By Kevin Meyer
The other day I was talking to a couple execs at a local manufacturing company, and the usual topic of the evils of doing business in California came up. I responded that yes, it is difficult, but if you used some brains it was possible to out-compete even Asian sweatshops even from the state that does everything possible to bite the hand that feeds it. And as usual, since this conversation is unfortunately rather common, they looked at me with an expression asking if I was already taking advantage of the “medical” marijuana dispensary nearby.
One of them then said, in a bit of a huff, “I do use my brain, and we can’t compete.” To which I said “It’s not your brain that I’m referring to.”
That funny-looking attachment, unrecognizable by many executives, is a brain. The brain has a bunch of functions, detailed here:
Now, to be fair, I’m sure many execs do realize there’s some mysterious blob attached to the hands, especially since OSHA requires them to put safety glasses or a hard hat on it. But I’m guessing they think the only valuable component of that brain is this:
Obviously something has to control that pair of hands - so they do value a part of the motor control area! How enlightened! However lean types, especially real lean types that fully understand, embrace, and leverage the respect for people pillar of lean, know that the rest of the brain is a beautiful thing:
- How much will it cost me to hire a person (I dare you to say “a brain”)?
- How much will I save if I can reduce my headcount (uh, “braintrust”?) by one?
Typically the answer to the first question will be “well, add up the wage dollars, then tack on benefits, then tack on an overhead "costs", and it’s about $100 per hour.”
If that was the answer to the first question, then almost invariably the answer to the second question will be “add up the wage dollars, and a portion of the benefits, so about $25 an hour.”
Hmmm… something doesn’t add up. Why does it cost more to bring someone on than can be “saved” if the person goes away? I won’t get into that particular insanity here, but most of us have experienced it.
Funny, there’s a particular anatomical entity that isn’t even considered. Where is the value of the brain? The ideas that lead to improvements that lead to increased productivity, improved processes, and increased customer value? Somehow that’s not “real” because it’s not on a P&L or balance sheet.
But I bet that company still has a slogan on a wall somewhere that says “Employees are our most valuable asset.” Really? Show me.
And that’s why those kinds of companies chase “cheap” labor around the world. Perhaps to China, then now to Vietnam or Burma or someplace. They look at a P&L and balance sheet sort of like this:
Now a few people are lucky enough to work for organizations where the answer to those two questions would be:
“How will that person help us create customer value? Are we paying enough to respect the knowledge and experience she’ll bring to our team?”
“Are you really sure we can afford to lose his experience and knowledge? Could he add value in another area? How will losing his ideas impact our productivity?”
Yes, you sometimes have to dream a bit. But I’ve known a couple CFOs that really talk like that. A rare breed. And they look at a P&L and balance sheet analysis of a potential offshore move this way:
Those execs, and even CFOs, realize that traditional financial statements are flawed. The value of the brain - the experience and knowledge that drives creativitity and ideas - isn't represented. Therefore there isn't an offsetting brain value to the "cost" of the pair of hands. Not realizing this is why some companies do crazy things like whack a couple thousand highly experienced people, move overseas, and hire a couple thousand replacement unexperienced people. And claim it adds value.
I've seen some of those enlightened CFOs even try to find ways around a traditional P&L and balance sheet. One capitalized all the training time applied to people, so if a person left they then had to expense a portion of that capitalized cost. It's stretching a few concepts and even GAAP, but at least she understood reality.
More and more companies and organizations are beginning to understand the value of the brain - which is why more and more companies are returning to North America. They leverage their brains to be agile, create custom solutions, and find innovative ways to add value to their customers. Even in California.
Sometimes it takes a brain to know one...