools, the changing face of today’s diverse society is not often reflected in the composition of the senior executive or in the board rooms of most large organisations. But the composition of a company’s executive team should reflect the complexity of its environment.
Diversity can help a team, better understand and interpret the complexity of its environment. It can also have positive influences on team dynamics and strategic decision making. Diverse teams are more effective in solving complex problems that require innovative solutions, this is because diverse teams have differing perspectives and generally have a broader knowledge base.
So how can organizations be encouraged to capture the advantage of diversity?
While organizations often say that people are their greatest assets, they can also be their greatest liability. This hack proposes that organizations should treat their people as assets and liabilities and record them on the Balance Sheet.
By classifying an employee as an asset, it would then be in the company’s best interest to try to increase the value of the employee. This can be done by the company investing time and money into the employee, through training, mentoring and developing the employee. If the employee feels valued their sense of job satisfaction will increase as they will be given a clear career path and be given growth opportunities. The benefit to the employer is a more committed work force, lower absenteeism, lower staff turnover, better qualified staff all leading to higher productivity.
Conversely those employees that the company classifies as a liability would be exited from the business, as the company would not want to maintain the liability on their Balance Sheet.
But can an employee truly be classified as an “asset” or a “liability”? Accounting standards define an asset as “a resource controlled by the entity…from which future economic benefits will flow”. An employee fits this definition. So what about classifying an employee as a liability? Accounting standards define a liability as “a present obligation of the entity…which is expected to result in an outflow from the entity of resources”. A poor performing employee can cost a company dearly in terms of lost opportunities and costly mistakes, so an employee can also fit this definition.
The classification of an employee as an asset or a liability should be a straight forward exercise. Does the employee add value to the organization? If yes then they are an asset, if no then they must be a liability.
The tricky part is how to value the employee. Studies have shown that diversity is a recognizable source of creativity and innovation that can provide a basis for competitive advantage. Therefore the asset value of a diverse team should be higher than that of a homogeneous team, as diversity can add value and provide a source of sustained competitive advantage.
The practical impact of classifying employees as assets or liabilities and including them on the Balance Sheet, is that companies would treat their employees as an investment. It would therefore be in their best interest to make the investment grow and to nurture it, rather than treating employees as an expense which needs to be controlled.
Like all investments it is better to have a diversified portfolio rather than having “all your eggs in one basket”. Therefore a diversified workforce would be valued higher than a homogeneous work force.
Diversity brings with it a multitude of experiences that can enhance team innovation through the generation of alternative solutions and innovation. Accordingly, the greater the diversity of senior management, the greater the potential for understanding and problem solving that can enable a company to effectively address the business environment.
In order for an organization to capture the advantage of diversification, studies have shown that there needs to be a spirit of trust and respect for all team members, a genuine participation in decision making and an openness and willingness to accommodate alternative ideas and values.
Dr Bernie Frey, for encouraging us to use our imagination to challenge the status quo.
To my wife Lily, for your patience and understanding while studying for the MBA.