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HOW TO MEASURE THE EFFECTIVENESS OF YOUR INNOVATION STRATEGY | “ROH-PEE-D’EE” TECHNIQUES FOR YOUR BALANCED SCORECARD METRICS

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In the words of Oscar Hammerstein from the legendary musical The Sound Of Music he recommends;; “When you read you begin with ABC and when you sing you begin with Doh-Re-Mi” – when it comes to Innovation, Dr Dave Norton suggests “when you measure innovation you begin with Roh-pee-d’ee.”

STRATEGIC MEASUREMENT CONTEMPLATIONS FOR INNOVATION METRICSYOUR INNOVATION STRATEGY

If innovation ranks as a key strategic objective it will surely be one of your key metrics on your Balanced Scorecard. Some of the measures to consider are as follows:

  1. A ratio of number of new ideas per 100 employees.
  2. Percent of new ideas selected for funding.
  3. A ratio of revenue or net profit from new ideas divided by the average cost of implementation of ideas.
  4. Aggregate ROI of new ideas implemented.

The most important step is to define your intended results for your innovation. This should be ONE of a number of intentions. An essential Balanced Scorecard principle should be applied here. Your intention or OBEJCTIVE should be concise and defined by a quantitative outcome and time frame.

  1. Intended financial performance.
  2. Increased number of new ideas.
  3. Improved quality of ideas.
  4. New markets / customers.
  5. New products / services. etc…

NARROW IT DOWN | BSC ESSENTIAL

These may be good measures, but fall short in terms of a second key Balanced Scorecard principle. Best practice scorecards only have 1 – 2 performance measures per objective which makes it imperative to select the most meaningful measure for your innovation objective. Your selection criteria could consider the following:

  1. Which of these measures can you influence the most?
  2. Which of these measures will make a notable difference in respect of behavioural change?
  3. Can you access the data easily and accurately?
  4. Can you start from where you are; with what you have?
  5. Can you establish meaningful targets and thresholds?
  6. Will your measure work at both an enterprise and business unit level?
  7. What baseline will you use to determine a known value; your historical performance or industry norm?
  8. Use this measure during all stages of the innovation process.

Once this thinking is applied you should be in a position to select one and not more than two metrics for your Innovation Scorecard.

[pronounced ROH-PEE-D’EE]  RoPDE™ = RETURN ON PRODUCT DEVELOPMENT EXPENSE | ROBUST KPI

Traditional ROI measures, such as discounted cash flow analysis are often owned by the finance team and rarely resonate with the other stakeholders and most often result in weak alignment.

RoPDE™ is a comprehensive KPI for measuring the performance of product/service innovation and development.

How do you calculate RoPDE™?

RoPDE = (GM – PDE)

               PDE

Where GM = Gross Margin and PDE = Product Development Expense

 Here are some RoPDE™ key guidelines;

  1. Establish your thresholds comparatively using Operating Income, EBIT or EBITDA.
  2. Chart your enterprise thresholds by fiscal periods.
  3. Derive your data using standard accounting data.
  4. Apply this at both enterprise level and as a business unit strategic measure.
  5. Apply it at any stage gate or product life cycle process.

When you start at the very beginning, be it in ideation, evaluation and selection of innovation you can evaluate the opportunities using RoPDE™. As your innovation progresses you can compare actual revenue and product development expenses relative to your expected financial performance.

SOURCE: www.balancedscorecard.org/whitepapers  How do I Measure Innovation by Gail Perry and Mark Malinoski

In 2014, BRG & GIBS will present Dr Dave Norton – Live and in Person: Executing Strategy: Balanced Scorecard Essentials. The 2014 programme includes the latest findings and experiences in strategy, measurement, leadership, human capital and cross functional priorities and solutions.

Dr Dave Norton has most recently been honoured by Thinkers 50 in their Hall of Fame sharing this acclaim with Tom Peters, Warren Bennis, Howard Gardner, Charles Handy, Philip Kotler, Henry Mintzberg, Kenichi Omae, Ikujiro Nonaka and his colleague Professor Kaplan, for their mammoth contribution to business management and leadership. Harvard Business Review recognised the Balanced Scorecard as one of the most influential management ideas in the past 75 years.

Employee Engagement Gap

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Dr. Caren ScheepersEmployee Engagement

“Imagine a time when you were highly absorbed and engaged at work. What were the circumstances that caused this attentiveness and engagement? What did you feel at the time, what did you see, what did you hear and what did you smell? Make that experience vivid in your mind. Let your body actually experience the feeling now.” This is an exercise that I regularly start off with when I facilitate workshops on the topic “Employee Engagement”. As you read this article you are welcome to participate. You can even partake in the next exercise, by asking a colleague to work with you.

“Now choose a partner to work with and show your partner how you literally step into those circumstances and personal experience. What your partner then needs to do is to notice attentively what you look like, sound like, your body posture and your facial expression. The next step is to mimic it so that you can see clearly how your posture for instance changes when you are truly engaged or in the zone”. You have to take turns in this exercise, obviously. It has an added benefit of practice how to “tune in” to where other people are at by mimicking their non-verbal behaviour. Consequently, it allows us to become aware of how others feel and as a result build rapport with them. The question to discuss then is, “When last have you felt this invigorated at work?” and a follow up question, “How big is the gap between what you experience when you are fully engaged and your current work circumstances?”

Having observed numerous of these exercises, I realised that it is clear when employees are engaged and that it is actually quite contagious. Other observations were that the more upright body postures generally brought positive energy into the room and lasted long after the exercise. Neuropsychology explains this phenomenon by biochemical neurotransmitters in our brains that are activated by the imaginary incident, which also explains why we would feel fearful of circumstances that have not yet taken place (Scheepers & Jooste, 2012).

Tuning into our own awareness of being engaged or withdrawn as well as to others’ experiences, teaches us intuitively what engagement is about. Employee engagement is topical currently and mostly practitioners have been writing about this phenomenon. Lately, it luckily also grabbed the interest of academia that quite frankly wanted to find out whether employee engagement was only the latest “fad of the month”. Empirical studies followed that were published in top tier journals. For instance, the seminal work of Saks (2006) on the antecedents and consequences of employee engagement has academic rigour and provides scientific evidence for what we regularly experience intuitively in our daily work lives.

Nonetheless, mainly two exponents provided the theoretical foundation for employee engagement. Kahn (1990, p.694) defined it as ”employing themselves physically, cognitively, and emotionally…in varying degrees.” In turn, Maslach (2001) who conducted more than 30 years of research, contrasted engagement with burnout, another phenomenon that we often come across in our highly stressful modern work environments. Her research revealed that burnout was the opposite of being engaged and the face validity of her study is high when we consider that vigour and dedication constitute engagement, whereas exhaustion, cynicism and withdrawal illustrate the opposite. Later research of Schaufeli et al (2002) confirmed Maslach’s notion of engagement and burnout being antipodes.

You might ask whether engagement is similar to commitment. Robinson et al (2004) pointed out in this regard, that engagement is more than commitment and more than an attitude. It is rather the degree to which an employee is attentive and absorbed in their work. Saks’ (2006) research provided evidence that commitment is actually a consequence of engagement. Furthermore, we can differentiate between job and organisational engagement. As a result, this article will focus on these two aspects.

a)         Job engagement 

Some people are highly engaged with their organisations, whereas others are actually engaged with their discipline or type of work and do not care where they conduct this job. These employees find meaning in the content of their work. Interestingly, job engagement increases when people have more contact with the beneficiaries of their work (Grant, 2012). Consequently, organisations must make a concerted effort to get back-office employees in contact with external or internal customers who are impacted by the quality of their work or lack thereof.

For the last 7 years, I have been lecturing on the GIBS MBA Module: Organisational Development and Transformation and I regularly asked these students whether they experience quality of work life. Sadly, over the years few of the MBA’s could declare that they were experiencing quality of work life. We often discussed Hackman and Oldham’s (1980) recommendations of bringing more of themselves into their work or being more engaged by: ensuring jobs are challenging, having variety, conducting significant tasks, allowing for personal discretion and making an important contribution. These students reported that getting feedback on their performance also increased meaningfulness of their jobs.

An interesting theory that could be associated with job engagement is the Social Exchange Theory or (SET) that implies that employees, who are provided with challenging and enriched jobs, feel obliged to reciprocate by responding with higher levels of engagement (Saks, 2006). On the other hand, when employees do not feel supported by colleagues or they do not get appropriate recognition and rewards, it leads to the burnout syndrome (Maslach et al, 2001). Kahn’s (1990) research revealed that our careers could constitute a series of leaps of engagement and falls of disengagement as well as that the person-role dynamics are complex.

b)         Organisational engagement 

Schaufeli and Bakker (2004) found that engaged employees have a greater attachment to their organisation. As a result, they have a lower intention to quit. Furthermore, they are involved in extra-role behaviour or being good organisational citizens and contribute to the greater organisation and not only to their own department or division.

I found it disappointing that in contrast, numerous executives on Senior Management Programmes found it difficult to articulate the social value that their organisations were creating and rather focused on financial results, whereas without financial results the organisation would anyway not be able to sustain itself. Nonetheless, through firstly meeting human needs by producing products or delivering services, organisations are able to declare financial returns and sustain the business. To the contrary, luckily organisations in South Africa like Nedbank, Woolworths, Nampak and FNB utilize corporate social responsibility projects as team building exercises and to build pride in their organisation’s contribution to society and subsequently organisational engagement.

Perceived procedural justice or fairness with regards to distribution of resources also influences organisational engagement (Rhoades et al, 2001). Conversely, a lack of fairness can exacerbate burnout (Maslach et al, 2001). Another dimension to consider is the Psychological Contract (Rousseau, 2004) with the resultant two-way relationship where employees receive economic and socio-emotional resources from the organisation and they respond in kind and repay the organisation by being psychologically present or engaged. We found in a specific study around this psychological contract that the human resources practice that had the most important relationship with the relational contract was training and development (Scheepers & Shuping, 2011). Consequently, investing in employees’ development would result in them perceiving that they are important to the organisation and they would reciprocate with loyalty to the organisation.

In closing, it is important to note that in the USA the engagement gap or lost of productivity cost due to employees being disengaged is estimated at $300 billion per annum (Kowalski, 2003). We do not have South African statistics to report however, the engagement gap remains an important phenomenon to investigate and I invite more researchers to conduct qualitative and quantitative studies to provide scientific evidence of the antecedents and consequences of employee engagement.

Follow Dave Ulrich on twitter: @dave_ulrich

References: 

  • Grant, A. M. (2012). Leading with meaning: Beneficiary contact, prosocial impact, and the performance effects of transformational leadership, Academy of Management Journal, 55 (2), 458-476.
  • Hackman, J. R. & Oldham, G. R. (1980). Work Redesign, Addison-Wesley, Reading, MA.
  • Kahn, W. A. (1990). Psychological conditions of personal engagement and disengagement at work, Academy of Management Journal, 33 (4), 692-724.
  • Kowalski, B. (2003). The Engagement Gap, Training, 40 (4), 62, as cited in Saks, A. M. (2006). Antecedents and consequences of employee engagement. Journal of Managerial Psychology, 21 (7), 600-619.
  • Maslach,C., Schaufelli, W. B. & Leiter, M. P. (2001). Job Burnout. Annual Review of Psychology, 52, 397-422.
  • Rhoades, L., Eisenberger, R. & Armeli, S. (2001). Affective commitment to the organisation: the contribution of perceived organisational support, Journal of Applied Psychology, 86, 825-836.
  • Rousseau, D. M. (2004). Psychological contracts in the workplace: Understanding the ties that motivate, Academy of Management Executive, 18(1), 120-127.
  • Saks, A. M. (2006). Antecedents and consequences of employee engagement. Journal of Managerial Psychology, 21 (7), 600-619.
  • Schaufeli, W. B., Salanova, M., Gonzalez-Roma, V. & Bakker, A.B. (2002). The measurement of engagement and burnout: a two sample confirmatory factor analysis approach, Journal of Happiness Studies, 3 (3), 71-92.
  • Schaufeli, W. B & Baker, A. B. (2004). Job demands, job resources, and their relationship with burnout and engagement: a multi-sample study, Journal of Organisational Behaviour, 25, 293-315.
  • Scheepers, C. B. & Jooste, M. (2012). Neuroleadership informs internal business coaches on change, COMENSANews, Nov 30.
  • Scheepers, C. B. & Shuping, J. G. (2011). The effect of human resource practices on the psychological contract at an iron ore mining company in South Africa. South Africa Journal of Human Resources Management, 9(1), 1-19.

Dave Ulrich’s Investor Literacy Test for HR Professionals

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Dave Ulrich asks this, “If an investment analyst was a “fly on the wall” in any of your HR meetings would their decision to invest in your company be, BUY, SELL or HOLD? “ At these times HR has the number one opportunity to build investor confidence in their organisations.

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Research by accounting professors shows that the regression between earnings and shareholders value has traditionally between 75 and 90.7 %. This means that in the past 75 – 90% of the market value of an organisation could be predicted by the financial performance of the firm. However since then, this percentage has dropped to about 50% in both up and down markets. So if their predictions are not so clearly tied to present earnings, how else do investors predict the market value of your organisation?  They are tied to what the financial community call intangibles or the value of the organisation not directly derived from physical assets. They are about the choices leaders make about what happens inside their firm and how investors value those decisions. Intangibles do include R & D, technology and brand decisions but organisation and people are what give investor’s confidence in future earnings.

Investors admire Apple for great product design, Disney for great service and Google for innovation but are patently aware that this success all hinges on the people.

For HR Professionals to deliver value to investors, they must first become fluent in the language their own particular investors speak and fully research the reasons why they invest in their organisation. If value is defined by the receiver more than the giver Dave Ulrich suggests you consistently and deliberately engage with your investors.

Dave Ulrich’s Investor Literacy Test for HR Professionals assesses your base of knowledge to link your good HR work to investor priorities.

1.       Who are your 5 major shareholders?

2.      What percentage do each of them own?

3.      Why do they own you? What are their investing criteria?

a.      Dividend stock

b.      Growth market

c.      Etc.

4.      What is your tangible value?

5.      What is your intangible value?

6.     What is your P/E ratio for the last decade?

7.      Who are the top analysts who follow your industry?

8.      How do they view your company vs your competitors?

9.     How are you including key investors and analysts in the design and delivery of your HR practices?     [Succession planning, leadership development, reward & recognition]

10.     How well does your board govern itself – not just on institutional shareholder service criteria but on the process for good board governance?

More investors are assessing the path between HR investment and business performance. They expect it to be clear and believe that good HR architecture in staffing, training & development, leadership development, communication, compensation and governance lead to positive business outputs. The alignment of a business’s strategy and HR practices is pivotal to investors. Employee commitment is also a lead indicator of customer commitment which is a lead indicator of profitability. At a time where financial performance is in many organisations not quite what it used to be, HR have the number one opportunity to build investor confidence.

Business Results Group and GIBS will be bringing Dave to South Africa to present his 13 milestones for HR to transcend the way the deliver measurable value to their organisations. In JHB on 27 May and Cape Town on 28 May.

Professor Dave Ulrich

Dave has consulted and done research with over half of the Fortune 200. His honours exude a consistent track record of global influence and authority in human resources and business management.  His research is based on collective feedback from over 60 000 line managers and HR professionals on the competencies required to improved business performance.

An accomplished and celebrated educator Dave is sought after the world over to present his findings and educate businesses. He has published over 200 articles and book chapters and over 25 books which he has co-authored with numerous fellow thought leaders.

HR VALUE STRESS TEST | 16 questions for HR professionals to measure their success.

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February 2014

The HR Value Stress test is designed by Professor Dave Ulrich. It is for everyone in the HR department including organisational design, employee wellness, learning & development, talent management, human capital, recruitment, remuneration, communications, transformation and change professionals. It provides you with a quick snapshot to determine how you deliver value to customers, shareholders and the community.

Why not review this as a team? You can score individually and compare notes to achieve a collaborative consensus on your future HR priorities and at the same time celebrate your accomplishments.

The review is based on Dave’s global research on HR competence and the requirements to deliver HR value. How do you measure up on business context, Outside-in HR, Talent, Leadership & HR practices?

How effectively does our HR work account for the following? 

How effective NOW?  1 = minimal and 5 = a great deal;

Most critical in the future 2 -3 year

1. Outside/in (a): We are good at connecting our HR work with customers.

2. Outside/in (b): We are good at connecting our HR work with investors.

3. Outside/in (c): We are good at connecting our HR work with communities outside our organisation.

4. Business Context: We are good at understanding the social, technological, economic, political, environmental and demographic context of our business.

5. Value: We are good at defining the value created by our HR work.

6. Talent (a): We are good at improving the productivity of our employees through their competence.

7. Talent (b): We are good at improving the productivity of our employees through their commitment.

8. Talent (c): We are good at improving the productivity of our employees through their contribution.

9. Culture/Organisation: We are good at identifying & investing in organisation capabilities required for our future success.

10. Leadership (a): We are good at building leadership depth and breadth through the company with things like bench strength.

11. Leadership (b): We are good at building leadership depth and breadth through the company with quality of management.

12. Leadership (c): We are good at building leadership depth and breadth through the company with things like leadership brand.

13. Restructuring HR departments: We are good at building HR departments so they turn knowledge into client productivity, with clear roles and responsibilities.

14. Re-engineering HR practices: We are good at aligning, integrating and innovating our HR practices in people, performance, communication and work.

15. Upgrading HR professionals: We are good at ensuring that HR professionals have the right competencies to deliver value & build their career.

16. Tracking or measuring progress: We are good at creating HR analytics focussed on the right issues.

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Business Results Group and GIBS will be bringing Dave to South Africa to present his 13 milestones for HR to transcend the way the deliver measurable value to their organisations. In JHB on 27 May and Cape Town on 28 May.

For further information contact Angela on 011 463 9898

Professor Dave Ulrich

Dave has consulted and done research with over half of the Fortune 200. His honours exude a consistent track record of global influence and authority in human resources and business management.  His research is based on collective feedback from over 60 000 line managers and HR professionals on the competencies required to improved business performance.

An accomplished and celebrated educator Dave is sought after the world over to present his findings and educate businesses. He has published over 200 articles and book chapters and over 25 books which he has co-authored with numerous fellow thought leaders.

Follow Dave Ulrich on twitter: @dave_ulrich