Why HR owns half of the economic growth equation

Is HR taking viewing its role too narrowly?

Does HR view its role too narrowly? (Photo: Pixabay)

Imagine the human resource professional walking through the hallways knowing that she was responsible for half of her company’s growth.  Would knowing this change the conversations she had, the questions she asked and even the data she measured and observe?  Wouldn’t it impact her entire perspective?

Economic Growth

The formula for economic growth shows HR to have a bigger role in the business than many people realize.

One measurement of a country’s economic growth is its workforce multiplied by financial capital multiplied by productivity. Let’s equate a country’s economic growth with the firm’s incorporated under its flag.

Let’s consider the three multipliers of economic growth. HR is responsible for the firm’s human capital – the very essence of our beloved profession.  It is fair to posit that HR’s wheelhouse includes none of the second multiplier, the company’s financial capital.

The third multiplier, productivity, arguably falls under the responsibility of both Chief Technology and Chief Human Resource Officers.  A portion of productivity improvements is owed to deployment of more efficient technologies.  Another portion of productivity, though, is due to how work is organized, how jobs are designed, and even how workers are incentivized against the company’s culture – all under the purview of HR.

Economic Growth 2

HR owns half the formula for economic growth.

A more aggressive argument would maintain that even the technology portion of productivity is accomplished by employees that are recruited and incentivized by HR.  But we are not haggling over an equation but arguing to influence the mindset of HR professionals by asking if they conduct themselves realizing how much of their company’s economic growth they own?

Bereft of that knowledge, the profession falls short. Armed with the mindset that half of the growth equation falls under its purview, HR can fulfill its true potential in leading their company’s growth.

Knowing this can change everything because if you adjust a canon by mere inches, it changes the trajectory of a cannonball by a mile.

The Least You Need to Know:

  • Three multipliers of economic growth are human capital, financial capital and productivity. HR arguably owns at least half of this equation.
  • Operating under this premise transforms the HR mindset to one of a business mindset with HR expertise.

Vincent Suppa works with startups and investors and teaches graduate courses at New York University. His email is suppa@suppa.org.

© Vincent Suppa 2015

New Feature: Inside the Boiler Room

thinking-outside-the-box-33399_1280 (1)

Traditional CEOs typically sit in spaces befitting their leadership. Corner offices are coveted because they are far scarcer than one-window offices aligning the corridors. With fern plants graced along windows of two exterior walls, executives in corner offices have made decisions paving the way for the next generation of business leaders.

Traditional executives covet the corner office. Startup CEOs are changing the world inside the boiler room.

Traditional executives covet the corner office. Startup CEOs are changing the world inside the boiler room. (Photo: Pixabay)

Our new leader rarely wears formal business attire. She works from her dorm room or maybe out of her garage. If she has scraped together enough money from angel investors, she’ll lead her team from an open space inside a boiler room.

While all business leaders thrive on uncertainty, our new leader thrives on ambiguity.

The boiler room is the least coveted office space. But it’s also a metaphor for an office with a potentially high ROI. The rent is low, but the upside can prove irresistible: monetizing the next great disruption that other boiler room entrepreneurs can leverage. Christopher Nolan wrote, “there is nothing more contagious than an idea.”

Because startups are rooted in the knowledge economy, there’s no better place for HR than inside the boiler room. With every startup using the same commoditized tools (computers and smartphones), people remain the last field of competitive advantage. Only human capital, through the generation of ideas, differentiates startups.

It's not glamorous in the boiler room, but the attraction is the potential upside in dollars and impact.

It’s not glamorous in the boiler room, but the attraction is the potential upside in dollars and impact. (Photo: elfgoh)

That is why HR belongs in the boiler room and why we feature Inside the Boiler Room to introduce innovative people striving to monetize business model disruptions.

The world needs startups because their innovations can democratize services and improve social welfare. Venture capitalists need startups to allocate their financial capital for a return on investment. And when the final algorithm automates the last vestige of tactical HR, our profession will find no better place to land than inside the boiler room.

Vincent Suppa can be reached at suppa@suppa.org.
Ross Brand can be reached at ross.brandx@gmail.com.

© 2015 Vincent Suppa and Ross Brand

Inside the Boiler Room: Disrupting Medical Imaging

Team Live Longer

Team Live Longer

Saving lives through early detection, using smartphones for remote diagnosis of patients in under-served areas.

Boiler Room Update (May 2015): AlexaPath won the American Society of Engineers (ASME) competition for Best Hardware Led Social Innovation. Also in May 2015, it’s manuscript on mobile Whole Slide Imaging (mWSI) was accepted for publication by the peer-reviewed medical journal, BMJ.

Lou Auguste is disrupting the medical imaging industry and cervical cancer diagnosis. Why? His company wants to reduce cervical cancer mortality rates by using smartphones to turn microscopes into medical imaging devices. He is specifically targeting under-served countries bereft of an adequate number of pathologists. (more…)

The one metric all HR pros must have on their dashboard

What's on your dashboard?

How do you measure the dollar value of your workforce? (Photo: Pixabay)

“I want to help people and I hate math” has been a common refrain of some people when joining our beloved HR profession. For those of us looking to augment our qualitative foundation with a quantitative business-focused approach, what might be the first ratio we quantify?

HR Avant-Garde advocates that there are no HR problems, only business problems with HR solutions. It’s a powerful mindset that directs us to first analyze business metrics before HR metrics.

Human Capital Role

The difference between a company’s book value and market cap is its Human Capital.

Market capitalization is the value of a company’s outstanding shares calculated by multiplying its stock price by the number of those shares. This represents the firm’s total worth.

A company’s book value, located on its balance sheet, is the value of assets shareholders would theoretically receive if the company were liquidated.

What causes the gap between a company’s market capitalization, when it’s vibrant with employees, and its post liquidation book value, when it is bereft of people?

Pb-ratio

HR Avant-Garde uses these formula to compare firms within an industry to measure the productivity of their human capital. (Image: investmentmalaysia.com)

Our question is also our answer since only people can organize assets to create financial value exceeding the cost of those assets.  Successful companies maintain a wide gap between book value and market cap. When people lose confidence in companies, market capitalization falls below its book value. It is evident that employees are charged with creating value exceeding the cost of assets. Whether a company is above or below this watermark falls under the purview of HR.

PTBV (Price to Tangible Book Value) quantifies the concept as a ratio dividing stock price by book value per share. Ratios, like common size balance sheets, make it feasible to compare companies of different sizes in meaningful ways. Until all HR professionals benchmark this ratio, it will remain a competitive advantage for those who do.

If you already benchmark this ratio as a high-level dashboard indicator of performance, HR Avant-Garde suggests benchmarking PTBV’s standard deviation against your industry and competitors since bullish markets tend to uptick stock price for all companies.

The Least You Need to Know:     

  • The gap between tangible book value and a firm’s market cap is due to the value added by people who make a company worth more than the things it owns.
  • HR is responsible for employees whose value added can be benchmarked against PTBV’s standard deviation.
  • Price to tangible book value makes an excellent high level dashboard indicator of employee performance.  

Vincent Suppa works with startups and investors and teaches graduate courses at New York University. His email is suppa@suppa.org.

© 2014 Vincent Suppa

Copyright © 2014-2016 HR Avant-Garde