How can organizations invest in people to achieve optimal productivity?
Part I of this article explores how the commercial real estate world tests and appraises property based on its potential instead of its current condition. This sequel will apply those principles to assessing and empowering human capital to achieve its Highest and Best Use (HBU).
Quickly, there are four tests to determine the HBU of a property. The improvements must be:
- Physically possible
- Legally Permissible
- Financially Feasible
- Maximally Productive
Of course, item No. 4 on this list is where things can get especially tricky, involving projections and assumptions to formulate a best guess at how a property can be most profitable. And billions are spent every year on pro forma arguments for or against these projects.
There may be even more complexity when attempting to apply these principles to people, but a similar framework is a good start for determining the HBU of human capital:
- Capability. You can’t build a marina in the desert and you can’t hire a fully-blind person to be a truck driver. But there are also hard and soft skills to consider, both in terms of attained capacity and potential growth.
- Legally Permissible. This is one mirrors land use issues, especially as it relates to non-citizen candidates/employees. Can the requisite visa be obtained? Does a felony or legal issue disqualify the candidate/employee? Is there a conflict of interest?
- Financially Feasible. Another direct transfer from the real estate world. Is the compensation package fair for both parties? Will the candidate/employee accept the pay band and benefits? Are the opportunities for advancement and salary increase attractive enough?
- Maximally Productive. How can a candidate or employee be best deployed to achieve optimal productivity for a company? In real estate, the HBU project is always designed around the characteristics of the property. Sadly, in the corporate world, people are forced to fit the job instead of the other way around. This is a lot like deciding to build a movie theater on a property without considering the demographics, competition, and other potential projects.
Assuming tests No. 2 & 3 above are fairly straightforward, let’s explore the first and last test and how these concepts open space for massively different outcomes for people, their productivity, and, ultimately, an organization’s profit.
Let’s start with Capability. Unfortunately, many candidates/employees are immediately disqualified based on educational background. Others who are legally eligible are disqualified based on criminal convictions. As briefly discussed in Part I, the education system is outdated and underperforming. Just 27% of college graduates are working in a career related to their major. Outside of careers like doctor, engineer, or scientist, the hard skills learned in college are often unimportant or obsolete. Furthermore, as AI and technology progress, the value of hard skills decreases as machines takeover much of that work—which now includes repetitive cognitive tasks as opposed to just replacing manual labor.
Even where humans are more capable, the skills gap is not likely to close. Perishable skills (specific tech-based skills that are frequently updated, organization-specific policies and tools, specialized processes) have a half-life of less than 2.5 years. That means “reskilling,” which is often a 3-6 month endeavor, needs to occur every few years for work that may be more efficiently done by a machine before the next cycle. Contrast that with what IBM labels “durable skills” like design thinking, project management practices, effective communication, and leadership.
All humans have the capacity to learn both perishable and durable skills. Getting maximum productivity from people over time means understanding and assessing these skillsets and creating roles to maximize those capabilities instead of trapping people in roles based on organizational hierarchy.
Capability is, in fact, elastic. Not only does each individual possess a unique set of developable hard and soft skills, their capacity to execute depends on a plethora of factors. For example, we know that stress reduces the capacity to perform at work. Physical health also impacts capacity. Employees with better mental, physical, and relational well-being can accomplish more. Connection to purpose can further increase productivity potential. How much people trust their boss and their employer, their level of compensation, and even the health of relatives or loved ones can all impact Capability.
For an employer to help a person become Maximally Productive, then, requires not only identifying, assessing, and developing skills potential, it also means investing in peoples’ well-being. It requires a deeper focus on adaptable, transferable skills like challenge discovery, critical thinking, and communication. A report from the Economist Intelligence Unit summarized the transition into a new economy that started fifty years ago:
The growing mismatch between the needs of business and the offerings of the US education system stems from the fundamental restructuring of the national economy since the 1970s. This shift and the transition to an increasingly service-based economy have led to working environments that require more and more collaboration rather than the performance of repetitive tasks or the operation of machinery.
In other words, work is now about teams of people identifying, exploring, and discovering innovations with the potential to be profitable. Does that sound too futuristic? Consider Apple bringing people the iPod when no one was complaining about CDs; Facebook, Instagram, and Tik Tok changing the way we communicate; and Deloitte and McKinsey spending billions of dollars on a shift to Human Capital consulting away from their more traditional specialties.
For businesses to thrive they need to optimize their greatest asset: their people. This is not just about rethinking an approach to hard and soft skills, it is also about creating the ecosystems of culture and compensation that help people be their best and collaboratively solve problems that may not seem readily apparent. By definition this means shifting the nature of work from specifically-described jobs to more tailored roles with the motivation for each individual and team to do their best work. Human capital optimization means identifying and developing perishable and durable skills, connecting people with purpose, and creating a culture/ecosystem where well-being and personal goals are achieved. And all that adds-up to profit—for organizations and their people.