What is the purpose of business? How does management meet that purpose?
Most people would probably answer ‘increasing shareholder value’ and proceed to a convoluted explanation of increasing productivity, while gearing up, cutting costs and gaining market share.
Michael Porter, in his paper ‘What is strategy? (Harvard Business Review, Nov-Dec 1996)’, states that a major destructor of a company’s sustainable competitive advantage is managers that chase growth, profits and operational efficiencies, instead of focusing their activities on a defined strategic plan.
A concern with business is that managers are too afraid to make strategic decisions, because it means diverting from the herd. When decisions are made, they are targeted at the bottom line; although in the short-term these may result in financial benefits, there is value destruction of any sustainable competitive advantage, because often ‘short-term profit making’ decisions are in no way congruent with the ‘long-term strategy’ (if one exists) of the company. In the age of near-perfect information, most competitors should theoretically be able to copy the operational efficiency of any other competitor in the long term. Although there may be absolute benefits in pursuing operational efficiencies, in relative terms no company is establishing or gaining a sustainable competitive advantage over its competitors. Therefore, as competition gets more fierce, a company that aims to maintain an advantage needs to do something unique, something that will separate it from the crowd; and personnel practice is a great place to start.
Personnel practice and management is an important area of focus for any business. Unfortunately, this focus is often on frugal staff management and cutting staff costs, instead of recognising staff as the builders of the strategic vision. A company that aims to be consistently beating the competition has therefore got to get rid of the narrow-minded approach that a successful business is merely one that grows revenues at a faster pace than costs. Managers need to start making strategic decisions, in pursuit of a holistic business plan that recognises profit growth as a by-product of good strategy.
As a company like Google has shown, once a competitive advantage has been established on unique practices, and advantages that are continually re-enforced through further new ideas and unique practices, that business becomes a very difficult train to stop.
Many managers will say it: “your staff is your company’s most valuable asset”. Should it not, therefore, be treated with the utmost care and attention, ensuring that this asset is working well, not breaking down, and generating healthy returns? How many companies really treat their people as the spring of their proverbial river? Why is headcount and remuneration the first item we attack when cost cutting is on management’s chopping board? And note how many companies attempt to get more out of their employees by being more strict on time and micro-managing, because employees ‘who think they are being watched are more productive’.
People are not machines; they need to be growing through education and personal, emotional and intellectual development. They need balanced lives; they need encouragement and affirmation; they need training and time off, and to be treated fairly. They need to have a sense of meaning and find purpose in their work before they will ever share the same passion for a business as do the owners. Managers that ignore this fact and aim to get more, without giving more, are finding it increasingly difficult to motivate and retain their staff. If you want to make more orange juice, don’t squeeze the oranges harder, grow better oranges.
In the latter part of the 20th century, it was often the norm for employees to prove their commitment to the company before the favour was returned. But since the turn of the century, particularly in South Africa (SA), there has been a shift of power – referring particularly to skilled and highly skilled workers, and even more so for AIC candidates within these skills sets. Because of SA’s entrenched skills shortage, the skilled and highly skilled have a plethora of options at their fingertips.
They are now the ones asking the questions, “Does this company value me and place a premium on me working for them?” If a company cannot prove this to an employee, the employee will simply leave in search of a company that is prepared to satisfy him/her. No longer is it, “what can I do for my company?”, but rather, “what can my company do for me?”
It may sound like a no brainer, but people who are happy in their jobs will be less inclined to leave. And considering the lack of skills and the exorbitant cost of sourcing and retraining new staff, managers can ill afford to view staff contentment with a blurred vision.
What many profit-driven, numbers-obsessed individuals fail to recognise, is that, ultimately, businesses are run by people. The numbers, the machines, the computers, the systems and processes are all invented, built up and, yes, sometimes broken down, by people.
Without people there would be no new ideas, no sales of products, no purchases of inputs, no recording of profits, or payment of taxes. Business would come to a standstill without its people – no matter how automated or systems-based your business is. Are we chasing operational efficiencies like bottom line, market share and cost cutting, while giving very little attention to the people that actually make our very business quest possible?
The simple answer is that many managers fail to see past the expense requisition of the investment in people; but it is now a vital business function that will surely separate the future profit-makers from the profit-breakers.
One need look no further than one of the most successful communications and technology firms in the world, which is also placed number 1 on Fortune’s 100 best companies for which to work. Google has proven that it is not only possible, but critically essential, to make sure that your company is more desirable to potential employees than your competitors.
Some facts about Google’s historical financial performance:
- CAGR in revenue (2002 – 2006): 121%
- CAGR in headline earnings (2002 – 2006): 136%
- Basic EPS in 2002: 86c
- Basic EPS in 2006: 1021c
- Share price 19 August 2004 (listing date): 10000
- Share price 31 December 2006: 46048
Google’s financial performance leaves no room for argument, yet as Milton Moskowitz, Top 100 co-author, writes, “Google’s founders have often stated that the company is not serious about anything but search. They built a company around the idea that work should be challenging and the challenge should be fun in the same way, Google puts users first when it comes to our online service, Google Inc. puts employees first when it comes to daily life in our Googleplex headquarters. There is an emphasis on team achievements and pride in individual accomplishments that contribute to the company’s overall success. This highly communicative environment fosters a productivity and camaraderie fuelled by the realisation that millions of people rely on Google results. Give the proper tools to a group of people that like to make a difference, and they will.”
Moskowitz goes on to say that the focus of the company was always to build the best search engine and a great place to work: “…they wanted to create a great workplace and they did – that was important to them, beyond simply making a lot of money – how they treat people is important.”
Google employs 5063 employees. Last year it received 472,771 job applications (1,300 per day). Clearly they are doing something right. If they have that amount of talent at their fingertips, it is not surprising that they are light years ahead of any of their competitors. The model is simple really: staff retention remains high with happy employees, attrition is low and revenues are high. In the survey 95% of Google employees answered yes to the statement, “taking everything into account, I would say this is a great place to work”, an overwhelming consensus.
What exactly is it that makes Google a great place to work?
- Eleven gourmet restaurants serving free breakfast, lunch and dinner.
- Unlimited sick leave.
- 27 days paid leave, in a market where 15 days is the norm.
- Up to $8 000 per year in tuition reimbursement.
- On-site perks include medical and dental facilities, oil change and bike repair, valet parking and free washers and dryers.
- Classes on a variety of subjects such as estate planning, home purchasing and languages.
- Global Education Leave programme allows employees to take a leave of absence for up to 5 years in pursuance of further education. And it reimburses you up to $150 000.
- Communication – a weekly company-wide get together allows any employee the opportunity to pose questions to management. No question is off limits, which lends to trust being built between management and staff.
- Creativity: The ‘20% project’ encourages engineers to spend 20% of their time on a project that falls outside their normal work responsibilities, which could potentially benefit the company.
- Family practice: New parents receive up to $500 reimbursement for food within the first 4 weeks after the birth of their child.
- Flexible working hours.
- Fun: weekly roller hockey, volleyball courts, pool tables, rock climbing wall (The most important thing to note is that the facilities are well used by staff because of the relaxed environment, and staff are encouraged to achieve a work/life balance).
- Camaraderie: apart from the quarterly offsite social events, potential employees are evaluated based on their ability to socialise and be part of a team that is able to play as well as work.
The point of the matter is not that companies should have a standard policy to keep staff happy; there is no generic solution because no two companies are the same. First, what is important to note is that good staff practice and profit making are not mutually exclusive, but rather dependent on one another. Second, keeping staff content is not about ticking off on the to-do list – it is about a culture that recognises good strategy as the engine in the company’s car, with good staff practices as the driver of that car.
- Porter, Michael. Nov-Dec 1996. What is strategy? Harvard Business Review.
- Google investor relations. Available at http://investor.google.com
- Moskowitz, Milton. 2007 Great Place to Work Institute. Why is Google so great? Available at: http://www.greatplacetowork.com/best/100best2007-google.php
Nicholas van der Meer BAcc (Hons), is a 2nd year TOPP Trainee at Standard Bank.