Financial analysis focuses rightly on yields: Return on Capital Employed, Return on Equity. What is often overlooked is the return on human capital, with an emphasis on the human. Our team members and colleagues, have a finite amount of energy, patience, resilience, appetite for change and goodwill, a fact which is not always explicitly recognized in business planning. Particularly as we start slowly to exit the extraordinary situation of the pandemic, managers, boards and investors need to think carefully about the battery levels of their people. There are personal and business consequences of running these down, and of not directing energy into the right place.
Resilience in management and in the workforce is, of course, important. The focus on ‘culture’ is a proxy for building resilience through teamwork, shared goals, diversity and encouragement. Pay is another lever at a company’s disposal, although too frequently it is used ad hoc (retention packages, discretionary bonuses) or in silos (sales commissions, management LTIPs), rather than systematically across the full workforce.
However, whichever tools are used to maximize resilience, there is still a real danger that you wear out your workforce — particularly in times of crisis or very extended periods of change. Sometimes, those at the top become divorced from this reality, particularly when their own financial incentives can be so large. (The General who eats the same rations as the soldiers is a good analogy here).
It is critical, in my mind, that “Return on Energy” is considered in greater depth; that there is a recognition that employee energy is finite and that there are consequences from directing that precious resource into low yielding activities. Opportunity cost is a vaguely alluded to concept but it is real and important.
It is worth asking the question explicitly: how is the energy of the workforce being consumed and is that really where the best return is? This goes beyond the time-and-motion studies and productivity analyses — although that can be part of it — and into the big blocks of strategy. If the company aims to grow its top line, how many employees are truly focused on that versus other issues? Is it clear what the primary, dial-moving strategy items are? Can other things wait — or even be dealt with by third-parties?
With the couple of years we have just been through, these questions come even more to the fore. It is not business as usual, and questions must be asked of where depleted energy levels should now be focused and how they are carefully rebuilt.