Selecting People Often Harder Than Buying Machines Sometimes Companies Less Careful With Hiring Than With Hardware

It isn’t at all uncommon for a company to deliberate longer about purchasing a piece of hardware than in hiring an important middle management executive.

It happens all the time, even in companies with a reputation for good management, and even though the executive might mean an investment several times more costly than the machine.

The employee, obviously an important one to the company, can represent more than a $1 million investment over a 10-year period. Yet a $250,000 piece of machinery with a shorter lifespan might undergo more diligent scrutiny.

This isn’t to say, heaven forbid, that companies should think of workers as machines. Not at all; merely that since companies consider the machine an investment they should think of the employee as one too.

No company, says consultant Jeffrey Schmidt, would pour such money into new equipment without first weighing costs against benefits. But rarely, he says, do companies apply the same study to people.

Schmidt, a principal of Towers Perrin, international consultants, has just completed a study on the investment dollars involved in hiring a middle level technical or managerial employee in several major industries.

In all but one instance, the investment involved about $1 million or more over a a 10-year period. The exception was in banking, where a corporate loan officer represents a cost of $691,000 during 10 years of employment.

Among the others, he found that an environmental manager for a petroleum company represents an investment of $1.2 million; a telecommunications manager, $1.1 million; and a utility company maintenance manager, $983,000.

Schmidt arrived at his figures after adding up salary costs, of course, and then adding in pay raises, a factor for capital, and, very significantly, the costs of a benefit package.

The oversight, if it may be called that, is one that afflicts large companies more than small. In the latter, hiring is a more significant event, he says, and employers “haven’t lost sight of the value of people.”

In his opinion, small companies simply do a better job of looking at people, one reason being that it is easier to see the value created by a person in that environment. In larger concerns it is blurred.

The same, of course, might be said of an investment in machinery, but it doesn’t stop analyses of machinery costs and benefits in the way it does in personnel matters.

Seldom, he finds, does the company do the same due diligence in regard to the new employee and the person’s track record and competency, the latter a factor of education, experience, skill base and behavior.

Schmidt has developed a methodology he calls “People Strategy,” to have “the right people in the right places doing the rights things at the right cost for the right return.” It begins with defining the job to be done.

He suggests it make simple common sense to follow such a procedure, since almost invariably companies insist that their most important assets are the people who work for them.

That being so, it is logical, he suggests, that companies apply the same due concern to their investment in people that they do to their investment in hardware.