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Do we actually value people in this industry or not?

With a rapid-fire succession of layoffs and closures in the industry recently, this seems to be a relevant question. Are people an "Asset" or are they just "Consumables"? Many of us don't like the answer - and it isn't even sound business.

Alan Wilson

March 6, 2014

6 Min Read

The last few weeks have seen yet another round of layoffs and closures in the industry. Eidos in Montreal dropping staff post-Thief, Sony in Santa Monica killing a new IP and, perhaps most shockingly, 2K shuttering Bioshock Infinite developers, Irrational. The companies concerned behave in their own fashions. 2K organized a recruitment fair for the Irrational devs, which we attended. Sony are working to "ease the transition for those impacted". Eidos are also trying to run a career day or re-locate staff. Not to mention 700-odd staff from Disney.

But the reasoning often troubles me:

"it’s something that every major studio has to do sometimes in order to ensure you have the right set up for current and future projects"

"sometimes it is necessary to make changes to better serve the future projects of the studio"

And, to quote badly out of context, but a phrase that does rankle:

"as we focus not just on getting to profitability but sustained profitability".

This spawned a small discussion piece on IGN ("Do Layoffs Scare Away Talented Developers?") and subsequent discussions on LinkedIn, that had me thinking about an old term: "human capital". Back in the 80s, people started babbling about how people were our most valuable resource in large (service-based, therefore people-based) companies, how we should invest in our people, create "human capital". Mostly lip-service, but it did lead some academics to take throwaway lines from smarmy CEOs literally and explore both how one would handle that from a financial standpoint, as well as what the cost implications might actually be.

To the latter point, there seem to be two separate business models, both related, but the approaches at odds with each other.

The one that rankles so badly with me is the one we seem to see lurking in this industry all too much. It involves ramping up teams (that is teams of PEOPLE, real human beings, with lives, families, mortgages, hopes and aspirations), with wonderful promises of great things to come. The times may be good. Those good times may last. But all too often they aren't - and they don't. The challenge isn't new. It is that games development is very often very project-based. A big game to get out the door, with a budget of millions of dollars. Costs to recoup, profits to be made and declared to shareholders. And what happens at the end of that project? What happens when the project no longer needs all those skills? Far too frequently, it seems - layoffs and closures. From an accounting point of view, get those costs off my Profit-and-Loss statement, please - and as quickly as possible. They are simply a very significant portion of my costs, reducing my bottom line, just by existing. Shoo.

The other, that we follow, because we are, of course, quite perfect, is about building permanent teams in a sustainable fashion. We don't staff up for each project and then staff back. We work out what we can achieve and when, based on the resource we have and the resource we can (sustainably) add. Where we can see we will be over-stretched, we look to outsource. We look for partners who specialize in juggling project work to sustain their own workforces. That's what they do - they have a certain resource pool and work to keep that pool as busy as possible at all times. Now, before anyone tears in, we know we aren't perfect. We've made mistakes recruiting over recent years. We have felt horrible the couple of times we have had to let someone go. Nothing like as bad as it is for the individual, obviously.

This also means that we can only deliver projects on the timings that our resource will allow. Timings have to be flexible. Which delays the Revenue side of the equation on the infamous P&L. Which makes accountants wince, again. Which also means that we monitor forecast Cashflow very carefully. Not forecast Profit - forecast Cash. Related, but NOT the same thing.

Whatever people say to the contrary, so much of this industry is driven by a project-driven (read game release driven) mentality. Profit and Loss. There is a set of Costs (mostly people), followed, hopefully, by a load of Revenue, which should be greater than the Costs, generate Profit and keep us in business. That's all good - and should generate both Cash and an increasing value of the business. So WHY do we see so many companies dropping people out the door, with sad excuses like those above?

Because they do not see any monetary value in those people. Those people are not an investment - they are just a cost. In accounting terms, sadly, they are pretty much Consumables on the P&L, not Assets on the Balance Sheet. And you know what? This is wrong - and not just morally.

Yes, morally, it sucks. Hire a bunch of people, have them build something, dump them, make money, rinse and repeat. But the moral argument obviously isn't enough. So here is an argument for all the suits and bean-counters making the "hard business decisions", because "you can't put a value on people":

Actually, yes you can. They go on the Balance Sheet under Intangible Assets. Go look it up. Here is a link to the theory and a worked example (in PDF format). Written by economists and has funny squiggly equations in it. "But that is theory - who uses that?". Well, as it turns out, Infosys (INFY, Market Cap $35Bn. Yes, that is Billion, with a B) does, for one. To quote from their financial statement:

"Intangible assets: The intangible assets of a company can be classified into four major categories : human resources, intellectual property assets, internal assets and external assets.

Human resources: Human resources represent the collective expertise, innovation, leadership, entrepreneurship and managerial skills of the employees of an organization."

Hey look, accountant-types - you CAN put a value on people. You can put them on your Balance Sheet and demonstrate to investors what incredible value you have created. Now they aren't just an annoying cost to be discarded at a moment's notice. People actually ARE a valuable Asset! Who knew?!

And back to the original point: Do we actually value people in this industry or not? Well, no, apparently we don't. All too many just pay lip service to the concept. People are treated as Consumables, not Assets. Well, I'm sorry, but you're wrong. Morally, of course - but being morally correct doesn't seem to count. So, you're also wrong in accounting terms. Those people ARE Assets, with real value, to be nurtured, invested in, protected - and kept. That is extra Assets on your Balance Sheet. Actual increased valuation for your shareholders - AND morally less reprehensible at the same time.

Go stick THAT up your effing Balance Sheets.

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