Optimize Your LIQ!

Do Better Employees Create Bigger Profits?...

As we begin the new year of economic recovery, it is critical to embrace this question and take a stance! Heated arguments abound because the answer correctly differs for each work group according to "LIQ" or "Labor Intensity Quotient." Labor intensity measures the impact of specific HR variables upon the company’s bottom line. Similar to human DNA, LIQ is highly unique and can serve as a blueprint to widespread decision making. Does a particular work group create profits through increased employee testing, higher wages, lower wages, increased automation, improved retention? This is the concept of "Human Capital."

How do we calculate the LIQ? The LIQ calculation considers the median, margin of error and/or standard deviation of output per unit of human capital investment. Calculated factors include all cost accounting line items directly affected by the behavior, performance, development and retention of your team members. For instance, a high LIQ firm may incur higher costs in rehiring, retraining, potential waste, quality problems, jeopardized business or reduced output/cycle time. And while I have been labeled an "egghead" for speaking on such complex statistical formulas, I can assure you that the process of simply compiling the necessary data for this equation is a highly beneficial learning by itself…and does not require an egghead to compile the data. The fact finding mission audits quality control measures, operational efficiencies, risks, performance management and appropriate incentive programs as well.

1325 metro-Milwaukee jobs surveyed by HRS yielded an average wage increase of 15% from December 1999 to December 2000. Employee retention steadily became a "bidding war" for quality employees. Job categories surveyed include the most universal of administrative support, customer service, production, warehouse and data entry. These categories represent the highest volume of positions within the typical "pyramid" of corporate job classifications. The "tight labor market" initially caused wages to spiral upward, probably faster than the market could tolerate. Labor intensive corporations were forced to comply, and the cost of human capital quickly became even more of a "bottom line" concern. Has the 2001 economic downturn been a correction? How do you respond in 2002?

It is clear that we are embarking upon positive swings in economic recovery, and we are thankful for the optimism and bounce back! As each individual company determines the appropriate hiring or recall strategies for 2002, it is important to own some sense of the company’s LIQ. A higher LIQ calls for a keen eye on candidate screening/selection, training needs and turnover. A lower LIQ may excuse a more transient workforce.

In any economy, this research needs to remain on ongoing commitment.  Understand your LIQ and set your hiring, training and compensation practices accordingly. We’re simply stating that your LIQ calculation is necessary to strategic planning for optimal return on investment. Employee retention, human capital, teambuilding, internal marketing and strategic staffing are all necessary considerations offering a vast range of corporate investment levels. Your LIQ helps you to determine your own appropriate level of investment into these tools and programs. There is no "cookie cutter" approach.



Written exclusively for HRSteam.com Members and HRS clients.
Copyright © 2001 by HRS/Human Resource Services, Inc.