Are Workers a Cost or a Resource in Your Organization?

Businesspeople today are facing two simultaneous challenges: the current lackluster economy and the shift to the knowledge economy. The lackluster economy makes it tempting and often necessary to cut headcount. People are one of the major expenses in a business and are often seen as a cost as opposed to a resource. But success in the knowledge economy depends on a strong cadre of people to fuel your intangible capital. People are both the source of knowledge and the medium by which your organization learns, adapts and innovates.

Why do we make this distinction? Because many, many businesspeople have not yet made the mental shift to understand the increased importance of workers in the knowledge era. They do not see their workers as part of their productive capacity, as an integral part of their knowledge factories. Few manufacturers, for example, would consider shedding equipment in a tangible factory during a recession; the cost would be too great to replace it when the business comes back. For a knowledge-intensive business, it can be just as costly to replace your people. But because your people are not an accounting asset, these costs are not added up in one place to give you a full picture of the cost to fire, hire and train employees.

We know that sometimes there is no other choice. If the choice is between saving the company (and the jobs of everyone in it) and laying off some of the people, the rational choice is to go ahead with lay offs. And, the truth is that this kind of circumstance can be a wake up call or an excuse to trim workers that do not contribute as much as they should.

High unemployment continues to be part of this recession. Although it’s too early to have good statistics on this, judging from the number of stories in the press, there was a small change in this time around. More and more companies were asking for everyone to sacrifice a little in order to avoid or minimize lay offs. In fact, many times, the impetus for these voluntary cuts in hours or salary came from the rank and file rather than management. Examples included department heads at Beth Israel Hospital in Boston who led a program to avoid job cuts by soliciting cost-cutting ideas and contributing salary and budget from their own departments. 

Another example was the London office of KPMG, where workers were offered a four-day work week as a way to stave off lay-offs.  The trend could have just reflected the severity of the downturn, scaring people more than usual. Or it could reflect a new understanding of the importance of knowledge workers and their contribution to the organization. If so, this would be a very big and positive shift.

If you are not sure what to do, it probably means that you still don’t have a clear understanding of the role your people play in your productive capacity. This is a time when it makes sense to break down the elements of your knowledge factory. What are your key value-creation processes? What are the competencies that are needed to support and innovate around these processes? What are the relationships that help you get the job done? This knowledge factory is critical to your future. Don’t lose capacity by viewing the people in this factory as just an expense.

Adapted from Intangible Capital: Putting Knowledge to Work in the 21st Century Organization by Mary Adams and Michael Oleksak.