What percentage of your people create 90 per cent of the value?

Asking a critical question about who creates the most value in a company can be an unpopular but fundamentally important one in designing and delivering performance-enhancing HR practices

Asking a critical question about who creates the most value in a company can be unpopular but fundamentally important in designing and delivering performance-enhancing HR practices, writes Wayne Brockbank

If you want to have a very interesting, unpopular but centrally important discussion, you may ask your senior leadership team, “What percentage of our people create 90 per cent of the value?” I have seen some companies conclude that the answer is less than 1 per cent whereas I have seen other companies conclude that the answer is 80 per cent. (Assume for a moment that value is defined by sustainable profitability.)

The question will be unpopular because it assumes that some people in some positions are more important than others. It is centrally important because it helps you to identify whether value is created by a small number or a large number of individuals. This determination is important because of its implications for what kinds of people are hired and promoted (superstars or team players), for how rewards are distributed (normal or power distributions), how decision-making authority is allocated (centralised or dispersed), and how symbols of status such as office space and parking places are allocated (lavish to a few or evenly dispensed).

It may occur in some companies that the importance of a small number of individuals is overemphasised and the value created by large number is underemphasised. When this occurs, teamwork might be undermined, feelings of inequity might abound, strategy implementation might be sub-optimised and institutional synergy might be lost.

“The question will be unpopular because it assumes that some people in some positions are more important than others”

If the importance of large numbers of people is overemphasised and the value of a small number of individual key value creators is underemphasised, there might be a tendency for superstar talent not to be hired, for superstars to leave and for key talent not to be fully leveraged.

Therefore, it is appropriate to ask ourselves, “Under what conditions should small numbers or large numbers of value creators be emphasised?”

  • Startup versus mature. Business startups tend to be done by a small number of entrepreneurs (e.g. FedEx). When the firm is in the mature phase of its life cycle, value tends to be created by a larger number of people (e.g. Toyota assembly lines).
  • Individual genius versus collective genius. In some companies’ business results might rest on the genius of a small number of individuals (e.g. Steve Jobs at Apple). However, business success might also depend on the senior leadership leveraging the genius of the collective institution (e.g. Tim Cook at Apple).
  • Company values that focus on teamwork rather than individual prominence. We see this dynamic being debated at India’s Infosys in which the founders traditionally emphasised institutional equity; whereas the more recent senior leadership tended to emphasise C-suite eminence.
  • Individual-based work versus collaborative based work. The nature of the work itself might emphasise individual effort (e.g. Goldman Sachs Private Wealth Management) versus collective effort (e.g. Tata Consulting Services).
  • Demographic homogeneity versus heterogeneity. In some countries the capability and performance distributions are assumed to be relatively narrow because the population of the country is relatively homogenous (e.g. Finland); thus, collective effort tends to be more emphasised. In countries in more heterogeneous populations, the distribution of performance may be broader and individual effort might tend to count more (e.g. England).
  • Small numbers versus large numbers who are involved in strategy formation. In some firms it is assumed that a small number of individuals set the strategy and performance targets which the masses then execute (e.g. PetroChina). In other firms, it is assumed that strategy formulation and target setting is best done by large groups of individuals who collectively have access to broad cuts of market information and therefore may be more involved in strategy formation (e.g. Unilever)

“Getting the right balance is centrally important for the design and delivery performance enhancing HR practices”

Whether the above analysis indicates that small numbers of individuals or large numbers of individuals create the greatest value, getting the right balance is centrally important for the design and delivery performance enhancing HR practices.

Action items for HR

  1. As an individual HR professional, have a clear idea of how your firm creates value in the form of sustainable profitability.
  2. Pose the question to your management team, “What percent of our people create 90 percent of our values? Who are they and what do they do?”
  3. Ensure an open, honest, non-political and business-focused discussion in the search for the answer to the above questions.
  4. Translate the answers to these questions into their implications for staffing, measurement and rewards, and organisation design.

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