Negative human capital and how it affects your firm

Negative human capital and how it affects your firm

We have discussed Baker’s Law in terms of customer selection: bad customers drive out good customers. Two corollaries to that law are that bad team members drive out good ones and bad leaders drive out good team members.

Bad team members have a toxic and demoralizing influence on the performance of an organization. It’s never easy to admit a hiring mistake, but when it is necessary to fire a knowledge worker, it is often because the hiring decision was wrong in the first place.

To use Jim Collins’ analogy, the onus is on the company’s leaders to decide who sits on the bus, and if they are on the wrong seat on the bus—because they are displaying weaknesses rather than fully utilizing their strengths—then the leaders must move them to a different seat.

All firms need good people, which means they must understand precisely what it is they are good for. In today’s competitive market for talent, we must try to inspire human capital investors by finding responsibilities where their strengths can be put to the highest use. That onus is also on the firm’s leaders, and they should take it seriously.

People-Service-Profits, in that order

If the virtuous circle that FedEx’s slogan—People-Service-Profits—embodies is true (and I believe it is), then we simply have to put the good of the firm’s people first, even at the expense of customers. When it comes time to let substandard performers go, it is a task that must be carried out with dignity, respect, and precision (sometimes, a surgeon must cut in order to cure).

We do people no favors when we let them languish in a job they are not capable of performing well, or for which they have no heart. The philosophy, “hire slow and fire quick,” is sound advice. How do you know when it is time to let someone go? Ask yourself if you would hire this person again. Think how you would feel if this person came to you and said he or she was leaving to pursue another opportunity.

It is simply unacceptable to other team members to keep people in the firm who are not meeting expectations. The negative morale effects are significant, and will ripple throughout the company. Poor performers are not good role models, do not make good mentors, and may even be damaging customer relations. If the leaders don’t make these tough decisions regarding the most important form of intellectual capital in their firms, who will?

To keep poor performers in place is to risk the future of the firm. Comedian Steven Wright once sardonically noted, “The problem with the gene pool is that there is no lifeguard.” In a knowledge organization, the leaders and executives are the lifeguards, and it is incumbent upon them to make sure the firm’s genes are healthy. This is also why many companies involve the entire team in making hiring decisions (and even hold them accountable for new team member performance, as well as it being a promotion criteria). Better to have many lifeguards surrounding the pool than just a few.

There is another dimension to letting people go, and it involves the customer. In survey after survey of why customers defect from professional firms, one reason always comes up: let team member contact lapse, or the rotation of team members on the customer’s account.

And, while it’s not typical for a poor performer to walk away with customers, it can (and does) happen. Many firm partners worry incessantly that their team members could develop strong relationships with their customers and “take them with them” if they leave.

Yet, there are some strategies a firm can use to diminish this risk (you can never eliminate it; no one owns a customer). Here are some of those strategies:

  • Try rotating team members on customer jobs, while maintaining the same managers and partners.
  • Use customer service teams.
  • Introduce multiple team members to all customers so they can get to know more people in your firm.
  • Offer more services to your customers so different talent in your firm can develop relationships with them.

Most important, do not let team member turnover catch your customers by surprise. Notify them early, make sure the partner or manager personally introduces the replacement, and follow up with the customer to ensure they are satisfied.

This is an area of major weakness in most firms because they are not thinking like a customer. From the customer’s vantage point, they have several concerns when someone new is assigned to them: Does this person know as much as the replacement, or are they going to have to escort them down the learning curve? What does this turnover say about the internal quality of my firm? Is it having trouble keeping good people? (Never forget, the customer usually does not know that the person let go was a poor performer). A firm can lose a lot of creditability if it does not manage the transition properly with the customer. The key here is good (and early) communication.

It’s time for leaders to stop viewing employees as simply problems, procedures, and costs. People are not assets, inventory, or resources; they are individuals entitled to a sense of purpose in their lives, who congregate in organizations to make a difference in the lives of others. The universal need of every worker is to perform meaningful work, in a community with others of like mind to make a difference in the world.

It is the firm leaders that will determine the fate of human capital investors. Attracting, developing, rewarding, and inspiring human capital volunteers is the single most important role of leadership.