Leadership, Culture & Empowerment (Part II)
The Hidden Value of Intangible Assets
When I last wrote, I explored topics such as leadership and culture that I discussed with Harvard Business School’s Frances Frei in our recent Q Factor podcast (see earlier blog here). My new investment firm, Quent Capital, attempts to measure the value of important intangible assets such as these and incorporate them in our analysis of global small cap growth companies. In the same vein, another good example is a firm’s human capital, or employees themselves.
Employees as Assets
Under standard accounting, employees are viewed as expenses, not assets. When a company faces a financial predicament, employees—as a variable expense—are invariably one of the first cuts the bean-counters make. This is a short-term, accountant-driven solution which often harms a firm in the long run. “When you’re writing off training and investments in employees as expenses, it’s hard to view your employees in a different light,” comments Frei.
She argues that, instead of viewing employees in a narrow financial way—e.g., their cost or revenue-generating ability—immeasurable qualities including leadership ability and inspiration, which are critical to a company’s success, should also be weighed. There are added benefits to this broader measure of employees’ worth to the business: “By changing how you assess your employees’ worth, you’re more likely to recognize their contributions, acknowledge their efforts, and build deeper relationships,” she says. “And when employees feel valued and cared for in the workplace, they’re more likely to stick around.”
Like most firms, Quent Capital has needed to adjust quickly to the challenges of working from remote in this age of the COVID-19 pandemic. Managing employees remotely requires a different skill set than managing them in an office, notes Frei. But, of course, adapting to changing and unforeseen circumstances comes with the territory of being a good leader.
Frei thinks company leaders need to change their approach to meetings and internal communication. She advises increasing the frequency of virtual meetings but shortening the duration of the interactions (and becoming more efficient in the shortened meetings). “If you used to have weekly one-on-ones, you should have them twice a week; if twice a week, you should have them four times a week,” she says.
More frequent virtual contact with employees will allow more “informal development” to occur and, ideally, replace the osmosis that in normal times in the office occurs around staff lunches, chance encounters at the water cooler, or in other informal venues. Confronting a crisis, such as the pandemic, is also an excellent time for a business to update team dynamics, counsels Frei. Encouraging workers to express their thoughts openly about what is working and what isn’t helps to create a more productive and positive work atmosphere.
Disruptive Customer Service
At Quent Capital, we carefully study both employee and customer satisfaction—critical but difficult-to-measure intangible assets—before we invest in a business. Frei, who is UPS Foundation Professor of Service Management at HBS, is a leading authority on the subject of customer service and has advised a host of major corporations on the practice. In our service industry-dominated economy, she wants companies to be not only obsessed with client service, but to strive for true innovation. “Part of good leadership is having a vision that changes an industry, process, or experience for the better,” she says, adding that the most successful companies are typically ones that disrupt the very idea of what traditional customer service looks like.
Take the example of Uber, for which she served a stint as Senior VP for Leadership and Strategy. “Uber disrupted the taxi industry because nobody enjoyed the taxi experience,” Frei says. “Uber was better on every dimension.” In other words, it created a new industry and wasn’t really even competing directly against taxis. At Quent Capital, one of the major themes in our global search for outstanding small companies is to identify businesses with innovative, disruptive products, technologies, and services.
One of Frei’s favorite examples of a disruptive business is PillPack, which sorts and delivers to customers a month’s worth of prescription and non-prescription pills such as vitamins packed in daily pouches. This radically different mode of delivering prescription and non-RX medications makes life easier for both patients and their doctors. Patients’ compliance with diligently taking prescribed drugs is actually quite low, in part due to putting off trips to the pharmacy and also because of the complexity of taking, say, five different medications that aren’t necessarily on the same cycle. Added to that is neglecting to take necessary vitamins, such as Vitamin D, and the doctor maybe not even knowing what vitamins you are taking. Now you’re receiving a month’s worth of pills, prescription and non-prescription, packed in daily pouches and the doctor stays abreast of what you are taking each day.
Until my next blog post, I encourage you to listen to the The Q Factor on your preferred podcast streaming service.