All Posts Tagged With: "financial performance"
Engage Employees to Improve Performance
A study of 245 firefighters and their supervisors has shown that job engagement is a significant predictor of task performance and organizational citizenship behavior. The study, which is behind a firewall, is described by Bret L. Simmons on his blog.
The researchers measured job engagement through 18 questions organized by physical engagement, emotional engagement, and cognitive engagement. According to the article abstract, they found that “engagement, conceptualized as the investment of an individual’s complete self to a role, provides a more comprehensive explanation of relationships with performance relative to well-known concepts that reflect narrower aspects of the individual’s self.” The researchers were able to evaluate the impact of other factors including job involvement, job satisfaction, and intrinsic motivation on performance and behavior; they concluded these factors did not predict performance and behavior while engagement did.
According to Simmons, the researchers identified three antecedents of engagement: value congruence, perceived organizational support, and core self-evaluations. In other words, hire people who share and support your organization’s mission and values and who are self-sufficient and confident, and then provide development opportunities that align with your organizational values and your employees’ developmental needs.
In “Bottom-Line Value of Employee Engagement,” I wrote about a Gallup report that came to similar conclusions. Gallup defined a fully-engaged employee as emotionally attached to the unit and rationally loyal and found that “organizations that employ performance optimization management principles have outperformed their competitors by 26% in gross margin and 85% in sales growth.”
In “Employee Engagement and the Bottom Line,” I pointed to two specific…
20Jul2010 | Steve George | 1 comment | ContinuedHe Is 400x More Valuable Than You Are
Last week I wrote about David Calhoun, the executive Nielsen hired in 2006 to lead the company who is “earning” $78 million for five years of work (Shut! Up!), my point being that excessive executive compensation is ridiculous. Today, Ron Ashkenas made the same point by noting that CEO compensation in the U.S. was 40 times greater than that of the average worker in 1960 and now it’s more than four hundred times greater. Ashkenas writes, “From 1990 to 2005, CEO compensation increased 300% (adjusted for inflation) while the pay of average workers increased only 4.3%.” (“Rethinking the Assumptions Behind Executive Pay,” HBR)
Those are incredible statistics and they’ve been written about and talked about for years now but nothing is being done about it. It’s like watching that oil spewing into the Gulf of Mexico and everybody knows it’s bad and it matters to oil people because it looks bad, but eventually we turn our attention to other things and it’s back to business as usual. Nothing will be done about the cause of the oil spill or the causes of excessive executive compensation because the people who control those things stand to gain the most from the status quo. If I was making 400 times the average worker, I’d shut the hell up, too.
Ashkenas also quotes a recent study by compensation expert Graef Crystal, reported in Bloomberg Businessweek, that “there is no relationship whatsoever between CEO compensation and shareholder returns.” OK then, how about a relationship between CEO compensation and shareholder…
23Jun2010 | Steve George | 0 comments | ContinuedThe Financial Impact of Integrating Baldrige
Business leaders have long sought proof that embracing the Baldrige model, implementing Total Quality Management, or applying for Baldrige Award or state quality awards pays. Does it make our company more profitable? Does it return value to our shareholders? Is it worth the effort and changes involved?
The answer to all three questions is, “Yes.”
Dr. Vinod Singhal of the Georgia Institute of Technology and Dr. Kevin Hendricks of the College of William and Mary did a five-year study of more than 600 quality award winners. They compared the financial performance of these winners with a control sample of companies similar in size and operating in the same industries. Singhal and Hendricks tracked both groups for ten years: six years before the award winners won their award and four years after.
Their study revealed that, over a five-year period starting one year before the winners won their first award, the award winners averaged significantly larger increases in several key measures of financial performance:
- 44% higher stock price return
- 48% higher growth in operating income
- 37% higher growth in sales
When Singhal and Hendricks separated the independent award winners (Baldrige and state quality award winners) from those companies winning supplier awards, the results were even more dramatic:
- 61% increase in stock returns over the control group
- 73% increase in operating income
- 33% increase in sales
- 21% increase in return on sales
- 25% increase in employment
- 49% increase in assets
Other insights from the study included:
- For the first five years of the study (up to one year before the award winners won their first award), the…
Great or Just Lucky?
We study the steps taken by high-performing organizations to understand what they do well and how we can make our organizations better. That may be our first mistake.
A provocative report by Deloitte claims that the best practices of “great companies” may be more instructive as fable than fact. In “A Random Search for Excellence,” available here, Michael E. Raynor, Mumtaz Ahmed, and Andrew D. Henderson argue that success studies such as Good to Great, Built to Last, and In Search of Excellence are just as likely to be studying lucky companies as good ones.
“It’s only too likely that whatever benefit practitioners have realized has been distressingly haphazard, the consequence of a form of placebo effect (you expect it to help, so you perceive that it does, quite independently of any true causal connection), a Hawthorne effect (the mere act of focusing on something you were neglecting improves performance regardless of what motivated the increased attention), or luck (even a broken clock is right twice a day).”
The report backs up this assertion with detailed analysis of more than 230,000 firm-year observations using a “regression algorithm to create an ROA value stripped of everything but firm-level, or management, effect.” You’ll have to read the report to understand what that means, and even then it’s a struggle.
In the end, the authors don’t suggest that you dismiss the advice offered by existing success studies but that you treat such advice more as fables than science. “Their value is not what you read in them, but what…
13Jan2010 | Steve George | 0 comments | ContinuedBuffett on Finance
Warren Buffett likes to use humor to make a point. Commenting on how his company controls spending, he wrote:
We cherish cost-consciousness at Berkshire. Our model is the widow who went to the local newspaper to place an obituary notice. Told there was a 25-cent-a-word charge, she requested “Fred Brown died.” She was then informed there was a seven-word minimum. “Okay,” the bereaved woman replied, “make it ‘Fred Brown died, golf clubs for sale.’”
The quote is from Warren Buffett on Business: Principles from the Sage of Omaha by Richard J. Connors (Wiley, 2009). Most of the book is from Buffett’s letters to shareholders written from 1977 to 2008. Topics include:
- Corporate culture
- Governance
- Management: people, risk, and time
- Communication
- Managing a crisis
I’m reminded of one of my favorite Buffet quotes: “There seems to be some perverse human characteristic that likes to make easy things difficult.” Especially when humans come together in an organization.
22Dec2009 | Steve George | 2 comments | ContinuedEffective Employee Communication
“Effective employee communication is a leading indicator of financial performance and a driver of employee engagement,” according to the 2009/2010 Communication ROI Study Report by Watson Wyatt. “Companies that are highly effective communicators had 47% higher total returns to shareholders over the last five years compared with firms that are the least effective communicators.”
The Baldrige Criteria ask four questions specifically about communication:
- How do senior leaders communicate with and engage the entire workforce?
- How do senior leaders encourage frank, two-way communication throughout the organization?
- How do senior leaders communicate key decisions?
- How do you foster an organizational culture that is characterized by open communication?
An organization that can answer these questions with effective processes can claim effective employee communication, which, as the Wyatt study shows, improves employee engagement and financial performance. Representatives of 328 organizations in more than 25 industries worldwide participated in the study.
The report offers five steps your organization can take to become an effective communicator:
- Re-communicate your employee value proposition. Be clear about what employees can expect from your company and what the company expects from them.
- Talk about the new deal now. Educate employees about your company’s values and culture.
- Help employees appreciate what they have today. Make sure employees understand the value of their compensation and benefits programs.
- Trust and train your leaders to talk about change. Leaders and managers need to know how to lead and communicate with integrity during times of change—which is pretty much all the time.
- Learn how to communicate effectively with diverse employees. Highly effective companies train managers to communicate to a diverse audience.
The report also…
24Nov2009 | Steve George | 0 comments | ContinuedBottom-Line Value of Employee Engagement
Here’s a money quote from a Gallup report on customer engagement:
“Just as the best organizations have eight fully engaged customers for every actively disengaged customer, they also have eight fully engaged employees for every actively disengaged employee. And business units that score above Gallup’s database median on BOTH customer and employee engagement significantly outperform units that rank in the bottom half on both measures.”
As Gallup defines them, a fully-engaged employee is emotionally attached to the unit and rationally loyal, while an actively disengaged employee is emotionally detached and actively agnostic.
The report quantifies the impact of customer and employee engagement as follows, with those that score in the bottom half on both customer and employee engagement being the baseline:
- Those in the upper half on customer engagement and the lower half on employee engagement, or vice versa, get a 70% boost in bottom-line results.
- Those in the upper half on both customer and employee engagement get a 240% boost.
The report’s conclusion could be considered a ringing endorsement for integrating the Baldrige model: “Organizations that employ performance optimization management principles have outperformed their competitors by 26% in gross margin and 85% in sales growth.”
You can read the full report here.
To read more about employee engagement, check out these related articles on Baldrige.com:
- Valuing Employees—and HR
- Making Performance Excellence Personal
- The 3 Factors That Motivate Employees
- Employee Engagement and the Bottom Line
- Employee Satisfaction Pays—Big Time
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