Value versus Cost
© 2010 e-DOM Consulting Inc.
Historically, the business community prioritized value creation as the main driver of business growth. However, the advent of cost accounting in the 1970s shifted the focus to cost control, misrepresenting value-add as a corporate value. This shift was further solidified in the '80s when the management of people transitioned from a blended asset-resource base to a pure resource base. Over the next 30 years, individuals became a commodity to be consumed rather than an asset in which to invest, leading to a loss in maximizing the value of human assets. This subtle but significant shift in perspective influences most executives, leading to decisions prioritizing cost over value.
In a purely cost-focused approach, the value of individual contributions is often overlooked. Accountants tend to view a unit of work as the individual, not the effort provided. This perspective leads to a situation where the cost of a person at $50 an hour is considered twice that of a person at $25 an hour. However, this equation fails to account for the quality of output produced, thereby losing sight of the actual value of the work.
An individual who, through knowledge, skill and ability, produces output 3-4 times that of another provides more value. Furthermore, reducing iterations to get correct or complete adds value to the efforts delivered.
Frequently, cost mindset managers only compare the cost of individuals, not the value of their contributions. This flaw in the practice leads to drawn-out delivery timelines, delays and fundamental failures in getting solutions in place. More so, it sets an expectation that is the norm, continually reducing expectations rather than raising the bar. It also breeds anticipation that management will accept lower standards, and the workers' attitude of "doing enough to get by" becomes prevalent. They see no benefit in improving as high performers typically get replaced by several less capable people. The cost-focused manager only sees the unit cost (per person hourly rate) as a lower aggregate.
One of the detrimental effects of a cost-focused approach on the workforce is the lack of incentive for professional growth and knowledge acquisition. Even if these efforts make employees more effective and raise their profile, they often become targets for cost-minded managers seeking cheaper replacements. This situation hampers individual growth and stifles innovation, as the fear of being replaced discourages employees from taking risks and exploring new ideas.
The whole concept of HUMAN RESOURCES needs to be abolished and replaced with the idea of HUMAN ASSETS. Some leading companies in the research and intellectual development arenas (i.e. Google, SpaceX, etc.) are braving entirely new approaches. More importantly, the quality of their professional workforce contributions far exceeds that of many of their competitors, and the time to market is vastly shorter.
Striving to make a cultural change within any organization is a complex process. It does not remove the demanding boss; the pressure to excel tends to be massive, but the commitment and willingness to step up to the challenges more than match. Moreover, the size of their intellectually generating "assets" is many times a third to a quarter of their competition's while adding at least equal, if not more, value.
The per-human asset efficiency makes a case for the change and can deliver a compelling, balanced financial statement.
Rather than focusing on cost, the focus on contribution and value makes a vast difference. Companies are striving for this with existing management that remains cost- and control-focused. They invariably fail. Change requires the enabling and motivation of people to do better.
Traditional managers always stifle innovation as they perceive it as threatening their control. Some managers ensure control attempts to bend change to fit their preconceived notion, thereby thwarting its essence of inspiration. Digitization and innovation become empty phrases that are contorted but lack real value; they may bring an organization into the process. The lack of follow-through with meaningful success smothers real innovation. Innovation becomes another victim without a definite mindset change or replacement of staid management for more proactive and value-focused leadership.
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