people, profits, and HR

I bought a car a couple of weeks ago, an experience that has inspired several blog posts. One of the things that really struck me was that, amidst a rather amazing and intimidating amount of paperwork, there was a paragraph in fine print where I had to acknowledge that the dealer might be making a profit off of the transaction.


Why wouldn’t they? Why should I have to sign an agreement saying I realize they just might benefit? They certainly don’t need my permission. No other store I’ve ever been in has been concerned that I was aware and ok that they were selling me something for (gasp) more than they paid for it. Stranger still, it was in fine print on a two foot long page of fine print – most people wouldn’t notice or realize or even care. Have car dealers had a problem of people suing when they found out the dealers weren’t losing money on the deals?

Actually the boilerplate fine print nonsense is not what has me concerned. It was more the fear behind it. Why on earth, in a capitalist nation proud of its entrepreneurial spirit, would we resent a business profiting? The doors were open, the lights, were on, the and the employees and owners want to get paid for their efforts. That money has to come from somewhere…

It really got me thinking about where else do we resent profits? How often do those of us in Human Resources think that we’re above business and dollars? That it’s not about the money, that it’s about the people? That the HR department is a humanitarian oasis in a desert of cut-throat capitalism? That we don’t need to understand the business because it doesn’t apply to us?

Here is a simple formula I like to use: Profits = People = Profits. Profits are a direct result of people and people create profits. We cannot remove people from the profit equation, so why pretend that we can? Why pretend that they are somehow separate?

Human Resources, at its very best, impacts organizational performance. We hire, develop, and retain great people who care about the business’ success, who deliver great results. We advise and help leaders get the most out of their people and out of themselves. We assist people when there are things going on in their lives that get in the way of them being great. We help create, shape, and support the very personality of the company.

Human Resources at its most mediocre doesn’t understand, doesn’t care about, or resents the connection between people and profit. When that happens, we fill the slot, check the box, file the paperwork, say “no” a lot, and become an irrelevant barrier.

It’s really our call.

Soundness, profitability, or growth. Pick any two.

In everything there is a choice and in everything there is a tradeoff. There is an old adage in bicycling that highlights the choice/tradeoff decision: “Light, strong, or cheap. Pick any two.” When buying parts you can have them light and strong (but it’ll be expensive), strong and cheap (but it’ll be heavy), or light and cheap (but it’ll be weak). It’s up to the individual to decide what’s most important to them.

The same is true in business, even though it goes largely unrecognized. We can just as easily say: “Soundness, profitability, or growth. Pick any two.” We can be stable an profitable (though growth will be slow), profitable and fast growing (at the cost of soundness), or sound and growing (but won’t have much left over as profit). The challenge is, that because we don’t recognize this tradeoff, we try to create a business that is stable, has great profits, and is quickly expanding. Trying to maximize all three at once is impossible – at best one (or more) of the three will suffer, but be hidden. For example, the business may be highly profitable and expanding nicely and appear stable, until that first bump in the market highlights just how overleveraged the company is. At worst, the business is neither sound, nor profitable, nor able to grow.

Correct me if I’m off base here, but it seems that Wall Street rewards maximum profitability and growth, generally at the expense of soundness. Yet, the truly enduring companies (whether we’re talking about a sole propritership or multinational giant) – the ones that survive the cycles of recession – are the ones that best understand this tradeoff and keep soundness in the mix, switching focus on profits or growth as their strategy warrants.

In business, as in personal life, it always comes down to opportunity costs. By understanding what you really want, you have a much better handle on the strategy to pursue. As wonderful as it sounds, it’s a recipe for disaster to try and create soundness, profitablity, and growth simultaneously.

That’s the theory anyway. I’d love to hear about examples that poke holes in the theory (I sure can’t think of any).