(August 28, 2002) -
For nearly 40 years, the Pentagon's
acquisition process has used life-cycle cost as a central management philosophy.
The mindset and techniques spread throughout the automotive and software
industries during the late 1980s and early 1990s. The principles are proven and
ready for utilization in the Human Capital Arena. Assigning economic values and
implications to well understood events in the Employment relationship is more a
question of execution than design.
The Military's system is so accurate that it can
predict the implications of using an alternative spare part on areas as diverse
as training costs, time between failures, technical documentation, repair costs,
or material stocking requirements. The same elegant predictability is possible
in the acquisition/deployment of our most important assets. Clearly, the task is
simpler when a job can be defined in detail and volumes of new hires are under
consideration.
Instinctively, Recruiters understand the bottom line implication
of the approach. The total cost of a badly hired employee can run to four
or five times the employee's salary. The total cost of a "right hire" can easily
be a fraction of the synergizer's paycheck. One erodes productivity while the
other accelerates it. Reactive employee acquisition, the norm in today's market,
dramatically increases the likelihood that a bad hire will be the result
of the process.
Only careful screening in advance of the emergence of
a personnel requisition can effectively eliminate the possibility of a bad hire.
Schedule pressures, driven by the timing of the sourcing process in the current
model, simply increase the pressure to 'make do' rather than finding the 'right
employee.' In other words, simply moving the sourcing process so that it
precedes the creation of actual requisitions will dramatically lower the overall
cost of relationships with employees. The savings will be experienced as
measurable changes in productivity and quality.
An investment in sourcing, accompanied by process
changes that improve prerequisition screening will produce enormous returns
over the life of the workforce. By focusing on the real costs of employment
decisions, the organization will be able to begin a serious effort to manage and
improve the consequences of its overall investment in Human Capital. As a set of
case studies and examples evolve, the overall precision and utility of the
underlying mathematics will improve.
Disciplined management of the investment and returns
associated with human capital is an inevitability. Companies should begin
the process of building internal models that measure the productivity of
investments in the area while laying the foundation for process
redefinition.
-John Sumser