Categorized | economy

The Post-Employment Economy Part 3: The 10% Employee

Today’s Financial Times has an alarmist article about how the PC market has peaked; it predicts the next wave to be phones and other mini-devices. Today’s New York Times declares Web 2.0 over just in time for . . . Web 3.0. Of course, we’ve passed peak oil and are on our way to some post-oil world.

With unemployment sluicing upwards to double digits and average worked hours per week declining (meaning a surge in underemployment), are we merely experiencing the downside of a recession or have we hit something like “peak employment”? And do we have the means to talk about what this means? Economists and business analysts live in dimensionally bounded heuristic traps and nothing is so constricting as employment/unemployment. Just as there is no universe beyond the boundaries of our universe, there is no people “productivity” beyond employment. In two other installments, I’ve been arguing that we’re converging on something you could reasonably call a post-employment world where a substantial amount of productivity is done in non-employment, frequently entrepreneurial arrangements. Employment won’t go away, but high value-creating functions are increasingly moving outside the traditional employment structure.

Here’s a significant problem: in talks over the last few years, I’ve frequently derided companies for hiring only “10%” of each of their employees. I call it the “10% employee dilemma” and it’s a foundation of my book-in-progress, “The Million Dollar Employee.” More after the break.

Let’s start with a dusty old canard that corporate executives and corporate shil-bait like to repeat with varying degrees of conviction:

“Our most valuable asset is our employees.” Or “people.” Take your pick. It doesn’t really matter because it’s rarely true.

Whenever I hear this sentiment — so overused it’s almost as if the speaker were on autopilot — I take a quick scan over the company’s balance sheet and ask, “Hmmm, I’m looking at the assets here in your balance sheet and I don’t see employees anywhere. Oh! Here they are! Under “Expenses” in your income statement!”

I really struggle with this one. How can an “asset” be booked under “operating expenses”? My house is an asset. Having my furnace repaired is an operating expense. How can you confuse the two?

The fact is our entire system of dealing with employees is to consider them operational. As such, they are expenses in the same way the phone bill’s an expense. Every system we have for accounting for employees and their cost pushes them into the operational and expense line.

Because of this, employees are “functions,” which you can see in standard job listings which detail the qualifications and background required to fill a job. Functional hires are narrow hires; they are jobs to be filled. Because most companies are merely slotting people into functional positions, human resources departments tend to be vast departmental deserts filled with the least imaginative, intelligent, or adaptable people in corporate America. They’re pencil-pushers and form-functionaries who are good at checklists but horribly unskilled at spotting genuine talent.

The problem with functional hires, as any small business owner knows, is that you’re only hiring a tiny fraction of the person you’re hiring. You’re hiring someone to program databases, say. You’re not hiring their imagination, creativity, interests, passions, drive, ambition, dreams, hopes — all the most important components of the very highest levels of productivity. Companies hire 10% of an employee — their narrow function within the business — and leave the other 90% for the employee to take home with them.

The alternative to thinking about an employee as a function and an expense is to think of them as a profit center, as profit. And an employee’s contribution to profit goes far beyond the marginal rate of profit their job function produces. Without going into detail (you’ll have to buy my book when it comes out), a profit employee is a 100% hire — you’re hiring the skill set, the passions, the interest, the growth, the dreams, the hopes, the imagination.

A 100% employee, then, looks and acts just like an entrepreneur.

I have worked with over 100 startups and dozens of pseudo-startups, like film producers. The entrepreneurs who found or run these startups are all 100% and they all conceive of their time and effort as profit-generating rather than revenue-taking. Entrepreneurs never look, act, feel, or talk like an employee.

Conceived of only as a revenue-taking function, a 10% employee has very limited value, a limited value that is further eroded by the drag or inertia that employee puts on the company. The drag can take several forms, but companies with employees are slower to change and adapt to changes in the marketplace and customer preferences. Employees are centrifugal — they keep organizations in the same path. As employee mass increases, the centrifugal force multiplies and moving the organization becomes increasingly difficult. Centrifugal organizations tend to hire centrifugal managers, folks who are good at repeating the success of the past.

So the real question in this recession is how companies are going to rethink employment. With outsourcing, companies gain flexibility by moving centrifugal employees to another company entirely. For instance, Company A knows it must have a call center. It also knows it needs to adapt that call center rapidly in a volatile marketplace and that actually employing call center employees and managers makes it much more difficult to adapt. So it hires an outsource vendor who gets stuck with the employees. If the outsource vendor can’t turn on a dime and respond to changing needs, Company A can easily find another outsource partner and scale back the responsibilities held by the original outsource partner.

The real question for me is how the recession will affect the way companies think about employees. In part, we’re going to see a move towards greater reliance on outsourcing. But what if internal employees themselves can be recast in some way as outsourcing partners? Is the model of hiring only 10% of an employee the right model for an increasingly volatile and changing marketplace?

And let’s go back to the employee. Karl Marx has been pilloried as being “wrong, wrong, wrong” after the fall of the major socialist states. But that’s a misreading of Karl Marx. His primary argument was not a prognosis for the future (which turned out to be wrong), but a diagnosis of the modern world. In this, he was and still is completely correct.

Marx saw the main problem with capitalism as the alienation of labor. Now, I’m not here to waste your time with lengthy explanations of abstruse philosophy, so put in layman’s terms, “alienation of labor” means that whenever an employee is at work, they feel they aren’t themselves. When they go home, that’s when the “real” person emerges. So your bookkeeper sits at the desk punching away at the keyboard, but goes home and, while they’re watching March Madness, feels that this is who they really are.

If you see employees as profit rather than expenses, then you can see the problem with alienated labor. People invest in their “real” selves, not their “job” selves. They spend time and money on the things the “real” person does rather than their job. So people grow in their personal lives but stagnate on their jobs (making them even more inert and more of a drag on the organization).

If, on the other hand, employees see what they do on their job as who they really are, that’s where they invest time, money, and growth. You hear a similar sentiment echoed often in the facile comparison of a “job” with a “calling.” I say “facile” because I’m not sure people have this one “calling” lurking deep down inside them. All people have the potential to pour passion, intelligence, creativity, emotion, and immense life energy into almost occupation if the stars align just right. A “calling” is more frequently a choice than it is a discovery. And it’s a choice that other people actively participate in.

Again, the question is how the recession will affect how individuals think about jobs. People who face economic hardship with creativity and intelligence, who supplement or replace lost income with entrepreneurial activity, may not want to go back to the 10% job. Once you unleash someone’s creative spirit in a job, it’s hard to put that genie back in the bottle.

We have nothing in economics, economic theory, and, especially, human resources that can help us answer these questions. Like everything else, the people who are responsible for economic productivity are just going to have to write the rules themselves.

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  1. [...] my ongoing series on post-employment, I continue on the theme introduced in the third part, namely the waning of the “employment promise” that drove economic growth and American [...]


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