00:00:00
financial accounting is not the same as
00:00:03
internal accounting with its detailed
00:00:05
categories of all costs and sources of
00:00:07
revenue
00:00:08
for the purposes of our discussion here
00:00:10
though what is important is the odd way
00:00:13
Financial Accounting treats employment
00:00:15
costs as compared to other costs perhaps
00:00:18
the best known example of this is
00:00:20
investments in equipment are treated as
00:00:22
assets that can be paid for and
00:00:24
depreciated over time as we get value
00:00:27
from them but investments in employees
00:00:29
are treated as a current expense and
00:00:31
must be paid in full in the year in
00:00:33
which they accrued even though we get
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value from them over time wages and
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salaries are seen as worse than other
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current expenses because they are seen
00:00:42
as fixed costs that somehow can't be cut
00:00:45
in downturns even though layoffs are
00:00:47
commonplace
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welcome to the ripple effect the podcast
00:00:53
that takes you on a journey through the
00:00:55
minds of work and faculty I'm your host
00:00:57
Dan Loney and in each episode we'll be
00:00:59
diving deep into the inspiration behind
00:01:02
the groundbreaking research that Wharton
00:01:04
professors have conducted and exploring
00:01:06
how their findings resonate with the
00:01:08
world today we'll be covering a diverse
00:01:11
range of topics bringing you the latest
00:01:13
insights and knowledge that you can
00:01:15
apply to your life into work so get
00:01:17
ready to dive into new ideas with the
00:01:20
ripple effect
00:01:22
Peter great to have you here it's great
00:01:24
to see you again thanks for giving us a
00:01:25
few moments today thank you Dan uh so
00:01:28
this idea of financial accounting when
00:01:30
do you think it really has has kind of
00:01:33
started and kind of gained traction so
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that you're seeing this impact around
00:01:38
companies right now
00:01:41
you know one of the things that my
00:01:42
father told me I should absolutely do is
00:01:45
take accounting classes and I never did
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so my knowledge of accounting is very
00:01:51
much as a kind of outsider on this stuff
00:01:53
but I think there was a coming together
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of a couple of Trends so Financial
00:01:59
Accounting my understanding of this
00:02:00
modern Financial Accounting begins with
00:02:02
a Great Depression the creation of a
00:02:05
security Exchange Commission efforts to
00:02:07
kind of standardize uh how financial
00:02:10
accounting is done because you know if
00:02:12
accounting is not consistent it's pretty
00:02:14
useless right
00:02:15
and that has been in place for a while
00:02:18
the Financial Accounting Standards Board
00:02:20
was created I think 1973 or so and they
00:02:23
began to coordinate and consolidate the
00:02:27
rules into clearer categories so they
00:02:29
could be used and then again in 2009
00:02:31
another effort in that so the standards
00:02:34
the basic ideas of this are not new they
00:02:37
got started at a time when in most
00:02:40
companies the big deal was Capital
00:02:42
Equipment it was machine or even
00:02:44
manufacturing especially right so not
00:02:47
too surprising that they focused on that
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and they didn't pay much attention to
00:02:51
human capital and the key distinction
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that they made was that something could
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be an asset if you own it
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and then you could invest in it but only
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if you own it
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so once they thought about human capital
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and they were not to my knowledge
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thinking about it at the time this was
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all promulgated
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you know you don't own your employees so
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they can't be assets and you can't
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invest in them because you can only
00:03:18
invest in assets so that's been around
00:03:20
for a long time what begins to change is
00:03:23
in the 1980s the rise of shareholder
00:03:27
value as the new goal for companies they
00:03:29
used to say
00:03:31
that the goal of companies was
00:03:33
explicitly to balance the interests of
00:03:35
the stakeholders and investors were one
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but so were employees and so is the
00:03:40
community around you and so were your
00:03:41
customers when I first got to the
00:03:43
Wharton School that is how people
00:03:45
thought about it right and how we taught
00:03:47
it there was a academic Revolution on
00:03:51
that question that pushed sort of from
00:03:54
the economics point of view the idea
00:03:55
that really shareholders are the only
00:03:58
stakeholder and it was one of those
00:03:59
battles that was one without a fight
00:04:02
because we didn't actually teach
00:04:04
corporate governance here in most places
00:04:07
so as it Advanced and finance became
00:04:10
more important as investors became more
00:04:13
important and some of that happened when
00:04:15
we started to get bigger institutional
00:04:18
investors
00:04:19
you know groups like Calpers the
00:04:21
California Pension Fund mutual funds
00:04:23
like Vanguard and Fidelity these are now
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huge investment blocks and particularly
00:04:28
when they're buying the market average
00:04:30
right the idea that in the past is if
00:04:32
they didn't like the way you were
00:04:33
running their company they just dumped
00:04:34
the stock and move on you can't do that
00:04:36
if you're trying to buy the market
00:04:38
average so you know a another
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development was this idea that the
00:04:43
investors were pushing for this
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shareholder value goal so once you had
00:04:49
that we had Financial Accounting already
00:04:52
which Drew this distinction between
00:04:54
human and physical assets there were no
00:04:57
human assets right human capital broadly
00:05:00
defined and then the idea that
00:05:03
shareholder value was really the big
00:05:05
goal and then institutional investors
00:05:08
pushing that goal harder and harder all
00:05:11
the time
00:05:12
now we start to see some things change
00:05:14
and especially now that we start to see
00:05:17
so many companies where the real value
00:05:19
seems to be the people and so those
00:05:22
initial assumptions from
00:05:25
you know the 1930s that people are not
00:05:28
assets and they have no real value in
00:05:30
the finances of a company now starts to
00:05:33
really bite because you have so many
00:05:34
companies where the physical assets
00:05:36
don't matter and where investors are
00:05:39
pushing harder on financial accounting
00:05:43
outcomes because you know investors are
00:05:46
not trying to maximize current profits
00:05:50
investors are trying to make money on
00:05:53
future profits the value of the shares
00:05:55
is what will things look like in the
00:05:57
future whether you're profitable today
00:05:59
or not doesn't matter so much to them
00:06:02
so now we have to start thinking about
00:06:04
what the rules of the game look like and
00:06:08
like in sports
00:06:10
if you wanted to know how good a
00:06:12
basketball team was you'd have to kind
00:06:15
of Begin by understanding the game which
00:06:16
means understanding the rules on which
00:06:19
it is played and financial accounting
00:06:21
sets out the rules on which companies
00:06:24
are operating and what they're trying to
00:06:26
do
00:06:27
and those rules are financial accounting
00:06:29
and because of the quirks of the way it
00:06:32
handles or doesn't handle human capital
00:06:34
we start to see bigger and bigger
00:06:37
problems as human capital becomes in
00:06:41
objective terms more important but in
00:06:43
financial terms still worthless and
00:06:45
shareholder value based on financial
00:06:47
accounting terms becomes the issue
00:06:51
so then with this shift especially in
00:06:55
the last few years
00:06:57
then the impact on the company and the
00:07:00
employee ends up being a pattern where
00:07:04
you obviously don't want to see you go
00:07:06
down this pattern because as you and I
00:07:08
have talked in a variety of different
00:07:09
fronts in the past the value of the
00:07:12
employee really has a significant
00:07:15
strength towards the company's you know
00:07:17
bottom line benefit yeah and a lot of
00:07:19
our colleagues in strategy uh recognize
00:07:22
that certainly the biggest
00:07:25
uh benefit you've got the biggest
00:07:27
competency comes from the people and the
00:07:29
way you manage them right and we have so
00:07:32
many companies like in the tech world
00:07:33
where physical equipment doesn't matter
00:07:35
at all and it's all about intellectual
00:07:37
horsepower and the ability to execute
00:07:40
things all those things are really kind
00:07:43
of what matter and the investors have
00:07:48
gotten onto this issue before anybody
00:07:50
else and their problem with financial
00:07:53
accounting is they can't tell
00:07:55
uh how valuable companies are because
00:07:58
they can't learn anything about its
00:07:59
human capital because nothing about it
00:08:02
is reported except for the total number
00:08:05
of employees you have but not the total
00:08:08
number of workers so we'll come back to
00:08:10
that issue in a minute here right and it
00:08:13
leads to all kinds of distortions as in
00:08:16
any situation where you measure only a
00:08:19
few things and you leave out some
00:08:20
important ones you're going to get
00:08:23
strange outcomes and that's what we get
00:08:25
how then do you think this this shift
00:08:28
then potentially impacts how companies
00:08:32
think about things like hiring and and
00:08:36
where you know the the level of employee
00:08:39
involvement that they have within
00:08:40
companies
00:08:41
yes let's start with maybe the simplest
00:08:43
one let's talk about layoffs which if
00:08:46
you think about it let's say our
00:08:48
employees had asset value if you leave
00:08:51
the US
00:08:52
accounting standards are different and
00:08:55
some of those Accounting Standards do
00:08:57
allow employees to be assets so let's
00:08:59
say we thought employees were assets and
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head assets and we announced we're going
00:09:03
to have a layoff and what layoffs meant
00:09:05
is we're just going to take those assets
00:09:06
and we're going to push them out the
00:09:08
door
00:09:09
you'd say that we're crazy right it's
00:09:11
like okay we got a bunch of computers
00:09:13
here we're going to give them away we're
00:09:14
just pushing them out the door it
00:09:15
wouldn't make any sense whatsoever
00:09:17
and we see something like this if you
00:09:19
see what's going on right now in the
00:09:22
tech industry especially but elsewhere
00:09:23
you see companies that struggled like
00:09:25
crazy to fill those positions and get
00:09:28
people and hold on to them and now
00:09:30
they're dumping them and there's a
00:09:33
pretty good bet that in six months
00:09:34
they'll be trying to get new employees
00:09:36
back and in the current context unlike
00:09:40
you know the 1970s and before employees
00:09:43
are not hanging around expecting to be
00:09:45
rehired so you got to go back in and
00:09:46
hire people right so that's maybe the
00:09:49
most obvious strange example when you
00:09:51
come to hiring
00:09:53
you know the thing that employers
00:09:54
measure in hiring is they measure the
00:09:57
cost per hire perfectly sensible thing
00:10:01
to do the reason they measure that is
00:10:03
those costs are ones that show up at
00:10:06
least aggregated inside your financial
00:10:08
accounting and the other thing they
00:10:10
worry about is cost sorry time to fill a
00:10:14
vacancy those two things okay perfectly
00:10:16
reasonable what they don't measure is
00:10:18
the quality of the higher which if you
00:10:21
think about it is exactly what you would
00:10:22
think they would be looking at is how
00:10:24
good are the people we're hiring
00:10:26
you know you could hire lousy people
00:10:29
cheaply yeah right but if you look at
00:10:31
what is reported in accounting and the
00:10:34
things that aggregate up that's your
00:10:36
incentive uh hired cheaply uh don't
00:10:38
worry about whether they're any good or
00:10:40
not right I mean it seems crazy but that
00:10:42
is literally what companies are doing
00:10:44
the evidence on this is pretty
00:10:46
overwhelming at least three different
00:10:48
surveys show that employers are not
00:10:50
trying to assess the quality of the
00:10:52
people they hire and they see them as
00:10:55
kind of interchangeable so you know one
00:10:57
of the things that most all of us know
00:10:58
is when you bring in somebody from
00:11:00
outside it takes a while for them to
00:11:03
become productive compared to the people
00:11:05
who are already there
00:11:06
there's no accounting for that I mean
00:11:08
there's no literal accounting and
00:11:10
there's no understanding of that either
00:11:11
so we're starting to see investors care
00:11:15
about this a lot particularly when they
00:11:17
look at these Tech firms again because
00:11:19
they can't figure out what the value is
00:11:21
and they would really like to know
00:11:23
so take us into the the the structure of
00:11:27
doing a book about this uh your book our
00:11:30
least important asset
00:11:31
what was it that you have seen play out
00:11:34
that have has really driven you to need
00:11:37
to do a book about this topic right now
00:11:40
yeah well you know I think most people
00:11:42
who are honest and kind of curious will
00:11:45
say that the book never turns out to be
00:11:48
what you thought it was going to and you
00:11:50
probably know this about writing even
00:11:51
writing papers you don't write the
00:11:53
introduction until the thing is done uh
00:11:56
nor the conclusion because you don't
00:11:57
really know what it's going to say so I
00:11:59
started out thinking I was going to
00:12:00
write a book about how we actually
00:12:02
manage employees
00:12:04
and that's different from what textbooks
00:12:07
say like if you look at a textbook
00:12:08
they'll talk about you know the issue of
00:12:10
hiring for example how you craft a job
00:12:13
description and then you post a job ad
00:12:15
and then you see who applies and then
00:12:16
you do these assessment tests and all
00:12:19
this stuff right none of that really
00:12:21
happens you know or rarely so the
00:12:23
evidence from the Census indicates the
00:12:25
average person at least a couple years
00:12:27
ago when they asked this question
00:12:28
reported that when they change jobs they
00:12:31
were not looking for a job and they
00:12:34
didn't really see a job ad somebody came
00:12:36
and got them we don't do any of those
00:12:39
fancy testing of employees we typically
00:12:42
just rely on unstructured interviews
00:12:44
which are pretty terrible as a way to
00:12:46
hire especially when we get rid of
00:12:48
recruiters because they're expensive and
00:12:51
we just push the task off onto Line
00:12:53
managers who aren't trained for this and
00:12:55
they don't know what they're doing right
00:12:56
so I started to look at practices by
00:12:58
practice to see how we're actually doing
00:13:00
on these things and it all seemed pretty
00:13:04
lousy you know in ways that just
00:13:08
wouldn't make sense to any of us if we
00:13:10
knew just a little bit about how
00:13:12
employees actually operate so then I
00:13:14
started to say why are they doing this
00:13:15
why do you see this same pattern
00:13:17
everywhere and a simple description of
00:13:20
this is It's the British phrase
00:13:21
Pennywise and pound foolish right so
00:13:23
that is their squeezing costs on some
00:13:27
costs and they're completely ignoring
00:13:29
other costs why is that and then I
00:13:33
started to think about and look around
00:13:35
to see what was driving this behavior
00:13:37
and you know the usual view we hear
00:13:39
about shareholder values is they're just
00:13:41
trying to maximize profit so they're not
00:13:43
paying attention you know to to anything
00:13:46
on the cost side but that's not true and
00:13:48
part of the problem is
00:13:50
we were kind of misled about what
00:13:53
companies do by our introductory
00:13:55
economics classes which tell us that
00:13:58
companies by definition are maximizing
00:14:01
profits okay what's a profit you just
00:14:03
look at your revenue and you look at
00:14:05
your uh costs and you subtract them and
00:14:07
that's your profit well that's not true
00:14:09
at all uh anybody who sits down next to
00:14:12
an accountant for a while will get a
00:14:14
half hour lecture as an introduction yes
00:14:17
as to why that stuff is not so obvious
00:14:19
it's like thinking the game of
00:14:21
basketball is simply about stuffing the
00:14:23
ball in the hoop and stopping other
00:14:26
people from doing it and you would think
00:14:28
well let's just tackle people which you
00:14:30
know does seem to happen in the NBA
00:14:31
sometimes and let's just get a really
00:14:33
huge guy standing of the basket and Pop
00:14:35
the ball you know you play it
00:14:37
differently once you understand the
00:14:38
rules right and so I ended up sort of
00:14:41
getting a sense of what the rules were
00:14:43
big part of it is these Financial
00:14:45
Accounting things there is another part
00:14:47
and that is in part because of the
00:14:50
importance of investors and that
00:14:52
shareholder perspective the people who
00:14:54
get to run companies now are different
00:14:56
in systematic ways than they were a
00:14:59
generation or two ago right they're much
00:15:01
more likely to be Engineers who come to
00:15:04
these tasks with assumptions about human
00:15:07
behavior but also goals about
00:15:09
optimization the data science world has
00:15:12
given them lots of tools to optimize but
00:15:15
optimize you got to optimize on
00:15:17
something and generally they optimize on
00:15:19
minimizing the number of employees and
00:15:22
employment costs so that's what they end
00:15:25
up driving and they haven't had as much
00:15:29
Management training most companies
00:15:30
corporations got rid of that it used to
00:15:33
be that you'd get hired you'd be put
00:15:34
into a management training program where
00:15:36
they taught you all this stuff about
00:15:39
managing people basically right right
00:15:41
and those are gone so we have a lot more
00:15:44
CEOs famous ones in the tech world who
00:15:47
never managed anything really they are
00:15:50
Engineers for the most part and you know
00:15:53
their view about people was that they
00:15:56
were not particularly important so that
00:15:57
that component of of the investor in
00:16:01
this process we've obviously seen in in
00:16:04
the last few years how the investor and
00:16:07
the employee have more of a voice in the
00:16:11
in what's going on in the company these
00:16:13
days do they have enough
00:16:16
impact where they're able to affect
00:16:18
change on on a topic like this on an
00:16:21
issue like this on on that element of
00:16:24
financial accounting yeah so the
00:16:25
investors you would think have the big
00:16:28
hammer right because they're driving
00:16:31
what uh executives are doing
00:16:35
um the accounting world and this is you
00:16:37
know is an outsider to it but at least
00:16:39
listening to our colleagues who are deep
00:16:41
into this the accounting world is
00:16:43
astonishingly conservative it is Run for
00:16:47
the most part by
00:16:49
associations of accountants and the
00:16:51
Financial Accounting Standards Board
00:16:53
sets the rules for accounting they are
00:16:57
overseen by another board which is not
00:17:01
elected it's sort of that industry of
00:17:03
financial accounting but not Finance
00:17:06
just Financial Accounting right the
00:17:08
security exchange Community or Exchange
00:17:11
Commission has delegated the task of
00:17:14
creating those rules to the Financial
00:17:16
Accounting Standards Board and they
00:17:19
haven't been particularly concerned
00:17:20
about what those rules do to the
00:17:23
operation of companies right they have
00:17:25
been concerned about being consistent
00:17:28
and the idea of valuing human capital is
00:17:31
something that's kind of off the charts
00:17:33
for them it seems so weird so the
00:17:35
investors have been pushing for a while
00:17:36
to try to get more from companies on
00:17:40
this in terms of reporting they've been
00:17:42
pushing security Exchange Commission
00:17:44
hard on this they haven't gotten very
00:17:46
far yet so the little bit they got is in
00:17:50
2021 the security Exchange Commission
00:17:53
required that companies report anything
00:17:55
they thought was material about human
00:17:59
capital their human capital to their
00:18:01
business but they get to pick what that
00:18:03
is right and they get to pick what they
00:18:04
report and so what most of them report
00:18:07
is just verbage about their principles
00:18:10
so it's worthless if you're an investor
00:18:12
you don't learn anything from it so
00:18:14
these investor groups are big and they
00:18:17
still aren't getting very far which
00:18:19
shows you that this world of accounting
00:18:22
standards is remarkably insular and I
00:18:25
think everybody who looks at that is
00:18:28
struck by it and lots of people have
00:18:30
thought about it so the investors can't
00:18:32
make much Headway on this at least not
00:18:34
yet the employees have very low power
00:18:37
the only Power employees ever really
00:18:39
have is if a lot of them are quitting
00:18:42
right A lot of them were quitting that
00:18:45
might be slowing down a bit now I'd say
00:18:48
the employers have largely resisted
00:18:50
efforts to do make the changes that
00:18:54
employees want so for example there's a
00:18:57
big concern now about mental health in
00:18:58
the workplace many employers are
00:19:00
responding to that which is a nice thing
00:19:02
but what they're responding to is
00:19:04
helping you deal with the stress that we
00:19:07
have created for you right they're not
00:19:09
they're not trying to deal with the
00:19:11
stress per se as we know wages are
00:19:14
lagging inflation by a lot so it's not
00:19:17
that employers are willing to up wages
00:19:21
enough to maybe clear the labor market
00:19:23
for them and one of the reasons for that
00:19:26
again is that what investors see are the
00:19:29
wage and salary costs that's a bad thing
00:19:31
they really don't like those because
00:19:33
those uh look to them like fixed costs
00:19:36
even though they're not fixed
00:19:38
historically they were more fixed and in
00:19:40
economics we treated them as if they
00:19:42
were fixed that is they couldn't go down
00:19:44
in a downturn in the business but of
00:19:46
course they can and one more thing which
00:19:48
is particularly quirky is the security
00:19:51
Exchange Commission requires that you
00:19:53
report headcount which is the number of
00:19:56
employees not the number of workers okay
00:19:59
so if you bring in contractors that
00:20:02
doesn't count so if you'd like to make
00:20:04
your Revenue per employee or profit per
00:20:07
employee jump up drop some of your
00:20:10
employees and bring in non-employees to
00:20:12
do that work the denominator fall all
00:20:14
suddenly you look wildly more productive
00:20:17
and efficient and valuable so that's
00:20:19
another one of the quirks of this
00:20:21
financial account well and I would think
00:20:23
as well that when you talk about the
00:20:26
successes and failures that employees
00:20:28
and managers have that that obviously
00:20:31
has to factor into this as well because
00:20:34
the accountants are looking at the
00:20:36
bottom line if you have projects that
00:20:39
fail that's going to end up hurting your
00:20:40
bottom line and then that's going to
00:20:42
have a downstream impact on who managers
00:20:45
are how many managers there are how many
00:20:47
employees there are it's it's it is as
00:20:49
the title of our podcast is there is a
00:20:52
ripple effect that plays out here yeah I
00:20:54
think the investors would love to see
00:20:55
that the companies don't want to show
00:20:58
them anything about their internal
00:21:00
accounting right you know how are our
00:21:02
projects doing what is our turnover of
00:21:05
employees by the way this is what the
00:21:07
proposals the new employees sorry the
00:21:10
new proposals driven by investors in our
00:21:13
accounting colleague Dan Taylor here in
00:21:15
our accounting department is one of
00:21:17
those people is asking for the same
00:21:19
thing I was suggesting independently and
00:21:21
that is let's ask companies to report
00:21:23
turnover let's ask them to report how
00:21:26
much they spend on training investors
00:21:28
can't see that right now training
00:21:30
doesn't count as any kind of investment
00:21:32
because remember you can't invest in
00:21:34
things that aren't assets your employees
00:21:35
aren't asset so you can't do that so I
00:21:38
think you know there are pressures on
00:21:40
um to improve this but the resistance is
00:21:44
so big so far not much is happening
00:21:47
how you mentioned a moment ago about uh
00:21:49
the c-suite level uh impact uh how then
00:21:54
does that impact the longer term
00:21:56
decision process at the c-suite when you
00:21:59
have people that are in those roles that
00:22:01
aren't really the ones that have made
00:22:04
those type of decisions in the past
00:22:06
yeah I think that's uh that is a big
00:22:09
issue and you know CEOs in particular
00:22:11
have a really difficult job and they
00:22:13
can't know everything and they need
00:22:16
people around them who can point out
00:22:19
those things you know that you're
00:22:20
supposed to know they're not experts on
00:22:22
marketing they're not experts certainly
00:22:24
on human resources very few anybody
00:22:26
comes through that track and gets to the
00:22:28
top right so somebody has to kind of
00:22:31
point this stuff out to them and make
00:22:33
the arguments to them that hasn't been
00:22:36
happening I think over the last well
00:22:39
since the 1980s basically the pressure
00:22:42
has been on human resources to cut right
00:22:45
because that's what improves the
00:22:48
company's Financial Accounting outcomes
00:22:50
and you know making an argument about
00:22:53
why we really need to invest employees
00:22:55
gets nowhere we're in a slightly
00:22:58
different moment now because now there
00:23:01
are enough concerns about employees some
00:23:04
of these under the ESG umbrella you know
00:23:07
social impact you should be nice to your
00:23:09
employees some of it because frankly
00:23:12
they're quitting and quitting is super
00:23:14
important even though in financial
00:23:16
accounting it doesn't show up Anywhere
00:23:18
But as a CEO you can't miss the fact
00:23:21
that a lot of your people are quitting
00:23:24
and especially people close to you right
00:23:27
so I think the you know again I think
00:23:29
the pressure is on to do something about
00:23:31
this but the CEOs themselves don't
00:23:34
really understand a lot of this stuff
00:23:36
they don't understand what the costs are
00:23:38
of turnover most companies don't know
00:23:41
it's a little hard to figure this stuff
00:23:42
out most of them are not trying I think
00:23:45
the human resource people understood
00:23:47
that nobody really wanted to hear this
00:23:49
stuff and they didn't want to get up on
00:23:51
a soapbox and make the case now it's
00:23:54
easier to do right once you see that
00:23:56
your positions are vacant and you're not
00:23:58
getting things done it's a little hard
00:24:00
you know it's a little hard to miss that
00:24:02
there is one place where I think we are
00:24:05
seeing particularly quirky decisions I
00:24:07
think by employers and the c-suite
00:24:11
things and this is back to this
00:24:12
optimization goal there are a lot of
00:24:15
things that we have studied for a long
00:24:17
time and lots of evidence for that show
00:24:19
that engaging employees in some
00:24:21
decisions makes much better outcomes
00:24:24
they know things that are useful in the
00:24:27
decision and they also care about it and
00:24:29
so more invested in it when they do it
00:24:30
themselves a lot of that a lot of those
00:24:33
practices are going away and being
00:24:35
replaced by software so here's an
00:24:37
example let's set our work schedules we
00:24:40
have 10 employees in my office the work
00:24:42
has to be covered the office has to be
00:24:43
covered but people always have
00:24:45
emergencies and many of them have life
00:24:47
concerns that they would like us to
00:24:49
accommodate in some way well there's a
00:24:51
couple ways you could do that
00:24:52
one of the ways which has worked
00:24:54
extremely well is something just called
00:24:56
Flex time and flex time means that the
00:24:58
employees get together and they work it
00:25:00
out and they say Okay Dan's going to do
00:25:03
this on Monday he's got to come in a
00:25:05
little late uh but I can cover that if
00:25:07
he will cover this later it it takes a
00:25:10
little while to get good at this but it
00:25:11
doesn't take long and it's quite
00:25:13
flexible right the other way you could
00:25:15
do it is you could delegate it to
00:25:16
software and software will make sure
00:25:19
that everybody has exactly the same
00:25:21
number of hours everybody is treated
00:25:23
equally but there's no flexibility in
00:25:25
that and employees don't like it because
00:25:27
they have no say why would you go with
00:25:30
software when you could do this with
00:25:32
employees and it's much simpler in the
00:25:35
long run well because we want to be
00:25:37
optimal and getting employees to do this
00:25:41
I don't know how to do that work with
00:25:43
employees so I'd like to just turn this
00:25:45
over to software and let them do it so
00:25:47
we get a worst solution which is more
00:25:49
expensive but it seems to fit this goal
00:25:52
of optimization right so we're seeing
00:25:54
several of those situations play out in
00:25:57
the workplace now Peter great to talk
00:25:59
with you good luck with the book the
00:26:01
book is titled our least important asset
00:26:03
Peter Capelli the Wharton School thanks
00:26:05
very much for coming in good thank you
00:26:07
Dan
00:26:08
thank you for listening to the ripple
00:26:10
effect we hope you found this episode
00:26:12
informative and engaging don't forget to
00:26:14
subscribe and leave us a review so that
00:26:17
we can continue to bring you the best
00:26:18
Insight from the Wharton School
00:26:20
[Music]
