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 


About Karl F. Muller

Specializing in driving Organizational Performance to new levels. Utilizing a tactical and focused four (4) part strategy to engage all employees in the pursuit and achievement of performance and real financial results. Applicable to manufacturing, service, distribution and corporate services groups. We have worked throughout North America with businesses and facilities ranging from 50 to 5,000 employees, union/non-union. Define... Measure... Pursue... Reward. Celebrating our 30th year. 200 public speaking engagements, 5,500 senior managers trained, 700 organizations assessed. We are serious, tactical, focused. No fancy corporate speak, no blue suits. Just Results. The Muller Group, Inc.
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