Last time I blogged here was earlier this month to describe the HCM Value Plume. It’s the idea that a benefit from an improvement in human capital management has a first expression, which conventional accounting measures. These beginnings themselves say nothing, however, of the essential conditions the expression lays for its beneficiaries to create an expanding plume of value for the organization over time. Think of it as the long tail of value in HCM. Conventional accounting gives this long tail short shrift. The value in the plume exists even so.
HCM’s Value Is More Than Skin Deep
HCM’s value comes down to how we view the very idea of value in business. For example, a new efficiency saves money. Many say this is value. Sure, but this does not change the fact that a new efficiency itself creates nothing. Whatever the resulting productivity adds, eventually—no matter how much later—is the creation.
Some may see this as splitting hairs, but I don’t. I think value is in something created, not in something eliminated—not even in the money saved by way of the elimination. In an accounting spreadsheet analyzing an investment in HCM before or after the fact, where is there an account of the long-tail value created by newfound efficiencies? Nowhere is where. We only see short-tail benefits financially codified in so-called productivity gains. These are accounting’s equivalent to a throwaway, half-baked afterthought of an effort to quantify something really important, because it has no other way to do so.
Ask yourself: is conventional accounting capable of accounting for all value? The answer is no. Conventional accounting analyses are short-sighted. They cannot see beyond the source of the HCM Value Plume. Yet even seminal texts on capitalism focus on this central idea of creating value. And business professionals keen on understanding what it means to have a business in a free market appreciate the importance of creating value. Here’s an informative article available at Medium.
Somewhere along the way, when businesses transition from being created to being perpetuated, the reins for measuring the value tend to fall into the hands of leaders whose opinion of what constitutes value that matters in business reflects the view of conventional accounting. It may be that, at some point, the responsibility of tracking all the value gets tedious, and founders with a vision to create value abdicate the job of accounting for it. Couple this with the inherent limitations of tools in conventional accounting to measure value and determine its lineage. What’s clear is that these limitations have long negatively affected how businesses view and respond to the initial spoils of investments in HCM.
A while back, I used to do forensics on benefits already realized in HCM. I’d do so from a de facto perspective: the type of benefits that matter the most to decision-makers are immediate and easily measured financially. I was favoring only value viewable at the source of the HCM Value Plume.
I later joined a highly consultative inside-the-vendor team providing advisory support to pre-sales. It was there that I became witness to the business software decision-making process firsthand. And it was eye-opening riding shotgun in actual deals.
From a financial standpoint, buying organizations do care very much about the most easily quantified benefits from an investment in software-as-a-service for HR. From this perspective, they also want to see a well-thought-out projection, developed with conventional accounting methods, of the financial return they’d be apt to realize. The stakeholders keen on knowing this aren’t the only ones with power to influence or lead decision-making in buying, however. Others care about other things, as well.
The CEO: HCM’s Value Is in the Eyes of the Beholder
Remove all pretense. Ultimately, CEOs care about three things: cost reduction, risk mitigation, and revenue. Conventional accounting gives them actionable intel on two of these, whereas revenue is the outcome of value created. With the elimination of administrative tedium in HCM, some of the greater resulting productivity will be activity that eventually makes the company more revenue.
But conventional accounting calculates the result of a newfound efficiency as an inflexible underestimation: a productivity gain. This calculation is like a dead end. Good leaders see the potential of people in increasing revenue or value off in the distance, well beyond the cavern at the end of conventional accounting’s road.
Try to imagine a scenario wherein being people-centric, obsessed with their potential, fails to increase revenue and value for the organization. I’ll wait. Meanwhile, most CEOs get it. The retention of talent has long been one of their top concerns, and the pandemic only heightened their concern. Try retaining people without paying attention to the HCM Value Plume.
It is true that CFOs or one of their direct reports are often stakeholders in the business software decision-making process. But they’re not the only ones, and they don’t even necessarily get the final say. I’ve seen it firsthand, and their view of HR, HCM’s torchbearer, as a cost center to contain is limiting and too narrow vis-à-vis the concerns of the C-suite. It ignores the role HR and its kissing cousin, HCM, play in eventually creating value, which increases revenue for the organization.
It’s the big upside to the management of the employment of a workforce. Or, I should say, to excellence in leading of people. Productivity gains don’t even begin to capture the essence of this, and employers don’t purchase software for HCM based solely on its ability to reduce costs and mitigate risk. Sure, as anyone might infer from this announcement by Visier, some of this has to do with just how much of HCM falls under the auspices of HR. Increasingly, however, these enlightened attitudes are surfacing in the most concrete domains of HCM, where organizations see necessities such as payroll and workforce management, even, as places where they can influence employee sentiment. We see vendors such as Legion addressing the opportunity through the application of artificial intelligence to WFM. And Ceridian is leading with future-of-work innovations such as streaming pay. And, of course, we see transformation in employee evaluation in the form of continuous performance enablement from the likes of Betterworks, Quantum Workplace and, at the crossroads with advancements in psychometrics, AbilityMap.
HCM at the Intersection of Intuition and Leadership
Why not take the opportunity, at the moment a newfound efficiency surfaces, to assess the potential of the person at the center of it all and continue with the labor expenditure unchanged with the idea that the person is now an investment?
Want proof this works? Just look at the emergence of self-evolving ontologies from retrain.ai, for example, designed to help employers understand their needs and people’s skills, projecting both with accuracy into the future. Judging additionally from recent moves by Cornerstone and others, things are moving in this people-centric direction. And that’s a good thing. There’s real potential, in the investment in a person, for a future innovation or contribution of great value to the organization. Does an accounting spreadsheet show this potential? No, the tools and methods we have long used to measure success in business cannot detect the extent of the HCM Value Plume. They do not measure HCM’s long tail of value. Yet the future of work is across the cavern beyond the dead end. A long tail of value lies well beyond the reach of light our primitive tools shine on HCM. That an investment in HCM will create value for the organization is an article of faith. What we cannot see from here, really is there.