Employees Are Not Cost Centers
originally posted at LinkedIn on Jan 5, 2015
“Time and Materials.” If you own a trades or construction business you know exactly what that phrase means to your business.
The ‘time’ is the labour of your team. It is a cost center … or a profit center depending on how you look at it.
Identifying business units in business as cost centers (as opposed to profit or investment centers) is helpful in describing the flow of resources and activities.
Many trades and construction business owners think of employees, labour, or human resources as purely cost centers. There is a reason for that: labour costs are very often the biggest item on an expense statement. For a business trying increase profits by controlling fixed costs, that huge number just stares you in the face.
There are two problems with this perspective.
- It is wildly imprecise. When you look honestly at the wildly different levels of contribution individual employees make to an organization, you realize you can’t lump your human capital into one lump.
- It is insidious. It limits your perspective. By only seeing the big numbers on the profit & loss statement, you are missing a much richer understanding of the value of an employee in your organization.
If I said to you, “If you can scrape together $10 and give it to me, I will give you back $12 at the end of the month. But if you can scrape together 100K and give it to me, I’ll give you back 140K at the end of the month.” Which would you do?
Your answer depends on how well you understand the process of investing. Its not about what the investment costs; its about the return.
That’s how we want businesses to look at their employees: as investments. Forget starting with how much you will have to pay someone; start with how much they will return on your investment. When you couple this with a focus on long-term sustainable growth and profitability, it should transform the way you look at your employees.
The question that matters is not: “How much should I pay you?” It is, “How much can I invest in you?” Employees that are investments do some or all of the following:
- they earn revenue (sales or tradespeople);
- they allow others to earn revenue by taking non-revenue generating work off their hands (administration);
- they positively impact profitability and sustainabilityacross a team (management).
With the first type, the metrics are easy for trades and construction businesses: in sales or tradespeople, I invest a certain amount in you per hour (or piecework/commission) and you sell or make stuff that is worth more than I have invested in you. Very nice.
The second type is a little trickier but still clear: a rainmaker in your organization can earn you thousands of dollars an hour on the road and in meetings, or she can be stuck behind a desk completing paperwork. Invest in a whip-smart, detail-oriented assistant and forget the salary grid. Invest the money the assistant will be returning to you by taking the training wheels off your rainmaker.
The third type is trickiest of all, but vitally important: a highly functional team is greater than the sum of its parts, both in capacity and return. Those kinds of teams don’t create themselves. You have to develop and manage them. Begin by setting the future value of a high-performance team. Then you’ll know exactly the value of an investment in high-performance management.
Seeing employees as investments is healthier for the people involved, and it forces you to look harder at where the potential in your organization lies. Those who help realize that potential probably have greater value than you are currently investing in them, and those that don’t have probably been around too long already. Make a smart investment.
Clemens Rettich has over 20 years of experience in education, management, & small business. He has supported and run small businesses, not-for-profit organizations, and community development programs for over 20 years.