The Fifth Driver: People
January 6, 2011
If you've ever taken our course, or sat in one of Kevin's presentations you've seen our Five Business Drivers model.
Cash is measured on the Cash Flow Statement, Profits are measured on the P&L, Assets are measured on the Balance Sheet, and analyzing these financials over a period of time will help you measure Growth. And then there's that Fifth Element: People, which sometimes takes a backseat. Just ask any business Executive how they measure the success of their company and they're likely to have an answer that has something to do with one of the first four drivers. Sure everyone agrees that people are our most important asset, and we all get it… it's the decisions of people that drive the numbers, but we struggle to measure the performance of people.
Look, in an increasingly complex and global business environment, producing and recruiting top level talent who aren't afraid of change, who take the right strategic risks, who bring about unseen opportunities, and who don't flinch when it comes to creating and recreating a competitive advantage will make all of those numbers on your financials look healthy. But too often we measure people by measuring the financial statements; Assuming that if we're reaching some agreed upon financial goal that we must be managing our people well. While that's one way to look at, it's probably not the smartest.
Take Mark Little, his story is shared in Ram Charan's latest book that he co-authored with Bill Conaty, "The Talent Masters." Mark was on the path to success as GE's Vice President of Engineering for their power systems division. This made him one of the top 125 executives at one of the world's biggest companies. And then disaster.
The rotors that run GE's turbines were failing, the media picked up on the story, and panic set in that GE would struggle to compete in a very profitable market. The divisions numbers plummeted and Mark was replaced, but he was not let go. Instead he was told that the CEO and Senior Vice President in charge of HR wanted to meet with him personally. What he must of thought would be an exit interview, was anything but. The executives assured him that he had a bright future at GE.
Bill Conaty was that Senior Vice President over HR, and in the book he recalls, “Mark wasn’t just a name on our list, but a guy we knew thoroughly.” If GE would have managed Mark based upon the P&L of his division he would have surly been let go. Today Mark is one of 12 executives that report directly to the CEO. He is a key player in driving the success (the numbers) of General Electric.
Business demands that we measure cash, profits, assets, and growth. If you're a public company it's the law that you measure these numbers. There's a science, agreed upon measurements, and a formulaic system for measuring the numbers. But what about measuring people? Charan and Conaty's opening sentence hits like a piledrive to the face, “If businesses managed their money as carelessly as they managed their people, most would be bankrupt.” They continue:
"Managing people with precision is without question harder than managing numbers, but it is doable and gets easier once you know how. Companies such as GE, P&G, Hindustan Unilever, and some others analyze talent, understand it, shape it, and build it through a combination of disciplined routines and processes, and something even rarer and harder to observe from outside: a collective expertise, honed through years of continuous improvement in recognizing and developing talent."
Remember that the Fifth Business Driver is the true measurement of a company's success, but it doesn't (and can't) stand alone. There's an opportunity for HR professionals to elevate their departments from second class, to mission critical. The CFO and the Senior HR Executive should be seeing the same things, tackling the same problems, and architecting plans to capitalize on an ever changing marketplace. Of course, in order to do this you need to be respected as a business leader first and an HR professional second. Practice and perfect your business acumen to position the Fifth Driver at the center of your company's success, champion the interdependence of the Five Drivers, and be obsessed with measuring people and numbers.