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The Force Multiplier Band: Finding Value in HR Processes through the Lens of War
The document discusses the concept of 'force multiplier' in HR processes, which highlights how firms can increase employee value through effective resource utilization, showing that companies like Apple excel by maximizing revenue per employee compared to Microsoft. It introduces the 'force multiplier band' (FMB) as a framework that defines the performance potential of employees based on HR processes, aiming to minimize turnover and enhance productivity. The analysis includes metrics for evaluating performance and the necessity of strategic HR practices for individual and business unit success.
The Force Multiplier Band: Finding Value in HR Processes through the Lens of War
- 1. The Force MultiplierBand Finding value in HR Processes through the Lens of War March 2016 Quek Keng Yong
- 2. Force Multiple asa Performance Metric • An employee in a large firm is able to generate more value than an individual due to the firm’s additional resources, thus The Firm is a Force Multiplier • A firm with a force multiple value > 1 delivers more value as compared to a similarly sized group of unorganized individuals. • As a firm’s force multiple increases, its revenue per employee will also increase. Holding all else constant, the firm’s value rises as a result. • In the military, a force multiplier is a factor that “multiplies” the effectiveness of a group of soldiers • An example of a force multiplier in action is the Battle of Thermopylae (depicted in the movie “300”) where highly skilled Spartans fought a much larger Persian army. Image Source: Cracked.com Web Site Calculation The firm’s force multiple can be calculated using its revenue per employee divided by GDP per worker in the country it operates in (weighted average for multi- national firms)
- 3. 0 5 10 15 20 25 30 35 1997 1998 19992000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 FM for AAPL FM for MSFT Stock Price of AAPL Case Study: Apple Inc. vs Microsoft Corporation The amount of revenue per employee a firm drives is a critical metric used by hedge funds in assessing a firm’s future growth and growth margins. Apple Inc. (AAPL) has managed to earn USD $2.1M per employee in 2015, almost three times that of its traditional rival, Microsoft Corporation (MSFT) which is at USD $800k/employee. Its founder Steve Jobs returned to the ailing company in 1997, turning its fortunes around. Sources: World Bank, Morningstar, Xignite Apple’s Performance since the return of Steve Jobs Processes in Place Before Jobs settled in, Apple employees were more than 10x as effective as the average US worker, similar to Microsoft’s, due to the processes to manage human capital in tech companies. A Revolutionary Entrepreneur Steve Jobs is remembered as a visionary genius who had a “reality distortion field,” that could inspire people to achieve what they previously thought was impossible. The Power of Leadership Apple’s FM peaks in 2011, the year of Job’s death, at more than 30x. Within 14 years, the great leader added 18 men’s effectiveness to each of his capable followers. Microsoft’s FM barely changes. $16 $663 “Return to Profitability” Era Average FM: 12.05 “Mobile” Era Average FM: 19.92 “Post-Jobs” Era Average FM: 29.69
- 4. HR Processes createthe Force Multiplier Band HR processes are instrumental in helping a company improve its force multiple. The actual force multiple at which individual employees operate is subject to themselves and their direct superior. However, for each strategic business unit, HR controls the maximum value, the Force Multiplier Ceiling, and the minimum value, the Force Multiplier Floor, and this determines the effectiveness of managers throughout the firm. The 7 core HR processes identified by Dr. Garry R. Buettner are arranged according to the value they affect the most: Force Multiplier Ceiling Recruitment & Selection Legal Issues Workforce Planning Training & Development Compensation Performance Management Job Design & Analysis Force Multiplier Floor As such, the HR processes of the firm creates a “band” in which managers can adjust their employees’ performance levels. This is henceforth referred to as the Force Multiplier Band (FMB). The better the firm’s HR processes, the higher the values of their FMB. Force Multiplier Band
- 5. Upward Pull withinthe FMB Electric field is defined as the electric force per unit charge. The direction of the field is taken to be the direction of the force it would exert on a positive test charge. In the electric field on the right, a positive charge would rise to the top. Similarly, within the Force Multiplier Band, employees experience a “pull” that brings them closer to the Ceiling. Software Engineer I Software Engineer II Software Engineer III Senior Engineer Staff Engineer Senior Staff Engineer Technical Track in Software Firm Sources: Quora, Glassdoor.com 1.71 2.85 4.42 6.27 8.55 11.40 0.00 2.00 4.00 6.00 8.00 10.00 12.00 Software Engineer I Software Engineer II Software Engineer III Senior Engineer Staff Engineer Senior Staff Engineer FM Progression “10x Engineers” are the top tier of engineers that are 10x more productive than the average When an employee first joins the firm, on Day 1, he/she is at 1.0x. He/she is unaware of all firm’s resources and unable to tap on them to deliver additional value. The employee also possesses untapped potential. The HR processes that push the FMB upwards also motivate them to improve their performance and uncover their potential. Here is how a merit-based promotion policy leads an employee to move up the FMB. Force Multiplier Ceiling Force Multiplier Floor
- 6. 1.8 1.2 3 0.8 0.3 0.5 0 1 2 3 4 ADAM BERTRAND CAROL FORCEMULTIPLES OF SALES STAFF UNDER SALES MANAGER DANIEL Performance Potential Mechanisms of Firm Exit in the FMB FM Ceiling FM Floor Force Multiplier Band ADAM • Employee performing within band • Employee expects to keep working at firm • Manager can use variety of methods to motivate employee to perform BERTRAND • Employee performance near borderline • If employee performance falls below FM Floor consistently, the Performance Management process should lead him to exit the firm CAROL • Employee performance at upper limit • Employee unable to capture additional value of working at full potential due to FM Ceiling • May lose this employee to a rival firm (higher Compensation = higher FM Ceiling) Direct superior cannot effectively motivate employees performing near FM Floor and FM Ceiling since there is a high chance that they will exit the firm. ILLUSTRATION PURPOSES, NOT BEST PRACTICE The wider the Force Multiplier Band (Ceiling - Floor), the less staff turnover there will be within the firm. Staff with performance exceeding the Ceiling, or under the Floor, will tend to leave.
- 7. Force Multiplier forManagers’ Performance Command Progression in Modern Army Source: Wikipedia For employees on the management track, the Force Multiplier of the business unit led by them should be used as an indicator of their performance, rather than their individual FM. Like a military officer, he/she will lead an increasing number of people as he/she climbs the career ladder. Corporal Sergeant Lieutenant Captain Lieutenant Colonel Colonel 3 Fireteam 13 Squad 55 Platoon 225 Company 1000 Battalion 5000 Regiment Size Management Track in Retail Firm Sales Rep Senior Sales Rep Sales Manager Branch Manager Area Director Regional Director 0 0 5 20 100 400Team Size The business context differs from the military context, as the employee takes a longer time to become the official leader of a team, whereas a soldier can start taking command right after the training phase. Thus for those at junior ranks, the firm’s HR staff should actively identify leadership qualities and other indicators, to assess their potential proficiency in management roles. Unit
- 8. Corporate Context andSupport Functions When the entire firm is taken into context, the Force Multiplier Band is not entirely horizontal as certain HR processes may differ between business units. Under this framework, the performance evaluation of a support function should be linked to the business units which it supports, using a weighted average (weighted using man-hours and/or relevant resources consumed). In this fictional Firm Z, we have a Sales department that has a much higher FM Ceiling than the Operations and Marketing departments. This is due to the commission-based compensation policy of Firm Z’s internal sales staff, which incentivizes these employees to perform highly at their jobs. 8.0 8.0 12.0 2.02.0 4.0 11.1 6.4 7.8 Operations Marketing Sales Total Accounting Hours Consumed 1000 2600 400 4000 Force Multiplier Contribution 1.95 4.16 1.11 7.22 Accounting Department, Firm Z FM FM Floor FM Ceiling
- 9. HR Processes’ effecton BU & Firm Performance Raise FM Ceiling Raise FM Pull Raise FM Floor • Compensation • Training & Development Bottom 10% of employees FM: 1.69 Mid 80% of employees FM: 7.24 Top 10% of employees FM: 14.98 • Workforce Planning • Training & Development • Recruitment & Selection • Performance Management • Legal Issues HR Processes Effect on FMB Resultant FM FM for Business Unit A: 7.46 FM for Business Unit B: 11.82 FM for Business Unit C: 3.31 Firm FM: 7.53
- 10. The Dual Effecton Firm Revenue Reduced by FMB width Revenue = Firm FM ∗ No. of Employees ∗ (1 – Staff Turnover) ∗ GDP per Worker Group FMBs for Technology Firm Y 10.2 11.8 6.7 5.0 3.83.9 Continuous Optimization of HR Processes
- 11. Points to Note Perceived Unfairness Manystaff in sales are comfortable with taking home a small percentage of the revenue they generate, but employees working in other functional departments may view the FMB framework in a negative light. E.g. Some employees may have pre-existing assumptions about their capabilities that do not tally with FMB figures, causing tension at work. Labour-Reliant Industries Certain industries have standard business models that utilize large quantities of cheap labor. One example is the US retail industry, which employs millions at minimum wage. The FMB for these employees is very low and narrow, and difficult to adjust (e.g. USD$5 increase in hourly wage entirely eliminates worker’s contribution to profit margin) Human Capital Outliers This framework cannot accurately capture the effect of outlier employees that do not work in revenue centers. For example, a technician in a IT department of a bank who is able to complete tasks two times faster than normal will not significantly boost his department’s FM, nor will his performance be noticed by this framework.