Within the automotive aftermarket we can find successful one-person operations, and larger manufacturers with vast hoards of personnel that have yet to internalize their corporate culture and direction.
Within this mix there are many midsized companies-”some that do better than others. But what they all have in common is a workforce striving for success. So, why do some parts of a business yield escalating returns on human capital while others seem weak? Is it a hiring choice, the company business model and/or the internal company chemistry, or is it a pure return on talent?
The process is actually quite simple if you consider that the performance of your company is determined by the performance of your employees, including the leadership and communication skill sets and attitude of staffers.
Companies must therefore measure return on talent (ROT) as well as return on investment (ROI) to gain a full understanding of their efficiency and performance.
Knowledge is Power
As a university professor specializing in the management and marketing of the aftermarket and motorsports, I see serious students with a plan incorporating action steps daily. I also witness students who have no organizational skills and flounder in finding their real mission and direction.
Knowledge is one of the most important factors for business success, especially in challenging times. The same is true for the aftermarket business owner or manager.
If knowledge assets are increased, then related factors such as sales will also increase. Talent, or intellectual capital, has fast become one of the most significant areas of business activity and competition, and the aftermarket is no different.
As such, the performance of a company is likely determined by the performance of its employees. But this bold statement deserves further study.
Are employees really that important to the overall success of a business? What about strategic intent? Core competencies? Manufacturing? Proprietary technologies? Where do the best equipment and measuring tools fit in? What about a visionary CEO or boss?
Yes, all of these attributes contribute to the success of a company. And all of these things are improved or enhanced when you have employees with outstanding skill sets.
Good employees join in to help implement new initiatives. Others follow at various times depending on when they can break the bonds of their comfort zone and then enter the areas of change, uncertainty and opportunity. The true measure is asking yourself if the employee is in the right job.
It is broadly recognized that past performance is not a reliable indicator of potential or future success. Yet many companies, large and small, continue to use past performance to identify high-potential employees. How much true talent is overlooked by this practice?
Overlooked and misplaced high-potential employees stagnate. The problem of identifying, positioning and compensating high-potential employees spans all disciplines and levels, from the mailroom to the boardroom. Lost or underused employees represent enormous, largely unattended financial loss.
A second problem is the difficulty in determining the financial contribution of employees beyond industry measuring such as revenue per employee.
I recommend managers of all levels consider the use of a new tool called Return on Talent (ROT). Understood is the fact that most companies focus on return on investment (ROI) and fail to understand the key strategy of how to increase ROI by increasing ROT.
By harnessing talent and realizing the value of knowledge, everyone can benefit.
How to Harness Talent
ROT has the power to revolutionize business at all levels.
Like many elements of management, simple is as simple does. ROT is calculated by dividing the knowledge generated and applied by the investment in talent.
It’s important to address the dilemma of how to measure an intangible asset and how to generate high ROT value. For decades, companies have used key metrics like ROI and ROA (return on assets) to determine value. But increasingly an effective new-economy company will utilize ROT.
Current business measurements merely measure the use of capital, but ROT is expressed as follows:
ROT = knowledge generated & applied in talent.
If you have talented people with management skills and product knowledge, the equalizer is knowledge as a principal component. The generation multiple of knowledge is the most important thing talent can provide.
Now, you may realize that knowledge generated by the talent doesn’t equal knowledge applied. If knowledge isn’t applied, then the company loses most of the market value of that knowledge. Whatever knowledge a person generates in a year, divided by how much is invested in that particular person, is the value answer.
If an employee generates many innovative ideas but never implements any of them, that person fails to generate any value, because the return to the company is zero. Knowledge becomes an asset only when it’s captured and used effectively; if it isn’t effectively applied, it can’t generate any yield or ROI.
Knowledge assets, like money or equipment, are worth cultivating only in the context of strategy. You can’t define and manage intellectual assets unless you know what you are trying to do with them.
This is the backbone of the knowledge economy-”success in this field depends on the mastery of talent, just as success in manufacturing relies on the skillful employment of the plant and supply chain.
The Value of Knowledge
Effective knowledge generated means high ROT. In a small- to medium-sized aftermarket company it is critical to assess each component of your staff, their job description and the ability to undertake that job responsibility.
This leads to a creative workforce, innovations, smooth processes, continuous product improvements and improved communications. It helps management to be flexible, to capitalize on opportunities, and to keep pace with the changing aftermarket climate.
Talented people influence those around them, and their knowledge is shared over time. Therefore, top knowledge generators should be rewarded. If managers expect top talents to achieve their maximum performance and produce maximum return, they must not place them in routine jobs.
ROT measures the payback from an investment in people; it shows whether managers are hiring the right people and how effectively they use them to achieve business success. It can be a quantitative or qualitative measurement, based on management’s viewpoint.
Ask yourself, are you getting maximum ROT from your gear head staffers starting from the bottom and moving up the ranks? Are managers getting the maximum payback on their investment in human capital? If managers want to see quantitative results, they must put a price on knowledge generated, based on the results achieved.
Talent generates knowledge, which is one of the greatest assets within an enterprise. Consider how companies are built with talent, wisdom and the creative energy from within.
Knowledge has become a key production factor, along with traditional resources such as raw materials, buildings and machinery. Companies that measure the knowledge generated and applied by their talent pool can make their investments in that talent pool more profitable. Furthermore, companies cannot improve what they do not measure.
Making It Happen
The follow steps are a means to making it happen. Perhaps not quite as simple as 1-2-3, but certainly worth your effort.
Recognize that the end product is your ability to capitalize on what may likely already be at your doorstep. The human capital within your grasp can be used to improve your ROI, and without much of a capital investment.
First, build a team focused on developing talent. To reach high ROT scores, you need a talent team.
Often you can find one or two good people who can generate knowledge and perhaps even apply that knowledge. Most of the individual talent in a company can be innovative if the team dynamics are right.
If you have a low ROT score, you may have a dysfunctional team. ROT scores are not fixed; they change over time, as in most relationships.
Next, measure and monitor ROT. If you are an aftermarket manager who hires and invests in talent, you need to monitor ROT closely. Consider it a cash investment in the creation of certain needed and valued ideas.
If you see that certain employees are not generating enough knowledge and success relative to your investment in them, it likely will send up a red flag, because your ROT value might become negative, or much lower than your competitor’s.
Then decide how to increase ROT throughout your company. If you were hired to manage talent with a low ROT score, you need to take steps to boost the ROT fast.
How do you turn around a company and improve your scores? You do it person-by-person, function-by-function. You have to assess the talent on your team and find out who and what is bringing the most profit to the company, who and what is winning and keeping the best customers.
Your first task is to perform talent diagnostics, just as you would use diagnostics in fine-tuning your engine. Focus on quick, high-profile actions that build support and momentum behind the need to increase ROT.
Many managers and business owners assess employees’ talent intuitively-”they don’t necessarily need a measurement tool. Getting “a feel” for people has worked for ages, right? The question is, has it really and truly worked or is it a notion of hope that likely leads to despair?
Every manager benefits from having a tool to measure and monitor ROT. Apple soared when Steve Jobs was CEO, and faded when he left. It soared again when he returned. It doesn’t mean that Jobs was a good or bad person, but it measures that he was a very effective person in his job environment.
Many people fail when there is no job or business structure. They go by intuition. After you identify the key talent, give them the authority and resources to boost the ROT team score.
The talent diagnostic may show that you have many talented people in one department, fewer in another. Make sure you balance the talent according to the needs of the company, and then challenge each person and team to reach group and personal goals.
In conclusion, companies that constantly improve ROT grow at a rapid rate, while management can monitor the performances of individuals as well as teams.
Knowledge is one of the most important factors for business success and leads to improved confidence and direction. Thus, if knowledge assets are increased, then all other related factors such as production and sales will automatically be increased.
As we enter the trade show season, I recommend you invest time and effort in the fine-tuning of your most important internal business asset-”the people who carry your company business card. Maximizing your return on talent means getting the most out of your company.