When this blog discusses human capital, we tend to do so from the perspective of human capital in the workplace.  Today we’ll look a little earlier.  In his weekly column today, David Leonhardt of the New York Times highlights a new academic study on the effects of kindergarten on future outcomes.

The research, by Raj Chetty and colleagues, examined what’s happened to almost 12,000 children who were included in a large educational experiment in Tennessee in the 1980s.  They find that students who learned more in kindergarten went on to earn more money and were less likely to become teenage parents (as well as a variety of other positive outcomes).

Extensive research has been done on the positive economic effects of education, but almost none of it has reached all the way back to kindergarten.  As Leonhardt notes, this new research suggests that early education may be an example of a long-term investment that has benefits that don’t fade away.  We should always be on the lookout for how to take advantage of those sorts of opportunities.

Today’s New York Times features an article entitled “Industries Find Surging Profits in Deeper Cuts.” The article notes that:

Among the S.& P. 500 companies that have reported second-quarter results, more than one in 10 had higher profits on lower sales, nearly twice the number in a typical quarter before the recession … Even at corporations where both the top and bottom lines are expanding, the focus remains on keeping profits high, not rebuilding work forces decimated by the recession. 

One possible interpretation of this ongoing “right-sizing” is that large, U.S.-based firms are adjusting to the “new normal” by finding ways to remain sustainably profitable in the face of permanently lower demand. 

Alternatively, it may be that many of the companies exhibiting this behavior are engaging in the corporate equivalent of eating “the seed corn” (the seed saved from one year’s harvest to use for planting in the following year) by grabbing whatever short-run profits they can get their hands on, despite the negative long-term consequences.

In either case, the implications for investors are the same.  While firms that are exhibiting this behavior will generate tidy returns in the short-run, they are a much riskier bet in the long-run.  Eating the seed corn is never a smart strategy – unless your existence is in peril.

I just stumbled across a fascinating article by academics Joseph Grundfest and Nadya Malenko that examines the “first post-decimal digit of EPS” (earnings per share) data of nearly 489,000 quarterly earnings records for 22,000 companies over a 27-year period. 

In a data set this large, the last digit of EPS measured to the one-tenth of a cent (for example, the number “6″ in $0.516) should be evenly distributed between 0 and 9.  But Grundfest and Malenko find that is not the case.  Rather, they found that the number 4 appeared only 8.5% of the time (instead of the expected 10% of the time), and the numbers 2 and 3 are also under-represented. All other numbers were over-represented.

This suggests that some publicly-traded firms are expending effort to manage revenues and costs in such a way that allows them to “round up” their earnings (e.g., from $0.516 to $0.52) rather than “round down” (e.g., from $0.514 to $0.51), improving their apparent earnings and making it more likely they’ll meet Wall Street expectations (or exceed those expectations by one cent).

Not only does this represent an economic inefficiency (in that it requires an expenditure of resources without any increase in “real” economic value), but Grundfest and Malenko find that firms that suffer from so-called “quadrophobia” are also more likely to be subsequently charged with accounting violations.

The obsession that Wall Street has with short-run earnings continues to be a destructive force.  We need to develop alternative measures that help to focus investors’ attention on long-run value creation.  That’s one of the reasons that the emergent field of human capital analytics is so important.

A recent Market Watch article highlighted improvements in human capital management through increased use of mobile technology. The most common uses were for scheduling activities, learning programs, streamlining workflows, talent acquisition, and approval processes. According to the study companies that utilized these processes saw a 13% improvement in year-over-year manager efficiency (compared to just 6% for those organizations not utilizing mobile devices).

While this information is encouraging and it’s promising to see that technology is being used to drive business results and improved human capital management processes, it does beg the question what are the hidden costs and time involved with teaching people how to use all of these new technologies? Furthermore with the inherent distractions that come with mobile browsing, will there be any losses to employee efficiency as a result?

The important, and as yet unanswered question is, “When all costs are properly considered, how much will this “advance” actually contribute to the bottom line?”

Jac Fitz-enz deserves congratulations on the publication of his most recent book, The New HR Analytics. He notes in the preface that, “This book has been twenty-five years in the making,” and that “We are on the threshold of the most exciting and promising phase of the evolution of human resources and human capital management.  We’ve gone from the horse and buggy to the automobile to the airplane.  Now it’s time to mount the rocket and head for the stratosphere.”

I hope (and expect) that Jac is right.  Business intelligence tools are ever so slowly making their way into the people side of the business—and it’s about time.  Jac’s newest book helps move the ball forward, and for that, he has my thanks!

It is well known that unplanned employee absences cost employers money through lost productivity, among many other factors. What is less well known, and the subject of a recent Business Wire article, is exactly how much it costs. According to a survey done by Mercer (on behalf of Kronos Inc.), 8.7% of payroll is lost to these absences. To put this figure into perspective, that’s well over half the cost of the average payroll related health care expenditure. More specifically the net daily loss of productivity is 19% for unplanned absences (versus 13% for planned absences).

This analysis points to two important conclusions.  First, is the importance of “human capital analytics”—using data to shed light on a real business problem.  Second, is the importance of effectively addressing this cost/productivity problem through improved human capital management.

As my co-authors and I continue our research for our book Good Company, we have come to realize that reciprocity - the art of seeking win-win transactions with customers and employees – is a core attribute of a good company.   

Think, for example, about the difference between Southwest and United Airlines.  The organizations’ commitment to reciprocity—or the lack thereof—shows up in both employee and customer relations.  Southwest is at the very top of Glassdoor.com’s employee ratings, whereas United is close to the bottom.   In the crisis that followed September 11, 2001, the major airlines laid off 16 percent of their workforces.  Southwest, however, was able to avoid layoffs altogether (see Jody Hoffer Gittell’s book about Southwest for more discussion).  And although Southwest is among the most unionized of airlines, management consistently has a constructive and respectful relationship with labor. 

 Southwest’s focus on reciprocity permeates all of its relationships.  And not coincidentally, in the latest rankings, Southwest had the top customer satisfaction ratings in the airline industry (for the 17th straight year!), while United had the worst.

And there are plenty of ready examples that help demonstrate why.  Need to cancel reservation on a Southwest flight?  No problem.  You can quickly go online, easily cancel the ticket and your full refund goes into an account that you can instantly access for your next ticket on Southwest.  But if you need to cancel your reservation with United, you typically have to call them (unless you have purchased an expensive “refundable” ticket), wait for a customer service representative (waits of over 30 minutes are not uncommon in bad weather), and pay a cancellation fee of up to $150.

 United charges you this fee because they can—they’ve got your money and they don’t have to give it back to you.  Southwest chooses not to do so—even though they could—because they are committed to reciprocity. 

Reciprocity plays itself out in ways large and small in the companies that you deal with every day.   It is the give and take between human beings that makes life better, but that is all too often lost because of “corporate policy” (as in when the customer service representative tells you that they cannot do what you are requesting because “corporate policy” does not allow it). 

Good companies, like Southwest Airlines, realize that they need to build reciprocity into their day-to-day operations.  So they choose instead to base their “corporate policy” on the principle of reciprocity.

Two very good central points in a recent article from the Canadian Management Centre, which reminds us of two crucial factors in making your company a better place to work:

First, “people join companies, but they leave managers.”  So it’s vital to ensure that managers and other leaders reflect the organization’s values.  This can be done through a strong emphasis on management culture, accountability, and training.

Second, great workplaces should build on their own special qualities.  So don’t just try to “cut and paste” new initiatives from generic lists of best practices – which may or may not fit in your unique organizational culture.  Instead, identify what’s best and most important in your organization’s work environment, and take steps to build on and improve that.

Today The New York Times ran a front page story on how the “skills shortage” is having a negative effect on manufacturing in the United States.  The article reports that manufacturing firms are not able to find the highly skilled employees they are seeking for $15 to $20 an hour, and can’t find job applicants who come with the highly technical, specialized skills required for the work.

Although the Times is not typically known for its pro-business reporting, this article strikes me as frightfully one-sided.  It fails to consider that employers’ complaints about skill shortages may simply result from below-market wages and/or miserable investments in training.

If U.S. manufacturing is to get the skilled workers it needs, then it will have to compete with the other sectors in which these workers are in demand and can find jobs (even in a labor market with dreadfully high unemployment).  And if manufacturers want highly-trained workers, then they need to invest in training (which far too many do too little of).

The classic economic symptom of a declining firm is a failure to invest.  When manufacturers complain about the shortage of skilled workers, they are confusing the symptom with the problem.  If they would raise wages and/or invest in training people, they’d find that the apparent “shortage” would begin to disappear.

With significant public sector budget cuts on the way in the United Kingdom (and elsewhere, of course), HR directors are assessing what they need to do to preserve their jobs.

According to senior HR leaders quoted in a new article in the UK’s HR Magazine, what HR personnel need to do is “give the business good, pragmatic, common-sense solutions…the future of HR is about realising how what you do can affect the organisation’s finished product.”

As we’ve mentioned once or twice previously, one of the most important things that HR professionals can do is focus on adding value to the organization by determining what people-related factors are the most important in improving organizational performance. 

While McBassi provides such services to our clients, we also provide free documents on how to begin doing this yourself (go here and download “A Guide to Using Your Human Capital Data to Improve Business Results.”)