Often when I introduce my company, I’ve been asked, “Do you mean human resources?”
Actually. Not. Fundamentally, there is a philosophical difference in the 2 concepts, thus a huge difference in the type of services and solutions. Without getting too technical, conceptually, the difference lies in the word “capital” and “resources”. While we may think it is just semantics, after all, a rose by any other name smell as sweet, we forget the psychological impact of what a good name conjures. And in this case, the association and attitude can be very different by just 1 word.
Here are some fundamental differences.
Capital can be grown, resources deplete
An organization is made up of a workforce and the resulting output with or without the help of machines. When this workforce is treated like a form a resource, the organization finds the best way to exploit it and use it for its purposes. These resources are used and depleted so more are acquired and use. And since it is a form of resource, when they are no longer useful, the remuneration stops and they are replaced.
When a workforce is looked upon as a form of capital the company is acquired, the incentive is the get the best return from investment. An organization will regard a capital as down payment to work towards future returns. A capital also grows over time with productive use. In human capital, competences, knowledge and creativity grow over time and multiply in value.
Capital is invested, resources are maintained
When an organization looked upon the workforce as a form of resource or worse a “seat warmer” and other derogatory terms such as “bodies”, then the attitude is just the function they provide. Like any machines we buy for a purpose, it is maintained at best for the purpose they serve.
When a workforce is treated as a form of capital, then people are looked upon as an acquisition for the value it can bring if properly invested. Each person’s value is based on the potential of the investment that requires sound judgment on placement and development potential. If we extract the most from the workforce, the return is no longer linear such as machines. In this case, output when well invested can bring forth multiple times the initial capital purchase.
Different psychology, Different policies
With the fundamental departure on psychology, it will also be reflected in the policies. While there are many ways to breakdown human resource management, broadly, it consists of 5 key areas: Recruitment & Retention, Compensation & Benefits, Training & Development, Sustainability & Mobility and Employee Relationship & Compliance.
From a resource point of view, the key focus is making sure employees are paid and employment laws are complied including health and safety and relationships with unions. Often it is also the 2 key areas retained by a company in the HR department while all other areas suffer due to cost cutting measures or lack of vision. After all, if there are lack of jobs and plenty of candidates, when a “resource” is unhappy or unsuitable, they can be replaced by another. HR departments tend to degenerate to payroll administration and point of contact for labour unions and compliance.
Whilst the above is an extreme view of situation, it is not uncommon where HR is dysfunctional. If we insist that workforce is a form of capital, then the key focus of management may well be very different.
The relevance of high potential?
When the workforce is considered a form of capital, then the view is everyone has potential for a return. But the level of investment will depend on the level of return and impact to organization. Often this can be governed by the role and function in the organization.
The main pitfall of a high potential program is the tendency for an organization to focus large amounts of energy and efforts in a small group of identified talents while ignoring the rest. It’s like betting on a racehorse, you win big if the horse is the first to cross the line, if it comes even a second behind, the investment is lost. That happens when high potential leaves before realizing their potential or fails in their development.
It is much more logical and motivational to consider that everyone has access to development opportunities relevant to their role and earned based on performance (the return).
The idea of “right fit” in recruitment
If we think about work as a production line, with an empty seat, the best thing is to find someone who already knows the work to fill the seat. With lower propensity to risk, most companies have behaved as such in hiring. The person they seek is someone who fits perfectly and thus presents no obvious risk in bad hiring. It also means paying the same or higher salary to attract someone to leave the existing position to fill the new role.
From a long term planning perspective when a resource is looked upon as a form of capital, then recruitment criteria will change. The focus will be the potential of the candidate and the return he or she will bring. The “right fit” is someone who will grow in the role.
The outcome is greater incentive for someone to move. The compensation will be lower than trying to attract someone who already fulfills the same role somewhere. And in effect, a cheaper option than a seemingly low risk hire. The truth is performance on the job and the future is just as unpredictable in either cases since no 2 companies are exactly the same.
The true purpose of human resource management?
Whilst we cannot do away with compensation & benefits or employee relationship & compliance, it cannot be the only focus. In effect, these areas are probably better suited in finance and legal departments.
Then people management can focus on 1 or 2 key areas while engaging suitable partners and supplies to complement the others. As businesses change, the human capital in the company needs correspond to these changes.
Human resource management will then act as the protector of the human capital and investments of the company. Their role will include finding and maintaining the right vendors to acquire, manage and develop the human capital in the company.
Should we start changing all HR titles to HC?
Human resources is still the global function that looks after the well being of the workforce in the organization. The dysfunction today is due to a narrow vision of the workforce as a form of resource. For a forward moving company, treating their employees as a form of capital changes the resulting HR policies and attitudes both at management and HR level. That is an important shift in mindset.
To do this, many companies have started using terminologies such as “People Officer”, “Talent Management” etc. Regardless, a complete view of HR is important and neither can we ignore compensation, legal and compliance. But HR can do better to focus on the other aspects either by in-house capabilities or external service providers. And companies can benefit from a workforce that is motivated and energized.
Coming from Asia and working in Europe, I’ve had the occasional discussions where companies look to expand in the east. Most of them are companies doing well in UK with a portfolio of international clients also looking to expand in Asia. Some are opportunistic especially when the recruitment market in Europe has slowed and others find it necessary to retain an international brand.
Whatever the reasons, the growth of China is a great carrot stick even at a slower annual GDP growth of 8.2%. Other than that, there is ease of doing business in Singapore and Hong Kong, English as a widely spoken 1st or 2nd language and relaxed labour laws that promotes mobility and thus recruitment. Other positive indicators include the persistent trend of offshoring and outsourcing to Asia.
The basic questions of expansion are “where” and “how”? Yet the answers are not so straightforward. After much analysis (see below for additional considerations), I am still convinced that finding the right person comes first before any other considerations.
Finding the right person is difficult
While globalisation is a continuous trend, recruitment is largely local with senior level recruitment less sensitive to geography. The fact remains that you serve a local market in recruitment and thus local knowledge and network is important.
In a service industry where profits rise and fall is tied entirely to the productivity of the people, finding the right person to launch your business in Asia is key. With the right person, he/she can also bring in a team that can start up quickly.
Pairing Sales & Operations
If you try to find someone who is strong in business development and tenacious in setting up a new business, you’ll hit a brick wall very quickly and setting yourself up for disappointment while time flies past. It is rare to find a good operator who is also a good sales person and vice versa. Working on combinations can be a workable solution.
With a strong base of clients who have operations in Asia, you can prepare an existing hire to relocate to Asia. Pair this person with a local person who is familiar with set up to split up the work. Typically, a finance or legal person is a great choice although not evident. A finance manager with business acumen will have the tenacity to work with administration not to mention the knowledge in keeping finances in check and prudence in risk taking.
Alternatively, a local strong sales person with established clients can be paired with an operator who is already familiar with your system and processes. A good consultant with desire to move can be a good choice.
Buying may not be the best option
For companies with cash (a rarity in this economy), buying may be on the table. The logic is, a profitable company will bring immediate returns while keeping the efforts of starting in a new market minimal. It may be true for other industries; this is a potential trap for service industries where human capital is key. Most boutique firms up for sale are made up of free agents. A cultural change mismanaged can mean huge turnover and worse, people leaving to set up on their own with the client base you had bought.
Unless there is strong legal binding and strong leadership and conviction to the new management and parent company, you can see your investment walk straight out the door before your logo is on the wall.
To pick the right place to start looking for the right person, a quick list of considerations.
Work from strengths
Without over simplifying the matter with generalisation, there are key characteristics in each market. For example, Hong Kong is a big financial center while Philippines is home to contract manufacturing; Singapore is an international hub with a small local market while Malaysia has a large local market next door.
If you already have strong expertise in a sector or function, you can choose the geographies to enter based on your expertise and potential for knowledge transfer and clients cross selling.
Each market can also be rated based on the following:
• Ease of entry – cost of entering and administration required.
• Licensing – complexity of labour laws and the types of licences required.
• Strength of currency – while cost of hire is low in some geography, it also meant that their profits when converted are lower. Contrary to product industry, in service industry there is no cost advantage.
• Availability of talents – in tight talent markets, training and mentoring will be required.
• Professionalism – there is a wide range in the level of professional ethics in Asia.
• Saturation of market – eg. In Hong Kong, while financial services is dominant, there is also highly competitive.
Sometimes, the most obvious choice may not be the best choice. To avoid entering into a red sea of competition, pair your top strength with secondary markets and your secondary strength in primary markets for example.
Build on your leverage
If you are already in business, you have leverage – your clients. While your clients may or may not have strong influence or ties with their Asian operations, they are still connected. They can point you to the right person and make introductions.
Your clients’ presence in Asia also meant that they had already tested the market. Based on their industries, their presence can also give you immediate business intelligence on the viability of a certain market based on your own expertise. Note: It will not however, tell you the saturation of the market in terms of competitors.
Partnering with a client
Some of your clients may also be considering entering into a new market. You can sound out your clients with your intentions and smoke out potential partners. A large recruitment project is the best way to enter a market with some assurance while allowing you to build up a database of candidates.
For an analysis of the criteria by country, write to me.
On Friday, 10/2/2012, Spain has announced several labour reforms approved by the cabinet. Spain’s unemployment stands at 23% and 50% for those under 25 year olds. The policies were mainly targeted to make firing cheaper for companies.
In an attempt to reduce cost of firing, these include:
Reducing from 45 days per year of work entitlement to 33 days.
Capping the maximum firing payout to be 24 months rather than 42 months
In an attempt to create jobs, employers will get €3000 tax breaks if a company hire less than 50 people and hires a new worker under 30 years old seeking the 1st job.
As expected, some people came out to protest the changes. Among the 500 people in Madrid protesting, it turned from a peaceful protest into violence.
In terms of job creations, these measures are targeted to reduce cost of firing that may not affect hiring. Having said that, many have said that these are long overdue changes.
In contrast, France has announced end of January 2012 that it planned to cut cost of hiring that will save enterprises €1b3n. And to fund these, they will increase VAT or known in France as TVA from 19.6% to 21.2%.
While reducing cost of hiring that is at a staggering 55% will encourage hiring, according to a report by Morgan Stanley, this impact will be reduced by inflation.
In both Spain and France, these changes will not be effective until after November 2012. In Spain’s case, it has to pass through parliament and in France, it will depend on the presidential elections in April this year.
What I don’t understand is that while politics is relatively short-term at 4 or 5 years, they attempt to make policies that are long term. There is nothing wrong with long term policies but the market has moved swiftly and short term measures will be required.
In a bid to relax labour laws to encourage hiring, have there been considerations for laws that will be in place for 2 years while the economic crisis is still in placed?
In a recent report by Financial Times, youth unemployment has more than doubled in many countries since 2008. Some of the measures could have been in place to encourage youth hiring or open up the job market at a time when companies are exercising constraints.
For example, reduction in social charges can be applied only to companies who qualify such as proving net hiring to be above rate of natural turn over, e.g. 5%. And reduction in social charges can be staggered and encourages companies to reduce work hours, apply for reduction in social charges before finally conducting redundancy firing.
I’m no politician or pretend to know what is best in a very complex region. In the private sector, there are round tables for exchanges of ideas. In politics, are leaders talking to each other for ideas? And do we really have to wait for election to be over for changes? If that’s the case, many will have to wait till 2013 or 2014 because this year, countries expecting a change in power include United States, France, China, Taiwan, Russia among others.
HgCapital putting SHL valued at 700m up for sale to cash in on raising demand for psychometric tests. Public listing is also a considered as options.
I had a flash thought the other day that recruitment is a dying profession. Or maybe it is not the profession but the professionals themselves. I have a doubt.The world has gone through many changes. From the industrial revolution to the technological revolution, these changes have affected all industries including the recruitment industry.
Recruitment started in an era where people were employing people they knew through their family and connections. Recruitment companies offered a greater range of people and skills to feel the roles, especially for female employees who had started entering the work force when the men we’re still at war.
With the Internet, it changes the way people look for jobs. Recruitment companies could gather more candidates in their database and forward relevant resumes to employers. Companies no longer need to rely on distant relations and connections to hire. It also meant that recruiters spend more time managing resumes and responses.
It is this transformation that I thought recruiters had succumbed to the temptation of “mass attack”. Instead of careful selection and hand picking the right candidate, it may seem easier to just send a mass of suitable resumes to the hiring party or send a good resume to a mass of companies who may recruit. It seemed to have worked for a while particularly for more junior positions. The art of client and candidate intimacy was lost in the passage of time that transformed the practice.
However, the complexities of work has also increased. A rose by any other name is no longer a rose. The variety of jobs has changed to such an extent that few professions are homogenous even if they are called the same. 2 accountants in the same company could be performing very different tasks. So can an accountant in 2 different companies. In addition, education may not have evolved at the same paced of work place transformation. Both trends meant that the likelihood of finding someone with the exact fit to the job is low. In such a climate, it is even more important for recruiters to understand the requirements and demands of the job and find the person most likely to succeed by extrapolating their competences and knowledge into the future.
Does this mean that sourcing is dead? I imagine it is more alive than ever with heightened selection. It can no longer satisfy a client with extensive databases and extravagant sourcing methodologies. The client expects that. What may blow them away is the knowledge in the field and communicating a convincing argument why a talent whilst not having the exact profile can do the job and be very good at it. And on top of it, they don’t have to pay a higher salary to attract them from a close competitor and risk losing them a few months later to another competitor.
It is a dying breed of recruiters who would spend time with job seekers, understanding them and advising them. The whole candidate experience is very different when he/she is talking to a recruiter who knows what they are talking about and add value to them to another who is just a “cv pusher”. The correlation of loyalty to time invested is a linear one. Many of my friends who had been introduced to good recruiters will always return to them for their job change or when they are in the position to hire.
It will be a mistake to say that recruiters do not understand this concept. Many do. Then why are there so few doing it or seem to do it well? We need to look no further than the people in-charge. If the performance indicators and reward systems do not encourage it, the the message is “do what you can to get money”. A crude but understandably common message in times of crisis.
Contrary to belief that crunch time is doom time, it is rather the best time to save the death of recruiters. When clients and candidates become more and more selective as they prowl over every decision that has a monetary impact, it is survival of the fittest. In hay times, the mediocre can ride on the wave of growth. In a tempest, recruiters will have to review their profession and be better at what they do. There is incentive to be more knowledgeable, hold on to a lead stronger and be more resourceful.
Every good recruiter I know has said this, nothing rewards more than the thrill of finding the right person for a difficult role and have both the candidate and client congratulate them for a great match.
That is also why recruitment will always run in my blood. Let us not be the dying race.
There is no need to gasp, there is no need to frown, there is no need to point fingers. Because modern day slavery exist and is rampant in modern economies. There is no controversy, except irresponsibility.
I refer back to Dan Rivers’ report on CNN which is part of the modern day slavery series of program. This time, it was related to the electronics industry who had engaged workers from Cambodia to work in Malaysia through agencies and created opportunities for workers to be exploited. Many are responsible in the supply chain, as a professional in the recruitment industry, this is where I’ll focus.
Since the phrase outsourcing is coined, companies have seeked ways to reduce their cost by outsourcing part of their production to more cost effective partners. These partners who can be contract manufacturers in this case, then seek to reduce cost by hiring temporary or contract workers to maintain flexible cost management – hire more where required and keep workforce at minimum. There is no evil in this. The evil lies in the way workers are hired and accountabilities managed.
In countries where there are no minimum wage laws, abuse is even more rampant. Without the protection of the law, the labour market is determined by demand and supply. Where possible, employers will try to keep labour cost as low as possible and it is up to workers to accept or not. In these countries, the influx of less developed economies meant greater willingness to work at lower wages. But this also meant that employment agencies can misguide employees who are unaware of cost of living in another country to make the pay look attractive. They are then deceived into believing that their fees to agency can be easily paid off since they are promised a high pay in comparison to their own country. Since immigration requires administration and papers, these agencies also has an upper hand in controlling the administrative process and then hold the workers hostage by means of with holding passport or exit papers.
How can that be tolerated? Before we ask that question, we need to inspect another question, do we keep our eyes open to injustice or is it easier to ignore? Here, it is the sin of omission that allowed this to perpetuate. Before recruitment professionals point their fingers to the companies who hires blue collar contractors, let me identify the personage and there are quite a few white collar in this chain.
- the supply chain and procurement professionals – these are white collar executives who study price competitiveness and find the most cost effective supply. Sometimes, pressured by their company to justify their existence and to cut cost, they will seek cheapest price as oppose to most effective price.
- the human resources professionals – white collar executives tasked to set up labour contracts and advise supply chain and procurement professionals on recruitment agencies and labour sources. They can recommend responsible vendors or round up a major list and leave this to their colleagues to select. They can also advise the minimum cost and/or market cost of hire for their colleagues to benchmark cost. If the HR professionals can highlight a reasonable benchmark, red flags will be alerted to very low price competition.
- management of both outsourcing parties and outsourced companies. They have the responsibility to set examples and maintain no-tolerance to bad practices.
- the recruitment agencies of blue collar workers and the recruitment agencies of the above white collar workers.
Sales professionals in the recruitment sector is faced with fragmented competition. The price of recruitment services and contract labour in both recruitment firms for permanent workforce and contract workforce alike are often determined by competition, and indirectly by clients. I have no short of examples where clients pressed the recruitment agencies to low margins including low wages to keep both direct cost and indirect costs down. And it is more appalling when your competition agrees to these prices to “buy” the business. And sometimes, I had asked, how is that possible unless illegal. Sometimes, clients may even “suggests” ways to get around the law. It is up to the sales person decide if they want to walk away and be responsible or forget responsibilities and succum to pressures.
Let me return to recruitment. I have been a contract employee, a client and someone who does the recruitment. Most often, it is my business to clinch a deal that my colleagues can work with. I’ve seen work from different angles and I was an underage labourer too. I will say this, be brave and stand up to unfair practices. Because we are part of the supply chain. There is no point in saying competition does it and/or I may lose my job over this. Because if you do lose your job over this, you can fight and if you don’t, you win the respect of both clients and your employers.
Be responsible because you can. You don’t have to do much more than hold your ground. It is already enough.
Some practical steps:
- politely correct someone who uses the term “bodyshop” other than to refer to the company that sells toiletries.
- learn about labour law in your country and geographies you operate on, especially on minimum wage and benefits. You can advise on what is legal and fair practice.
- walk away from a client who “suggests” other companies who can do it cheaper that is not fair practice
- recommend the right people to key jobs such as supply chain and procurement, human resources. If the job profile suggests that the incumbent has to face tough situations and keep cost low at whatever costs, question the validity of such a profile.
- call out your competition who is operating irresponsibly
- manage your sub-vendors where applicable to ensure they also practice fair recruitment practices.
Recruitment is not social work but our work impacts the society, a person’s work life (over 30% of a person’s waking hours) and the people they work with.
Let’s fight back on agencies who give us a bad name. We are much bigger in numbers, I hope!