The Economics of Engagement in 2 minutes

The Economics of Engagement – fundamental principles in 2 minutes.

How do you measure employee engagement? The financial statement measures it by what we call the “Organizational Productivity Ratio”. Simply put, the ratio or relationship between the wages/fringes that walk in the door, versus the margin on goods and services going out the door. It is the fundamental, time-tested economic indicator. The total cost of people (all employees) compared to the total output (value added or margin). The generic average in manufacturing is 55% payroll/fringe to value added…  service is 75%. Is your ratio getting better or getting worse (lower is better)? Are your engagement strategies driving measurable financial results?

I challenge you to take the test – take your 2018 budget and increase output by 5%. Increase all variable costs 5%, and keep the fixed costs fixed. Keep ALL wages and fringes fixed as well. Recalculate. What does your bottom line look like now? Significantly better, and (typically) profits will have risen 5 – 10 points.

This is what a fully engaged organization looks like. This is a financial representation of all employees being fully engaged, tactical, and focused on organizational performance… top to bottom.

How do you tactically engage employees and fuel the organizational fire? Develop a robust strategy and structure to define, measure, pursue and equitably reward those actions. All employees… real time. That is what we provide. If this is interesting to you, please contact us.

Karl Muller

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Is Your Budget The Best Kept Secret In The Company?

It is almost halfway through the year and is your budget still the best kept secret in the company? Before we answer , let’s define the word “budget”. On the surface it is rather sterile, lacking emotion or a sense of urgency among most of your employees. When in fact it is everything to the corporation. Hundreds of hours in the construction by senior staff, numerous revisions, then promises made to corporate, the bank, shareholders, other senior members on the team. It is or should be, the testimony as to where you are going this year. The document outlining plans and objectives, the game plan that unites the organization in a common goal. However, in many cases, it is the organization’s best kept secret. 80 to 90% of your employees don’t know anything about it, would not understand it if you showed it to them, and get $30,000 to $100,000 a year in compensation whether you achieve it or not. Much like a football team where only 2 of the 11 players on the field know or care where the end zone is. A self-imposed organizational disconnect with a significant price tag attached.

We are not advocating sharing your entire budget document with all employees. We do however strongly advocate identifying the key, fundamental “drivers” of the budget, and educating your entire team to their importance… more on that later.

You need to engage your employees, at all levels, in pursuing and achieving an aggressive, realistic goal. THAT is a leadership issue. Creating an environment where employees are led and motivated to specific business outcomes is a process and a discipline that shapes the culture of an organization. Are employees showing up for work and simply exchanging time for money and doing what they have to do? Or are they aware, engaged, and aggressively moving towards this months business goals AND sharing in the success of winning? Hourly and salaried? The difference in culture, organizational dynamics and business results is real, measurable, and significant. We need to LEAD people to where we want them to go. And this requires being VERY INTENTIONAL in creating an atmosphere, strategy and methodology to accomplish this. It does not happen by osmosis from the CEO.

If you have read a few of our blogs, you know we subscribe to a four part mantra… Define, Measure, Pursue and Reward Organizational Performance. Reward exceeding the budget in this case… beating the key drivers.  Nothing more, nothing less. From the top of the organization to the bottom. One team, one goal, this month, every month.

As you begin the next year, I challenge you to a critique your own situation. Do your employees really know the critical components/drivers of your  budget? Do they care? Do they have skin in the game? Do they know where the end zone is? If you answered no to one or more of those questions, I am 100% confident you will leave money on the table.  The opportunity still exists to measurably exceed your 2018-19 plans if you incorporate key ingredients into a strategy to LEAD your people to where you want to go.

We would love to help you do that.

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Exponential Employee Engagement… Drives Financial Performance

Exponential Employee Engagement… We call it Engagement 2

 There are two critical missing ingredients in virtually every employee engagement initiative that, when present, produce exponentially improved business results. They are tactical and compensation components. Simply put, what are the specific financial objectives this month and what is the team’s share for achieving them? Big, bold, crystal clear, measurable, real-time, every employee,every month, meaningful. One team – one goal – winning together.

Let’s be candid… 90% of your employees have no idea what the business financial objectives are month-to-month. And that’s not their fault. Sure, they may be “happy” and “engaged” in the traditional sense, but can you point to the financial statement and show me where happy is? Should it be any surprise if you don’t meet budget when employees are unaware of, and unaffected by, your business objectives? Employees may be connected with the company culture but disconnected from financial performance – and if so, it’s costing your business enormous opportunity.

Our Equishare System™ incorporates Engagement2… a structured approach to defining financial performance in a unique and effective way that every employee can understand and effect, then driving it through the organization. Establishing and aggressively pursuing specific business financial objectives, and equitably rewarding every employee monthly for achieving outstanding business results. A proven, long- term strategy utilizing enhanced engagement techniques. Please contact me if you would like to discuss your opportunities for 2016-17.

 Karl F. Muller

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Winston Churchill on Employee Incentives and Engagement

“However beautiful the strategy, you should occasionally look at the results.” – Winston Churchill

Are your bonus/incentive/total rewards programs and employee engagement strategies really driving organizational performance? Can you measure their effectiveness on the financial statement?

As you begin your budgeting/forecasting for 2016, ask yourself what your financial results might be if your employees at all levels performed as though THEY owned the company. Please read my upcoming brief detailing the costly disconnect between employees and budgets –

What’s your strategy for 2017 to improve productivity, increase profits, and truly engage employees in that endeavour? Not just generalities, but what is your specific action plan, and specific strategy to lead your employees to success? Do they know, understand or care? Are you confident that your strategy will successfully meet your financial objectives and that your employees will be fully engaged participants? If you hesitated, you owe it to yourself and your business to contact me and learn more about the Equishare System.

I look forward to your call or email,

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Technology and Capital Expenditures Have Little Impact on Operating Profits, But People Do… heresy or paradigm shift?

Employees are engaged… profits are up. It has been quite the run. The last 12 months (second half of 2014 and first half of 2015) been very busy for us. We have had Equishare Engagement projects in Pennsylvania, Michigan, Ohio (multiple), Idaho, Kansas and Virginia. These include a service business with 4 locations, distribution and of course manufacturing organizations. They all have one thing in common… they knew there were significant gains to be had in organizational productivity and profits IF they could fully engage their employees in the performance of the business AND reward them equitably.

In addition, we completed two upgrades for long-term clients. Both have utilized our Equishare Strategy since the late 90’s. Both have grown exponentially and experienced significant changes in their businesses. Knowing that employee productivity at all levels, from VP’s to the shipping dock, continues to be a key competitive and cost advantage in the market, they undertook an upgrade of their formula and employee training. They recognize an investment in maintaining effective, tactical & focused employee engagement is as critical as capital, technology, and process improvement.

A fundamental measure of organizational productivity found on the financial statement is the relationship of total wages and fringe cost (all employees – hourly and salaried) as percentage of Economic Value Added (similar to margin). You will have to format that relationship on a spreadsheet as NO financial statement will identify this ratio in it’s standard form. That is unfortunate since it is THE indicator of profitability… there is no place to hide.

All Wage and Fringe    $ 40 mil

Value Added                   100 mil         Org Productivity Ratio 40%

If you have the courage…. calculate the annual ratio for the last 5 years. Here are a few interesting questions. Is the ratio-getting better (lower) or worse (higher)? Have capital expenditures cause the ratio to improve? What about new technology or process? In 80% of cases (and I know you will vehemently disagree!) the answers would be that the ratio is either unchanged or getting worse.  Capital, technology and process has had surprisingly little effect on the trends. The reason is these improvements are absorbed by the market place in terms of price, quality and other competitive pressures. Capital, technology and process improvements allow you to stay in the game, but rarely find their way to the bottom line. They allow you to keep what you have… maybe. Test it with your data. As a visualization, put the annual ratio on a timeline and overlay the timing of significant capital expenditures on it, then hold your breath.

The good news: there is a way to dramatically improve your org productivity ratio AND drive it to the bottom line. If tomorrow you could sell, produce and ship 15% more product without hiring a single person, or working another hour, GREAT things would happen to the financial statement. 5% profit goes to 10… 10% goes to 17 or 18. Again, test it with your data.

How do you do that? This is what happens when employees are truly engaged. We have seen it time and time again. Not happy, happy, happy as many engagement efforts seem to have as their goal, but rather fully engaged employees in the performance of their business AND equitably sharing in the incremental financial gains, in real time. You must redefine the term engagement and incorporate a tactical and compensation component. This is serious business.

Now is the time to be thinking about the balance of this year and strategies for 2016. Employee engagement is not whether folks are happy or not. Rather, are they cohesive, effective and productive as measured by key financial metrics and the income statement?

I would encourage you to consider our Equishare Assessment as a tool to define and measure the opportunity in your organization. In four to six weeks, we can have comprehensive data on the level of organizational productivity you are currently experiencing, as well as the opportunity for the future… all defined by the financial statement. For a modest investment, you can have serious focused data on a critical issue, having real consequences.

Please email me if you would like us to send you the Equishare Assessment Description and Proposal.

Karl Muller 

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Business Fundamentals Never Change… Though Often Ignored.

This is the shortest, most poignant blog I have ever written. A “fundamental” yes or no.

Business fundamentals never change, though often ignored. They are – maximize revenue, minimize expense, optimize profit. They only problem is the majority of your employees don’t know the sales or primary cost objectives for this month. And to de-sensitize them further, they get $15/hour or a $5,000 salary this month whether you achieve them or not. The result… companies leave millions of lost opportunity on the table. Have you?

Employees at all levels most be engaged in the universal pursuit of revenue and expense AND have their compensation linked to achievement every month. One team, one goal, win, lose. It’s that fundamental. Are you?

Optimizing 2015 will require real, emotional, focused, and effective employee engagement. Engagement measured and rewarded on the financial statement, not in a survey. When you do this correctly, millions in incremental opportunity will be realized. Will you?

What is your organization’s incremental opportunity in 2015? We can demonstrate and identify via our Equishare Assessment™. Email us.

Karl Muller

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Doing Leadership versus Talking Leadership

It is a study in contrasts – doing versus talking. Having worked closely with approximately 300 senior management teams, I have seen it all. Relative to this subject two interesting case studies come to mind. As in most things, the issue requires only a simple illustration. Frank, the president of a client company having 150 employees was a starched white shirt/necktie kind of guy… a rare bird these days. Shortly after we had launched our Equishare System, whereby every employee would participate monthly in the financial performance of the company, Frank came to work in blue jeans and a sweat shirt. NO ONE had ever seen him dress like that, ever. Well it happened to be the last day of the business month and every order that shipped would obviously increase sales and help drive financial results. Better financial results meant more profit and more Equishare bonus for every employee. So, Frank came prepared to spend the day in the shipping department packing boxes. Frank was helping employees ship product AN earn a bigger bonus! He was the talk of company – all day and for weeks thereafter. Was his presence critical to the department? No. Was it critical as a leadership statement? Yes. There was nothing he could have said that would have spoken louder than his actions. No demand made, no shipping forecast recited, would have amped up the performance more than the sight of Frank in a pair of Levi’s in the shipping department. Needless to say their Equishare program went on to be a huge success for the company and it’s employees. Not because Frank wore blue jeans to work, but because his actions were symbolic of his leadership style. Engaging, visible, in the trenches, how can I help, let’s do this together style. In the words of the country song, “A little less talk and a lot more action”. Frank’s employees were engaged.

Frank contrasts with another company president, Dave (not his real name). Dave was a smooth talker and eloquent spokesperson for all that his company could and might do, but so far hasn’t. He was particularly good at providing monthly excuses for the organizations lack of performance and blaming his management team… which he replaced on a regular basis. His style was one of great public speaking with zero operating leadership. He was always there for the speech, never there with a solution, never in the trenches. And the results? As you would expect – none. Dave’s employees were actively disengaged.

The lessons here? Get out there and do something VISIBLE, frequently, that sends the message that business results are important. Excel graphs and charts on the wall are no substitute for the presence of seniors leaders who are genuinely interested in their employees and their performance. Then share the results of winning with the team. Shared goals and shared rewards (properly designed) is the glue that binds the organization together. Engagement is not about individual employees being happy, it’s about the team being effective. And effectiveness requires visible leadership.

Two of my favorite quotes…

The late Admiral Grace Hopper once said ” Assets are managed, people are led”. I assume she did not like the title Human Resource Manager.

Greg Groeshel said “when people fail to achieve an outcome, it is usually because we have failed to lead them to the desired outcome”. That level of self assessment requires courage.

Equishare… a tool for leadership to define, measure, pursue and reward organizational performance.


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