Monday, June 1, 2009

Sand Castle Management

- Jay Niblick

In a complex tax environment, whether you are facing a complex set of tax regulations or an unsophisticated yet difficult Revenue authority, the wrong talent in your tax department will end up costing your organization a tidy sum of money. Keeping the talent in your tax department well honed is one of the unknown tax risk areas often overlooked by organizations as they chase basic tax compliance in the old traditional areas (which according to a Deloitte study only contains up to 40% of the real tax risks in any organization. Developing your tax departments talent is one sure way of uping the game on your side to the next level. Read the article below for some more insight...

Sand Castle Management

The intellectual economy is upon us, and par for the course for our myopic society, too many corporations have their heads buried in the proverbial sand.

The competitive advantages of old are no longer the competitive advantages of today. Technology is more easily and quickly duplicated, and by offshore competitors who do it for less.

In the old industrial economy, a company’s greatest assets were their physical and natural resources. In the new intellectual economy, however, the biggest competitive advantage is a company’s human capital. More and more, what makes one company better than another today is not its production facility, its brand image or its secrete formula. It is the human capital behind these things that separates the winners from the losers. Our dependence on Drucker’s knowlege worker has never been higher.

Examples of the risks associated with mismanaging this human capital abound. Enron’s fall was not due to a lack of physical or financial resources but because of poor decisions made by key people. IBM lost its market share not because it was “out-manufactured” but because it stopped innovating. Daimler Chrysler failed to appreciate the importance of its engineers and the bleeding still hasn’t stopped, and General Motors was dethroned when it allowed the focus on processes and finances to block out focusing on innovation and the customer. Should I continue?

While many corporate leaders claim to be well aware of the importance of their human capital, all too often their practice fails to live up to their preaching. The reason for this is their habits. Today’s leaders grew up in an industrial economy. The management philosophies and business practices employed today were originally developed in the previous economy. That economy has left the building, so to speak. It is time to update management practices accordingly. New economies require new thinking. Ford’s assembly line was the antithesis of a people-centric focus, but they don’t seem to have changed with the times given the recently attempted downsizing of 75,000 employees.

As a result, even if they acknowledge the shift in importance of the human capital of their organization, too many executives habitually continue to think in old ways.

Think this is untrue of your organization? Confident your company has enlightened management practices in place? Here are three easy Litmus tests to see if your organization has shifted from an industrial mindset to an intellectual one:

  • If you list payroll on your P&L legers as an expense instead of an fail.

  • If your employee turnover rate is higher than the defect rate for any product you produce…you fail.

  • If your organization has a Chief Operations Officer and Chief Financial Officer, but no Chief People Officer…you fail.

If your company passed all three tests, buy more stock in your company. If it failed any of them, it still has some adjusting to do. If it failed all of them…it is time to radically adjust your approach to these items as a matter of urgency.

Your ongoing participation in the current economy, despite your lack of focus on Human Capital investment, is bound to drive you down the Enron, IBM, Daimler Chrysler, General Motors path. Except that you may not have the momentum of some of these giants to survive the journey .

These are not hollow thoughts of a group of overly empathetic humanists seeking to create warm fuzzy environments across the world. Substantial studies have shown a positive correlation between the ability of an organization to effectively manage its human capital and its ability to increase hard metrics like top and bottom line growth, shareholder value and market share.

To whit:

  • A Cornell University study of large publicly funded companies, for example, found that companies using “high performance” human resource practices have market values that range from between $16,000 and $40,000 per employee higher than firms that do not use such practices.

  • Another study of high tech start-ups showed that for firms going public with a high level of human resource value, the probability of survival is .79; for firms going public with low levels of human resource value, however, the probability is only .60.

  • More specifically, companies with aligned workforces are more likely than those with less aligned workforces (a) to develop and deliver high quality products, services, or solutions, (b) to develop and deliver new products, services, or solutions, (c) to satisfy customers or clients, (d) to effectively market products or services, (e) to achieve sales growth, (f) to operate profitably, and (g) to capture market share.

  • Over the past 10 years the average annual shareholder return of the publicly traded FORTUNE "100 Best" firms has been 50% higher than the S&P 500.

The moral of the story is this. Too many executives continue to substitute working hard for working smart. They do a whole lot of things, but they do them in areas that are no longer the most vital. They are breaking a sweat building sand castles to continue to hide their heads in. Organizations that fail to appreciate the significance of the shift from an industrial to an intellectual economy will be at a serious competitive disadvantage.

Competitors who do realize this fact will out innovate, out perform and out pace them; in which case the sand castles they have built will serve as the perfect vantage point from which they can watch the sun set on their business.

Innermetrix has developed a process to find the valuable Human Capital talent in your organization, develop its maximum potential and then keep it in place to operate optimally. Implementing the Innermetrix process will cost you a fraction of the additional returns your organization will generate. Take the next step to improving the ability for your corporation to generate optimal returns and investigate the Innermetrix process. Contact us today for a free consultation (

The business of TRM Services has used the tools of Innermetrix to assess the suitability of candidates applying for consulting positions in tax - with great success. In fact, the shareholders in TRM were so impressed with the Innermetrix tools, they ended up investing in Innermetrix.

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