Systems Integrator, Martijn Linssen, kindly listed today the revenue, profits, R&D spend and employees in the top seven IT firms today. 

Not surprisingly, Google comes out a winner.  Which firm would you like to work for? 

Reading the numbers with a keen HR eye

As a psychologist, I often bring my talents to bear through the HR system.   To many people, HR are those rather officious souls with too many forms and a rather off-putting manner.  I don't know why a profession presents itself so badly to the world.  We need to ask sociologists about that.

What I have offer in this post is the HR thinking that might help you judge the quality of a company as an employer.  Even if you aren't looking for an employer, the thinking of sophisticated HR is quite interesting.

What is HR really about?

Like all business, HR brings together a wide range of factors that respond to other factors in the business - the market, the suppliers, the technology, the money. 

Our specific role is to create a system that delivers the right skill at the right time. 

People who don't really get HR might wait for the need to arise and start looking for the right person then.  They will be too late.  The opportunity will move on before they find the person.  And the person will probably be expensive.  A new employee is walking away from established relationships to join you.  If they have any sense at all, they will want a large deposit up-front.

The trick in HR is to get started early, really early.  While the rest of the business thinks in quarters, we think in years.  As a general rule of thumb, if you want something done tomorrow, I must have started between three to ten years ago. 

How do I watch and shape a system over such a long time?  The very first thing I must do is know what to watch. Which are the main numbers and which are the supporting numbers?

Martijn's post led to a comment that was rather long - so I moved it here.  

These are five guiding principles that you might find useful for 'reading' a firm's financial numbers and thinking about their desirability as an employer.

And are otherwise just interesting.  

#1 An HR eye for Revenue & Profits

With an HR eye, we look at two figures

• % revenue spent on HR
• Average salary as percentile of the market.

Few firms report these figures, so you may need to dig a bit.

Paradox

If you are lucky enough to have access to a good set of figures, (ask industry specialists like Martijn Linssen for numbers) you will usually see a pattern that appears as a paradox.

The most successful company in a sector usually has a spends less on salaries (% revenue spent on HR) than its rivals yet pays better (higher average salary). 

This seeming paradox is simply explained.  The leading company probably commands a better competitive position - a better product, a better market.  If this was a military battle, they would be the army with machine guns on high ground with air cover supplied by their air force.  That's all.  In their position, it is easier to make money.  Because their margins are better, their costs are a smaller % of revenue.  And because they make more money, they can pay better.

Rule 1:  Become a strategist and understand your sector.  Who holds the high ground and who will hold the high ground in the future.  Which side are you on?

#2  An HR eye for Statistics and Variations in numbers

Business people often toss HR numbers away.  We deal with huge spreads.  The % of revenue spent on HR from business unit to business unit in the same company varies enormously and a novice often thinks there is no rhyme or reason to the numbers.

Understanding not targets

What is important to HR is not squeezing numbers into pre-ordained range.  We prefer to understand what is driving the numbers. For example, we may simply have a lot of older people in business unit with high HR costs.  Or, the unit may simply have older less reliable machines than another unit that appears to be more productive.

We aren't fussed by spread, itself, but we want to understand it.  If we feed back the numbers to staff, with a list of cost and value levers, then staff can 'make a plan'.  We are contributing to running the business calmly, and sensibly.

It is also important to know that the interquartile range in pre-selected group of companies or business units may be as much as 100%.  In plainer language, the top case of the middle 50% of cases will be double the lowest case of the middle pack.  If you aren't good with statistics, it is best to draw that out and note there are 25% of cases on either side who are still higher or lower.

It follows that I can always hire.  At any time, 50% of people earn less than the median.  50% earn more than the median.  The range of salaries is huge.  Moreover, people who earn less than the median might be more knowledgeable and competent than people who earn more.  Not so?  Salaries are a financial cost but they tell me little about how to run my company or how to do the work our customers want done and are willing to pay for.

Rule 2:  So, if you are looking at employers, my advice is this   There is always someone who earns more or less than you.  Get over it.  So many factors go into these numbers.  Rather concentrate on what makes the company run well. Your long term future is determined by working for a successful company.  You can crank up your earnings with some short term plays but when you leave that company, you might find you cannot match your income at the next for what are almost random reasons (to you at least).  What you earn does not make you a player. What you can do to make the group successful makes you a player.  What are the drivers of successful business performance in your sector?  Can you take on bigger and better assignments in your industry?

#3 An HR eye for profit-share schemes

Aren't we in such a tizzy about bankers bonuses!

Let me state this baldly.  We should not cede profits to employees.  For  two reasons.

Employees with profit earnings get weaker

The first reason not to hand over profits to an employee, over and above their salary, is that we will create a moral hazard. The employee becomes the equivalent of a rich man's son with no need to compete. 

Employees make their way in the world based on their ability to handle bigger and better assignments in their industry.  When we reduce that imperative, we undermine their very call to the status they seek and cherish.  We undermine our labour supply and their futures.

Profits belong to people willing to lose their capital

The second reason not to pay employees a profit-share is that profits belong, in our economic system, to the person who risked capital.  The capitalist, and it might by your granny down the road, lends the company $100 dollars and expects to get back a slightly higher rate than if they lent the same money to the government to build a school or road.  If the employees want profits, they must put part of their salary in the pot as risk capital.  It is simple to buy shares but how many employees do?

There can be sophisticated reasons for leaving part of our salaries on the table in exchange for a greater chunk of money if everything comes together, but in the interests of clarity, I leave those for another day.

Rule 3:  As you are planning your career, map out the assignments, from small to large, that you want to do well. In this day and age, you should probably redo your list annually, or even every six months.  Forget the money.  Forget the status.  Forget the job title.  What are the incremental steps in getting good at your trade?  Your investment and savings plans are independent of this step-wise development.  They aren't your relationship to the world.  When you stop focusing on your step-wise development, know that you will have abandoned your decision to relate to the world through your skills.

# 4 and # 5 What else can you learn with an HR eye?

HR has more to say about reading the financial statements.  For now, let's just touch on thoughts that probably crossed your mind.

Developing the value of employees

We can, and do, collect information on the quality of the employment experience and we can use inputs or consequences or both. 

Martijn Linssen used R&D spend per employee.   Most firms used their training budget as an input.  I'd also look at the careers of people who leave. Do they go onto greater things or does the firm suck them dry?

Rule 4:  Find out what happens to people when they leave the firm.  (Or are they stuck there forever?  Be particularly wary of ponzi schemes where there are 50 people in level 1 and 2 on level 2 - where do the other 48 go?)

Shift Happens
We also look at the most central HR problem - matching supply of skills to demand for skills. 

When we need skills, are they on hand?   Do we have to wait?   Are we depending on the education system of another country or the training system of another firm? 

The movement of skills within an industry is fascinating and often counter-intuitive. Did you know, for example, that universities can hire chefs from five star hotels with alacrity?  Never accept a mediocre meal in a university, school or hospital again! 

But, the style of cooking will reflect the day the person was hired because not a lot of development will take place after they've shifted sectors.  The money that is spent on development in a hotel is simply handed over to the employee in a catering role. 

So remember you can down-shift from a hotel to an institution for more money, but you can never go back!

What is the role that you really want to play in the world?  Are you proud of your skill base or are you willing to 'retire on the job' so to speak?

Rule 5:    Do be clear about who you are and who you want to be.  Everything takes time in the world of skills and if you de-skill you may find you have to "Pass Go" (go back to college) to re-start.  Be clear, be knowledgeable, and lead! This is your life and you live it forwards!

Five rules for judging an employer

#1  The firm holding the highest ground pays more to employees and capitalists.  Others pay less.

#2  No's in HR swing about a lot.  Find out the why behind the what. Control the cause to control the effect.

#3  What are the steps in assignment-size that take you from noobe to expert in your sector?

#4  What is the life-destination for people who join any group of players in your sector?

#5  The skills for holding high ground and holding low ground are subtely different. Play the game!!

Martijn has promised a sequel for systems integrators.  I am looking forward to it.