When did employees become "costs"?

May 21, 2016 | Phil Fersht

Stapler - Office MovieIt suddenly dawned on me what the core issue is with the future of the workplace: the simple fact that company leaders and their stakeholders started viewing employees as walking costs at some stage over the last 30 years, and have devoted a huge amount of focus and energy trying to figure out how to remove as many of them from their business as possible... without it impacting the top line.

Surely, people, human labor should be viewed as a valuable commodity that adds value to a business, not some burden on the profit margin that needs to be eliminated at all costs?  So what's really gone amiss here?

Enterprises hired people into jobs they no longer value. Over the decades, our enterprises have ballooned with staff hired to provide inputs into process chains to keep them ticking over - whether they were writing lines of spaghetti code to make processes flow from one subtask to the next, or producing reports out of SAP for a historical view of the business some manager will archive away somewhere. Or taking customer orders over the phone... or faxing insurance claims from doctors' surgeries and inputting the data into some system. Today, many of these jobs could have been avoided, if these enterprises had simply invested in a better suite of software applications (which may not have been available 10-20 years ago), or cost-effective service providers were on hand to do the work - and were trusted enough to take it on.  Today, the vast majority of enterprises are trying to figure out how to eliminate these jobs that they themselves created in the first place.

People have just stayed consistent to performing tasks that now fail to align with today's desired outcomes. Many of the staff hired to produce these tasks just haven't evolved into doing anything else. The only innovation in their lives is going from Windows 8 to 10, or adjusting to the latest Oracle upgrade. On the surface, this isn't their fault - they are merely performing tasks they were hired to deliver. In reality, they should be smart enough to realize their job is becoming legacy and should be working with their employer to find areas of the business to work on where they can add real value. "Let's talk about my role" is usually a welcome discussion to have with your boss to work out additional areas you can focus on that align with the evolving goals and desired outcomes of the business.

People have grown entitled to being employed and lost sight of their value in the workplace. Some people simply think they deserve a chunky paycheck because they turn on their laptop and forward around a bunch of emails, perform a series of rudimentary tasks that just about check the "enough not to get fired" box. It amazes me how some people have hugely over-inflated views of their own self-worth and self-importance to the business. People need to take a serious look at the value they deliver to their employer - do they help bring in new clients?  Do they go out of their way to  keep existing clients delighted? Do they produce work that is unique and differentiated? Do they do things that are very distinctive and hard to find in the workplace today? Are they proactive and actually do things on their own initiative that they were not merely instructed to do? Get a reality check, people...

The workplace ethos is no longer about creating a safety net for people. Ugh - but it's true. Employers, by and large, only care about themselves and pay lip service to their staff to make them think they really care. Just look at people who quit their jobs after years of service and wind up being sued by their former employer who they thought cared about them... This is not a loving, caring, fluffy work environment, people... and this goes both ways for both employee and employer.  The same can be said for employees who pretend to love their employer, then shaft them over when something better comes along. This is not a love-fest, this is business. Let's just be honest with each other about our goals and expectations.

Governments have lost touch with reality.  Just watching this US election in full swing baffles me. Politicians are out of touch with the realities of the modern workplace. Make it attractive for employers to hire people again and curb draconian labor laws and payroll taxes. And create tax incentives for businesses to employ  and train people... seriously.  It's no wonder so many firms only want to add headcount offshore, where they are not subject to all the risks of hiring locally.

Academic institutions are not aligned with economic reality.  Sad, but so true. Are most kids coming out of college truly trained and ready for this workplace? Or do today's enterprises have to manage all the orientation to mould them into an effective working style? I look around so many industries today and only see aging management teams and pathetic succession plans in place.

The millennial generation mentality is a poor fit for many legacy businesses. When the meritocracy in many firms is still based on the length of service performed, they are going to struggle to create a fruitful environment in which most ambitious millennials can flourish. They want a sense of purpose and a flatter organization structure, a more collaborative style of working that encourages creative thinking and  a broader set of work activities that align them with the goals of the business. Apologies to many legacy businesses bending over backwards to change their cultures to adapt to more of a "startup" culture... but my client interactions are not giving me the warm and fuzzies that things are really changing... all that much.

Bottom-line: Fear the next recession, when it comes, as this could get really ugly

The thing I hate about these long, sustained periods of economic growth is the simple fact that enterprises just paper over the cracks of their failings and only deal with them when disaster strikes. And when disaster strikes, the solutions are usually draconian short term measures, like wide-scale damaging layoffs, travel freezes, marketing cuts etc. My fear is the last 6 years of (largely) false economic prosperity has instilled a sense of denial that we need to make deep, painful changes to how we manage people, and how we run our enterprises. When employees are largely viewed as "costs to be reduced" (which is all I pretty much hear from leadership today), as opposed to "people from whom we can source real value", there is only going to be one likely outcome when the xxxx hits the fan...

Now enjoy your weekend and forget I wrote this cynical distribe =)

Posted in: HfSResearch.com HomepageHR StrategySourcing Change Management

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  1. Prasanna Kumar
    Posted May 21, 2016 01:33 AM | Permalink Reply

    Great point Phil. As we all know, automation that started with the industrial revolution has been rapidly changing the business landscape. In the digital age, organizations have to adopt automation and change their business model to stay in the game. RPA, on the other side, has a baneful potential to put much more people out of jobs. I believe this issue has broader implications that can be resolved by responsible corporates and governments. Employers must lead with initiatives to reskill their employees. Governments which talk inclusiveness cannot be too far behind to partner with the corporate world and develop some macro policies to resolve this looming tsunami.

    Prasanna Kumar

  2. Jesus Michel
    Posted May 21, 2016 02:12 AM | Permalink Reply


    Fantastic article. When you mention "the vast majority of enterprises are trying to figure out how to eliminate these jobs that they themselves created in the first place", I think you have summed up the quandary for our industry. Enterprises need to rethink their whole approach to labor and create jobs that will not become redundant in another 5 years,


  3. Claire Yates
    Posted May 21, 2016 03:59 AM | Permalink Reply


    What a great perspective - you've managed to convey the reality of today's workplace in a way that's funny, truthful and frightening all at the sametime ;)


  4. DG
    Posted May 21, 2016 05:00 AM | Permalink Reply

    Hi Phil, I would love to work for a company where the founder has this philosophy.

  5. Alan
    Posted May 21, 2016 08:36 PM | Permalink Reply


    Isn't this just driving the shift towards more employees becoming contractors and an increase in contingent staff workers?


  6. Phil Fersht
    Posted May 21, 2016 09:10 PM | Permalink Reply

    @Jesus - employers must move/hire people into roles that add value and manage them to that value,


  7. Phil Fersht
    Posted May 21, 2016 09:12 PM | Permalink Reply

    @Prasanna - like everything else, this will be dictated more by reactionary necessity than a proactive strategy by governments and enterprises. Which is when the wrong decisions are made, not the right ones... *sigh"


  8. Phil Fersht
    Posted May 21, 2016 09:14 PM | Permalink Reply

    @Alan - I agree that more people are shifting to 1099 roles, but it's not a huge trend. Firstly, you can only "1099" for a firm if you perform less than 25 hours/week on a consistent basis, and employers are terrified of flouting labor laws these days in many states (and in Europe other regions). Secondly, most employees simply only want the safety net of a full-time job. I've even seen people try out the indie thing and go flocking to the first corporate gig as soon as they can. Why? because they like the comfort factor, that feeling of security. which is, in my opinion, directly linked to the desire of enterprise leaders to minimize labor costs - they know they have too many people who really don't "want" to work, they just perform to the bare minimum.

    So three things really need to happen:

    1. employers move/hire people into roles that add value and manage them to that value
    2. entitled employees who don't have a true "can do" collaborative attitude need to be weeded out
    3. "experts" need to become "students" again - and those that refuse to reorient should be moved on


  9. Shiva Shetty
    Posted May 23, 2016 06:28 PM | Permalink Reply

    A while ago I came across a neat ditty that went : everything depends nothing is always everything is sometimes

    I think workplace reality is catching up to this ditty. with reference to how important employees are, EVERYTHING depends. Google said 1 Great engineer is worth 40 mediocre engineers. Who probably are worth 400 wage slaves pushing proverbial emails to each other.

    Those CEO emails at the end of each quater and year signing off on the "I want to thank each and everyone of you for this years results " fosters the illusion that asst.manager in A/R and HR actually helped move the topline.

    A more realistic sign off and message would be " some of you this last year really helped us boost our results; a lot of you are headwind and dragging us. you know who you are. We and the OPID team are going to try and find it too this coming year"

    Somewhere a decade or so ago, with the advent of 'participation trophy', many low valueadd individuals also started thinking they are not. Firms encouraged this illusion since a rising revenue tide lifts even the rotting boat. but the next imminent recession will be a rude wake up call.

  10. Den Howlett
    Posted May 23, 2016 06:36 PM | Permalink Reply

    @phil - employees became a cost a long time ago when the systems of time and motion and standard cost accounting were introduced so I'm not sure what your point is today. If anything, services organizations regard employees - or more prosaically labor - is a prime cost that services orgs seek to minimize in the interests of profit. Just as I'd want to drive down my landed cost of materials in a manufacturing process.

  11. Phil Fersht
    Posted May 23, 2016 06:57 PM | Permalink Reply

    @Den - on the operations side, there's been a marked change in attitude in the past 5 years. You talk to most clients today, it's all about reducing headcount - that's the constant pressure on them (see this recent survey that shows two thirds of operational C-Suite leaders are actively pursuing policies to restrict labor investments and are evaluating automation strategies… they’ve accepted they can’t really change the people they have (only 48% see improving operations talent as important/critical), so need to focus on the overall model, the technology and tools, to make the real sweeping changes.


  12. E. C. Roche
    Posted May 24, 2016 02:09 AM | Permalink Reply

    Another perspective is that of the job seeker. Jobs potentially offer much more than money -- a learning experience, a career path, the gratification of earning one's way in life, etc.

    If the job does not offer these additional benefits, move along to the next.

    Unfortunately short-sighted bureaucrats fail to see this when they institute minimum wage laws. (I'm ignoring the enormous arrogance that they also have convincing themselves that they somehow know how to run a business better than experienced business owners, in spite of the fact that the vast majority have never had to meet a payroll in their government-subsidized lives). The blame for relegating workers to being a "cost item" falls squarely on their shoulders.

    The claim that these laws will not destroy job opportunities, especially for those entering the job market, is absurd. It shows a massive lack of understanding about the laws of supply and demand. These politicians will soon be groping for excuses shifting the blame for their utter failure...as always.

  13. Simon Alexander
    Posted May 25, 2016 01:11 AM | Permalink Reply

    Are employees seen as assets or resources? If that truly is the case then why non-competes? It is because regardless of how employees are treated (asset or resource) ultimately they are Intellectual Property. IP's value has a shelf life, like any asset it depreciates at a rate based on how relevant it is and if it is updated/invested in. Most corp's investment practices into their employees is relatively week and see it as responsibility of employee. Those who do not refresh their skillsets depreciate at a quicker pace than those who do, thereby being an extra cost to the business as it refines/automates/innovates business processes/services.

  14. Arvind K. Gupta
    Posted May 25, 2016 06:36 PM | Permalink Reply

    So glad to read this, it seems to be a major taboo to challenge this preconception—on par with questioning the blind worship of growth in our current economy. Agree with all your points above; would add: since the 1970's, companies discovered the incredible psychological advantage of making their employees feel like they are doing a favour by giving them a job. It is as if they have now come to believe their own lies, so much that they try their utmost to NOT hire even when it would be in their best economic interest to do so; they would rather miss opportunities of growth entirely than be perceived by their investors as growing their headcount. The "employees=cost" paradigm started with mecanisation in the industrial revolution. It may be have been valid in an economy of mass-produced goods. In most developed countries nowadays, however, the vast majority of the economy is in services rather than goods—i.e. what companies are selling or prospering on is not "stuff", it's people; it's their employees' talent and skills, their intellectual and emotional intelligence. Yet it seems like our corporate and financial management culture is still stuck in the 19th century when it comes to thinking about putting their employees in the assets rather than in the liabilities column.

  15. Phil Fersht
    Posted May 25, 2016 10:21 PM | Permalink Reply

    @simon - non-competes are so 1960s =)

    You make a great point that many firms' intent upon hiring is to invest in asset, but that asset soon becomes more a cost-burden than valuable asset.

    You also raise the question regarding who is responsible for investing is an employees' development - the employee or the employer. My view is it should be both - the employee needs to want to learn new skills and the company needs to provide the resources, and management skills to develop them. It's a mutual gain for both parties. Everyone needs to adopt the attitude, today, that we are all "students" again, or we'll all become costs before we know it.


  16. Durgesh
    Posted May 29, 2016 09:14 AM | Permalink Reply

    Repeat after me. Greed, for lack of a better word, is good.

  17. Joanie Rausch
    Posted May 30, 2016 11:17 PM | Permalink Reply

    Great article. Considering employees a cost has never been greater than today. They are budget cuts. Unfortunately, the chosen few to stay are worked so hard they burn out and hit a breaking point. For those self insured, the cost of the budget cut is picked up in benefit claims. Or employees begin to feel unappreciated which starts the turnover wheel. In most cases, the cost of turnover ends up matching the budget cut trying to be saved in the first placed. One big vicious circle out there! It's time for someone to put together that the budget cut of people is being picked up elsewhere.

  18. Subhojit Roye
    Posted Jun 25, 2016 02:39 AM | Permalink Reply

    Interesting that you should bring this up, under Future of Work. I know that used to be and possibly is still the approach of some managers. And maybe it is because I come from a business development background that I have a completely contrarian view-point...I see employees as revenue CREATORS rather than costs.

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