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Friday, September 01, 2006

Economic Cost of Human Resources

How many managers understand the economic cost of human resources at their disposal? Perhaps very few. Some managers just don't understand allocation of work based on economic cost of human resource and scope for value addition. It's basically a mismanagement of cost – payoff equation.

The result of this mismanagement is an organization saddled with non-value adding activities, poor productivity, and chaos all around. People who are paid big bucks and are supposed to be spending 80% of their time on value adding activities end up spending 60% of their time on non-value adding activities. So the real things that are supposed to be driving an organization end up being the victims of managerial myopia. The managers simply fail to manage the non-value adding activities in the most efficient and cost-effective way.

As far as my understanding is concerned, there are only three ways to manage non-value adding activities. Any one or combination can do the job.

  1. Automate – The best solution to free your organization from the tyranny of non-value adding activities is to automate the activities. With the flooding of sophisticated technology these days, almost 70-80% of non-value adding activities can be taken care of through automation.
  2. Outsource – This is the next best way to plug the seepage of productivity due to burden of non-value adding activities. Majority of the non-value adding activity remaining unresolved by automation can be effectively tackled by outsourcing. Definitely it is a cost effective solution.
  3. Put the most efficient hand in action – Not every non-value adding activity can be handled by automation and/or outsourcing. In any organization some non-value adding activities will still need to be taken care of by human beings. Automation and outsourcing can ensure that proportion of such activities requiring direct human interface does not exceed 5-10% of all non-value adding activities in an organization. In such cases which require human expertise, it is better to find adept and skillful hands that can efficiently do the job. Efficiency is the guiding principle here. A great doctor cannot be a great nurse and a great nurse cannot be a great doctor. Similar is the situation in business and organizations. Some people are experts in doing non-value adding work who cannot excel in value adding work. Find those people or if need be hire them and set them in action to take care of the non-value adding work that can neither be automated nor outsourced. But for Heaven’s sake don’t saddle people who are supposed to be concerned with value addition with non-value adding activities. It is a crime to ask someone who can add value multiple times to do something that is not at all adding any value.
Managers need to give some serious thought to ineffective utilization of human resources at their disposal. It would go a long way in ensuring that limited human resources are put to best use based on their expertise, and maximum value is created for an organization.

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