Instead of debating the reality of that paradigm, let's try to hack it.
We've all heard some mantra that professes that life only gives back as much as we put in. Instead of debating the reality of that paradigm, let's try to hack it. Reciprocity is fine for those who accept mediocrity. But, those wishing to have the best results in life need to apply leverage to everything.
I intentionally avoided looking up official definitions of "leverage" so that I might instead rely solely on my interpretation of the concept. Leverage is an act of multiplying or increasing the return on any resource investment through the application of a specific condition. Using my definition, you can practically think of leverage and increased ROI synonymously. Everyone wants the maximum return on his investment. So, why would anyone be content with merely getting out what he put in? That's not good enough. By their very nature, investments are intended to be productive. Productive investments create value and wealth for both the investor and the general market. It is not a zero-sum game. In His parable of the talents1, Jesus spoke at once of both the virtue of multiplying a base resource and the perniciousness of failing to attempt the same. Evidently, we are expected to leverage those resources we possess. Also, the parable illustrates that leverage is neither automatic nor passive; rather, it requires effort. The question becomes, "What are the best ways to leverage my resources?" Managers and business owners should reflect on this often.
Metrics Matter
The best methods for leverage will vary from one organization to another. Identifying the greatest leverage opportunities within a specific organization requires careful evaluation. Clearly, those seeking to maximize the return on investment of resources must quantify, measure, and analyze resources and return yields. Yet, it is prevalent for businesses to lack meaningful data regarding the utilization of their resources and associated returns. To make the case that the value of leveraging is not as obvious as you might perceive, let's consider management of an organization's arguably most costly and valuable resource: people.
The primary role of Human Resources Management (HRM) is to leverage people. Therefore, Human Resources (HR) personnel should recruit those with the highest leverage potential and create conditions favorable to producing as much leverage as possible. Obviously, HR needs to work to remove obstacles to those conditions also. In doing so, HRM will serve to generate the highest rates of return on investments in human capital possible.
Leverage applied to people produces returns commensurate to the value (i.e. inherent resources possessed) of those being leveraged. Higher returns are yielded from those who possess greater motivation, experience, knowledge, expertise, work ethic, intelligence, skills, talent, creativity, influence, credibility, and strength, depending on the relevance of these assets regarding the associated activity. Therefore, when seeking to leverage people, management needs to consider which assets will most impact the activity in which the organization's people will engage. Context determines how heavily correlated inherent assets and actual value are. For instance, a doctorate in astronautical engineering may be an impressive asset possessed by a prospective team member. Yet, in the context of a position in which his primary responsibility is to sell shoes, the value diminishes greatly versus what it would otherwise be as an employee of SpaceX or Blue Origin.
All these considerations point to the question, "How are you quantifying the return on the investment you continually make in people?" The engagement, productivity, and value produced by each member of the team must be measured, tracked, and reported to management and individuals. Frequent and consistent performance evaluation, coaching, and justified commendation using well-formulated report cards (aka performance appraisal KRAs) is the best way to leverage those human resources employed within a business. Similarly, analytics of relevant performance metrics for all other resources is necessary to improve the odds of meaningful leverage.
Since a business' viability and sustainability is fused with its unique value proposition, it is important to remember that leverage is a value-creating mechanism. Indeed, those companies that best leverage their resources will gain competitive advantage over those that no not. This is because the subsequent increased return through leveraging resources enables businesses to improve efficiency and cut costs. The result should invariably translate into a better customer experience, higher quality products and services, reduction of prices, and/or more convenience.
The following table displays some common resources and ways in which they can be leveraged. Note that creating and applying technology universally leverages any resource. Therefore, management should be perpetually attempting to create and apply technology to all its resources.
As is evident from the table, most resources can be leveraged in multiple ways. And, leverage strategies can be combined to have synergistic effects, powerfully compounding the return on investment.
Who Says That There's Only 24 Hours in a Day?
Let's look at an example of how to use multiple strategies to leverage a resource which we are told is finite: time. Management of Acme Widgets clearly understands the value of training its people. And, it wants to maximize the return on its investment of time spent on training.
Cooperation: Various members of the management team agree to cover for one another and share the responsibility for training depending on the demands on their individual schedules.
Decentralize: In due course, management can delegate some of the training to other team members who have mastered the material and are eager to assist in team development, in effect indefinitely multiplying its number of trainers and affording management the periodic freedom to work on other improvement initiatives.
Learning: Each manager took some additional time to learn the most effective means of training in order to ensure little time was wasted during training session.
Organizing: Management organizes subject material into a structured and highly-repeatable slide deck.
Practicing: Over time, management has been able to reduce unproductive interruptions, humming and hawing, and less relevant exercises from its training. Training sessions and delivery of the material is becoming very efficient with practice.
Prayer: Whether attributed to the Holy Spirit3 or the associated calming, meditative mental state, managers notice they are more effective when they take a moment of silence before beginning training sessions.
Sharing: By doubling the number of pupils in a training session, management may double the return on its investment of time spent training.
Sleep: As believers in the latest research on the importance of quality sleep, management has prioritized it and, consequently, has become much more effective in its communication and training.
Technology Application: Management records and archives its training sessions in the cloud to be used with incoming team members and as reference materials that everyone can use when necessary. Soon, it will use a comprehensive training app to track participation, generate transcripts, suggest necessary remediation, and provide valuable analytics that correlate training with job performance. Eventually, management may create fully digital, self-paced training modules and take advantage of workflow automation to assist in the entire training management strategy.
What's the Catch?
Just as mechanical levers have limitations, it is wise to consider the extent to which other forms of leverage can be beneficial. The law of diminishing returns seems to apply to leveraging any resource for increased return on investment. Using the previous example, it may be noted that training effectiveness can have an inverse relationship with an increase in the number of pupils. When unsure of the specific conditions that diminish the returns on leverage, simply track the returns on investment of leveraged resources and react to unfavorable results. It may be necessary to experiment and analyse changing specific, isolated variables while attempting to ascertain the best leverage formula and dose. This is only practical when the upside potential is substantial. In the big picture and over the long haul, most leverage opportunities are likely to be worth the effort.
Lastly, bear in mind that the conditions that created the original leverage opportunity are subject to change. For example, leveraging financial capital only increases the return on investment when the returns earned exceed the interest paid on borrowed capital or the cost of opportunity for the capital to be otherwise invested. This will necessitate changing leverage strategies and resource allocation along with market fluctuations and opportunities.
A scarcity-mentality is antithetical for business success. Eschew any propoganda that suggests a limited or fixed size to the proverbial pie. The world is teeming with opportunities and all resources exist in abundance. This is only universally possible through value-added leverage, the fundamental concept that it is possible to generate wealth for all through the investment and exchange of resources in a free market. In business, as in life, you should strive to get back more than you put in. Anything else is not good enough!