Companies Are Choosing Short Term Profits Over Productivity

I was recently sitting around the camp fire drinking some wine with friends discussing how the jobs and productivity have not emerged from the recession.

Worker productivity has stalled.

In fact, it has grown less than 1% per year since 2011 according to a May 19th BusinessWeek article.

I think the biggest reason for the critical dip in employee productivity is that most organizations and their leaders are not investing in their human capital.

It is sad enough that they are not investing in their employees, but sadly most companies are not investing in equipment either.

What most companies are doing to please Wall Street is buying back their shares.

There is nothing more short term than share buy backs without an investment in human capital.

When I see companies buying back their shares without the appropriate investments in human capital, I know they are going to suffer after a couple of years.

Buying back shares is not a bad thing, but it is not the only thing.

What history has proven is there is no greater ROI and no greater productivity enhancer than investing in and developing your human capital.

It is not as if companies don’t have the money to spend on their employees and the productivity tools that would help them produce more.

According to the same BusinessWeek article, cash on corporate balance sheets has increased almost 70% over the past four years to more than two trillion!

I know a number like two trillion is hard to even wrap your mind around. Just think of it as the total size of Russia’s economy.

What I think is totally crazy and makes no sense is that while corporation’s profits are high, employee compensation has fallen to a 65 year low.

I believe, in fact I know, that the winners of tomorrow are going to be the organizations that:

  • invest in their people by giving them learning and development opportunities that make them more marketable.
  • invest in equipment and software that increases productivity.
  • remove obstacles to creating personalized sales and service interactions.

Mark my words. The tide is changing.

Savita Subramanian, Head of Quantitative Strategies at Bank of America said, “companies with the largest share buy backs was the best performing strategy from 2012 through most of 2013, but is one of this year’s worst.”

No duh!

The smart investor, the smart leader, the smart organization knows that investing in your people lays the groundwork for higher productivity, growth and profits.

Leave a Reply