Citigroup announced today it was cutting 50,000 jobs. Circuit City filed for bankruptcy protection, closing 155 stores and laying off 17% of its’ workforce. Starbucks closes 600 stores, displacing 1,000 workers, according to the New York Times. And The Scientific Leader blog has covered extensively the massive casualties at the financial industries catastrophies at Lehman Brothers, Freddie Mac, Fannie Mae, and AIG. These sorts of layoffs in an economic recession are among the most emotionally difficult business events for employees and employers. For lower skilled labor, it feels like a mini-death. For others, especially employees with skills in high demand, a dismissal reflects what economist Joseph Schumpeter calls “Creative Destruction“, in that their labor can be now quickly redeployed to a higher valued use.
What assets can help people weather these storms? I subscribe to the definition of human capital as those knowledge, skills, abilities (cognitive, physical), traits, interest and values owned by people and leased to employers. When combined with other assets, such as technology and brands, in a businesses value chain, employees can create value for a firm. In turn, they agree voluntarily to rent their labor for a fee.
The Scientific Leader’s “Cue See(TM)” model suggests that people’s ability to do valuable work is what creates this value. Labor, like physical assets, has value in context. For example, an accountants’ skills no longer have the value they had in the roaring 1990s at Enron as they would today at Google. Similarly, the same Financial Analyst at Lehman Brothers who today is unemployed, has a much higher probability of keeping a steady cash flow into her bank account if she has diversified her skill portfolio with other valuable forms of labor. If she redeploys her financial analyst skills toward Enterprise Risk Management, to mitigate the sorts of risks that destroyed Lehman, she can repurpose her skills toward a new market. But the most robust human capital that produces the most consistent set of cash flows for employees are those that create value in diverse markets. An analyst who also has a nursing degree can redeploy herself to care for patients, for a paycheck, when the financial industry goes bust.
Skill Portfolios Mitigate Personal Income Risk
Just like investments in financial assets, possessing skills across a variety of areas relevant to diverse industries reduces the uncertainty associated with future income. This is because multiskilled people can switch roles, companies, and/or industries as the labor market supply and demand changes. In this way, multiple skills amount to a set of personal Real Option that represent the right, but not obligation to exercize, if a better opportunity arises. Robert Cialdini’s research on ethical influence suggests that people are more likely to recognize your diverse skills if they have “cues” or symptoms that are vetted by credible authorities. Relevant signs of expertise include certifications, degrees and awards.
For a company that wants to avoid Citibank, Starbucks and Circuit City-style massive layoffs, they can deploy policies that ensure workers are cross-trained; or hired into the firm with multiple skills that can be redeployed as business conditions change. In this way, economy-driven layoffs can be minimized or avoided. The Cue See(TM) model provides a framework for helping to assess business risks and invest in a variety of assets required to realize business goals – including but not limited to employee investments. Details on the model are forthcoming in my 2009 book, “Leading Scientifically: Mitigating Risks and Increasing Returns”, to be published by Pearson Education / Prentice Hall.
What are you doing to hedge your personal portfolio? Are you continuing to invest in maintaining, expanding or diversifying the industries in which you can work successfully? Are you systematically using a framework like the Cue See(TM) model to help you detect and manage risks to achieving your business goals?
Technorati Tags: Risk, Business, Management, Layoff, Human Capital, Skills, Portfolio, Finance, ERM, Risk, Profit
1 response so far ↓
Lisa Forrest // November 17, 2008 at 6:42 pm |
Great post Matt! Cross-training is key, isn’t it? At the library where I work, we’ve centralized services following the “Information Commons” model (so all of the core services are physically located near each other)– but not a whole lot of cross-training going on YET. It seems people are somewhat territorial. I feel it’s on the horizon though…