the human factor

as contributor

It’s time to embrace the Human Factor as the contributor to value creation, rather than seeing it as a cost or cash-out item!

Driven by the economic crisis of the past few years, more and more sacrifices are being requested from all stakeholders, now even including employees. 

Recent news articles are suggesting that, to ensure short and long-term survival, employees are being asked to make a very real contribution: in terms of taking cuts to their salaries and/or other benefits. Arguments for such hard-hitting financier solutions include avoiding bankruptcy, or claims that “all stakeholders have to contribute if the company is to survive” or “we need to reset our employee costs if we’re going to stand a chance of competing”. However, many companies’ financial problems are not being caused by a lack of competition compared to the costs of other workforces, but in most cases by companies not recognising the market decline until it’s too late and then having to take immediate and drastic action.

What makes employees different from financial stakeholders? Employees are the “brains and the muscles that make the company run” while financial stakeholders provide the means for the company’s value creation. With the exception of key individuals, high performers and senior management, in our experience there is a lot of room for improvement by management, to structurally assess and monitor what each individual Human Factor can and should contribute. Many textbooks describing really well managed, quality companies point out how the Human Factor always was and still remains the main critical contributor to sustainable success. Taking this into consideration, besides short-term cash relief, are companies really benefitting from employees taking salary cuts, if this is at the expense of employee morale and motivation, and thus employees’ contribution to the company’s value recreation?

Without a doubt, it’s the quality and motivation of the Human Factor that makes or breaks a company. When facing serious financial challenges, senior management has to go back to the drawing board and figure out, based on real facts and ideally with outside help, what the new company strategy and organisation needs to look like. What will rebuild the (adjusted) top line? What do we need in terms of distribution, production, R&D etc. to make the business model work again and produce enough cash flow for future investments and to service financial stakeholders? Once this has been figured out, then we need to take a thorough look at who will be achieving this. Not thinking in terms of numbers, but in terms of the individual skills and talents required. Do we have the right people in the right place? Are we getting the most out of our people and, if not, why and what can we do about this? Which leads from the who to the how. “We’ll try harder” isn’t the answer here. We need to be creative on how to engage and mobilise the workforce in such a way that they will make the turnaround for you, instead of you trying to make the turnaround for them.

At Blue Capital Management we support many companies on their journey to business recovery, from the restructuring to the turnaround phase. Our HR & sourcing partners and interim executives put models, advanced tools and methodologies in place to support companies in overcoming these challenges. Our Management Executive Readiness programme™ has been designed by former corporate executives, to help companies understand if the right person is in the right place, if they are properly equipped and if they are incentivised effectively. In other words if he or she is fit for the job required.

Our advanced tools and assessment methods enable our customers to slice and dice Human Factor data in such a way that fact-based, effective analysis, measured against internal and external benchmarks, can be performed to establish the adequate and effective Human Factor pool for your rebooted company. This enables you to determine the affordable cost levels and also forms the basis for an acceptable social plan to be implemented to achieve the desired end-state. Such an entrepreneurial solution (which, by the way, formed the basis for Getronics’ recovery in 2003) will also help financial stakeholders qualify which part of the cash infusion is the equity component and which part the compensation for past losses (e.g. the social plan). It enables them, based on hard facts, to decide, for a capital restructuring, on the acceptable rate of an equity return or the quality of the debt servicing capacity. Employees who stay on are in a better position, continuing to work for a properly capitalised company, while the ones who have to leave will receive acceptable compensation for their loyalty and past contribution and are thus enabled to find new employment.

In our view, this is a much better solution than a call to all stakeholders involved to make financial sacrifices and then hoping it will work out for the best, when based on numerous examples from the past, it often actually doesn’t!

I would be delighted to discuss this and any other topics with interested clients or candidates.

Klaas Wagenaar

Partner
  • March 6 2015
  • 378