Wednesday, June 19, 2013

Diploma Reimbursement; Expense, Not Asset

What's more important, the diploma or the knowledge? Out of these two, which do you think can be monetized by your business? Which one can result in higher productivity?
Placing too much emphasis on the paper is a cultural failure of business. That most businesses place such premium is evident after a cursory review of any job post. Emphasis is given to diplomas over anything else.
Screen-shot photo image of portion of job ad asking for Bachelor's and MBA degrees

Even education reimbursement benefits offered to employees focus on the document rather than the knowledge. As long as the employee comes back with a paper in hand, the company pays its part of the tuition cost.
There is no one in human resources who even cares to match the benefits paid by the company to increases in productivity by the employee. If someone did, they would make sure to find a way to improve the ROI of these expenses. They would council employees on the kind of education that would create measurable value to employee and company alike. And maybe, they would find alternatives at no cost; thus creating an asset without an offsetting liability. More on this later.
Photo image of framed Harvard Law diploma
Harvard Law Diploma
Diplomas cost lots of money; especially considering today's high college tuition inflation. Yet, these certificates offer no guarantee of the type or level of knowledge. While a business degree creates the impression of competence, it is not uncommon to find people who graduated from reputable business schools but lack all understanding of business topics. Ask them about accounting and they will struggle identifying what's an asset or a liability. Talk to them about pricing and they will say to remember demand graphs but are not sure how to interpret them. Lots of money was sunk into their school attendance but very little value can be extracted from it.
Superior knowledge, on the other hand, can be easily monetized because it improves employee productivity. It is well documented that higher productivity across all businesses comes first from innovation, then from experience and last from capital spending. This insight debunks the myth that companies must incur high capital expenditures in order to succeed. Professor Jeremy Siegel from the Wharton school of business has done research that shows how, opposite to general belief, companies that spend more than their peers in capital equipment lag behind their industry. This phenomena, which grants higher importance to knowledge has been confirmed even for firms outside the US.
Peter Drucker, arguably the father of business management, identified that we live in the era of the knowledge worker, a term which he coined. Well, recalling the drivers of productivity described above, both innovation and experience are knowledge based. To get an idea of the power of knowledge as a productivity tool one must only look at the distribution of profits of Apple products. Around 80% of all profits go to 10% to 20% of employees. The rest of the employees get the other 20% of profits. Do you want to venture a guess which are the employees that get the bulk of the profits? Within Apple, each California employee produces on average 15 times more value for the company than employees in Asia. What's the difference? Knowledge. California employees get paid for what they know and for how they apply it when making important decisions. Employees in Asia are limited to what they can produce with their hands. In this case, skill is important but not as important as the specialized knowledge of the California engineers.
Photo of entrance to Apple's California Headquarters
Apple's Corporate Office
Higher productivity, as in the case of Apple, creates a competitive advantage that subsequently results in higher profits. In today's competitive environment, there is absolutely no reason why  people should stop growing intellectually. In fact, I strongly believe that in order to stay competitive, employees and management will now have to periodically attend the equivalent of a college degree every 10 years; something that could get very expensive if the company is to pay the bill.
Let's say that your business requires that your HR personnel learn about the Affordable Care Act; also known as Obama Care. You could bring in a payroll services supplier like Paychex. They could deliver a superficial power point presentation to HR. In my experience, most of these presentations serve only the purpose of making you feel like your vendors are working for you. Now that what really matters to you is that you raise the level of expertise within your team in such as way that you can be sure to not violate one of the many regulations; something that could cost the company a fortune.
Another alternative would be to have the members of HR attend the University of Pennsylvania, the ivy league school where people like Donald Trump graduated from. Can you even imagine all the traveling expenses and the tuition costs? How about all the time away from work?
Next, let's then say that you decide to send your sales team to Northwestern University to take the Content Strategy for Professionals: Engaging Audiences for Your Organization course. No doubt that better presentations will go a long way to improve closing rates.
Logo image of The Chinese University of Hong Kong over white background
CUHK website
Once on a roll, you send your sourcing team to learn more about the Yuan. More specifically, the class is called The Role of Renminbi (RMB) in the International Monetary System. The caveat this time is that they will have to attend the Chinese University of Hong Kong. Good luck getting daily flight back and forth.
And how much will all the education cost you company? Nothing; it's all free.
And just in case that your team still has a hard time giving up their fixation for the paper, these schools will grant a diploma for successful completion of every course and the corresponding tests.
Today, thanks to Coursera, your employees can attend the best universities in the world completely free and on their own schedule. Classes are available on-demand through the magic of the world wide wed. Your HR people can chose between many options for the course that's immediately most meaningful to the employee. There are general courses as well as programs on subjects at the forefront of technology.
I recently took Model Thinking at the University of Michigan. The course addressed all sorts of modeling techniques and software packages which are relevant to many fields. About 25,000 students attended the class with me. Sadly, more foreign students take advantage of this free education while Americans are notably disengaged.
As a manager, if you agree with the value of the education over that of the diploma, then you have to understand that the problem is cultural and that solutions must be driven from the top. Change the way your company hires. De-emphasize diplomas while placing more value on relevant knowledge that can be monetized right away. Change your education reimbursement program to one that rewards people for applying newly gained knowledge to their job. Motivate people to learn what they can practice immediately. Form study groups that can turn water-cooler talk into something productive for the company.
Unfortunately, this change will take quite a bit of time. We are dealing with entrenched beliefs, after all.  Thankfully, the exponential improvements resulting from your efforts will be measurable and huge.

Screenshot image from home page

PS: Following is a list of the Business topics available in English through Coursera:
Yale UniversityFinancial Markets
University of PennsylvaniaThe Global Business of Sports
University of PennsylvaniaAn Introduction to Operations Management
University of PennsylvaniaAn Introduction to Financial Accounting
University of PennsylvaniaPrinciples of Microeconomics
University of PennsylvaniaCorporate Finance
University of PennsylvaniaDesign: Creation of Artifacts in Society
University of PennsylvaniaGamification
University of PennsylvaniaHealth Policy and the Affordable Care Act
Princeton UniversityNetworks Illustrated: Principles without Calculus
Princeton UniversityNetworks: Friends, Money, and Bytes
Stanford UniversityOrganizational Analysis
Stanford UniversitySocial and Economic Networks: Models and Analysis
Stanford UniversityStartup Engineering
Stanford UniversityGame Theory
Duke UniversityHealthcare Innovation and Entrepreneurship
Duke UniversityA Beginner's Guide to Irrational Behavior
Northwestern UniversityUnderstanding Media by Understanding Google
Northwestern UniversityLaw and the Entrepreneur
Northwestern UniversityEngaging Audiences for Your Organization
California Institute of TechnologyPrinciples of Economics for Scientists
Case Western Reserve UniversityInspiring Leadership through Emotional Intelligence
Columbia UniversityFinancial Engineering and Risk Management
Georgia Institute of TechnologyComputational Investing, Part I
IE Business SchoolCritical Perspectives on Management
IE Business SchoolUnderstanding economic policymaking
Johns Hopkins UniversityPrinciples of Obesity Economics
Universit√§t M√ľnchen (LMU)Competitive Strategy
Pennsylvania State UniversityCreativity, Innovation, and Change
The Chinese University of Hong KongThe Role of Renminbi (RMB) in International Monetary System
University of California, IrvineFundamentals of Personal Financial Planning
University of California, San FranciscoNutrition for Health Promotion and Disease Prevention
University of FloridaEconomic Issues, Food & You
University of FloridaSustainable Agricultural Land Management
University of GenevaInternational Organizations Management
University of Illinois ChampaignMicroeconomics Principles
University of Maryland, College ParkDeveloping Innovative Ideas for New Companies
University of Maryland, College ParkSurviving Disruptive Technologies
University of MelbourneClimate Change
University of MelbournePrinciples of Macroeconomics
University of MelbourneGenerating the Wealth of Nations
University of MichiganIntroduction to Finance
University of MichiganModel Thinking
University of MinnesotaSustainability of Food Systems: A Global Cycle Perspective
University of VirginiaNew Models of Business in Society
University of VirginiaGrow to Greatness: Smart Growth for Private Businesses I
University of VirginiaFoundations of Business Strategy
University of VirginiaGrow to Greatness: Smart Growth for Private Businesses II
University of VirginiaDesign Thinking for Business Innovation
University of WashingtonIntroduction to Computational Finance and Econometrics
University of WashingtonIntroduction to Public Speaking
University of Wisconsin–MadisonMarkets with Frictions
Vanderbilt UniversityLeading Strategic Innovation in Organizations
Wesleyan UniversitySocial Psychology
Wesleyan UniversityProperty and Liability: An Introduction to Law and Economics

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