If a firm has the smartest people, why isn't it yielding the best gains?

“Hidden Value”
Charles A. O’Reilly III
& Jeffrey Pfeffer
Harvard Business School Press, 2000


Almost every one calls this generation the age of “human capital” or “intellectual capital” – replacing our traditional notions of capital in terms of materials resources, like land and money. As early as over a decade ago, Alvin Toffler shocked us then with his book, “Future Shock,” announcing the end of the industrial age and the beginning of the information age. Peter Drucker introduced the new factor in the business world, the “knowledge worker.”

This fact has already been settled. Our business vocabulary has been enriched by phrases preceded by “information” – information technology, information highway, information explosion. Executive positions have also gone through a radical transformation – since we now have information managers, IT professionals and, yes, CIOs -- short for chief information officers, joining the ranks of CFOs and CMOs (chief finance officers and chief marketing officers).

Fittingly enough, people have replaced machines as the most important factor in the growth and viability of corporations. The greater impact of human effort, over machine time, has been demonstrated over and over again in a broad spectrum of industries. It was no longer financial capital alone;l neither is it technology alone. The one factor that provides competitive edge to companies is people.

This explains why companies recruit the best executive, managerial and professional talents in the job market. The result is fierce competition for “the best and the brightest” from available candidates. The result is the increasing use of executive search firms to separate the outstanding and the average.

But the authors of the book, “Hidden Value,” ask a disturbing question: Why is it that even if a firm hires the smartest people, it does not logically lead to the company’s outstanding performance?

The book sets the stage: “In a world in which there is a war for talent and in which knowledge work is increasingly important, being able to attract, retain and energize people seems like an obvious recipe for success.” Is this the book’’s premise? No. Read on:

“But, like many mysteries, the issue isn’t whodunit but uncovering how they did it.” The book’s premise is this: Outstanding performance belongs to companies that have successfully created a culture and systems that enable even ordinary people deliver extraordinary results.

The book invites the reader to discover this truth for himself by reading the happy cases of eight outstanding companies. Southwest Airlines is featured and how it has beaten competition in short haul air transport. Cisco Systems, a $12 billion high technology stealth company, whose growth is faster than that of Microsoft, on account of its aggressive acquisition strategy. Men’s Wearhouse is a happy case of a firm entering mature and low growth industry, and yet generating outstanding results for a market made up of men who hate shopping.

Five more firms – SAS Institute, PSS World Medical, AES, New United Motor Manufacturing Inc. and Cypress Semiconductor – underscore the central message of this book: Smart individuals do not achieve great corporate performance; only corporations who successfully harness their people and effectively align to corporate strategy deliver admirable results.

Some sample revolutionary moves:

Southwest Airlines threw away the 300-page corporate handbook and then brought in new people with marketing background.

Cisco Systems primes its people to address customer needs, even if requires killing technologies.

Men’s Wearhouse, ever aware of men’s loathing for shopping, uses the strategy of running only one promotional event a year.

The SAS Institute is the expression of a high-tech company with a high-touch culture. “Its business strategy is built on relationships,” the book says.

At Cypress, “hiring is a process, not an event,” the book points out. But it’s a fast process. “When we make an offer, the offer comes in person, in writing, and ready for the candidate’s signature on the spot.” Getting the person to sign an offer letter is often the beginning of the process, not the end.

The book makes the eight companies as a showcase – complete with organizational insights, tables showing dramatic growth in revenues and incomes, and innovative practices to unleash the human potential.
One practice underlies the ability of these companies to “unlock the hidden value” of their teams: They make work fun, enriching and challenging. Most of all, they don’t call them human resources, anymore. They call them “people.” This constitutes the triumph of humanity artists and writers have being talking about. It’s happening in the business world. You can make it happen in your firm.