"The approach in this book is practical and can be applied in all types of organizations. We now use this process with our clients to clearly demonstrate the impact that our performance improvement initiatives have on organizational results." Ed Locke, managing partner, Warner Development, Inc.
Investing in What Matters: Linking Employees to Business Outcomesby Shane S. Douthitt, Scott P. Mondore
Providing a structured plan for human resource (HR) professionals, this detailed manual instructs corporations how to achieve their business goals through the resourceful employment of their staff. Practical and informative, this handbook emphasizes the direct correlation between employees, data, and business outcomes. A flexible approach that can be tailored… See more details below
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Providing a structured plan for human resource (HR) professionals, this detailed manual instructs corporations how to achieve their business goals through the resourceful employment of their staff. Practical and informative, this handbook emphasizes the direct correlation between employees, data, and business outcomes. A flexible approach that can be tailored to any organization guides HR personnel through the process of acquiring a quantitative examination of the impact of critical business decisions. From driving sales to decreasing turnover, this proposal transforms the workforce into a business’ biggest asset.
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Investing in What Matters
Linking Employees to Business Outcomes
By Scott P. Mondore, Shane S. Douthitt
Society For Human Resource ManagementCopyright © 2009 Strategic Management Decisions, LLC.
All rights reserved.
The Invisible Lever
"Our people are our greatest asset." Countless CEOs have uttered this phrase, and some have even made it their corporate slogan. If someone tells you that employees are critical to an organization's success, you will most likely nod your head in agreement. It's hard to argue against this notion because it just seems logical. Every organization employs people, and, if no one showed up for work on Monday, not much would get done. So, when someone describes studies that have scientifically demonstrated the link between employee attitudes, employee behaviors, and productivity, you will probably nod your head in agreement again. The notion that people are valuable to organizations just seems to be common sense. Likewise, the notion that satisfied employees are more productive also seems to be just pure common sense.
So, why is it that organizations think about investments in people differently than investments in process improvements, machinery, technology, new sales channels, or even marketing? The answer is fairly simple. When a senior executive invests $10 million in developing a new online sales channel, he or she can easily see, touch, feel, and measure the results of that investment. He or she can monitor the new sales from that channel, surf the new web site, and visualize customers navigating the new channel. This direct connection to something real and valuable to the organization makes "pulling the trigger" on a significant investment much easier. On the other hand, investing $10 million in work/life balance programs for existing sales associates appears far less tangible. Such an investment will make them happier and might even retain a few of them likely to leave, but it probably won't significantly impact the Profit & Loss (P&L) statement. But how can you know without proving the value? The bottom line is that the direct impact of investments in people on critical business outcomes is much less tangible — or so it seems.
Principle 1: Organizations already spend significant amounts of money on people ... they just don't spend it on the right things.
The reality is that organizations already spend significant money on employees. Take a look at your organization's annual report. What percentage of expenses are salary and benefits? We would bet that 50 percent or more are personnel costs. This does not even take into account the HR budget, or the training costs hidden within lines of business budgets. The problem isn't that senior executives are unwilling to invest in people, it's that those investments (1) lack data to justify their worth, (2) use the wrong data, or (3) produce unquantifiable returns.
Principle 2: Organizations make investments in people without any data or with the wrong data.
"Causal drivers," for the purposes of this book, are defined as the employee data that are analyzed and statistically shown to have a cause-and-effect relationship with important outcomes. What if we told you that discovering the actual, causal drivers of tangible business outcomes really isn't that difficult? What if we told you that the data for making such discoveries already exist in your organization? In fact, both of these statements are true. Yes, there is the need for statistical knowledge, but, for the most part, the process is fairly straightforward.
Today, the types of analytics required to discover the drivers of tangible business outcomes are frequently used in different settings. For example, market researchers use customer demographics to predict buy-ing behaviors. CFOs do the same thing when they produce financial forecasts or conduct a cost/benefit analysis. These approaches are used because they make an educated, predictive assessment based on facts and data. The goal is to (1) understand the past and to (2) predict the future, basing these assessments on facts and data. Therefore, the idea that employees' attitudes can be scientifically and rationally related to tangible business outcomes is not ridiculous. In fact, based on our experience with organizations of all sizes, it is quite feasible — and in this age of intense competition, not discovering the causal drivers hidden in your data silos (we call them invisible levers) could be quite dangerous to your business's long-term viability. (When we use "data silos," we are referring specifically to the data that exist in the many functions within organizations and that are rarely shared across functions.)
If we accept that the link between employees' attitudes and relevant outcomes can be made and quantified (it has — look at the Sears "Employee, Customer Profit Chain" study in the Harvard Business Review1), and that we can examine those links to discover specific drivers of the business outcomes, we should consider the following benefits to your organization of making these links:
1. The money being wasted today on the wrong employee initiatives can be redirected to more beneficial employee initiatives, such as those that impact critical business metrics and outcomes (instead of the latest unquantifiable HR fads that promise to make employees happier, more engaged, and satisfied).
2. The investments that you decide to make which focus on employees will result in tangible outcomes that benefit shareholders, customers, and employees.
3. The returns on such investments, via their impact on the top and/or bottom lines, can be tracked, monitored, and quantified.
4. HR departments can be held accountable for impacting the bottom line the same way business or product leaders are held accountable.
5. HR executives will become real players at the table and be included in the conversation since they can now quantify their numerous impacts on business outcomes.
6. Last but not least, employees might just end up being "happy."
There are more benefits, but these six alone are compelling enough to encourage you to apply the approach outlined in the following pages. The purpose of this book is to give you the tools to discover the drivers of business outcomes so that the benefits above may be achieved. From this point on, we will often use the term "invisible lever" to describe these drivers of business outcomes. The term "invisible lever" comes from that fact that most of the drivers are invisible because they have been dormant and undiscovered amidst the myriad data that exist in your organization. We call these "levers" because once you discover the drivers, these levers will need to be "pulled" (applied in the organization) so that they can have a direct impact on the business outcomes.
We will: (1) Define how the connection between employee attitudes/behaviors and desired business outcomes is made; (2) demonstrate the validity of this connection with data from various organizations — small, medium, and large; (3) outline a roadmap to replicate this process in any organization; and (4) provide practical recommendations for senior executives, HR managers, and front-line managers for implementation of this process.
A brief overview of each chapter in the book follows.
The State of Organizations Today
While organizations have evolved substantially in how they view Human Resources and how they acknowledge a workforce's inherent value to the organization, some significant gaps still remain. Measurement in the HR department has improved, but the inability to quantify the people-drivers of business outcomes continues to plague many organizations. This chapter acknowledges this issue and identifies existing shortcomings. Most importantly, this chapter points organizations towards the next phase of this evolution, using the framework and process described in these pages. Organizations consist of different stakeholder groups with different perspectives and needs. When we talk about taking a systemic view, we are describing an overall organizational perspective typically seen through the eyes of senior executives. This perspective is essential because it sees the organization holistically, without a bias from a single perspective. Thus, when decisions are made regarding the organization, they are in the best interest of the entire organization. Further, applying and aligning people-related initiatives at the systemic level creates a culture working in unison on broad organizational issues. The approach described in this book provides a powerful diagnostic tool for organizations — a way to find systemic solutions for systemic issues and become true business partners. Specifically, HR practitioners will be able to use our process to (1) gain senior leadership buy-in, (2) pull together the key employee and business-outcome data from across numerous functions, (3) analyze the data to discover exactly what aspects of the work environment drive business results, (4) create and execute systemic, data-driven initiatives, (5) properly calculate the expected ROI, and (6) re-measure to refine future initiatives.
Putting the Business Partner RoadMap to Work: A Case Study
The Business Partner RoadMap is outlined step-by-step in an organization focusing on a key business outcome that is costing them millions of dollars in losses. We get into the details of gaining buy-in and putting the data together to show impact. Initiatives and programs that are put into place because of what the analyses reveal are discussed to give you an opportunity to see how analysis is turned into action.
Increasing Sales Revenue
This chapter reviews how HR has traditionally partnered with the sales organizations to support their efforts. We also introduce an initiative for involving employees in the lead generation process to grow sales revenue. Finally, we briefly bring in academic research that has shown the impact of employees working beyond their job descriptions to help their organization.
Increasing Sales Revenue: A Case Study
An application of our process is to use employee attitudes to understand the key drivers of sales in a Fortune 500 organization. This chapter explores the causal relationship between aspects of the work environment and sales (in order to increase revenues through employees). The organization we examine in the case study discovers some invisible levers to pull that increase revenue by expanding their scope to incorporate investments in specific employee attitudes identified as critical to increasing sales.
Driving the Balanced Scorecard/Productivity
The link between employee attitudes and productivity is the most popular and commonly assumed linkage. But, as we will explain, simply knowing that there is a connection between attitudes and productivity is useless from the systemic perspective, as well as from the front-line manager's perspective.
Powering Productivity: A Case Study
Uncovering the specific invisible levers that cause employees to work harder and be more customer-focused is explored with another large company. Again, in order to take our methods from concept to practical application to quantifiable results, a real-life example is investigated. We discover the causal drivers of productivity, implement initiatives to drive actions and demonstrate the ROI of the organization's investments.
A third application that we explore is the cause-effect relationship between employee data and turnover/retention. Organizations commonly assume that satisfied employees won't leave. This assumption always leads to bewildered managers, who cannot believe that their best performers just gave their two-weeks notice. We review typical approaches to discovering the reasons for turnover, from exit interviews to employee surveys, and why they don't work. Also, we briefly summarize academic literature that has created frameworks for understanding turnover.
Finding Root Causes and Solving Turnover: A Case Study
We apply the Business Partner RoadMap process in an organization struggling with employee turnover due to the lack of understanding of the critical drivers that compel people to stay with the organization. As usual, organizations that fail to understand the causal drivers of turnover make the wrong investments in people — and the cost of losing quality employees gets higher every day. We will show you how we applied our process to drive significant reductions in employee turnover in another Fortune 500 company.
Driving Results: A Case Study for Small-to-Medium-Sized Organizations
The Business Partner RoadMap can also easily be applied in small organizations. The approach to using and analyzing data is slightly different, but the overall process and, more importantly, the impact, is just as profound as when applied to larger organizations. This case study takes you through an organization with less than 1,000 employees and is focused on service outcomes that were previously believed to be impossible to quantify.
Breaking Down Data Silos to Drive Results
We have mentioned that the data used with our process already exists in most organizations. Organizations don't make these types of linkages between the sets of data to which we have referred because of the inherent data silos that exist, creating barriers of application. Almost every consumer-oriented business measures customer satisfaction in some form or another. We know that most organizations measure employee satisfaction as well. If that is the case, why don't organizations know exactly how (and what specific) employee attitudes drive customer satisfaction? The simple answer (and complicated problem) is because these data are collected, monitored, and analyzed for differing functions of the organization. We will describe how to systematically break down these data silos to uncover the critical linkages in your organization, which have been lying dormant for years. This book is not designed to contain all of the answers. Instead, it is designed to provide you with a process to find the answers in your organization. The business case we make for following our approach is only relevant if we can provide a step-by-step process for your organization to follow. This chapter will break down our approach into simple, easily executed steps to get you quickly on the road to finding the specific causal drivers of your business outcomes.
Bringing Data Together to Find Solutions
In this chapter, we describe how to use the analytics models from all of the cited case studies to prioritize interventions and investments. The fact is that organizations are complicated and typically don't just have one desired outcome. They usually have numerous key outcomes that they focus on at any given time, plus all of the balanced scorecard metrics on which front-line managers are held accountable. The case studies demonstrate this notion, as one can easily assume these organizations were concurrently focused on increasing sales, reducing loss, and increasing productivity, while decreasing turnover. This chapter will describe how to interpret the information from four distinct outcomes in a simple, pragmatic fashion. Ultimately, the organizations can prioritize initiatives in a way that all four outcomes will be achieved without overwhelming the organization with numerous interventions.
Creating Metrics That Drive Results
The key to following through on your discovery of causal drivers of business outcomes is to create accountability for their execution throughout the organization. This chapter takes you through creating metrics to measure and hold leaders accountable for proper execution of the initiatives that you will build around the key causal drivers.
The Front-Line Manager's View
The perspective of the front-line manager provides another critical stakeholder view. We will spend a substantial amount of time exploring this perspective as it relates to the application of employee data. The limited time that front-line managers have to focus on corporate initiatives makes it critical for HR leaders to use their data to demonstrate the impact that their initiatives have on business outcomes that truly matter to front-line management. While the application of our process focuses on systemic diagnosis and intervention, nothing in organizations happens without the input, acceptance, and adoption of front-line managers. This chapter will show you how to use our process to communicate your initiatives to frontline managers in a way that focuses on what is important to them — driving business outcomes.
Invisible Levers for External Business Challenges
Three key external business challenges are discussed: (1) Managing a global workforce; (2) the multi-generational and aging workforce; and (3) the increasing parttime workforce. All three challenges are put into context, and leaders are shown how the process of discovering and implementing invisible levers can help them deal with these challenges and turn them into potential competitive advantages.
Setting HR Strategy
This chapter discusses the transition that will be made in the HR strategy and planning process, when analytics drive HR decisions and planning is aligned with the direction of the overall business. A transition will also take place in which Human Resources will focus more on investments that need to be made to drive the business, rather than focusing solely on how to cut costs out of its functional budget.
Excerpted from Investing in What Matters by Scott P. Mondore, Shane S. Douthitt. Copyright © 2009 Strategic Management Decisions, LLC.. Excerpted by permission of Society For Human Resource Management.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
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Meet the Author
Shane S. Douthitt, PhD, is a cofounder and principle of Strategic Management Decisions, LLC. He lives in Huntersville, North Carolina. Scott P. Mondore, PhD, is a cofounder and principle of Strategic Management Decisions, LLC, and an adjunct professor of applied psychology at the University of Georgia. He lives in Charlotte, North Carolina.
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