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very happy to be here i want to thank Russell for inviting me so what I'd like to talk about today is hr's role in superior customer service now if you change the trajectory of a cannon by an inch we just changed the position ever so slightly of a cannon it changes the trajectory the cannibal by a mile so in that vein what I'd like to do is just change your mindset ever so slightly so you have different expectations of your HR people within your organization so again we're going to shift the position of the canna by an inch and it should change the trajectory the cannonball by miles meaning where your company ultimately ends up if you engage your HR department slightly differently now this lecture is about superior customer service but for many of us customer service is the leading indicator to retain revenue for me it's all about revenue ultimately 8-yard does not and should never exist for its own self it should exist to serve the bottom line so we have customer service as a leading indicator to revenue now in the past if you had one happy customer they would tell a few people a few friends of their wonderful experience and of course conversely if they had a bad experience they would tell a few people but not with social media Yelp and whatnot they'll tell hundreds and hundreds thousands in fact they will tell the world so because of this I would like to slightly retitle my lecture two hr's role in both obtaining new and sustaining revenue ok let's begin now in the past going back 70 80 years ago if you see the gentleman on the assembly line it was the people the people were interchangeable back in history companies compete on their capital and if God forbid a gentleman a worker was injured lost their arm the people were interchangeable but if the tools they used broke down it would stop production today that model has completely reversed itself today all the tools we use have been commoditized if you look at any help desk they're pretty much using the same tools many of us are using Excel we use SI p we use oracle we use microsoft office so think about the implications if you look at the example of the modern-day office if one of those tools were to break down they just swap it out for another computer but if one of your key employees were to leave not so interchangeable so we see a complete reversal of the business model now this is especially true for the knowledge economy because in the ax knowledge economy what tools do they really have the more famous knowledge companies started out in dorm rooms garages in very humble beginnings so if they're really competing on is people now all companies whether they realize it or not our HR companies that's what I'm putting forth every company whether they'd acknowledge it or not our human resource companies in how they attract recruit select incentivize compensate develop and even how they exit their people let's look at netflix and amazon netflix runs the infrastructure on amazon even though they're competitors right they both offer online streaming however amazon does a very good job exiting their employees so when you have a netflix employee that used to work for amazon netflix decides that yes they're competing with amazon but on content not on infrastructure so consequently am get some very lucrative business from netflix so if you look at the chain from attracting to exiting people companies live and die by the people they hide because again all the tools they use have been commoditized this equation is out of economics 101 any mba student will tell you that this is the equation on how countries and companies measure economic growth human capital x financial capital x productivity this equation is pretty much beyond dispute but let's look at the role of HR i would say that i own a hundred percent of the first multiplier i will concede that i owe nothing of the second multiplier in terms of productivity well i'll make the argument a lot of productivity is due to the technology coming in although i can make the argument that the technology comes from people but i want to be a little bit more conservative but i will say at least the other half of the productivity i do own how am I incentivizing my people job design the culture of innovation so what I'm putting forth is that as an HR person I feel that I own half of this equation and when you engage your HR departments knowing that they own half this equation you will be having different conversations with them you will certainly have different expectations of them this equation on the board has nothing to do with a chart it has everything to do with business now let's look at tangible book value or let's look at what a company is worth when they liquidate when they bankrupt the first thing or one of the first things a company does when they liquid data is they exit all their people and they sell that tangible assets and yet companies with their people obviously the market capitalization goes so what causes the gap between tangible book value in market capitalization well it is human capital and if you look at the SP 500 index which was instituted I believe in 1956 that gap between Book value and market cap keeps widening it keeps widen because in a knowledge economy they're not really competing on hard assets they live and die by their people now I engage a lot of CEOs and they almost always tell me that people are our most important asset and yet we record people as an expense on the income statement right so let's examine that that duality if people are our most important asset why are they recorded as an expense well if we look at gap generally accepted accounting principles it really came out of the industrial economy the manufacturing economy was first discussed around 19 around 1939 when people competed on their assets so it's not really suited for today's knowledge economy now what we have to do what my responsibility is as an HR professional is to determine how we could measure the return on intellectual capital when I say measure it I mean in a dollar amount now if we look at generally accepted accounting principles why can't my profession develop a generally accepted way to measure intellectual capital companies constantly use pro forma financial statements pro forma balance sheets to analyze potential mergers and acquisitions certainly for forecasts so if my profession were to standardize a generally accepted method to measure intellectual capital it would be represented on a pro for balance sheet because you cannot expect your HR people to improve the return on intellectual capital if they cannot benchmark it that's why I'd like you to engage your HR people differently because people and professions often rise to the expectations set forth so there are a number of equations out there trying to measure intellectual capital but they're far from standardized so in the same way that gap was standardized to match and order the manufacturing economy it's upon my profession to come up with the similar standard I structure to measure intellectual capital because after all the only thing that companies are now competing on with all the tools commoditize are its people and yet it's the one thing that is neglected on all financial documents in the same way the cost of borrowing is reflected on the income statement under interest but for years the cost of equity the cost of capital was not represented on financial documents and it's still not it could only be theorized in a pro forma and a pro forma financial document so my profession needs to standardize how we can measure intellectual capital there are two ways to make a dollar of net income one way is to reduce costs by a dollar and the other ways to increase revenue by a dollar one way is noble the other lacks vision now my profession for decades contributed to net income by reducing costs by a dollar it's not sustaining and eventually the company would implode so what my profession needs to do how I'd like you to engage your own HR people is to set the expectation for them to be a profit Center not a cost Center this talks about superior customer service I've linked customer service as the leading indicator to revenue on this picture we're talking about that HR has a responsibility to tie itself to revenue and no longer be the single champion for cost containment when a company is doing poorly one of the first knee-jerk reactions my profession does is lay people off but I say even when the company was doing well it was never in fashion to have wasted resources including human resources no matter how much money the company is making so a company should always be right sized so even if HR has no direct line of sight to revenue does not mean a relationship does not exist when I look at Big Data and I look at algorithms that are becoming more and more sophisticated it's becoming easier for me to figure out what that relationship is and I'll reiterate it just because a chart does not have a direct line of sight to revenue does not mean a relationship does not exist it's just have you engaged your HR departments to at least come up with a hypothesis on what that relationship would be now I'd like to talk about your marketing departments and how they engage your customers to bring in revenue and I like to talk about HR rebranding itself as the internal marketing department now administration admin is a very important function in fact companies could live and die by the efficiency of their admin however it incorrectly became intertwined with HR the birth pains of my profession and as important as admin is it's important enough to have its own career path they certainly have their own professional association but it is not a charm so I want you to imagine your HR department now rebranded as the internal marketing department and they market your company to your own with the same rigor and enthusiasm as your external marketing department markets to your external customers one of the things that I do when I work with companies I make sure that the HR department is adjacent to the marketing department your external marketing should be completely aligned with your internal marketing so the conclusion of this object lesson would be whether or not we actually change the name of the HR department what if we change the cannon by an inch and we rebranded it as the internal marketing department where they would be focused on evangelizing your employees the same way your external marketing department is tasked with evangelizing your external customers now there's a very famous story there are three people performing the identical task than making bricks but each person views their task in a different way we asked the first person what are you doing and he or she will say I'm making bricks we asked the second person what they're doing and that person may say i'm making a wall we asked the third person what they're doing and they'll say i'm building a cathedral that person knows where they fit in the value chain that person has been marketed internally as an employee who has now become an evangelizer yes he's physically making a brick but he views his role in the grand scheme that he's building a cathedral your new internal marketing department that used to be called HR is tapping into the most basic of human instincts that people want to become a part of something greater than themselves when Mark Zuckerberg has hackathons and people work twice as many hours in a day he does not pay them twice as much money people want to become a part of something greater than themselves this goes for your customer base and this should also go for your employees your customers fundamentally are purchasing the emotional connection they have to the product or service they're buying more than actually buying the tangible product or service they're really buying the emotional connection and when we use the analogy of a cathedral the founding CEO has built the Cathedral his or hers values and good HR they are the cultural guardians of the firm the other gargoyles of the cathedral now how would your HR department ensure that they're the gargoyles to the cathedral how could they ensure that they are guarding the vision and the culture that the founding CEO created well not just qualitatively but quantitatively by incentivizing the behaviors that are aligned with the values of the founding CEO by a good comp plan by a good incentive plan I want to use Apple as an example customers are really buying the emotional connection to the product of service that's what I put forth pursuant to that point customers are not buying the wat and they're not buying the how they're really buying the why what did Apple do they made a smart phone how do they do it cutting-edge technology but the Y the Y is pivotal because they wanted to change the world how people interacted that is how Apple engages their external customers your internal marketing department which used to be called HR should evangelize with the same rigor and enthusiasm if you look at the Maquis company's employees join because they want to become a part of something greater than themselves they join the why not the wat and not the how Google has so many projects search driverless car and on the cover of Time magazine maybe about a year ago they talked about immortality by manipulating stem cells so think about the diverse portfolio search driverless car eliminating debt so Google does not make one thing people join Google for the Y and I believe Google gets that more than many companies what employees do proves that they believe in the Y and the y comes from the culture that the founders created and that HR needs to God but again not just qualitatively not just with banners but with proper incentives any incentive plan should have two things in common it should be able to be understood by a 12 year old and it should be no more than half a page the sophistication of a very good incentive plan isn't its simplicity that it is aligned with the behaviors that are aligned with the culture of the company every job should be reduced to at least one metric because if you start telling people how to do their jobs you're possibly stifling creativity if you start measuring high on teamwork high and a good attitude my profession went a therapist but if you put a metric then you let people find their own way the most ethereal business models inspire social change and a really good business model will monetize both financial and social profits so in a world in the knowledge economy where all the tools are commoditised and we're only competing on people we need to engage our HR departments to the same standards as any other department in the business of making money now again there are two ways to make a dollar of net income increase revenue by adaalat decreased cost by a dollar and we've made the argument why one is noble and the other lacks vision but i'm going to put forth another challenge for you to give to your HR departments contrary to what many textbooks say growth is not the strategy revenue growth is the tactic the true strategy is exponential revenue growth and that could only come from innovation so now it falls upon my profession how do we create a culture of innovation where linear revenue growth is merely the tactic this is an equation that economists use to measure innovation but as I tell my students if I cannot explain something to a 12 year old I do not understand it enough myself so here's how this equation works I want you to imagine a farmer that every year the farmer uses the same types of seeds and the same amount of land but every year the yields are different why because of weather because whether exists outside the number of seeds and the amount of land being used but it changes every year well good innovation does not alter the amount of capital input or labor input it just engages labor and input differently so innovation is not about doubling your capital to double your production you're merely investing more it's about engaging your people differently not necessarily hiring even more labor so whose job is it to create that culture of innovation well it's everyone's job but I believe that it's a charged job to really lead that HR is the department with the most balanced agenda if you look at the EVP of marketing he or she is concerned about his or her marketing employs more than other employees and that makes sense the same goes with IT but as an HR professional I'm concerned about all employees equally with HR employees that might work for me so I have the most balanced agenda and again I see my profession as the cultural guardians of the firm so what HR needs to do is find a better carrot there's a lot of skin area in psychology going on will you have a food pellet an electric shock human beings could be very complex but sometimes we're not so how could we incentivize innovation well if you look at pipelining transformational initiatives most traditional stage-gate processes would kill off most innovations the return on investments aren't there and if you're fulfilling a latent customer need how do you benchmark it Henry Ford said he never asked his customers what they wanted because they would have said you've probably heard this before they would have said we want horses that require less water and who could run further without rest people could not even imagine that they would want and need a horse carriage bereft of a horse so how could a chair incentivize that well again traditional stage-gate processing uses a metric that is both external and economic for example you might engage your Salesforce and say you must 30 million dollars of revenue revenue is an economic metric and it's certainly external but for the parts of the business that are engaged in innovation HR could change the carrot by using the antithesis the opposite instead of looking for an external economic metric how about an internal one non-economic what if you could incentivize the comp plan that as long as a project helped the company learn and not earn then that project would be funded for the next year and that employee would have the appropriate bonus of variable pay tied to that metric firms must focus on net income but when you're talking about transformational innovation just not right away and usually companies have a mix of innovation of maybe seventy percent core innovation twenty percent adjacent innovation and ten percent transformational but we need to engage our HR departments to incentivize each one differently all companies are talent factories and to reiterate our tools have become commoditized people are the last field of competitive advantage so in that vein if every company is ultimately an HR department the CEOs in this room and the business leaders need to hold HR up to the same business standards that you would hold other departments to I believe that companies will live and die by their HR department and we've already rebranded your HR department as an internal marketing department but something I want to say further on the branding of your HR department the words we use are very important it conveys a shorthand and one of the first things that I do when I engage companies is I like to get rid of the name human resources at a minimum maybe calling it the internal marketing department is too big of a leap but resources is something we deplete capital is something that we leverage so when we say resources that's a shorthand human capital at a minimum words are powerful things again HR needs to shift itself from a cost center to a profit Center they need to figure out what that in direct line of sight to revenue is and then they need to incentivize it and again if you look at Big Data sophisticated algorithms is becoming easier and easier for HR to figure out mathematically what that relationship is and by constantly retweeting the model they can't improve net income when I look at Big Data when I look at social media and it's two children social commerce and social manufacturing from 3d printing also known as additive manufacturing even the manufacturing economy is becoming part of the knowledge economy now every supervisor every manager throughout your company where's in HR hat just by virtue of supervising other people so if you look at the EVP of marketing he is she is an HR person but with marketing expertise because even the tools that she uses have become commoditized to see the chief technology officer is an HR person but with technology expertise because even his or her tools have become commoditized so if you look at distributive input through MSS systems management self service systems all of these managers are doing the traditional HR functions the tactical certainly the transactional so you will find that your own HR people is slowly being crowded out what we might call the traditional HR and that's the evolution of my profession so the only way for my profession to stay relevant is to acknowledge that either it breaks away from its cost containment cost center past embraces its role as a profit center by figuring out there in direct link to revenue or it will simply be outsourced when a company decides two outs or something what they're saying is that they need to accept industry standards for that function but they're no longer going to compete on that function if you outsource your payroll which most of us do your vendors are not saying don't worry we'll treat you better than your competitor who also outsources to us so HR is getting crowded out of the traditional HR anyway so why not engage them as your internal marketing department or at a minimum your human capital department responsible to use pro forma income statements to measure their own impact on net income and again this is the mantra people are the last field of competitive advantage going towards the end of my talk I'd like to talk about how do we find a competitive advantage on this last field of competitive advantage if you look at most incentive plans performance appraisal plans we will help employees set goals but there's a different approach maybe even a little bit contrarian but remember every new idea first gets ridiculed then attacked and then eventually accepted seeing the last nine thousand years of recorded human history here was the paradigm if I could achieve my goals I could be successful and if I could be successful I could be happy but that is cognitively broken because every time we achieve a goal that makes us happy we simply move the goalpost so we're not sustaining or happiness just by achieving the goal if you look at neurobiology the cognitive sciences this paradigm is how we're hardwired if people could start off from a place of happiness that's independent of a specific outcome but if they start off as happy then they have a higher probability of achieving their goal they've been studies about doctors making better diagnosis if labeled as happier sales people selling more so again the traditional paradigm of if I could achieve my goal I can be happy is cognitively broken this is how we're wired if you start off from a place of happiness you have a higher probability of achieving your goal which makes you successful and if we're talking a business paradigm it makes the company successful so what I'm submitting the ultimate goal of your internal marketing department because let's face it your external marketing department wants people to buy your products not to make them sad but to make them happy so why would we allow our internal marketing department not to do the same maybe my role is to make sure that my employees start off from a place of happiness because it will increase the probability of success which will mean my company will be more successful now I've been to the Google office over on Chelsea it looks like a very happy place to work and they get it forget about restaurant week I just want to go to the Google cafeteria if anyone has ever had the privilege of visiting Google right where's the cash register there is no catch register it's amazing the food's amazing the environment is amazing Google already gets it it's a very happy place to work and by the way they measure most of their employees on one metric and that metric is tied to the values of the original founders so let's look at Maslow's hierarchy of needs on a micro level individuals can strive for self-actualization it also applies in a macro level two companies and even societies it's hard to self-actualize when you're not happy when you worried about paying the rent and what I try to do is discover the link between my employees path to self actualization and my company's path to self-actualization I do not want to spend ten dollars to fix a two dollar problem in order for to be sustainable it must contribute to net income through pushing up revenue now if you look at today's work environment there are blurred lines between personal life and a business life telecommute ella communication technology makes physical space superfluous if you receive an email at nine ten o'clock at night there's every expectation it should be answered before the next day so there's a lot going on it's hard to create a climate of happiness so you have a high probability of achieving goals if HR can't figure out the right formula yes you need to put out fires but if you're only putting out fires then it's at the risk of your long-term growth quick story I'd spent a huge swath of my adult life in Asia and many of the companies there were family dynasties they would have ops reviews where they would talk about the next quarter-century and then i came to america and i would be on investment calls ops reviews where they would literally talk about the next quarter the next three months and certainly if you're only looking at long-term growth you might run out of cash flow to keep your lights on so there has to be a balance but HR can get this right so here's the paradigm we have a chart which I say is the cultural guardians of the firm the gargoyles to the cathedral that the CEO built and now we have them incentivizing behaviors so their employees who had now really have been evangelized they could now offer superior customer service and if you notice I don't stop at superior customer service I stop at revenue because I don't want to spend ten dollars on offering superior customer service if it's going to yield me less than ten dollars in revenue it's just not sustainable over the long run now hr's role how I would like you to engage them is to challenge them to merge the qualitative and the quantitative I am not in the business of making people happy for their own sake I do put forth that happier employees have a higher probability of success but your HR department needs to define that success in the business metric of superior customer service leading to revenue and as long as you define success in an appropriate business metric you could constantly retweet the model to ensure that is sustainable now employees cannot self-actualize if they're constantly worried about many non-value-added items and for employees to self-actualize or at least go towards that path they need to have purpose many of us find that purpose in a personal life as it should be but the Maquis companies also offer employees a purpose and that's what leads them towards a path of self-actualization so HR should internally market to their employees so the employees actually become evangelizes again we go back to the why this is why your customers purchase your product or service the more they believe in the why the more loyalty and the more they're willing to forgive full pause because the best businesses do have risks that manifest if your customers are only buying the wat or the how the first time that runs afoul you lose your retained revenue but if they believe in the why they'll stick around a little bit more they'll give you time to figure it out so let's have a chair also realize the employees that are more willing to stay and not necessarily if you have a comp plan that that leads the market are the employees that get the why because again people want to become a part of something greater than themselves money will only motivate you so much if I pay you twice as much you're not going to work twice as hard so the paradigm that I'm putting forth as we close is that your employees and now your evangelizes and the customers will interact with those employees and they'll want to model the employee behavior I see customers in the apple store and the customers want to emulate some of that behavior they enjoy learning about the product so they can help their friends and almost be considered gurus and Apple the same way the employees are so if the employees get the Y and they live in the cathedral that the CEO built then customers get the sense what it's like just by visiting that Cathedral they get the sense what it's like to live there just by engaging in your employees which because of internal marketing now are really evangelizing your product or service now any interaction that your customers have with your company is either going to be positive and negative the odds of it being completely neutral is like flipping a coin and having the coin land on its side possible but not probable and often it's not extremely negative or extremely positive but it's usually more one than the other so we're putting forth that people are really buying the emotional connection to your company so they need to get the Y and a chart needs to market internally the same way your marketing department markets to your external customers now because we've evangelized our employees they become our brand ambassadors you could take any company and Google I hate and type in the name of the company and you'll get a litany of people with grievances but when a chart engages its employees with the same care that your external marketing department engages your external customers well as brand ambassadors and social media as the megaphone for your employees you can influence a little bit more where that megaphone is pointed and what things are coming out of that megaphone I do want to say that there are no HR problems we do not exist for our own sake there are only revenue issues there are only business problems with HR solutions we want to get a way of just spending money to improve morale if it's not going to add to shareholder value and that concludes my talk today and I thank you very much Russell thank you so much for having me