This tale is about three companies that changed the way the world functions. They are Motorola, Nokia and Apple.
It all started with Motorola when it demonstrated the first hand held portable telephone to the world in early 1970s. Then it came up with the first cellular phone in the early 1990s. This changed our lives forever. Today we have reached a stage where it seems there is nothing out there that cannot be done through a mobile phone. From booking a flight, checking the closest restaurant to go to, using it as a TV remote, radio, watching movies and the list goes on and on.
Motorola was the leader in this industry until 1998 and its stock price was booming until Nokia took over the world market becoming the number one cellphone company. Nokia was such a craze in the whole world as it manufactured some of the best cutting edge phones in the world. I still remember when the character named “Neo” from the movie “The Matrix” used one of Nokia’s phone models which I thought was the coolest thing ever. I saw streaming of television for the first time in 2005 on a Nokia phone. During this period Nokia was one of the most valued companies in the world.
Then in 2007 came the Apple iPhone launch, which revolutionized the smart phone industry (again after Motorola and Nokia !! ), with its new touch screen and just one button on the phone. Today iPhone is such a craze that carrying an iPhone is considered a status symbol and a must for tech buyers everywhere. Again, it changed the rules on how a smart phone can be used. Today Apple is the most valuable company in the world.
The big question is how long can Apple stay at the top? Is there another company that can take over Apple’s dominance anytime soon?
To answer this question, let us take a step back and think why these companies reached where they did and achieved what they did. Nobody can argue that during their peak, each of these companies was the best at what they were doing. Each company was the best at innovation, marketing their products, branding, strategy and execution to make itself successful.
But the big question is why does a company that is doing so well suddenly fall, failing to do the things it had done before? Why did Motorola lose $4.3 billion dollars just from 2007 to 2009? Why did Nokia loose more than 70% of its market capitalization in the recent past? Why is Apple the most valued company in the world today?
To answer this, everyone thinks of the reasons mentioned above (innovation, marketing, branding, etc.) for the success of a company but forget the most important aspect of all, “The People” who are behind it. If you ask me, the one and only reason for the success or failure of a company are the people working for it. A company is like a sports team. It is like a team that plays soccer, basketball, baseball, or cricket. For a sports team to be successful it needs a good leader and good players in every department (For example in soccer there should be good players in forward, midfield and defense too) and most importantly optimum number of players should be in each department. In a similar way, a company also needs good people in every aspect such as R&D, Finance, Marketing, HR, Procurement, and Production for it to be successful. Like any great team that falls from its heights when its players are not optimally used, the same thing happens to a company too.
To explain this further, we will take the two most commonly used metrics in Human Capital (Revenue per FTE and Profit per FTE) for Apple and Nokia over a period of 15 years from 1996 to 2010 and compare them. Below are the graphs for the two companies:
The graphs clearly show that, for Nokia Revenue per FTE and Profit per FTE started to fall drastically from its peak in 2006-07 and Apple Inc. started to rise to greater heights from the same period. This clearly shows that Apple Inc. was able to plan and use its workforce optimally from late 2000s and thus could reach greater heights.
Though Revenue per FTE and Profit per FTE are not the best human capital metrics, they still give us a rough idea about the importance of human capital in a company’s success. If a company provides more data on human capital (like data on workforce headcount breakdown, total cost of workforce, training, recruiting and hiring, mobility, leadership and management to name a few) we will be able to predict the performance of a company in a much better way.
To explain this further, we at HCMI have done statistical analysis on 13 different industry sectors and found a very good correlation between stock price of a company and human capital metrics. So maybe at last it is time to recognize Human Capital as not just an expense on a companies’ balance sheet but as the greatest asset any company can have. To hear more stay tuned to this space………
By: Harish Reddy Sidda