The decline in ROA has occurred despite steady improvements in labor productivity, which have occurred despite stagnant wages for the labor. As a result, businesses have been paying no more for an increasingly productive workforce, which pretty much eliminates wage control and productivity as factors in improving ROA.

So how can leaders reverse the trend?

John Hagel III and John Seely Brown address this issue in “Six Fundamental Shifts in the Way We Work” (HBR, August 17, 2010). The six shifts they mention are:

1. Management practices and corporate institutions are fundamentally broken. Most have not yet figured out how to compete more successfully.
2. The source of value creation is shifting from your stock of knowledge to the flow of knowledge, and most executives lag in understanding what this means for their companies.
3. Management innovation is not enough: Institutional innovation, exemplified by China’s open production and design models and India’s open distribution models, are needed.
4. A new kind of performance curve is emerging: The collaboration curve, which brings together participants in a carefully designed environment to make rapid leaps in performance improvement.
5. Talent development is broader than training programs: People need to learn new skills and behaviors through their involvement in the work of the management system such as strategic planning, process management, and measurement.
6. Passion is everything. According to the authors’ survey in 2009, less than 20% of employees in U.S. industries say they are passionate about their work. “Passionate workers participate much more actively in knowledge flows that are the new key to value creation,” the authors write. “If you can help make your employees more passionate, you can create value in today’s economy.”

You can improve your performance in several of these areas by integrating the Baldrige model. The model helps fix broken management systems, promote talent development, and engage employees in what you are trying to accomplish. Integrating the Baldrige model will also free up resources to explore knowledge flow, institutional innovation, and collaboration.

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 cases where employee engagement had a direct correlation with financial results:

• Best Buy sees a $100,000 annual increase in sales at any location where employee engagement rises 2%.

• JC Penny had 67% of its employee engaged in 2005 and 80% engaged in 2009. Its earnings per share growth over the last five years is five times the industry average.

The key to getting similar results at your organization is to: (1) figure out how to measure employee engagement as the researchers quoted above have done; (2) use your measurement tool to assess engagement; (3) identify opportunities to improve performance; and, (4) close the gap.

To read more about employee engagement, click on these articles:

• What Drives You?
• Paying Disengaged Employees
• Why HR Needs Baldrige
• Recruiting, Retaining, and Engaging
• Valuing Employees – and HR

To fix the flaw, a profit-minded accountability movement pushed for clear standards and tests to measure performance on those standards, and No Child Left Behind emerged.

It will not work. “As a culture and a species,” Cody writes, “we have too many problems that cannot be solved by a one-dimensional view of profit and loss.”

The truth is, focusing solely on revenue and profitability as the single bottom line for business doesn’t work, either. It’s why the balanced scorecard was born. It’s why the triple bottom line—giving environmental and social considerations equal weight to financial ones—has gained traction. And it’s a big reason we’re in the mess we’re in today with global warming and a broken healthcare system and greedy financial institutions and income that, for most Americans, hasn’t gotten much better in years. When all that matters is profit, nothing else matters.

Business thinking has corrupted education. It’s corrupted healthcare. It’s even corrupted business. New thinking is needed. “We must not trade our judgment and our students’ fundamental human needs for a single-minded focus on test scores,” says Cody, “any more than we should allow life on our planet to continue to suffer from a single-minded focus on profit.”

The Baldrige model provides a new way of thinking about how to run an organization to the benefit of all stakeholders. But the model only goes so far. As a nation, we have to decide what we want our organizations to achieve.

Business and political leaders have tried to do that for us and look where it’s gotten us. We can do better.

To learn more about improving education from a Baldrige perspective, read:

• Inspiration for a New Education System
• Reinventing Education with Baldrige
• Integrating Baldrige Big Time
• Education: Fix the System
• Colleges as Dissatisfied Stakeholders
• Baldrige and K-12: Not for the Faint-Hearted

In The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits (Pearson Education, 2006), C.K. Prahalad presents case studies of a dozen companies that have been profitable serving the “bottom of the pyramid,” the four billion people who live on less than $2 a day. In Capitalism at the Crossroads: Aligning Business, Earth, and Humanity (Pearson Education, 2007), Stuart L. Hart writes, “Recognizing global sustainability as a catalyst for new business development will prove increasingly important to corporate survival in the twenty-first century—the proverbial crossroads to the future.”

To show how mainstream such thinking has become, consider Procter & Gamble. Its new CEO has been busily promoting the company’s “purpose-inspired growth” strategy. Rosabeth Moss Kanter describes CEO Bob McDonald’s road show in “Inside Procter & Gamble’s New Values-Based Strategy” (Harvard Business Publishing, September 14, 2009). “McDonald calls P&G’s purpose the most consistent factor in a 171-year history of growth,” she writes, describing how the company developed a razor-and-blade innovation to reach lower income shavers in India and basic products for poor markets in Brazil. “The business in Brazil became a profitable global growth model,” Kanter states, “and not just for emerging countries. Tide Basic was recently introduced in the U.S.”

The Brazil story reveals another benefit of “purpose-inspired growth”: Employees are more satisfied and engaged because they are helping the world. According to Kanter, the Brazilian team “felt they were doing good for the world, not just making money for the company. Their strong sense of purpose propelled unprecedented collaboration across functions and with customers, for whom the excitement was captivating.”

That certainly sounds like “purpose-inspired growth” is differentiating P&G from its competitors.

Help grow our community:

• Best Buy sees a $100,000 annual increase in sales at any location where employee engagement rises 2%.

• According to a 2005 survey, J.C. Penney had only 67% of its employees engaged. This year, its engagement scores climbed to 80%. The company’s earnings per share growth over the last five years is five times the industry average.

The focus of the first Item in Category 5 of the Baldrige Criteria is workforce engagement: How do you engage your workforce to achieve organizational and personal success? It’s a large and complex Item for a large and complex issue that includes how you determine the factors that affect employee engagement, how you assess it, how you create a culture and systems that support it, and how you develop people.

As Sears, Best Buy, J.C. Penney, and others have discovered, it’s also an issue that can boost your bottom line.