Professional Development Archives - Page 2 of 2 - TurnAround Social Sector Coaching

President Obama said in a recent interview on Face the Nation that the most critical quality for a good President is to form an effective team because the job is simply too big without great support (7/24/2016). His comment is actually the Key Performance Indicator for anybody who is leading a company.

Your job is to choose wisely, lead the team, and solve team disputes!

It’s critical to know if you have chosen staff wisely. Most companies now spend more on service and administration than manufacturing. The balance sheets of older days focus on hard assets but most of your company is likely to be service and administrative. You need a balance sheet that measures whether your staff are building your company or wrecking it.

The literature on determining the asset value of employees is still emerging. While various models each have their benefits, it’s easy just to set up parameters and starting thinking in this new way.

I will present 12 elements of an Employee Asset Based approach. I follow that with three examples of a new staff hire, a valued older staff member, and a problem staff.

 

Elements of Employee Asset Based Value

  1. Value of Job Ability -Training and certification which leverage effectiveness
  2. Determined DNA – to complete company mission
  3. Continuing Education
  4. Historical Knowledge of Company and Culture
  5. Network
  6. Ability to contribute to team with justice and peace (honesty, harmony)
  7. Willingness to accept accountability
  8. Impact on Profit of Company and Retention of Students
  9. Impact on Critical Number
  10. Is the compensation too high for this position?
  11. Would you enthusiastically rehire this staff member?
  12. Check for liabilities. Does the new staff member destroy value because of poor performance on one of these scales?

 

How would this look in the real life examples of Jim, Elisa, and Beth?

 

Jim – The New Hire

Assume that you pay market rate for Jim who is capable of fulfilling the position description for teacher. That is all expensed as payroll. Assume pay of $40,000 per year. Debit that amount to payroll expense (just as normal)

Review the list of 9 Elements –

  1. Value of Job Ability -Training and certification which leverage effectiveness
    1. Training and certification which leverage effectiveness

Jim has a Masters in Bilingual education and the DOE would pay $52,000 for this. Credit $24,000 to Equity Professional Added Capital and Debit $24,000 to Professional Assets. Since you expect the teacher to stay for 2 years before the DOE discovers the difference, credit a depreciation account for Professional Assets for $1,000 a month (2 year schedule) and debit expense for Professional Expense.

  1. Determined DNA

Add nothing because there is no history to indicate

  1. Continuing Education

Add $6,000 because he will take CLASS Professional Development and depreciate over  two years – his expected tenure

  1. Historical Knowledge of Company and Culture

No addition because there is no knowledge of history and culture

  1. Network

Add nothing because he has no network

  1. Ability to contribute to team with justice and peace (honesty, harmony)

Change nothing because he is not yet part of a team. You need his truthfulness, compassion to others, and willingness to live for company results more than his own. If he steals, lies, cheats clients – these will all reflect badly. If he has a reputation for peace and justice, then it adds value.

  1. Willingness to accept accountability

Change nothing because you do not know about accepting accountability

  1. Impact on Profit of Company and Retention of Students

Add $9,000 in expected future profit because you believe that the presence of a Dual Language UPK teacher will add two seats to the three year old program and 2 retention effect students in After School programs. Add this in the same manner as # 1 and Depreciate over 5 years to account for the final residual effect.

  1. Impact on Critical Number

Add nothing because this will be established by Jim’s performance

  1. Is the compensation too high for this position?

No, subtract nothing as the compensation is correctly established.

  1. Would you enthusiastically rehire this staff member?

Change nothing because you don’t know. This score is the sum total of all the desired attributes fitting into a package that adds value

  1. Check for liabilities. Does the new staff member destroy value because of poor performance on one of these scales?

Change nothing because there is no history to indicate

Summary for Jim:

You hired him at $40,000. He adds $39,000 of value to the balance sheet. That amount will be depreciated over the remaining expected time of employment. The balance sheet should be adjusted in the yearly appraisal with Jim. He should see his value to the company and propose how to increase it. He correctly may feel that his compensation should be adjusted in Year Two.

On the surface, you have made a smart opening choice. The continuing months are critical as they will add or destroy value.

 

Elisa – Hired 10 Years Ago at Age 40

Assume that you pay less than the market rate of $50,000 for Elisa who is capable of fulfilling the position description for Human Resources. Assume pay of $40,000 per year. Debit that amount to payroll expense (just as normal).  The $30,000 remaining is added to Professional Assets and Professional Added Capital and depreciated over 3 years)

Review the list of 9 Elements –

  1. Value of Job Ability -Training and certification which leverage effectiveness

None, so no added asset

  1. Determined DNA

Elisa is totally committed to the mission of the company and stays late and takes work home. She is a model for younger employees. Add $60,000 and depreciate over 3 years.

  1. Continuing Education

You will propose a certificate course online for $5,000 because it will give her more skills and increase her expected date of departure by one year. Add to Professional Assets and depreciate over 3 years.

  1. Historical Knowledge of Company and Culture

Significant knowledge of history and culture. It will take 3 months of compensation to replace. Add $10,000 to Professional Assets and Professional Added Capital and Expense over 3 years.

  1. Network

None, so no added asset. It is carried with Historical knowledge

  1. Ability to contribute to team with justice and peace (honesty, harmony)

Elisa has age and experience and a kindly manner. She works in the background with you to keep the team together and let you know quietly about unresolved issues. It’s worth $30,000.

  1. Willingness to accept accountability

Elisa rarely makes an error. She knows that her value to you is in being correct.  Her determination not to disappoint relaxes you to focus on the leadership job. It raises your effectiveness by $60,000 over 3 years.

  1. Impact on Profit of Company and Retention of Students

Not a consideration since she has little effect in Marketing or Program

  1. Impact on Critical Number

Add nothing

  1. Is the compensation too high for this position?

No, subtract nothing as the compensation is correctly established.

  1. Would you enthusiastically rehire this staff member?

She is highly valued and the overall fit with the team is worth $45,000 over three years

  1. Check for liabilities. Does the new staff member destroy value because of poor performance on one of these scales?

Change nothing

Summary for Elisa:

You hired her at $40,000. She adds $240,000 of value to the balance sheet. That amount will be depreciated over the remaining expected time of employment. The balance sheet should be adjusted in the yearly appraisal with Elisa. She should see his value to the company and propose how to increase it. She correctly may feel that her compensation should be adjusted in Year Two. She may have other proposals because she understands the appraisal and company very well.

You have made a smart choice in Elisa and retained her. Your leadership skills will be tested to retain her but it’s worth the struggle.

 

Beth – Hired 20 Years Ago

Assume that you pay less than the market rate of $40,000 for Beth who is barely capable of fulfilling the position description for Secretary. Assume pay of $28,000 per year for 10 years. Debit that amount to payroll expense (just as normal).  The $120,000 remaining is added to Professional Assets and Professional Added Capital.

Review the list of 9 Elements –

  1. Value of Job Ability -Training and certification which leverage effectiveness

None, so no added asset

  1. Determined DNA

Beth is unfocused. She isn’t determined to accomplish the job because it’s all hazy in her mind. Showing up is her idea of determination. Unless she has a critical errand for her family. Debit $10,000 per year to Professional Added Capital and Credit Professional Assets. Unfortunately, you assume she will work until retirement in 10 years so the total debit and credit is $100,000

  1. Continuing Education

Ha. The last thing that she learned was where a new restaurant opened for lunch

  1. Historical Knowledge of Company and Culture

$1,000 ($12,000 over 10 years). Beth knows how the boiler works when there is a problem

  1. Network

None, so no added asset.

  1. Ability to contribute to team with justice and peace (honesty, harmony)

Beth has disappointed many employees over her career. They see that she gets paid for doing very little. She actually accounts for $100,000 ($10,000 per year) in reduced effort by others because they see that hard effort does not pay.

  1. Willingness to accept accountability

Beth always has a reason that a phone call was lost or mail that wasn’t sent. She costs about $120,000 over 10 years.

  1. Impact on Profit of Company and Retention of Students

Not a consideration since she has little effect in Marketing or Program

  1. Impact on Critical Number

Add nothing

  1. Is the compensation too high for this position?

No

  1. Would you enthusiastically rehire this staff member?

No, She destroys about $5,000 of value annually ($50,000)

  1. Check for liabilities. Does the new staff member destroy value because of poor performance on one of these scales?

See above

Summary for Beth:

You hired her at $28,000. The sum total of credits and debits to the Balance Sheet is a negative $238,000. Debit to Professional Added Capital and Credit to Professional Asset.  That amount will be depreciated over the remaining 10 years of expected time of employment.

You have a choice to make and your leadership skills will be tested to fire her and replace. Beth has one skill and that is to keep this position. She knows a Board member or she scares people or she is older and can’t get another job or she has an alcoholic husband and pays the bills. You can only remember that you’re not her father, mother or banker. You have a responsibility to the company and the people who receive its benefits.

Conclusion

Notice in these three examples (drawn from real life examples) that the real value is added by longer term employees who are effective (+$240,000). The biggest effect is not firing those who are destroying your company (-$238,000). New employees typically add the least (+$39.000)

In this example, you can increase the asset value by $279,000 or $41,000. The non performing staff member will kill your business.

What will you do this week to add Professional Capital to your company?

Notes

Russ, Meir. Management, Valuation, and Risk for Human Capital and Human Assets: Building the Foundation for a Multi-disciplinary, Multi-level Theory. N.p.: n.p., n.d. Print

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We all look at our financials to determine how the company is performing. The problem with your financials is that they were invented in 1494 by Luca Pacioli (improving the Babylonian system of 5000 BC.

Would you not agree that an update is necessary?

The current financial system is oriented towards manufacturing. In 1995, service industry portion of high income economies was 66%. I can guarantee it’s grown since then.

Recording Labor as an Asset

There have been three economies in history – agricultural, industrial, and technological. Current financial accounting is dangerously biased towards an industrial economy that does not record the financial position of high income countries and their companies.

In high income countries, labor can now be divided into 3 parts.

  1. Unskilled labor where technology destroys labor. Dyson has a vacuum that takes pictures of the room and climbs over obstacles. Why do you need the cleaning lady? Technology has even destroyed sex work since people with similar desires can connect with each other voluntarily. While unions and civil service slow the disappearance of this sector, it is marginal.
  2. Skilled labor is the next to disappear. When did you go to the bank and find a teller? Did you check yourself out at Walmart or the grocery store? Self driving vehicles will replace all drivers.
  3. The sweet spot in a technological economy is talent. You cannot replace the creative, heuristic, critical talent. In a perfect world, we would see an explosion of the arts and frontiers of science.

In the current world, you will face a dearth of talent to hire and a million resumes from skilled and unskilled labor every time you post a job.

What to do?

  1. Expense all your skilled and unskilled labor as financial accounting requires.
  2. Conservatively estimate the revenue that each talent based employee adds to the company and the estimated length of service. Add that to long term assets.
  3. It will increase your assets and equity in most cases. If you are in trouble, it adds to your liabilities and shows that you are highly leveraged.

Next Steps

What do you do with assets? You increase their value and extend their useful life.

  1. Invest heavily in talent to increase their value. Add professional development as an asset instead of an expense
  2. Examine your labor pool and invest in Professional development to convert skilled labor into talent and assets
  3. Look for technology that replaces skilled and unskilled labor

Conclusion

We cannot solve the life problems of labor that is not needed. This is where government policy and philosophy steps in to guarantee an economic floor.

For the current moment, you need to add value to labor to turn it into an asset. You will find that employees are so thrilled that most will stay longer than your conservative estimates of an asset allowed. You will win. They will win. Your stakeholders will win. The best kind of scenario.

Meanwhile, your balance sheet reveals a true picture of your expense and assets as an organization. Are you ready for the current economy? Your new balance sheet will tell.

If you want One Minute TurnArounds by email, please sign up!

GDPR – Your email is collected by an automated system so that the One Minute Manager posts can be sent. You will be invited twice a year to a two hour Scaling Up workshop for CEOs and EDs. Annually, you will be offered an Ebook and asked whether the resources of TurnAround Business Coaching are helpful.

A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

 

Sources

“Growth in the Service Sector.” (n.d.): n. pag. World Bank. Web. 16 July 2016.

Management, Valuation, and Risk for Human Capital and Human Assets: Building the Foundation for a Multi-Disciplinary, Multi-Level Theory . Palgrave Macmillan. Kindle Edition. Russ, Meir. N.p.: n.p., n.d. Web.

 

Abstract

CEOs need to invest intentionally and annually in professional development for key staff in order to achieve the objectives of the Strategic Plan.

 

Adding a New Asset

Many nonprofits are service industry corporations with few fixed assets.*  That means the success of your company is the result of your wise use of two items:

  1. Assets (Cash and other Assets – Depreciation)
  2. Temporary Assets (Labor Costs and Materials Cost)

 

Meir Russ argues that you need to take your key managerial training expense out of the Income Statement (Expensed at a year or less) and make a supplemental Balance Sheet with a new category of Managerial Assets. So the success of your company is now the result of your wise use of three items:

  1. Assets (Cash and other Assets – Depreciation)
  2. Temporary Assets (Labor Costs and Materials Cost)
  3. Managerial Assets (Training and Professional Development Investment – Depreciation)

 

The rationale is that we invest in our key managers with the expectation that they will bring new skills to work everyday and that new productivity will last more than one year. This is not that novel an idea in other industries. Performers already look at life this way. They insure parts of their body with the expectation that its value will last more than one year. “As the Beatles sang “I wanna hold your hand”, their business managers were busy insuring their fingers for £200,000 – a colossal sum at the time…. More recently Bruce Springsteen’s voice was covered for $3 million.” (Hunter, 2003)

 

Let’s assume that your average key staff member has a job tenure of 5 years in your company. Create a supplemental Balance Sheet that records the professional development asset and depreciate the expense over that period of time instead of the normal pattern to expense it all in the year that it occurs.

 

The result is to showcase whether you leverage talent with training or are satisfied with the current state of affairs. If the new account has a balance of $0, I can predict the failure of your Strategic Plan.

 

Intentional Investment for Success

Your key players face the struggle to implement the Strategic Plan. If they don’t do it – what is your Plan B? The Strategic Plan, by definition, is not easy. Your key managers need to improve their skills to meet the challenge of tomorrow. Placing those expenses on the balance sheet gives attention to :

  1. What is a reasonable investment yearly in managerial development?
  2. Does that manager have an IDP (Individual Development Plan) and are they happy or resistant to work on it?
  3. Are some key players in danger of skill aging and need to get one more chance and discussion about moving forward or transition in the next year? One problem of strategic planning is a key manager can be valuable in one strategic advance and not really interested in the continuing journey.

 

Like anything else I write about, these conversations are about as pleasant as a trip to the dentist. But the CEO is solely responsible for the wise use of labor, materials, and assets to accomplish the Strategic Plan. Leveraging the value of your managers is arguably the most strategic action that you can take. Publicly reporting it will make sure it happens and it’s also a better way of looking at leading the company than Financial Accounting allows.

 

Increase Tenure of Key Managers

All of us have a dream of who we can be. I have met very few employees who really feel that they are in the perfect place. I can tell you that if you tell a key employee that you are willing to invest $5,000 every year in their professional development, you are guaranteed to extend their time in your agency. Your reports will feel appreciated and understood.

 

You can’t keep progressing on the Strategic Plan when key talent quits repeatedly. They take too much institutional history and culture with them.

 

Tell your board that you can keep a key staff member Ms. Gold 7 years instead of 5 years for $35,000 ($5,000 per year). Mention that you can implement a key objective of the Strategic Plan with the help Ms. Gold. If I could get that bargain, I’d give the extra $35,000 myself!

 

Conclusion

You are richer than you thought. Those managerial Professional Development Costs are not going to be used in one year. They are going to stay for year 2, and year 3, and year 4 ……..  They are one of your keys to complete the Strategic Plan.  You simply must treat them that way.

 

If you want One Minute TurnArounds by email, please sign up!

GDPR – Your email is collected by an automated system so that the One Minute Manager posts can be sent. You will be invited twice a year to a two hour Scaling Up workshop for CEOs and EDs. Annually, you will be offered an Ebook and asked whether the resources of TurnAround Business Coaching are helpful.

A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

 

 

 

*Hospitals and museums are examples of capital intensive nonprofits. The rationale of the managerial reclassifying of expenses should still be valid.

 

 

 

Hunter, Teresa. “What Price an Arm or a Leg?” The Telegraph. Telegraph Media Group, 29 Jan. 2003. Web. 07 June 2016.

 

Russ, Meir. Management, Valuation, and Risk for Human Capital and Human Assets Russ (2014-10-15). Management, Valuation, and Risk for Human Capital and Human Assets: Building the Foundation for a Multi-Disciplinary, Multi-Level Theory . 1st ed. New York City: Palgrave MacMillan, 2014. Print.

 

 

 

 

 

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