By Dave Ulrich
Business success is not only about individual talent
Deloitte’s human capital trends for 2015 and 2016 found that organisation issues (culture, organisational design) were the top human resource (HR) issues. Some companies (Disney, Marriott) are trying to maintain their culture, others want to change it (General Electric, Apple), and others want to embed it (Google, Facebook). Top HR leaders share the same message: the war for talent is evolving and needs to evolve toward creating victory through organisation.
Published in Skyways Insight Magazine – August 2016
CUSTOMERS TAKE CARE OF THE PROFITS – HOW INTIMATE ARE YOU WITH YOUR CUSTOMERS?
Tom Peters has long argued the case for Customer Centricity. At the 2011 Progress Conference he said; “The magic formula that business has revealed is to treat their customers like guests and their employees like people.” So what is his 2013 take on strategy and leadership? Think of this as “Tom Peter’s Balanced Scorecard”.
Leaders “Do” People
You take care of the people.
The people take care of the service.
The service takes care of the customer.
The customer takes care of the profit.
The profit takes care of the reinvestment.
The reinvestment takes care of the future.
Now, hold that thought.
In The Execution Premium, Dr Dave Norton and Professor Robert Kaplan evidence the magic of Tom’s winning formula. The book cites a case study of how a large retailer, Store 24, turned around their failed strategy by applying what their CEO Bob Gordon, called their Customer Intimacy programme as a key scorecard metric.
The Store 24 strategy, which was called “Ban Boredom”, seemed like a great idea and a sure fire way to differentiate them from their competitors. The original “Ban Boredom” plan was an exciting strategy providing an entertaining atmosphere with fun promotions and frequent themes. This gave store managers permission and discretion to find ways to execute on the strategy. They dressed up in costumes consistent with themes and holidays and activated imaginative promotions with great displays.
NOT EVERYONE WANTS “DISNEY” MAGICAL MOMENTS – CUSTOMER CENTRIC METRICS SAVED THE DAY
Unfortunately this “Disney” approach had an adverse effect. It seemed that while executed with good intentions, the result was failing on the customer intimacy metric.
It was most fortunate that this strategy was predicated on their “customer intimacy” programme. And by getting “up close and personal” with their customers, they were able to quickly abandon the “Ban Boredom” Programme after two years and replace it with a new strategy.
What their “customer intimacy” programme showed was that the customers valued their traditional strengths of good product selection, quick service and a clean environment. They did not value, AT ALL, the experience they were trying to create. Customers were unhappy with the inattentive store employees dressed in costumes and distracted by the ever-changing displays in store.
METRICS ARE KING
You get what you measure! It’s an old adage and one that could not have been truer for Store 24. Using the Balanced Scorecard approach, the retailer was able to assess customer satisfaction quickly. Not only were they able to change direction quickly, they were also able to identify interesting elements for a comeback strategy.
COMEBACK STRATEGY – “CAUSE YOU JUST CAN’T WAIT”
Their comeback strategy, called “Cause, you just can’t wait”, was wholly based on customer feedback. They realised that flawless execution was essential and further research showed the negative relationship between low skilled employees and operating profit. They were able to show consistently that strategy implementation was only effective when done at stores with high skill crews. They realised, too, that the ability for them to implement their come-back strategy relied heavily on employee satisfaction.
BACK TO TOM!
Which brings us right back to Tom Peters, “Treat your customers like guests and your employees like people. You take care of the people. The people take care of the service. The service takes care of the customer. The customer takes care of the profit.” Most readers will acknowledge that this is very much the Disney leadership model – the difference, however, is that it doesn’t mean that every customer wants a “Disney moment”. What does ring true is that if you get the people right, the service will follow. Get that right, and the profits are a natural result.
Having acknowledged the metrics, Store 24 brought back their traditional strengths as a key driver of their customer value proposition and replaced the “fun, entertaining experience” strategy with speed and efficiency as their new value proposition.
BALANCED SCORECARD WINS THE DAY
Had Store 24 not had a Balanced Scorecard in place, they may well have pursued their quirky “Ban Boredom” idea for many more years, with inexperienced and dissatisfied store crews having “fun” at the expense of their customer and profits. Scorecard metrics not only determine how organisations measure up on people, products, processes and resultant profits; they also provide a direct link to customer satisfaction.
Dave Norton urges companies to use an “employee-customer-profit value chain model” as their main management system.
Are you measuring the right things? Do you scrutinise the “employee-customer-profit value” cause and effect relationships? If you did, what might that value chain reveal and offer you in terms of a new strategic opportunity with a high execution premium?
Dr David Norton is the co-creator of the Balanced Scorecard and leading global practitioner in applying the Balanced Scorecard in both the Private and Public Sector. Together with Professor Robert Kaplan, he has been acclaimed by Harvard Business Review for his significant contribution to the management profession in the past 75 years. More recently Thinkers 50 have ranked them in their Hall of Fame alongside Tom Peters, Kenichi Ohmae, Warren Bennis, Howard Gardner, Henry Mintzberg, Charles Handy, Philip Kotler and Ikujiro Nonaka for their mammoth contribution to business management and leadership.
On the 11th September 2014 Dr Norton will present a full day seminar in Johannesburg on EXECUTING STRATEGY IN A NEW ECONOMY – Balanced Scorecard Essentials.
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.”
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:
- A ratio of number of new ideas per 100 employees.
- Percent of new ideas selected for funding.
- A ratio of revenue or net profit from new ideas divided by the average cost of implementation of ideas.
- 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.
- Intended financial performance.
- Increased number of new ideas.
- Improved quality of ideas.
- New markets / customers.
- 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:
- Which of these measures can you influence the most?
- Which of these measures will make a notable difference in respect of behavioural change?
- Can you access the data easily and accurately?
- Can you start from where you are; with what you have?
- Can you establish meaningful targets and thresholds?
- Will your measure work at both an enterprise and business unit level?
- What baseline will you use to determine a known value; your historical performance or industry norm?
- 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)
Where GM = Gross Margin and PDE = Product Development Expense
Here are some RoPDE™ key guidelines;
- Establish your thresholds comparatively using Operating Income, EBIT or EBITDA.
- Chart your enterprise thresholds by fiscal periods.
- Derive your data using standard accounting data.
- Apply this at both enterprise level and as a business unit strategic measure.
- 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.
“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
- 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.
Nicola Tyler, CEO of Business Results Group, asks Dave Ulrich why HR transformation must become a C Suite priority for business leadership, why Gen X challenges must be taken seriously and his thoughts on Ricardo Semler’s business model previously presented at the Progress Conference in 2013.
NT: Typically HR have sat outside of the C Suite. In your opinion why has this become a priority for change?
DU: Organizations win by creating a competitive advantage which is doing something unique that competitors can not easily copy and that customers value. Traditional sources of uniqueness have been about cost (which leads to lower price), strategy (which leads to desired products and services), or technology (which leads to efficiency). Today most competitors can copy product, product, and technology. Competitiveness is not strategy statements, but the ability to deliver on the strategy. The emerging competitive advantage comes from talent, culture, and leadership which allow an organization to have lower pricBes, better products, and improved processes. HR professionals join the c-suite by bringing unique insights about talent, leadership, and culture that help organizations win.
NT: There has been a see-saw reaction to Generation X challenges. These waiver between reasonably wide acknowledgement that their expectations are a reality and denial which dismisses the change required to meet their demands. Why should companies rise up to the challenges of Gen X?
DU: There are two sides of the Gen X issue: why people work and how they go about working. On the “why” question, Gen X is much like other generations. People want to do work that has meaning and impact. Leaders can relate to Gen X employees by appreciating the next generation’s desire to find meaning from work. On the “how” work is done question, Gen X employees are radically different. They use technology, have shorter time frames, care about life before work, and value relationships. Leaders who are sensitive to these “how” questions will help create more productive employees in all demographic groups.
NT: Recently we hosted Ricardo Semler at our 2nd Annual Progress Conference on Happiness@Work. A maverick in the true sense of the word. At the conference he spoke of his workplace democracy success which includes a large scale business with no HR department. Why do you think the SEMCO “HR” model is so effective?
DU: The reason the SEMCO model works is probably because at SEMCO HR is everyone’s business.
I have been advocating for some time now that the responsibility of talent management is not an HR responsibility but rather a line manager responsibility. People don’t leave organisations. They leave bosses.
In our WHY OF WORK studies we corroborate the importance of people’s personalised contributions. Too often employees feel emotionally disconnected from the work they do; their work may capture their talents and time, but not their heart and soul. At SEMCO, time is the least of their priorities and they have structured their organisation into small business units. This was predicated upon Ricardo’s belief that in large organisational units people feel tiny, nameless and incapable of exerting influence on the way work is done and their contribution to the outcome. We elaborate in Why of Work how great leaders personalise work conditions so that employees know how their work contributes to outcomes that matter to them. SEMCO get this and have done so for decades.
To start out, at SEMCO, they do not refer to workers or employees – they always refer to people. In particular, they make sure the people at SEMCO do the work they love. Ricardo does not believe on sending people on motivation courses; he finds them another job – one which gives them a personal sense of meaning & purpose. The other significant feature at SEMCO is their real understanding of their people’s needs inside and outside of the business.
Firstly, they believe that letting people participate in decisions that affect their lives is important to motivation and morale. He says, ‘There is no contest between the company that buys the grudging compliance of its workforce and the company that enjoys the enterprising participation of its employees.”
Secondly, they understand the needs of their people outside of the organisation. Their needs and desire to create meaning and purpose in their communities, families, church organisations and social groups. To go beyond merely understanding this they have created a work model that allows the people in their organisations to achieve their goals outside of the organisation. Their “retire-a little” programme affords them the opportunity to spend time when they still have the energy and “youthfulness” to enjoy their retirement and do personal stuff that matters. As Ricardo says, “Giving employees even the slightest LEEWAY – with respect to hours or where they work could give them a new life.” So yes, at SEMCO, they buy the hearts and minds of their people and not just their time.
NT: So would you suggest that businesses could do away with their HR department? Or alternatively what is your advice to HR professionals to ensure they survive extinction?
DU: HR does not start with HR issues, but business context. Business contexts requires understanding of the setting in which the business operates (e.g., social, political, and technical trends that shape a business’ opportunity set) and clear expectations of the key stakeholders (e.g., customers, investors, communities). As HR professionals understand these business context issues, they get invited into the management discussions about strategy.
In the management discussions about strategy, each functional area brings unique insights: finance brings insights on costs and profits; marketing offers customer insights; IT offers systems and process insights. HR offers insights on three areas: talent, culture, and leadership.
In the talent space, HR can ensure that employees are competent, committed, and contributing. Competence means that employees have the knowledge and skills to do today and tomorrow’s jobs. Commitment means that employees are willing to work hard and do their best. Contribution means that employees find meaning from the work that they do. HR professionals help leaders make informed talent choices so that the organization has the people who can deliver on strategic goals. Organizations don’t think, people do; and getting the right people to think the right way helps organizations win.
In the culture space, HR professionals create an organization’s way of working and pattern of work that shapes how people think. Organization’s don’t think, but they shape how people both inside and outside think and act. Collective work in teams and organizations outperforms individual work and talent. HR professionals help define the culture in ways that deliver value to external customers and investors and then embed that culture among employees and throughout the organization’s systems. HR professionals are organization architects who shape a culture.
In the leadership space, HR professionals ensure that leadership is a shared, not individual responsibility. Individual leaders with charisma and charm are important, but collective leadership throughout an organization ensures that correct actions occur over time. HR professionals help create a leadership brand where leaders action and behaviours make customer expectations real.
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 visit www.theprogressconference.com.
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.