“Today's approach to measuring financial performance is geared excessively to the capital-intensive operating styles of 20th-century industrial companies. It doesn’t sufficiently account for factors such as the contributions of talented employees that, more and more, are the basic source of wealth.”
These could so easily be my words, but are, in fact, part of the abstract for a McKinsey article entitled “The New Metrics of Corporate Performance: Profit per Employee,” which is in turn adapted from “Mobilizing Minds: Creating Wealth from Talent in the 21st Century Organization,” a book by McKinsey partners Lowell Bryan and Claudia Joyce. The exciting sense that my philosophy is shared by one of the world’s premier thought-leading organisations is aroused further by their statement, “Financial performance—observed through balance sheets, cash flow reports, and income statements—is and always will be the principal metric for evaluating a company and its managers. But greater attention should be paid to the role of intangible capital and the ways of accounting for it.” Not only does this align with everything I have been saying and writing, but it supports my arguments regarding the benefits, for they add, “The superior performance of some of the largest and most successful companies over the past decade demonstrates the value of intangible assets.”
It is therefore entirely logical that they should conclude, “Companies can redesign the internal financial performance approach and set goals for the return on intangibles by paying greater attention to profit per employee and the number of employees rather than putting all of the focus on returns on invested capital.” Indeed, this is intrinsically very close to the message that I have been proclaiming. So close and yet so far!
'Profit per Employee,' as Bryan and Joyce maintain, is perhaps one of the single most important measures that companies today should be using to assess their true performance. It unquestionably offers a metric that allows both year-on-year comparison and a meaningful measure of relative performance against competitors, essential for the financial and investment markets. However, it also has one major shortcoming: it fails to recognise the humanity of the people and thereby perpetuates the traditional 'command and control' mindset of the twentieth century.
By contrast, the Zealise solution, recognising and accounting for the people as assets, addresses this shortcoming. It treats people as people, recognising and catering for their individuality, and thus not only creates a more participative culture that eliminates such autocracy, but also provides a basis for consistently valuing and accounting for these intangible assets. By offering a measure of ‘Return on Human Assets’ it still offers a very effective means to consistently quantify the human contribution to the business, with all the benefits offered by 'Profit per Employee', but with the additional advantages of greater buy-in by the people; more engagement as a result of greater ownership and a sense of belonging; and people who are more fulfilled as a result, thereby creating happier workers and a happier work environment.
I know this is a subject I have written about before, but I cannot help myself. Why would any organisation want to settle for less?