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 2017 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.