Is There a Best People Measure? Maybe Not.

jim | January 26, 2012 | Communication, Employee Engagement, Human Resource Management

Measurement is a powerful communication device.

What you count counts. What you measure tells people what’s important. It drives actions people take and the results they create.

When you try to measure too many things, it may tell the people you lack priorities because “everything’s important.”

Recently, we worked with a leadership team that had 15 performance measures. In focus groups employees told us they were confused about priorities. “One minute everyone’s running after improved safety,” one employee told me. “Then it’s quality. Then it’s something else. They need to make up their minds what’s important.”

We were able to whittle the list down to four core measures. Then everything that was said and done focused on those four measures.

One of the most difficult measures to decide on is a people measure—a measure that lets us know how well we’re leading our people.

Here are two schools of thought.

One school says that measuring relevant operating and financial performance such as safety, quality, delivery and cost or productivity is the best measure of how people are performing. Open book management supporters believe financial statements are stories about people and what they do. All their employees understand the financial statement and manage pieces of it every day.

The other school acknowledges that there are specific people-related measures that can be adopted. That’s fine in theory, but you need to make sure you know what outcomes you want before you adopt one of those measures.

Take engagement, for example. Measuring engagement through the use of surveys is useful, but engagement isn’t an outcome. It’s a condition that can lead to the right outcomes if focused well.

Or take retention. Measuring retention can be helpful if you’re measuring turnover of key people. But simply measuring retention may encourage managers to keep poor performers.

Productivity is another measure, with revenue per employee being the most widely used. But measuring revenue per employee might invite some leaders to downsize over the short term in order to hit the numbers, or play the numbers games by outsourcing people.

A better measure might be output produced to total employee compensation. This measures return on compensation (investment) rather than return on employees.

A few years ago, I worked with a client who measured the number of people attending training during a year. That’s fine if that’s all you want to know. But if you want to increase the competencies of your workforce so they generate better business results, you should measure that, not training hours.

Measurement is a powerful communication force. But if you don’t use it right it will send energy in all the wrong directions.

Incentives Must be Done Right

jim | November 27, 2011 | Employee Engagement, Leadership, Performance Management

Incentives can play a huge role in driving results upward, but only if they’re part of a larger continuous improvement system.

Last year, I worked with a company that had a gain-sharing plan for hourly people. Employees worked to create gains that they, in turn, shared. It was a relatively decent design but its implementation was flawed. As a result, it became perceived as a form of entitlement—something employees deserved. Even worse, they had no idea how to create the gains.

Here are some characteristics of good incentive plans:

The right targets
There should be a clear line of sight between what people do and what they can influence. Expecting hourly people to connect to an earnings-per-share goal is a bit of a stretch. But connecting them to reducing scrap or re-work in their area provides line of sight. The incentive needs to focus on targets that drive results because results fund the payout. If there’s no gain, there’s no payout.

High involvement
People are more apt to actively participate in an incentive plan that they’ve helped design and set targets to achieve. They will work like the devil to hit the stretch targets that they have set. In most cases, people will beat their own goals, even if they are high.

Leaders at all levels, but especially first line leaders, need to promote high involvement and a disciplined continuous improvement process that fosters root cause identification, problem solving, solution testing and refinement.

An information-rich environment
Goals and actual performance information should be as available to the incentive plan participants as a sporting event scoreboard is available to the players on the field. And they should have the information they need when they need it to improve work and results. This includes information about the workings of the business and what it takes to “improve the score.”

The right payout at the right time
Payouts should be large enough to get attention, yet frequent enough to connect the work that was improved with the results that were created. For example, if the incentive is paid annually, the line of sight between work and results is so long that most employees forget the plan exists. Monthly or quarterly payouts (with a form of hold-back in case the company tanks late in the year) keep the effort, results and payout connected.

Darden—Great Company

jim | November 11, 2011 | Customer Satisfaction, Employee Engagement, Leadership

I think environment says everything about a company. I don’t care what industry you’re operating in, the parking lot tells your first story. That’s followed by the front door and the first person you meet inside that door.

Everything that comes after is merely repetition.

Not long ago, I spoke at Darden, the big full-service restaurant company and a Fortune 100 Best Places to Work.

Darden screams, “Great Company!” even from the highway.

My Darden host, knowing I fancy myself as somewhat of a foodie, took me back stage into the Olive Garden test kitchen where I watched the chefs create some new entrees. I was like a kid in a candy store.

Good Company – Great Book

jim | September 27, 2011 | Book Review, Organizational Design

I work hard to find newness in business books. But a lot of them are old ideas repackaged. Or as management author and consultant Gary Hamel has said, “The average business book is just a Harvard Business Review (HBR) article with extra examples and the average HBR article is a good PowerPoint presentation with extra prose.” As an author I know how right he is.

But Good Company is very much the exception.

Laurie Bassi and her co-authors have raised the bar that was set 30 years ago with In Search of Excellence. And it’s pushed the whole concept of the value profit chain introduced in the late nineties to the next level.

Good Company says that a new combination of forces not only requires companies to be good to their people and their customers, but also to be stewards of their communities. These forces include the explosion of online information, an emergence of the ethical consumer and the arrival of the civic-minded Millennials.

The authors believe people are choosing the companies in their lives in the same way they choose the guests they invite into their homes. They want the companies they do business with to be good company.

Good Company offers powerful research, lively stories and a gutsy rating of the Fortune 100 companies that’s apt to improve the business world…for the good.

If you lead a Fortune 100 company, you might start with Chapter 6, see how you’re ranked and then decide what you should do next.

Crazy Busy & Knowing When to Say No

jim | September 13, 2011 | Communication, Leadership, Lean/Six Sigma, Performance Management

“I’m crazy busy!”

That’s what we all say we are these days. But when is “crazy busy” a waste of time?

Well, how often do you manage your time according to the value it adds to your business?

An organization’s role is to create value for its customers and continuously improve the process, so more value can be added.

This is the concept of lean. Leading an organization using lean principles and a lean mindset is becoming a big deal everywhere.

If you’re not pruning waste out of your core process—like converting raw materials to something customers’ value—you’re likely to be at a competitive disadvantage. You can bet your competitors down the street are pruning madly.

How can you add more measurable value today than you did yesterday? How can you add more value tomorrow than you will today?

Check your calendar. Is what you’re doing every hour today adding value to your core process, or is some of it draining value from that process?

Will you say “no” to a meeting that you know will not add value to the organization’s core process?

When you’re in the throes of a petty, political conversation, are you willing to stop and ask your fellow “politicians” whether the discussion you’re having right now is something the customer would be willing to pay for?

Will you give up some sense of control by delegating a lower value-adding task to someone who makes less money than you do?

Will you prune your core process today? The other guys might be doing it right now.

Leaders: Ask What’s Important

jim | May 27, 2011 | Communication, Customer Satisfaction, Employee Engagement, Leadership

Are you asking questions that communicate that you want new ideas to help customers and the company?

In my book The Leadership Solution, I discussed how leaders can use questions to signal their priorities. If you want to improve speed to market, ask about speed to market issues. If you want to focus on customers, ask about customers.

If you want to increase innovation, ask about new ideas.

Two companies I’ve worked with recently have used employee surveys to try to surface barriers to innovation. Sure enough, the questions related to management’s interest in new ideas received low scores (56% and 38% respectively).

If you want to be more innovative, you absolutely must be viewed as someone who wants fresh new ways to take care of the customer.

The question I’ve always liked best is: “What do you think?”

What Counts is What You Count

jim | May 27, 2011 | Communication, Leadership, Performance Management, Strategy Clarification and Execution

Leaders can talk all they want about the need for people to work together, but if the numbers tell those people to work in silos they will. The “do communication” will trump the “say communication” nearly every time.

What counts is what you count.

Among the CEO’s I work with, getting people to work together across functions and departments is one of the top issues. Why then, do others guard turf and focus only on their department, business unit, function or geographic area, which is often at the expense of the company’s overall health?

With the assumption that few if any of us get up in the morning relishing another emotionally-draining day of battle with our teammates, I believe we aren’t willingly creating the silos. Systems create them and they usually start within the goal setting and reward systems. These two systems communicate what’s expected in a powerful way.

If you want integration, check to see if your leaders have shared goals. The way I do it is to use a simple Excel spreadsheet, listing the leaders down the left column and company goals across the top. Fill in each leader’s goals and weightings. You should be able to see quickly if you have a problem. The goals will be out of whack at a glance.

Here’s what you should focus on:

Keep the number of goals to a minimum—the critical numbers. Having a small number of goals clarify priorities. Having many goals confuse people as to what’s important.
Company-related goals should be shared by the leaders and weighted heavily. This makes it clear what’s important and creates interdependencies among the leaders. That is, the goals should be set so that individual member rewards come as a result of the entire team winning.
Business unit or functional goals should be secondary, so they should receive lighter weightings. They should drive the overall corporate goals.

If you’re trying to integrate your organization, start with the exercise I use and see what it tells you. Then, if necessary, modify the goals and weightings to eliminate silos, integrate the organization and improve overall results.

Calculating Engagement ROI

jim | March 27, 2011 | Employee Engagement, Leadership, Performance Management

Engaged people outperform unengaged people, all things being equal. And some engaged people can produce greater returns than others.

For this reason, savvy business leaders target their engagement efforts where they’ll get the biggest returns and the most leverage. You can do this, too.

What do they do that you can do?

For those who missed an earlier Leadership Report, let me reiterate two fundamental, but not universally understood, notions about engagement.

First, employee engagement is a condition that occurs when your employees share the values and purpose of the organization and are willing to “do whatever it takes” to help the organization succeed. The condition must be properly directed at hitting or exceeding operating or financial performance goals that are important to your business. When you do this well, you’ll hit those goals more efficiently. It’s the equivalent of driving your car to a destination on eight cylinders instead of five.

Second, engaging people requires hard work and resources, as do so many things that are worth doing. There’s a cost associated with increasing employee engagement. But the return can be huge—or it can be small. In fact, somewhere along the line, there can be a point of diminishing returns where the cost to engage people is greater than the gains increased engagement can create. (Do you have to be at a six sigma level (99.9997 defect free) in everything? Most would say no.

Initial efforts to engage people often—but not always– should be focused where the potential gains are the greatest. Below is a Pareto chart (named after Vilfredo Pareto, which is why it’s always capitalized), representing five cities where a company maintains distribution centers. The height of the bars reflects the number of customer service complaints each facility received in a given unit of time. The percentage numbers above each bar reflect the engagement scores (on a scale of 1-100) for that facility.

The data tell us that the biggest opportunity for improvement is at the Atlanta facility where the complaints are the highest and the engagement scores are the lowest. This shows us where the potential opportunity is to improve engagement, but doesn’t necessarily tell us the size of the potential return on the investment (ROI).

To calculate the ROI, we need to know answers to some questions.

What’s the size of the problem caused by the complaints? This might be reflected in warranty costs, the cost of rework, processing customer returns or loss of contracts or future sales.
What are the root causes of the complaints and what actions and investments are required to make the root causes go away and lift to occur?
How much of #1 and #2 above do people have control over? That is, to what extent will an investment in engaging people modify discretionary effort, eliminate root causes and create the gain?
Knowing the size of the investment and the size of the gain will reveal the ROI.

It’s important to appreciate what employees can and can’t control through the use of their discretionary effort. To use an exaggerated example, insurance company employees have no control over where a hurricane hits. But, they do have control over how accurately or quickly they process the claims.

Similarly, the employees in the Atlanta facility in the example above have a lot of control over what goes on inside the four walls of the distribution center. But control over inventory levels may be dictated by a corporate supply chain operation, something employees in the distribution center may have no control over. Yet the inventory levels may be too low, causing late shipments that are spawn the customer complaints. So, it’s important to focus engagement efforts where people have control over the results that need to be improved.

Typically, the ROI is higher where the opportunity is the greatest. As a leader increases engagement over time, performance goes up and the so-called low hanging fruit gets picked. Reducing cycle time, for instance, becomes increasingly challenging as the degree of difficulty goes up. Eventually the investment/return lines can cross and leaders need to decide whether to keep improving performance at a cost that may well be higher than the cost to create those gains. That’s, as they say, a strategic decision.

However, as I’ve said many times, aiming for a 100 percent engaged workforce is a fool’s errand in almost all cases.

How To Start Lean

jim | March 1, 2011 | Change Management, Leadership, Lean/Six Sigma

“What’s the first thing I should do?”

I hear this question frequently—most recently by someone in Turkey—about transforming an organization into a lean one. It’s always worth learning from those who’ve gone before you, especially if it can avoid costly missteps.

For those new to lean and its brother, six sigma, lean is a concept that focuses on maximizing value by eliminating waste. Six sigma is a measurement of variation. It’s used to improve quality. Successful lean transformations are characterized by the performance improvements they create and their staying power. That is, lean becomes a way of doing business, not another program of the day.

There are two components of lean. One is the technical, or hard side of business; the formulas, measures and processes. The other is the cultural, or the soft side that includes issues related to leadership, communication and rewards.

The starting point? Without equivocation, I advocate that the cultural side of the change effort must be addressed first.

In every situation where I’ve been asked to help “fix” a lean transformation gone bad, the problem had been created by addressing the hard side first–changing work processes or imposing new performance measures that no one understood. Tools, techniques and work processes were implemented on top of a value system that was incompatible with lean.

Starting with leadership, communication and involvement issues takes time. But sometimes we have to go slow to go fast. Getting the cultural issues down right will cause the lean effort to skyrocket, once you marry up the technical and cultural sides and begin the integrated implementation.

Get It Together!

jim | March 1, 2011 | Communication, Human Resource Management, Leadership, Organizational Design, Performance Management

Why don’t people work together?

Why don’t sales and production people work out the tension between inventories and on-time delivery? Why don’t human resources and internal communication folks create and administer one employee survey instead of two? Why don’t department heads with competing priorities work out their differences? Why do complex organizational matrices throw unnecessary political friction into an already overburdened business?

Yes, it’s true that some organizations have worked out these issues. But by my count, not many have. Huge amounts of productive time are wasted trying to negotiate the conflicting priorities, or figuring out ways to work around So-and-So who’s known as a turf-protector but has all the right contacts in high places.

How much could we get done for the customers if we didn’t have this collaboration friction?

Here are four likely root causes of condition, which in fancy-talk is known as organizational segmentation (versus integration).

The root causes:

The organizational arrangements are based on antiquated business functions, not on value streams. That is, they have little to do with meeting customer requirements.
Leaders are being paid to meet the goals of their business unit, geographic region, department or functional unit. The compensation arrangement dictates that they make the numbers, all else be damned. (It’s not that crass, but that’s really what it’s saying.)
There are no priorities, or too many priorities (one in the same), or conflicting priorities. Everyone is on his or her own and until someone figures out what it really takes to win, everything’s up for grabs.
Processes aren’t in place to enable conversations across functions. Even if the previously mentioned causes were tied down perfectly, when there’s no formal or informal way to build consensus (as in over lunch), getting together is difficult.

Most CEO’s I work with or know wouldn’t put up with what others routinely face before that nicely packaged presentation makes it to the CEO’s desk.