Investing in human capital

Without an educated and motivated workforce, labor management systems and tools will take you only so far.

By John M. Hill, principal, ESYNC -- Modern Materials Handling, 1/3/2007

During the past year, the potential of labor and workforce management systems using engineered standards for warehouse productivity improvement has been widely heralded. I am excited by these developments, too. But for this column, allow me to approach the subject from a different angle by looking at the difference between labor and human capital.

While the two terms are often used interchangeably, they are vastly different.

In classic economics, three factors are critical to goods-producing enterprises – land, capital and labor. Labor has always been the toughest variable in the equation to manage. That leads to an important question: When land and capital are equal, why is it that some companies so dramatically outperform others, even when using the latest tools for performance management?

I think the answer boils down to management’s understanding of the distinction between labor and “human capital” and its willingness to make the investments necessary to turn the former into the latter.

Let me give you an example. Years ago, I took a summer job as a night shift turret lathe operator in a well-equipped automotive feeder plant.Paid by the piece and trying to put away enough money for my sophomore year at college, it didn’t take rocket science to figure out how to set up a pair of lathes and nearly double my output.

Within a few weeks, I had three lathes going and was earning twice as much as my peers.And then, the roof fell in.Rather than take up my offer to show them how to set up the line to match my performance, my fellow workers found my Beetle in the parking lot, slashed the tires and sunroof, and smashed the windshield.The following day, I put on a white shirt and tie and reported to work as the newly appointed assistant supervisor of inventory control – and production numbers returned to status quo levels.

In my example, the company had the land, the capital and the labor, but management had not made the investment in education, training and motivation necessary to convert that labor into “human capital,” an asset that differentiates the winners.The point is that tools and systems alone will not get the job done – indeed, they should be enablers that allow an engaged, motivated and well-managed workforce to meet or exceed collaboratively-established performance targets.