February 1992

Achieving a High Return on Human Capital

Remarks by Ted McPherson, President and Chief Executive Officer, InterSolve Group, to the Inner Circle Group, February 27, 1992

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Many of you are familiar with John McPhee's profile of Bill Bradley, A Sense of Where You Are in which McPhee says Bradley was a great basketball player at Princeton because he always knew where he was on the basketball court. Similarly, knowing where we are today is the first step to achieving a high return on human capital.

As perspective, let's understand as Ross Perot and others point out that our annual Federal deficit of $400 billion is equal to the entire national debt incurred in the first 155 years by our country! It is equal to the amount needed to fight and win World War II. One could take the entire net worth of the Forbes 400 wealthiest Americans and still not be able to pay down a penny of our annual deficit! And we haven't even mentioned another $39 billion of state and local annual deficits.

So the core problem in analytical terms is lack of productivity growth as measured by gross domestic product per employed person.

Every day we read about possible solutions at the national level, geared to regaining competitiveness, including:

• Increasing the savings rate in the United States by, for example reducing the capital gains tax.
• Getting companies to think longer term by eliminating quarterly reporting as in Germany and Japan.
• Reining in healthcare spending which burdens your companies, now accounting for 13% of the nation's gross domestic product -- a rate twice that as in Japan.
• Creating incentives to regain our ability to manufacture.
  • The United States produces about 13,000 engineers annually; in a recent year only 43 of these people were manufacturing engineers!
  • Over half of the Ph.D degrees awarded in the United States in computer sciences are earned by non-U.S. nationals!
• Investing in infrastructure
  • Just look at the extensive investments in infrastructure made by France in contrast with the underspending by Great Britain to understand why France will play a leading role in a United Europe.

So much for the "big picture."

Let's look together at practical actions you can take as senior human resource executives to lead your company in:

Properly Equipping Well-Led People in Productive Workplaces at the Right Time

and then let's examine several current examples from the real world of:

Gaining a Competitive Advantage Through "Just-In-Time Leadership and Talent"

which we consider a very practical approach to conducting business and an important part of the solutions we need today.

1. Properly Equipping ...

We believe the role of senior human resource executives in the 1990's begins with Properly Equipping people. Become a sponsor and advocate in your company of new technologies as an "evangelist" for the tools of the American worker! Learn from today's "evangelists" for the American worker such as:

• General James Abrahamson of the "Star Wars" initiative whose efforts led to many new critical high technologies.
• Erich Block who as head of the National Science Foundation initiated research consortia to transfer technology among university laboratories.
• Craig Fields who led the Defense Advanced Research Projects Agency (DARPA) and now the Microelectronics Computer Corporation (MCC) in many innovative technological efforts.
• Eli Broad, the Los Angeles-based businessman who donated $20 million to Michigan State's Business School to improve our education in manufacturing competitiveness.

Become an advocate for education. Know what these and other leaders are saying and doing.

Insist that high schools and community colleges become effective with the 70% of the workforce that does not graduate from college or be faced with large investments for retraining our workforce.

2. Properly Equipping Well-Led People ...

You can advance the practical application of key characteristics of leadership. Our experience in working with many distinctive leaders is that important leadership characteristics can be developed.

Leaders are known for:

• Having vision and an ability which is highly developed for creating the future
• Demonstrating great integrity; they are secure in themselves and know that significant collective achievement comes from sharing opportunities easily.
• Balancing a sense of urgency for results with a legacy of progress in depth.
• Understanding return on investment through continuous achievement. At the same time, leaders control cost:
  • One prominent leader with a net worth of several billion dollars has been known to wait in line in very cold weather to get a refund on a half-day unused ski lift ticket.
  • Another leader with a net worth close to $500 million always buys evening movie tickets for him and his wife in the afternoon because he "can't stand to wait in line to give someone my money!"

Exhibiting a wide range of behavior so as to be effective with different people in a variety of business situations.

The technology of expanding one's behavior has been enhanced significantly in recent years.

3. Properly Equipping Well-Led People in Productive Workplaces

As human resource executives you should encourage your company to experiment in revitalizing the workplace!

There are a number of approaches now being suggested, including the following:

Productive Workplaces, Marvin Weisbord

• • Organizing and managing for dignity, meaning and community

When Giants Learn to Dance, Rosabeth Kanter

• • Flat organizations, alliances, outsourcing for many services

20 20 Vision, Stan Davis and Bill Davidson

• • The corporation as a network

The Age of Unreason, Charles Handy 

• • Permeable organizations

Fifth Generation Management, Charles Savage

• • Virtual Teams

4. Properly Equipping Well-Led People in Productive Workplaces at the Right Time ...

We have developed and implemented an approach to conducting business which we call "Just-In-Time Leadership and Talent." This approach, practiced by many large entrepreneurs, leading private companies, and successful corporations, involves conducting business by leading the most talented people available from whatever source in flexible, collaborative teams to execute and implement key initiatives.

This approach has the attractive attributes of:

• Accessing experienced people "who have been where you are going" effectively
• Providing shorter cycles for execution and implementation
• Reducing risk by gaining better focus and greater energy
• Providing a high return on investment in human capital without creating structural cost
• Moving toward compensating for team performance and quality

It is important to be sensitive to different types of teams. As Peter Drucker and others have pointed out, there are various models of teams:

• A "baseball team" in which members play on a team, not as a team. Positions are fixed and members of the team can be highly skilled, as with a surgical team. Traditional Detroit design teams work in this manner with marketing people rarely seeing the designers, who did their work, passing it on to development engineers. Work is performed in series which is a good attribute when "the same game" is played many times.
  • The strengths of this team include an ability to measure performance and accommodate "stars". Everyone knows lots of baseball statistics.
  • Weaknesses include inflexibility as the parts -- pitcher and catcher, for example -- are not interchangeable.
  • This type of team is not usually good in an office or factory.

   

• A "football team" is like a symphony orchestra, or an emergency room unit, or a Japanese automobile design team which works in parallel.
  • These teams need to be conducted and solo performances or stars are used intelligently.
  • A "basketball team" is one which is good at transitions with players who have primary, not fixed positions. Members must work together, only "the team" performs and individual players contribute. An office of the president can be successful working as a basketball team covering for each other in responsibilities.

  Let's now look at several examples from the real world of how Just-in-Time Leadership and Talent, and Execution provides a competitive advantage and positive business impact:

  Example #1
  Relationship   Global Information Technology Corporation Over $50 Billion in sales In excess of 300,000 people Senior marketing executives	Team Results   Close initial sales of revolutionary multi-million dollar integrated products Lead change in selling process and individual and collective behavior of corporate account sales people	Competitive Advantage/ Business Impact   Immediate on-site sales facilitations with customer Customer-driven marketing and selling process implemented and supported immediately

  Example #2
  Relationship   Chief Executive of Diversified Financial Services Company (Publicly held New York Stock Exchange company)	Team Results   "Cherry-picking" of financial and real property assets from capital-short companies	Competitive Advantage/Business Impact Potential for several hundred million dollars in profit Speed of analysis and decision making process; ability to commit quickly within risk and return criteria

  Example #3
  Relationship   Chief Executiveof Service Company with planned earnings of $14 million in 1992	Team Results   Short-range profit improvement actions totalling several million dollars Intermediate term profit improvement actions and risk assessment	Competitive Advantage/Business Impact   Integration of compartmentalized executive leadership Speed to action dramatically accelerated

   

So, in summary, keep in mind these thoughts as you lead your companies as senior human resource executives:

Properly Equipping...

• Sponsor and advocate new technologies as an evangelist for the tools for the American Worker
• Education and lifetime of learning

Well-Led People...

• Vision
• Integrity
• Time Sensitivity
• Return on Investment vs. Cost
• Range of Effective Behavior

...in Productive Workplaces

• Actively experiment in revitalizing the workplace

...at the Right Time

• "Just-in-Time Leadership and Talent"

"People are the only source of sustainable competitive advantage."
— Richard Marcus, Director, InterSolve Group Inc.

"The brains, wits and creativity of an outstanding, closely-knit, unified team will beat capital spending 10 times out of 10."
— Ross Perot