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.

To Be Agile, Listen Hard

jim | March 1, 2011 | Leadership, Performance Management

I attended a Corporate Executive Board meeting recently on the subject of adaptability. Hosted by Johnson & Johnson (always the most hospitable of hosts), about a dozen senior leaders from Fortune 100 companies identified ways to improve the agility of their organizations in a world where it’s so easy to become irrelevant.

Agile organizations focus on tomorrow, are intolerant of the way things are and systematically renew and improve themselves. They dig deep for new customer requirements and ways to meet them. And they obsess over getting their people involved in creating incremental and transformational improvements.

An agile organization is adaptive; it anticipates, constantly questions its assumptions and continuously improves its processes and systems. In short, the organization’s culture is to actively and simultaneously listen to its customers and people.

The balancing act that’s required is managing the tension between maintaining a core sense of purpose and a “what if” mindset. If you focus too much on the core, you become set in your ways and apt to stagnate.

If you are excessively “what if” focused, you flop around trying this and that, sending energy in multiple directions without a clear purpose or strategy. The nice thing about strategies is that they help you know what to disregard.

Connecting the Dots

jim | March 1, 2011 | Communication, Employee Engagement, Leadership

Many well-intentioned CEO’s conduct all-employee or town hall meetings, some in live sessions, some using web-based technology.

People welcome information about business strategies, competitors and customers. They want a minimum of rah-rah, just the unvarnished facts delivered in an authentic way.

The overarching context needs to be supplemented by “what it means to me” or the CEO’s message is likely to become “so what?” information as in, “That’s all well and good, Madame CEO, but what do you want me to do about it?”

If I’m sitting in the clinical development function of a pharmaceutical and I’ve just heard my CEO discuss the importance of getting new medicines into the pipeline, I want to know what my leader of clinical development has planned to get new medicines into the pipeline. More importantly, want to know what I need to do–what actions I need to take–to help us get where the CEO has told us we need to get.

The “what it means to me” needs be just as speed-driven and well orchestrated throughout the business as the CEO’s meeting.

Is Your Communication Doing Any Good?

jim | January 19, 2011 | Communication, Employee Engagement

A client recently told me he thought his company was “over communicating” to his employees.

He was right in one way. Our assessment of communication inside his operation told us that while our client had initiated a lot of communication activity, much of it missed the mark. He was over-communicating all right, just not effectively.

This isn’t uncommon. Many leaders confuse communication activities with communication. For instance, when confronted with a quality problem, they produce and distribute a video on the importance of quality and hope the quality problem goes away. Of course, a video by itself isn’t going to make much headway against a raft of other signals that employees receive daily, which send the opposite message.

Communication activity doesn’t equal communication.

The communication system in any organization is incredibly complex. It represents all the things you say and do that form perceptions that drive decisions, actions and results. That includes what leaders say and what they do, what rewards reward, what measurement systems count, who you promote, what you teach and who you recognize. Everything within the organization communicates. Hiding in your office instead of showing up at a meeting doesn’t absolve you from communicating. Your absence communicates. You can’t not communicate.

How do you know if you’re managing this complex system or not? You measure it.

You can measure the entire process or pieces of it. There are plenty of ways to do this.

You can start informally with a time-tested consulting approach called asking, listening and looking around. It will tell you gobs of stuff that’s very useful.

Or you can measure more formally. Here are some examples of formal ways we measure our clients’ communication effectiveness. The methods I’ve listed can be used alone or together, depending what you want to learn and fix.

Results and ROI

This measures actual performance improvements against the cost of creating the improvements. Here’s an example.

Our client was a software engineering company. Its sales force was having trouble selling, in part because of a number of regularly occurring communication breakdowns. Sales people couldn’t get information about soon-to-be-released products, current product features and benefits and pricing flexibility. When we eliminated these breakdowns, sales increased $10 million over a relatively short time. The total cost of the solution was a little under $150,000. This, of course, is a huge return on the company’s investment.

Engagement Index

This tool measures the extent to which people respond positively to specific questions, which either drives or defines engagement. Engagement is a condition that occurs when employees share the values and purpose of the organization and are willing to “do whatever it takes” to help the organization succeed.

Questions can relate to issues such as open and candid communication, fair and appropriate pay, autonomy, learning and development, sense of purpose and meaning.

The index is useful if you want to know who is and isn’t engaged. This is important to know as you begin efforts to improve performance. For instance, a pharmaceutical client had high engagement levels in sales but low ones in development. Because their business strategy was focused on getting new products into the pipeline, we worked to improve engagement in the development where the payoff would be the greatest.

Say/Do Assessment

The say/do assessment uncovers mixed messages and their sources. It consists of a battery of questions that invite survey participants to assess the extent to which the company or its leadership says certain principles or values (e.g., quality products, low costs) are important and the extent to which the company actually delivers on (does) those principles or values.

A say/do assessment reveals the actual culture as compared to the desired culture. One of our clients wanted to brand itself as an innovative company yet our say/do assessment revealed that 56 percent of its employees believed the company neither encouraged nor rewarded innovation. Employees thought the company said one thing to the customers and another thing to employees. This hurt leaders’ credibility. The fact that the company didn’t encourage or reward innovation made it harder for the company to deliver on its brand promise.

Performance Barrier Assessment

The performance barrier assessment identifies communication breakdowns that are hindering a company from achieving specific performance targets—such as speed to market, building brand identity or becoming a low cost producer. The assessment helps uncover where communication mismanagement, or flaws in the communication system, contributes to poor performance around something the company must do well to compete. This is a useful assessment to employ as a precursor to the Results and ROI assessment above.

Value to Cost Assessment

A value-to-cost assessment provides rich data that helps a leader identify the return the company is getting on many communication processes, activities, programs, or media. It assesses a communication portfolio much as a leader would assess a business portfolio. Using a survey instrument, it can reveal how important people in your organization believe specific components of the communication system are to achieving company goals. It reveals how effective those components are. Blended with an analysis of the cost of those components, a leader can determine the value to cost ratio of each component and the entire mix of components.

This process is an excellent way to re-deploy resources from low importance to high importance areas. This often means an organization can make improvements without additional money.

Employee Engagement: Fact & Myth

jim | January 5, 2011 | Communication, Employee Engagement, Performance Management

I empathize with those who say they’re sick of hearing the E-word. In my nearly 30 years in business, the word engagement has been one of the most abused. (One of the most.)

I’m going to use this Report to clear up a few things about the subject—or at least do my level best.

First, engagement is not a synonym for involvement, as some think. It’s not an activity, program, event or the number of meetings people attend. It’s not how many suggestions people make. (What if half the suggestions would if implemented put you out of business?)

Second, employee engagement is a condition that occurs when employees share the values and purpose of the organization and are willing to “do whatever it takes” to help the organization succeed. There’s ample research showing a causal relationship between engaged people and improved performance. Lots of it. This is not a fluffy subject.

Creating the condition of engagement is hard work. It’s not something you just turn on. It’s not something that gets bolted on to everything else. Engagement needs to be designed into the organization. Then it needs to be directed.

People who deliver unbelievable customer service certainly are engaged. But so are suicide bombers! Engaged people have knowledge and passion. Knowledge and passion can send energy down good and bad roads. It’s not enough to engage people. You have to know what to do with it.

Some say engagement can’t be measured. That’s bunk. We’re measuring it every day, quantitatively in climate or culture surveys and qualitatively in walks through retail operations or grocery stores. Using statistical analysis, we can identify factors that contribute to and drive engagement upward. Those factors include a sense of meaning and purpose, opportunity to learn and develop, fair and appropriate extrinsic and intrinsic incentives, the ability to influence results, open, candid communication and pride in the organization and its commitment to quality. When we use this information smartly, we can target efforts to increase engagement just as a physician might give an injection here or there to eliminate pain.

But creating the condition has a cost to it. It requires leadership’s time, a lot of communication, intense involvement and the right measurement, work processes, rewards, recognition and learning systems. Because engagement has a cost to it and because it can produce significant improvements in financial and operating performance, it makes good business sense to invest the engagement resources where they’ll do the most good. It’s rare that engaging everyone makes good business. At some point there’s usually a point of diminishing return where the cost to engage people is greater than the gains you’ll create.

Here’s a real example.
A call center has a 300 percent turnover rate. Turnover adds costs and affects quality and service.

Question: How much should the company invest in reducing turnover through increased engagement? Answer: Engagement investments should be made until the engagement investments no longer pay off.

It might be far less expensive to reduce the first 75 percent of call center turnover than it is to reduce the last 25 percent. Reducing all 300 percent might sound like a good idea but it’s a lousy idea if you end up throwing money at something that doesn’t produce a return. As I said, this is not a fluffy subject. It’s a business subject.

As you contemplate improving performance through engagement, here are some questions to ask yourself.

What performance am I trying to improve? Quality, service, cost, speed, productivity, safety, sales? It’s important to set clear targets.
What’s the nature of the performance problem? That is, what barriers exist to hitting the targets?
Can employees through the use of their discretionary effort influence performance? Do they have control over the outcome? (The people inside an insurance company can’t stop Katrina from hitting New Orleans, but they might be able to process the claims faster or more accurately.)
Where are the engagement gaps? For instance, do they understand the problem? Do they believe they have the authority to make it go away? Do they have the information they need when they need it to make it go away? Do they think it’s in their best interests to make it go away? In other words, do they know “what’s in it for me?” What are the root causes of the symptoms I’ve discovered?
What is my projected cost to engage people to hit the targets? Is the return on investment acceptable?
If the return is acceptable, develop and implement your plan to make the problem go away so you can hit your targets.

Your goal isn’t to increase engagement. Your goal isn’t to raise survey scores. Your goal is to improve performance through appropriately targeted improvements in engagement. If your survey scores went up but the right performance didn’t, you need to examine where you wasted resources and not do it again.

Healthcare Safety: Beyond Checklists—The Easy Part

jim | December 16, 2010 | Change Management, Communication, Leadership

Depending on your source, between 100,000 and 300,000 patients die in US hospitals every year due to potentially preventable, in-hospital medical errors. Many more are wounded.

100,000-300,000 is a wide range. So, let’s be conservative and call it 100,000. Now, contrast that with the number of deaths that occur in all of U.S. industry per year—4,340 last year.

There’s nothing different about reducing employee injuries and deaths and patient injuries and deaths. The approach is identical. If you want different results, you need to change the system that’s causing the current results.

In the case of patient or employee deaths, two things need to change—the way work is done and the culture that establishes the underlying values of the organization.

Thanks to Johns Hopkins physician Dr. Peter Pronovost and others, the simple surgical checklist during major operations has been found to lower the incidence of deaths and complications by more than one third. The checklist is usually a single page that requires only a few minutes to complete at three critical junctures of operative care: before anesthesia is administered, before skin incision, and before the patient is removed from the operating room.

Checklists aren’t new. Airline pilots have been using them for years. Checklists have been part of what’s often referred to as standard work in many industries for a long time. They work and they’re easy to make work because all you have to do is follow the list. What’s not easy is shifting the culture of an organization from one where the surgeon is the master of the operating room universe to one where all OR occupants work as a fluid team.

This culture shift doesn’t start in the OR. It starts in the office of the CEO and it needs to include every leader in the hospital, whether it’s the chief of the medical staff, chief of surgery, chief resident or the “chief” of human resources.

Shifting the culture requires a re-clarification of roles and expectations of each person in the hospital. It means measurement, communication, learning and development, work processes, technology and rewards and recognition all need to be focused laser-like on becoming and remaining a zero accident institution and nothing less. Checklists are part of the hard, technical aspect of change. Shifting the underlying values within a hospital or any other organization is the soft side of change.

But checklists are easy. Culture is hard.

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Lean Gone Too Hard

jim | November 20, 2010 | Communication, Customer Satisfaction, Lean/Six Sigma, Organizational Design, Performance Management

Many businesses have adopted aspects of what’s commonly referred to as lean. Lean is an overarching way of creating and sustaining an organization that’s waste free. Waste is loosely defined as any process or activity–like overproduction, scrap, rework, excessive movement, inventory–that a customer isn’t willing to pay for. In some businesses, these efforts are creating growth through higher performance from people and processes.

But other businesses have simply gone through the motions and have little to show for their efforts other than a bunch of disgruntled employees. In most cases they fail because they adopt tools, techniques, measures and mechanics associated with lean, but don’t recognize that lean is a mindset that must be built into the culture. These organizations view lean as no more than moving machines around or changing workflow arrangements without much input from employees.

A lean culture values–and is obsessed by–customers, employees and continuous improvement.

In the lean world, there’s a workplace organizational methodology called 5S (pronounced five ess). The name comes from five Japanese words that loosely translate to Sorting, Straightening, Shining, Standardizing and Sustaining. If you 5S’ed your garage this morning, it would be immaculate. There’s a place for everything and everything should be in it’s place, as the ditty goes.

But like most things in business, it’s easy to go anal nuts with lean. So nuts that some companies have used gobs of white tape to outline where, for instance, standard desk items should go on a desk–your desk. I was visiting a company recently and desks had taped outlines reserved for the stapler, the desk owners’ laptops, yet another for the paperclips, calculators and drink coasters. Neatly typed at the base of each rectangle were the words, STAPLER, LAPTOP, PAPERCLIPS, CALCULATOR AND COASTER, BLACKBERRY.

Now some lean acolytes would respond by saying, “Of course, that’s the way it’s supposed to be to make sure everything has its place and is in its place.”

To these acolytes I’d suggest they take their trolls of tape where they will do some good and not offend my sensitivities to pure, unadulterated tackiness and most employees’ sensitivities to intrusions into their personal expression.

Forcing this kind of rigid structure takes away the passion and fun out of a team’s quest for greatness. I visit a lot of offices and employee cubicles and I get a real kick out of seeing family pictures, little kid’s school drawings and personalized disorder that communicates about the owner of the cubicle or the office. There’s a line between a quest for professional order and an act that snuffs out the very personality that was a key ingredient to your decision to hire Mary, the accountant.

What should really matter is our ability to meet customer requirements. For example, hospital patients (customers) might benefit if the hospital didn’t permit nurses to put medications wherever they want –each nurse having a different spot or putting the medicines in a different spot each time. The lack of standardization might lead to errors. In this case, the need for standardization probably outweighs the need for individual expression.

But in cases like determining how to decorate an office or deciding where you will place your stapler, there’s probably no customer benefit to having standardized decorations or taped off areas for your stapler, lamp or whatever. If anything, it dehumanizes the workplace. It takes away the color and passion and personal expression. The following video satirizes the use of lean as a mindless way to control.

Congratulations to ITT for Winning Platinum

jim | November 13, 2010 | Communication, Customer Satisfaction, Human Resource Management, Leadership, Lean/Six Sigma, Performance Management

PR News announced that our client, ITT Corporation, won the 2010 Platinum Award for Internal Communication. The award recognizes the work we did in the company’s Texas Turbine Operation in Lubbock, Texas. Courtney Reynolds led the effort for ITT.

The project was focused on integrating the so-called hard and soft sides of lean to improve operating and financial performance. During the effort, sales increased 30 percent, productivity went up 10 percent, quality went up 40 percent and on time delivery increased from 70-95 percent .

This work now is serving as a company model for other facilities undergoing a lean transformation.

To learn more, watch the video on the our home page.