Friday, February 12, 2010

Layoffs, Cash and Strategic Human Capital...The Connection

There are a number of things happening that seem disconnected, but when you dig a little deeper have impact on our profession and the role and responsibility we should play in any economic upswing.

The first is the article from Newsweek titled "Lay Off the Layoffs." Written by Jeffrey Pfeffer, he contends that the normal approach when an economic downturn occurs is corporate leadership reduces headcount. He uses the example of the airline industry after September 11, 2001 terrorist attacks, which laid off tens of thousands. One who didn't was Southwest Airlines. An airline with a larger market capitalization than the other domestic airlines combined according to Pfeffer. The former head of Human Resources at Southwest makes the statement:

"If people are your most important asset, why would you get rid of them?"

Pfeffer's thesis, backed by research, is that layoffs hurt the company and the economy. There are the obvious costs to employees who are laid off, but the research also indicates that there are impacts to the company in higher costs because of severance pay, unemployment taxes, and reduced productivity to name a few. And if the bottomline is the end goal by protecting it with layoffs...the research indicates it doesn't work.

Combine this information with a blog post and more detailed column in CLO Magazine by Dr. Michael E. Echols of the Human Capital Lab at Bellevue University. In both he references a Wall Street Journal report that companies have more cash assets on hand than in the previous 40 years. At a CLO Magazine Breakfast Club event I attended that Dr. Echols presented at in late 2009, he put a number to that cash reserve comment...$14 trillion. That's right...companies are sitting on trillions in cash assets. Dr. Echols view is that companies since 2008 have reduced infrastructure, headcount and services to develop these large cash reserves because it provided flexibility to deal with the current economic provided liquidity.

Dr. Echols makes the case that talent and learning leaders need to play a more proactive role in advocating for the investment of these cash assets in the one thing that can create competitive advantage...human capital. That we need to champion for the right investments in leadership, business-critical skills and develop new strategic human capital capabilities and capacity. make this kind of engagement with the CHRO, CFO and CEO successful, it will take planning and data. My perspective is that you have to understand the business strategy, what the environmentals are looking like related to globalization and change and determine what strategic human capital capabilities the business needs to execute its strategy. Defining these capabilities and then determining the current workforce capacity to execute those capabilities will provide you the information to influence key decisions on resource allocations like increasing headcount by buying critical talent from the talent pool, developing new capabilities in the current workforce or renting talent through outsourcing.

While I work in the public sector at the Defense Intelligence Agency (DIA), the concept is the same. At DIA, we have a mission that is about providing the right intelligence that enables decision advantage for our customer...the men and women that serve our country in the Armed Forces. Within that mission are a number of challenges that we have to overcome by identifying the key strategic human capital capabilities related to collection of information, analysis of information and planning based upon the intelligence process. We have executed in the last year a Human Capital Development (HCD) model that enables making informed resource recommendations.

If you are interested in hearing how DIA has executed this HCD model, I encourage you to take advantage of a American Society for Training and Development (ASTD) Benchmarking Forum webinar on Tuesday 16 February where we will share our story in more detail.


  1. Keith, really interesting post and I'm sorry I missed the webinar.

  2. Keith,
    You are absolutely on the mark about the cash issue. When CEOs are asked what their most important asset is they never say: "cash is our most important asset". They say: "our people are our most important asset". The reason they say this, is because people create differentiation. People create the products and services valuable in a rapidly changing future. Cash does neither. Cash is a commodity - no doubt a valuable commodity in times of great uncertainty, but still a commodity none the less.
    It is interesting that you bring this valuable perspective from the public sector. Where is the private sector conversation about this important issue?
    Mike Echols

  3. Mike,

    Thanks for the comment...

    I really commend you for starting that conversation when I sat in your session in DC last year. I found your perspective interesting and really energizing to me that those of us in the Human Capital development field have such a great opportunity to effect our organizations. But like you...I don't see anyone grabbing the bull by the horns. Hopefully we can keep this message going based on your great work at the Human Capital Lab.


  4. Jon,

    Thanks for the post...


  5. Keith, I just started as a contracting Senior Human Capital Strategist tasked with developing a Strategic Plan and Implementation Plan for RDECOM, US Army. I unfortunately missed your seminar and was wondering if you had a deck (powerpoint presentation) of your discussion that I may review. I'd really appreciate anything you could provide. My company email address is (C2 Technologies, Inc.). I am also on LinkedIn and a member of the Business and Talent Strategy Group.


    Ashley E. Cooke, Ph.D