Every Manager an Investment Manager
Are you a manager? Do you have someone reporting to you? Then youíre a people manager, right? Right, and thatís not all you are.
Youíre also an investment manager.
Anyone who manages the performances of others needs to start thinking of himself as an investment manager. This means starting to think of employees as investments to be managed.
New thinking, please
When I say ďstarting to thinkĒ Iím implying, quite deliberately, that few managers think of their employees as investments. But thatís what they are. They always were, but job market conditions allowed managers, reflecting their companiesí thinking, to think of employees more as commodities.
What job market conditions am I talking about? For as long as anyone can remember, the job market has been a buyerís market; that is, there have been more job seekers than jobs. In supply and demand terms, demand has been greater than supply. With the exception of the odd sectoral sellerís market (more technology jobs than technology job seekers, for example), weíve been in a broadly based buyerís market for the past fifty years. Thatís long enough for people to think and behave as though this circumstance is permanent and to forget that itís actually a dynamic market.
Advantage to the employee
Evidence is mounting fast that says that the broad job market is poised once again to behave like the market it is; itís poised to flip over from a buyerís market to a sellerís market. This move will transfer the advantage that employers have had for so long to employees. When there are more jobs available than there are job seekers, employers will no longer have the luxury of treating employees like commodities, replaceable parts.
Replacing departed employees, especially good ones, will be expensive, because, as the real estate people say, thereís not enough inventory on the market. The new priority will be to identify the key employees that you have today and retain them.
Show me the money
Retention is more cost-effective than replacement. While estimates vary, itís safe to say that the cost of replacing a management/professional employee is around 150% of salary. So, if seven such people depart your organization in a given year, and their average annual salary is $90,000, the cost of replacing them, even if you can in a sellerís market, is almost a million dollars! Does your company budget for that?
If your competitionís retention experience is more favourable, say, only three employees resign instead of seven, their replacement cost is around $400,000. Thatís a $600,000 competitive advantage over your organization. Can you afford to give your competitors that sort of head start?
Manage, then manage again
How does the need to retain employees make the manager an investment manager? Traditionally, and Iím painting with a broad brush here, managers have viewed their management responsibilities as being mostly confined to the task of making new employees productive, or, as we sometimes say, bringing the new person up to speed. This involves training, coaching, observing, and giving feedback, including the feedback that declares the employee to be fully trained and productive.
At this point managers often feel that their management responsibilities are over, or should be. If an employee requires a management intervention of some sort after initial training, managers may be resentful and label the employee ďhigh maintenanceĒ.
But in fact, making an employee productive is merely the first phase of the managerís job. The next phase, the one that never comes to an end, is to take the productive employee and manage his performance so that heís productive over time, year after year. Thatís managing the employee as an investment. And that means retaining him.
The Managerís Real Job
Regardless of a managerís functional responsibility (operations, finance, information technology) all managers have the responsibility to manage the investment that the employer has made in their employees.
I canít state strongly enough how profound a change this is. Letís face it: we tend not to think of employees as investments. On the books of our businesses, theyíre costs, and thatís how weíve always thought of them.
This habit of mind has been sustained by the supply/demand relationship that weíve become accustomed to. With job seekers outnumbering jobs, itís easy to adopt this belief:
ďIf my employees resign, I can always replace them.Ē
Flip the supply/ demand relationship over, however, and you see that this assertion is unsustainable. The new belief needs to be something like this:
ďMy employees are productive assets. My job is to manage the assetsí productivity so as to maximize the return on the investment that my organization has made in those assets. Because if my employees resign, I may not be able to replace them with comparable talent.Ē
This means carrying out the two phases of managing people:
This is why I emphasize that this ushers in a profound change. Hereís an implication of the change:
What do you mean, theyíre optional!!?
Well, they are, arenít they? For all practical purposes, I mean. How many managers do you know who have been terminated because they couldnít train, or coach, or give feedback? How many have been held back, denied promotions, because of a lack of people management skills?
How many have been fast-tracked or promoted because of superior people management skills?
Traditionally the absence of people management skills has not been punished, and the presence of people management skills has not been rewarded. Another way of saying this is that they donít matter.
I know that sounds harsh and pretty sweeping. But ask yourself this: are there managers in your organization whose behaviour with their employees is so unskilled that you wonder how they hold on to their positions? Do you have bosses from hell? Do a count. What number did you get to?
If you are cursed with a tiny number of these managers, rejoice! Youíre lucky. But consider this: what accounts for the large number of books and articles that are being published today on the subject of bad bosses, jerk bosses, abusive bosses, bosses from hell, etc.?
Managing investment risk
No investment manager would ever fail to assess investment risk. Thatís the likelihood that the investment wonít deliver a positive return. The higher the assessed risk, the more the investment gets managed.
Some investments are low risk. Take bank-guaranteed investments, such as certificates of deposit. The risk that they wonít deliver their targeted return is so low that they really donít have to be managed at all. The investor trades peace of mind for a low return.
Investing in a business start-up is very risky. Thereís no peace of mind. The risk of failure is high. You have to manage that investment skillfully so that it doesnít fail. But the return can be huge.
Where would you put employees on this investment continuum? On one end you have no risk, no management, low return investments. On the other are the high risk, skillful management, high return investments. Are employees low risk, or high? Do they have low return potential, or high? Do they need skillful management, or can they be left to themselves?
This is not that hard. Employees are towards the high risk, high return end. Thatís also the skillful management end. How likely is the boss from hell to provide it?
If you donít treat employees as investments, the type of management they get isnít relevant, because
ďIf my employees resign, I can always replace them.Ē
We need to start thinking about this assumption as belonging to yesterday.
Copyright Mattanie Press 2006