HR’s New Why:

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Employees are not inputs to production, not bought things, not assets or capital: they’re customers. And that changes everything. When we see that employees are customers, the purpose of HR is transformed.  Business is transformed. And the opportunity is enormous. 

Part 1: We are thinking about employees wrong

Without necessarily saying it out loud, we have fallen into the habit of thinking of employees as a simple input to production, just like raw materials or capital equipment. We frame people as things the company needs to buy in order to make what we sell.

You can see it in how we speak:

We say people are “our most valuable assets”   Employees are  “human capital”.  These words asset and capital both refer to owned property.  The word “owned” means “to have or hold as property, or to have power or mastery over. These are the dictionary definitions.   Talent acquisition acquires people: and again, acquire means,  “to come into possession of or control of”.  Employee literally means “one who is used”. 

Here’s why this is a mistake. By lumping employees into the same category as raw materials or capital equipment, our attention is drawn away from the truth that employees are free to act independently. A table, you buy it, you own it, and it has no choice. But when we frame employees of inputs, we forget they are not like a table. They are free to act independently.  This sounds obvious when I say it, but we don’t run our businesses as if it’s true. 

Part 2: Employees are Customers

To see why this is so important, we have to remember what a customer is. A customer is first and foremost someone who gives the company something it needs to survive – which employees clearly do in giving us their labor and expertise. 

But a true customer has another attribute. They’re  free to not give you that thing.  That’s why successful businesses are so focused on what customers want, because if they don’t focus on it, the customer can choose to walk away with something critical to the business.  

Clearly, employees can walk away. They can choose to take a job or leave it. They choose each minute whether or not to give that job their attention. 

So the problem with thinking of employees as things is, it has blinded us to the truth:  employees are customers. 

Part 3: Every Business is Multi-Sided

And this is where it gets interesting: 

When employees are customers every business is running a multi-sided business model – which is to say, it has two customers each of whom need to be satisfied to satisfy the other. 

Multi-sided businesses are common.  I like to use savings and loans as an example because you can hear both their customers in the name: people who save, and people who take out loans.  “Savings and loan” But there are lots of other examples. Brokerages of all kinds, credit card companies, ad-based media, auction houses, game console producers, smartphones makers, Uber and Lyft, Airbnb  All of them serve two distinct customers, and must meet the needs of each to meet the needs of the other.  

Part 4: Work is a Product

Each customer in a multi-sided market is buying something.  They may not buy it with money, but they do give something of value in return for something else of value.  

So, what do employees buy? They buy work. The experience of work is a product companies sell to employees.  So we go from companies buying employees, to employees buying work. 

This is a foundational change.   And when you change the shape of the foundations of a building, the shape of the whole building that rests on top of it changes. 

Part 5: Everything Changes

HR goes from being a procurement and maintenance function, to a line of business,  designing, building and selling a product line.

The Chief People Officer goes from serving internal customers to building and delivering a product to sell to external customers.  

The tools of  HR change too.  When we think of employees as inputs, we make employees the object of study. When work is the product, work becomes the object of study.  

That means we can go from using tools from psychology to assess and motivate people to make them productive, to using tools from market research and design to to build the kind of work people really want to buy.    

And it suddenly becomes a lot less important to classify employees into categories such as job roles, personality types. That’s all about ironing out differences between people so we can manage this asset at scale. 

Instead, what becomes important is our ability to perceive differences between individuals.   All Managers are now  in a customer-facing role, and a big part of their job becomes understanding the different kinds of work each unique team member finds rewarding so that they can get them that work. 

Taken to its logical conclusion, the customers who buy the traditional goods and services produced by our company are transformed into suppliers. Suppliers of the work we distribute to employees. So how we procure the suppliers of good work, and how we optimize the distribution of that good work to employees becomes central.

Part 6: Traditional HR Still Matters

Is the old model of HR obsolete? No, both sides of a multi sided business model need to be taken care of for a multi-sided business to thrive.  But I do believe we have reached the point of diminishing returns in our investment in the HR-as-procurement model and we need to start investing in the other side of the business. 

Part 7: The Opportunity

Here’s an interesting fact – a recent study showed that of the two dozen companies who entered the fortune 500 in the preceding decade, more than half owed their success to business model innovations that either transformed existing industries or created new ones. 

Embracing employees as customers, and work as a product we sell to them, has the potential to be such an industry transforming business model innovation.  

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Dan Lindsley

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I don't post often because I want each post to say something meaningful. But if you'd like to hear about it when I do...