EMPLOYEE ENGAGEMENT – Warm & Fuzzy or Performance Driver?

    A critical distinction that will determine your strategy!

THE ISSUE

Recent studies show that only one employee in three is “engaged in the business”.  50% of employees would take another job if they could, and job satisfaction is at its lowest level since measurement began in 1987.

Employee engagement is not simply being “happy”.  What drives employees to be engaged (innovative, loyal, productive, effective, cohesive, committed to business outcomes) is much more than feeling “happy”. A Marine Platoon in Afghanistan is not happy, but they are extremely committed and engaged in their work. As senior business leaders, we must not lose sight of our primary mission… to engage and lead a group of employees to specific business outcomes.

THE BENEFIT 

  • Truly Engaged employees have better morale are more motivated to perform
  • Truly Engaged employees will stay with the company, be advocates of the company and its products and services, feel like true stakeholders, and have a sense of loyalty in a competitive environment
  • Truly Engaged employees are extremely effective at cutting costs
  • Companies with true engagement average 20-40% more profit than without
  • Engagement provides a high energy, team oriented working environment
  • Engaged employees serve as brand ambassadors of the organization

THE TEST

Is there a crystal clear, unmistakable linkage between greater employee engagement and improvements in company cost structure and/or profits?  Or is that linkage only a vague, indirect, or hoped for outcome of employee engagement? There should be tangible evidence of improved business performance – financial performance – otherwise efforts to engage are not decisive steps to achieve concrete goals but only a feel-good initiative.

THE STRATEGY

In a nutshell, it is to align employee self-interest with the self-interests of the company, in an intentional, disciplined, objective manner.  Your ability to create and sustain a culture of true individual and team engagement is highly dependant on the incorporation of these practices within your organization:

•Proper leadership structure

•Universally known and understood definition of performance

•Real time measurements that matter.

• Operating plans that enable, and are focused on, the pursuit of clearly defined objectives – daily, weekly, monthly, and annually

• Monthly variation in compensation linked to business results

True employee engagement is a serious and intentional leadership initiative with fundamental structural requirements. Don’t confuse happy and content with engaged. It could cost you millions.

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“I want the highest paid people that cost me the least amount of money”… said the company president.

 

Let me explain. Evidently your CFO thinks so little about how much people are paid by the hour or salary, it’s not mentioned anywhere in your financial statements. As a matter of fact, not only doesn’t he care about rates of pay, he evidently doesn’t care how many employees you have either… that’s not mentioned. No one can tell from your financials whether you have 100 employees in Michigan, or 500 in Mexico. However, what should be critically important to him is the total cost of all wages and benefits compared to the value of goods or services produced.

As an example, in it’s simplest form, what percentage of sales or gross margin are all wages and fringe benefits. Example – would you rather have 200 average employees earning $15 per hour and producing 20 million in products/services, OR 150 highly engaged employees effectively earning $17.50 per hour (about $400 per month more variable), and producing the same 20 million in sales? Hopefully you said the latter. You would have spent $800,000 less in payroll and would have reduced your payroll cost from 31% of output to 27%.  Not to mention reduced fringes, health care and workers comp exposure. Higher paid individuals… costing you less. That’s a win-win. That is exactly what the company president in the title of this blog wanted.

However, the key is having the additional $2.50 per hour (in this example) tied to performance. Creating a culture and a system to do that is both an art and a science. But well worth the effort and the financial return. This is exactly what the two companies I wrote about in the previous blog did. Over the last 100 years everything in business has changed, EXCEPT the way we pay people. The vast majority of compensation is an exchange of employee time for company money. And if we are honest, with little tie to organizational performance… really. Highly productive, quality conscious, engaged employees can significantly drive down costs and improve financial results. I have always referred to this opportunity as “the final frontier”. Technology and process is available to all your competitors – the performance based culture you create is not.

Virtually every organization deploys capital, technology, lean, 5S, black belts, etc. And all that is good. But there frequently remains a very serious question. Exactly how motivated are your employees to extract the absolute most out of those investments, tools and strategies? Here is an interesting visualization for you.

Look around at your current organizational pace, your current productivity, and imagine for the moment what it might look like if you were to become a printing press… printing money. AND your employees could keep 20% of the money they printed. How fast would those presses run? Would employees at all levels be interested in it running faster, with better quality, and breaking down less? I would think so. Your biggest leadership challenge would be staying out of their way.

Now, explain to me the difference between that crazy visual and your financial statement. Back to your CFO again… evidently he doesn’t care what you make, that’s not mentioned on the financials either. He just wants to know how many dollars are on the top line – how much money did you print this month, how much did you spent to do it, and is there anything left (profit) at the end of the month?

Highly engaged, focus employees, who equitably share in incremental gains, will print more money, cost less doing it, and yield significant bottom line improvements. Let us show you how to create a culture of seriously engaged, results driven employees – at all levels.

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Overcome Market Chaos With Engaged Employees

OR THRIVING IN THE MIDST OF CHAOS 

How do two classic, “All American Manufacturers” thrive in the midst of today’s economic chaos?  The first case study is an Ohio machine tool builder with $150 million in sales. The second is a Pennsylvania consumer products manufacturer and distributer with 350 employees. Both not only survive but thrive in today’s economic climate. How many businesses can say 2012 was one of their best years ever?

We have been fortunate to have both companies as clients for over ten years, and have observed and identified first-hand the common denominators of their success.  Like many manufacturers, they stay abreast of technology, invest in the latest process and quality tools, and have first rate IT functions and sound financial management. However, we believe what gives them a distinct competitive edge is their hands-on leadership and a culture where every employee is financially impacted, every month, by the company’s financial performance.

All employees – top to bottom – are fully engaged in the business, every day, every week, every month. Whether it is the VP of sales or operations, human resources, finance/accounting, a production manager, machine operator on the floor, or the shipping clerk. They all have one thing in common. Everyones paycheck, this month, is going to be effected by the performance of the company.

It is difficult to adequately describe in writing the stimulating, positive, energetic culture, when a VP or manager walks through the offices or plant and no matter who they see, can genuinely ask “how is our bonus going to be this month”? And everyone knows the answer, because they are all looking at the same scoreboard. It’s exciting when the topic of discussion around the lunch room really is, what can be done to make it even a better month. The culture of everyone truly sharing in the fruits of success enables a business to achieve levels of performance and productivity only dreamed about by others.

There is no organizational substitute for every employee having real “skin in the game”. One team, one goal, win/lose, real outcomes, real time, real money… real serious. No technology, no methodology, no Lean, 5S, Blackbelts… nothing can drive organizational performance more effectively then employees who truly care and who know their pay is significantly effected this month by results. After thirty years of experience with hundreds of companies, one thing we know for sure – fully engaging your employees in the performance of your business will give you a level of performance you never knew you had. We refer to it as discretionary performance. Performance they could put forth… IF. If what? If there was a compelling reason and structure in which to do it. VP’s have it, middle managers have it, hourly employees have it. Every employee top to bottom has significant discretionary performance to offer. And it’s probably worth millions to the business if you can get it. Employee discretionary performance is always available, but rarely tapped. You have to be intentional in design and execution if you want to tap it.

A word of caution; I am not describing a bonus or incentive system. Rather a robust, comprehensive, organizational strategy to define, measure, pursue and reward results.

We have been providing intentional strategies to engage all employees and link their compensation to business results, real time, for 30 years. Now more then ever, the business challenges of 2013 require the successful enterprise to create a culture and operating strategy to truly engage their employees as described. Tapping your employees discretionary performance is no longer a luxury, but rather a necessity to compete successfully today.

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Total Rewards versus Total Commitment

A large edition of an Organizational Development journal came in my mail between Christmas and New Years. The cover announced their annual 2013 “Total Rewards Conference”. Hundreds of vendors will be hawking thousands of ways to reward people for something. All in an attempt to achieve a higher level of some corporate metric(s)… I think. Or maybe it’s just to make people happy or maybe something for nothing.

In my career, I have asked many presidents, CFO’s, and VP’s, “what are the corporate metrics to which you are personally held accountable”? Answers come quickly, and typically include one or more of the following:  net profit, ebit, editda, cash flow (or some variation), return on assets, earnings per share, etc.

Having identified the senior leadership metrics, I leave the room and wander the office, cubes, and factory and ask employees if they know the answer to the same question. They almost never do. If I tell them the answer, and then ask if they can define the metric, they cannot. By it’s very nature this creates and nurtures a culture of disconnection and mis-alignment.

Contrast this observation of business to the experience of watching an NFL football game. Whether the camera pans the players, the coaches, the owner in the sky box, the trainers, or even the water boys… everyone is looking at exactly the same thing. A single, overall, comprehensive representation of performance – the scoreboard. That’s cultural focus and alignment, top to bottom.

Why isn’t there a single, valid, robust, real time, comprehensive scoreboard that accurately represents the performance of your business? It’s not the financial statement –  it’s too complicated, too noisy, and usually not very tactical. Rather the “scoreboard” should be the “drivers of profitability” – tactical, visible, and understandable to all, top to bottom. Providing intense organizational focus on what really matters… every day.

And why don’t all your employees participate in the performance of the business – real time, every month?  If it could be demonstrated that the primary cause for performance exceeding budget by a wide margin was allowing your employees to participate in real incremental gains in financial performance, who wouldn’t?

Rather than “Total Rewards”, I would suggest we need Total Alignment and Total Commitment.  This comes about through a structured strategy of defining, measuring, pursuing, and rewarding performance. I didn’t say it was complicated, I didn’t say it was simple, but it is structured.

There are many uncertainties ahead in 2013. However, one thing is certain. Your employees have much more they could offer if they were focused on a unified scoreboard, and were engaged to be your “partners” in the business.

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Post Election… Serious Challenges Ahead

The election results…bad news and good news. Bad news first… business lost. Good news is that after months of distractions, we now know what the landscape looks like going forward. Extremely challenging. Business will have to sharpen its edge more then ever to overcome the additional burden of cost, regulation, Obamacare, energy, etc.

Unfortunately, the cost of payroll, fringes, and healthcare will absolutely require the leanest, most productive/effective workforce possible, and a critical component of future profitability. In fact, it may be the single greatest variable that will determine your success or failure going forward.

We’ve been providing our clients with systems and strategies for 25+ years to drive organizational performance. No silver bullets, just rock solid, time-tested tools to operate your present business with 10 to 30% fewer employees, or realize 10 to 30% more output with the same employees. High tech, low tech, whether volume is flat or increasing, the singular question is… how many employees and at what payroll/benefit cost could you really operate your business – competitively and successfully? That’s the million-dollar question. We can give you a solid, factual answer to that question in 4 weeks. Data not hype.

As a capitalist, I recoil at the the thought of not hiring, but we are in a whole new world, a new normal. It is better to layoff 50 and succeed, then fail and lose 500 jobs.

High tech, low tech, service, or manufacturing – if you have 100 employees, could you perform with 85? If you have 1,000 could you perform better with 850? Answering that question, then providing the strategy to execute, is what we have done for 25 years… throughout the U.S.

Call or email me. In 4 weeks you can have a whole new plan and paradigm.

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Every employee should have skin in the game

Last week I participated in a series of management/supervisor “refresher” training sessions for a company who has utilized our Equishare System for 10 years. For two days I observed group after group of leaders truly engaged in the performance of their company. Not only because they are great people, working in a great organization, but they also participate monthly in the financial outcome. If you have never witnessed an organization where every employees compensation is significantly affected… every month… by the financial performance of the business, it is a sight to behold. They have real skin in the game.

In my previous blog, I wrote about Visible Leadership. Other required ingredients in driving organizational performance are (A) Having and promoting a concise, tactical and understandable operating/financial plan for the month. (B)  Holding the organization accountable to the plan week by week. (C)  Measuring and rewarding results – real time. This is an energizing culture in which to work. However it does require personal and organizational discipline. Having and promoting a tactical, well designed plan that is universally known and understood may be challenging, but it is crucial to success. People need to know what is expected, where the end zone is, and the result when we get there. Not in broad generalities, rather in operational specifics – tied to the financials and to their paychecks!

What happens when you don’t have a plan?  One company president responded this way to his managers. “Shut it down. If we don’t know what we are going to produce next week, and what it is going to cost… well,  just shut it down.  I’m not going to operate millions of dollars of equipment and have our employees wondering what the objective is.”   This company president required a pro-forma op’s and financial plan every Thursday for the upcoming week.  This particular Thursday he had not seen one and wasn’t going to operate without one. Just as a football coach wouldn’t play without one on Sunday. Needless to say, the company president got one that week as well.

The discipline of a weekly plan outlining specific objectives and financial outcomes, for both the company and employees, is the catalyst for exceptional performance. The Equishare System provides the framework and foundation for this disciplined strategy. Linking every employees pay to the outcome reinforces specific behaviors and activities that drive results. Planning and measuring daily/weekly,  and rewarding monthly, creates an organizational culture where outstanding performance is the norm. For the benefit of the company and the employees.

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Leadership Lessons From A Catholic Sister

Much has been written on organizational leadership. In 300 or so words, I will attempt to boil it down to three core components that I have witnessed (or not) in my 30 plus years of consulting. Key factors that exert profound influence on business results… Visibility of Leadership, Promoting the Game Plan, and Rewarding Results.

Visibility – leadership by definition must be visible. Attempting to achieve signifiant results without visible leadership is an exercise in futility. Every leader at every level needs to be visible.  One of the greatest examples of visible leadership I have ever seen in any context was from a Catholic Sister who was the principle of a local school. Every morning, and I mean every morning, in any weather, she is at the front curb welcoming students, parents and staff.  She is the first to arrive and the last to leave. There is no doubt in anyone’s mind who is running the place… who’s responsible.  She is known for her visibility, her decisiveness, her projection of organizational norms, and her love for those that are entrusted to her. Admirable traits for any leader.

My second example is Bruce, a senior plant manager who also shared the trait of visibility. Every day, every shift, he spent time visiting with his employees, talking about production issues, and, as importantly asking about the wife, the kids, the weekend plans.  Bruce exhibited this discipline for years, he let nothing interfere. Even a visit by the president from the corporate office one day was delayed while Bruce completed his appointed rounds.  When negotiations between the union and the corporate folks broke down and a strike was imminent, Bruce took the committee out to lunch and settled the issue. Visibility breeds respect and trust. When we came in behind him with a aggressive pay for performance gainsharing system, much of the usual “wait and see” attitude of employees wasn’t there. They trusted Bruce.

Getting things done, solving problems, capitalizing on opportunity, team work, results… require visible leadership. You don’t coach from the locker room. At the risk of offending someone… if you spend more time looking at spread sheets then you do looking at those who are entrusted to you, it is time to rethink priorities. Outstanding business results are the product of leadership, and leadership by definition requires visibility at it’s core. There is no substitute.

In my next blog, I will discuss the Visible Leader defining and communicating The Game Plan.

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