College of Business: University of Illinois at Urbana-Champaign

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Brain Power: The Game Has Changed


4/1/2007

A mere generation or two ago, a strong back, stamina, and loyalty were a guarantee of regular employment. But with the rise of the high-technology sector and the gradual shifting of the economy away from agriculture and manufacturing, brainpower is the name of the game these days.

“We live in a knowledge economy,” says Michael Pratt, an associate professor of business administration. “What really differentiates high-performing organizations from less successful ones is the quality of their people.”

This in itself comes as no surprise; whohasn’t heard businesses tout the idea that “Our people are our greatest asset”? But this time, business leaders really mean it.

“As knowledge workers become more important, this idea has come back in fashion and is no longer just a philosophical position; it can mean life or death to a business,” says Pratt.

New Players

And who are the players in this new game? The key players now are what Peter Drucker dubbed, back in 1959, “knowledge workers”—those people who can work independently while bringing a body of special knowledge to the work situation and who can solve complex problems and create brand-new solutions.

As the Oldsmobile ads might say, “These are not your father’s employees.”

Knowledge workers can be found anywhere from the corner office to the factory floor, says Alice Martin, a 1981 M.B.A. graduate and vice chairman of human resources at NIBCO, an Indiana-based manufacturer of sophisticated plumbing and flow products. She tells of a machinist on the factory floor who designed and built a machine that reduced the number of people needed for a particular task and also reduced the set-up time.

He was recognized with NIBCO’s Associate Recognition of Excellence award, one of the highest honors at the company.

But as valuable as these employees are, they can be challenging to manage. Let us count the ways: they have minds of their own, which creates both opportunities and challenges for a company; they must feel empowered or otherwise engaged in the process to do their best work; they can’t be powered simply by being plugged into an outlet; finding just the right fit of employee to task is more difficult than finding the proper cog for a wheel; and routine maintenance—that is, a regular paycheck—is not, typically, enough to keep these new players happy.

In addition, today’s workers have skills that are complex enough that the cost of replacing them has become a very expensive undertaking. Although estimates vary widely, the cost of replacing an employee can range from one-third of an employee’s annual salary to as much as 150 percent of a manager’s annual salary. As the balance shifts toward organizations with “brainpower,” these assets of people and their ideas have become harder to interchange and more valuable than ever.

Playing by the New Rules

And the new rules? Well, they are definitely not the old rules, which were: get hired at our company; subsume your identity into ours; and we will give you a paycheck and job security for your entire working life.

Corporations broke those rules with massive layoffs over the last several decades, and, consequently, employees’ sense of loyalty to a company has waned. The new rules are more about looking out for number one; talented employees move from company to company to increase their knowledge base and skill set. Longevity at an organization used to be, by definition, a good thing; changing jobs frequently was suspect. That is no longer true.

The rule change in employer-employee dynamics has really hurt organizations when it comes to recruiting and, especially, retaining knowledge workers, says Pratt.

“These are folks that have a high level of skill or expertise in a particular area, which means they are eminently employable somewhere else,” he says.

As Daniel Pink, author of Free Agent Nation, puts it, “Talented people need organizations less than organizations need talented people.”

Not only might this talent go to work for your competitors—witness the recent exodus of talented software designers from Microsoft to Google—but they might even start their own business, creating yet another competitor.

Pass Go, Collect $200

So, what are companies doing “to stay in the game”? There is no easy answer or “Get out of Jail Free” card. And, in fact, the answer varies from company to company and employee to employee. Economic theory contends that money is a key motivator of an individual’s behavior, however, for knowledge workers, money alone is not always the answer.

“Although there is disagreement in the field about whether and how much money is a motivator, I have argued that money is not the way to do it,” says Pratt. “Money tends to be the easiest, but not always the most effective motivator. Because if that’s all that’s keeping your employee, someone can offer them more and they’ll leave.”

On the other hand, sometimes a bonus, when given spontaneously, sends a great message. At NIBCO, for instance, Martin has authorized managers to give out $500 spot bonuses for jobs well done, an initiative that has generated new ideas as well as employee enthusiasm.

Retaining Workers: No Trivial Pursuit

When considering what satisfies and motivates knowledge workers, managers might find some surprising revelations. In many cases, knowledge workers are yearning less for money or prestige and more for meaningful work and the autonomy to get it done to the best of their ability. This means that good managers find themselves removing institutional or logistical obstacles for these employees so they can put their powers to use, rather than riding herd on them.

“That’s a different role than managers are used to,” says Pratt.

Managers who recognize that most people are driven to improve themselves also will find that riding herd is unnecessary.

“People love training; they love to be able to improve themselves,” says Martin. Among the new programs Martin has developed at NIBCO, several involve training opportunities. For example, she has hired a bi-lingual trainer to help guide new supervisors on the factory floors of NIBCO’s plants throughout the United States, Poland, and Mexico.

“Often a good operator gets promoted to manager, but they might not know how to be a good manager,” says Martin.

While knowledge workers value autonomy and self-improvement, they also value their work community.

“Managers tend to underestimate the importance of working with people you like,” notes Pratt. “Workers like to have a sense of community, to have good relationships with each other.”

“There’s a saying in human resources,” notes Martin. “People join you for the paycheck, but they leave because of the people. Our goal is to create a community where employees know their colleagues, value that environment, and don’t want to leave.”

Part of the Team

That sense of community can sometimes extend to the organization as a whole. If employees feel that their workplace reflects who they are as a person, that increases their sense of identity and loyalty, says Pratt, who has studied this dynamic in several companies.

For example, a person who sees himself as young and hip might seek to work at a company like Google, while someone who sees herself as a little more “establishment” might prefer to work at an organization like IBM. Self-identification is not the same kind of blind loyalty the quintessential “organization man” of the 1950s was expected to have, but it does increase an employee’s sense of belonging and, thus, loyalty. If, as a cultural system, a company gives workers something they can believe in and feel good about, that is good management.

Another aspect of good “brainpower management” is actually a no brainer, and that’s open and honest communication, even when—or especially when—delivering bad news.

Speaking of tough tasks, Martin describes having to close one plant and one distribution center last year. She traveled to both places and made the announcement herself.

“At the end of the day, people came to thank me for coming myself to make the announcement,” she recalls. “People appreciated that.”

NIBCO also put its money where its mouth was, offering every single employee at the two closing locations either a $20,000 bonus to move to another NIBCO location—and a $10,000 donation to the employee’s charity of choice—or a large bonus for staying at the current location until it closed.

Human Resources: No Longer the Benchwarmer

With all this focus on quality employees, it stands to reason that human resources divisions have become more involved in helping to identify, recruit, develop, and retain knowledge workers.

“The role of human resources has begun to change,” says Joseph Broschak, an assistant professor of business administration, who notes that the executive vice president of human resources is now often a management level position. “Businesses are recognizing that the way you manage your human resources can have a bottom-line impact.”

This is certainly true at NIBCO.

“Human resources had been an area that had not gotten a lot of attention, and I was brought over to be a change agent,” says Martin. Much of that change has involved boosting morale, such as publicly recognizing a job well done. NIBCO’s Excellence Award program, mentioned earlier, recognizes people involved in creating a new product, saving the company money, or creating a safety innovation. Last year’s candidates for the awards saved the company a total of $1.6 million.

In addition to saving the company money, says Martin, the award was one of several set up to energize NIBCO employees, who are known as “associates” at NIBCO.

Another morale booster was an award specifically for customer service representatives. “Customer service can be a thankless task, dealing with unsatisfied customers,” says Martin of the new award. “The representatives can get very discouraged.”

The representative of the month, chosen for high-quality service, receives a $1,000 bonus and three runners-up receive dinner for two at a nice local restaurant. At the end of the year, a customer service representative of the year receives a $5,000 bonus.

“In human resources so much of what we have to do is negative, and our goal is to balance that out with positives,” says Martin of her company’s efforts.

Battle For Brainpower

Articles like a recent one in The Economist titled “The Battle for Brainpower” suggest that the thirst for talent is becoming insatiable at the same time that the reservoirs of knowledge workers are running dry. This idea was also famously put forward in the book The War for Talent, published in the early 1990s. Yet, despite this hand wringing, it appears that the premise is not universally accepted.

In some ways it comes down to basic, personal philosophy. Some believe that talent is a finite resource and that someone either has it or doesn’t. Others believe that talent can be nurtured and grown and that sometimes home-grown talent is the best kind of all, since it is steeped in the values and culture of the organization.

“If you say ‘don’t develop your own talent,’ then yes, there’s a limited pool,” says Broschak. “But for the companies that say, ‘we know what we want and we can develop our own employees,’ that is a successful company.”

Another argument that weakens the premise of the talent pool running dry is the position that talent, unlike money, is not the same across all industries or organizations. Broschak notes that what qualifies as talent at one organization is not necessarily the same as at another organization.

“It really comes down more to fit, rather than just pure talent,” he says. “Who are the best people? They are the ones that best fit the needs of your particular company, or a particular segment of a company. What is needed or what works in one place won’t work in another,” he says. “That in itself increases the availability of talent.”

Ultimately, even though managing people has not gotten any easier, businesses are paying closer attention to the practice. This benefits both employers and employees, and that’s a game where everyone wins.

UIUC College of Business