PROFITABILITY, PERFORMANCE AND HUMAN CAPITAL MANAGEMENT

Are your employees contributing or eroding your bottom- line?

As any business executive will tell you, finding and retaining good employees is one of the most important elements in running a successful business – it can very often mean the difference between a successful, profitable company and bankruptcy whether you’re a small business owner, CEO of a Fortune 500 or an investor. After all, your employees are your company. Gary S. Becker, a Nobel Prize-winning economist initially used the term “human capital,” by stating that, “the basic resource in any company is the people

The most successful countries will be those that manage human capital in the most effective and efficient manners.” This is the basic premise behind the importance of measuring results, or the return on investment. When a company hires new employees, the goal is to grow, increase productivity, improve customer service and ultimately increase the bottom line. But what happens when you hire the wrong candidate or even a long-time team member underperforms?

While the intangible effects of underperformance, such as low morale and reduced productivity, are real, until recently the actual cost of poor performance was too ambiguous to calculate.

The Future Foundation conducted research in seven countries including the United States to understand the costs associated with poor people performance. Their eye-opening research revealed that American managers spend thirteen percent of their time managing poor performers and fourteen percent of their time correcting the poor performers’ mistakes. This translates into an average of thirty-four days per year dealing with underperformance.

So what’s the root of these staggeringly high poor performance statistics? Researchers at Sheffield’s Institute of Work Psychology sampled manufacturing businesses and found that eighteen percent of variations in productivity and nineteen percent in profitability were attributed to people management practices. In addition, The Future Foundation estimates the United States devotes $105 billion a year correcting problems associated with poor people management and hiring practices. 

How to Improve Poor Performance

1. Increase Accountability Everyone’s contribution can and should be measured. The failure to set clear, measurable performance standards expected of each employee often leads to poor performance. The worker may believe he or she is meeting expectations, while the supervisor has a completely different idea on the desired outcome.

2. Improve your Hiring Process According to The Future Foundation study, an average of eight months training is required to achieve expected performance levels. Currently, one out of eight American employees leaves his or her job before obtaining competency. Worse yet, co-workers are not immune to the miss-hire. The same study found that nearly one quarter (twenty-three percent) of American workers surveyed feel their colleagues are incompetent.

1.Hold your hiring process accountable. One of the leading causes to employee turnover is a poor job match. Calculate what your success rate is by determining the average length your employees stay before leaving. Calculate the cost of each miss-hire and seek to decrease it on a regular basis. 

2. Plan properly and solicit feedback. After a new employee has acclimated for thirty days, ask for confidential feedback on the hiring process while it is still fresh in their minds. You may receive information that will improve your process. Perform exit interviews as people leave.

Give your hiring process the time and resources it deserves. The right people in the right positions are your most important asset.