People are our greatest asset.” One hears this from time to time in motivational speeches. I sometimes jest with audiences in my seminars that, for finance professionals, people are expenses rather than assets. But whether the literal finance definition or the figurative motivational one is used, there is no question that people are critical to a company’s financial performance.
These days, it is hard to sound like a consultant without using the terms ‘agile’ and ‘pivot’ in reference to steps that companies must take in order to survive and compete successfully in today’s VUCA (volatile, uncertain, complex and ambiguous) world. But, may I remind readers, it is not just the corporate entity or its senior leaders that must zig and zag in a timely manner. Everyone in the company must be ready, willing and able to do so.
Notwithstanding the question of whether people are truly assets in the financial sense of the word, each year companies spend billions of dollars investing in people. Certain types of investment in people are quite amenable to ROI (return on investment) analysis. For example, the increase in sales in an inbound call centre because of its staff’s attendance of a sales class could be compared to the cost of their training. In this case, NPV (net present value) analysis could be conducted by weighing the negative cash flows from the cost of training against the positive incremental cash flows from the added sales revenue.
But it is one thing to measure the benefits of an investment in terms of the resulting improvements in specific job functions. It is quite another to measure the worth of potential benefits involving improvements that are less easily quantifiable, because they have more to do with mindsets and approaches to problem-solving than with specific functions. This is the case with programmes that aim to transform participants into more agile employees. One could argue that because the benefits of such programmes are hard to measure, their economic justification cannot be put to an ROI test. Yet despite this shortcoming, ‘agile’ and ‘pivot’ are the mantras of the moment. Companies must do all they can, as soon as they can, to ensure their people are equipped to compete in a VUCA world, whether it is easy to measure ROI or not.
So how to press ahead? There are three important questions to consider in a capital investment decision:
- Must we do it? For example, a government policy requires a company to install certain anti-pollution devices in its plant.
- Can we do it? For instance, a technology challenge – such as trying to be first to offer commercial space travel to the general public.
- Should we do it? The classic business case, whereby investment projects are subjected to discounted cash flow techniques, such as NPV analysis.
It is a mistake to attempt to retrofit category three – quantitative assessment designed for calculable targets – to the largely unquantifiable, qualitative needs of the VUCA zeitgeist. An investment project that aims to increase the agility of company employees falls into category #1: Must we do it? The answer is yes.
Phil Young is an MBA professor and corporate education consultant and instructor