operational effectiveness

Your PpE Needs Attention

Profit per Employee (PpE), should be a critical metric for you as a leader if your shareholder value is driven by the contributions of your talented people, rather than your capital (ie. a People-centric Business).

If your people costs are higher than your capital costs, you’d better take a look at your PpE. If you’re people costs are 3 times your capital costs, you’re really going to need to look at PpE or an equivalent metric.

The vast majority of companies continue to gauge their performance using outdated, industrial era measures which have not changed to reflect the new weighting in costs between people and capital. People-centric businesses not only need a change in performance metrics, but a change in the management practices used to generate that performance.

A people-driven performance metric is important as well because it has direct connections to overall profitability and market capitalization. Together with ROIC, PpE and the number of employees you have will drive your market capitalization in people-centric businesses.

WhereDaMoneyGo.png

PpE does not require any complicated calculations and can be drawn directly from your current financials. There are more sophisticated approaches which may reduce some biases or risks, but PpE is an excellent metric to use in running your business.

Once you adopt PpE or an equivalent, you’ll start to see how even small changes in how you manage can have a major impact on returns.

“Consider a typical security and facilities management company in which operating profit is 10% of employee costs and economic profit is 8% of employee costs. In such a case, a 5% improvement in employee productivity increases operating profit by 50% and economic profit by over 60%.”2

So, if you’re a people-centric business, may sure you pay some attention to your PpE and then start making changes to your leadership and management practices to unleash the potential of your people to generate higher PpE and the resulting market capitalization.

 

Less Noise. More Signal.: 

 


  • Calculate your Profit per Employee for the past few years (Total Profit/# Employees)
  • Track your total People Costs over the same period
  • If your People Costs continue to rise and your PpE isn't rising at the same rate, then Waste & Complexity are likely growing in your organization.

 


For more research on this subject:

1. The new metrics of corporate performance: Profit per employee

   Lowell L. Bryan

   McKinsey Quarterly 2007 Number 1

 

2. The Surprising Economics of  a “People Business”

   Felix Barber and Rainer Strack

   Harvard Business Review June 2005

 

 

3. Mobilizing Minds

   Lowell L. Bryan and Claudia I. Joyce

   McGraw-Hill 2007

   http://www.mckinsey.com/client_service/strategy/latest_thinking/mobilizing_minds

 

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The Engagement Gap

We define employee engagement (a term that is widely used and misused) as an employees’ willingness and ability to contribute to company success. And the current level of employee engagement isn’t good.

An excerpt from Gary Hamel’s blog at the Wall Street Journal, entitled Management’s Dirty Little Secret:

“Consider the recent “Global Workforce Survey” conducted by Towers Perrin (now Towers Watson), an HR consultancy. In an attempt to measure the extent of employee engagement around the world, the company polled more than 90,000 workers in 18 countries. The survey covered many of the key factors that determine workplace engagement, including: the ability to participate in decision-making, the encouragement given for innovative thinking, the availability of skill-enhancing job assignments and the interest shown by senior executives in employee well-being.

Below you’ll find some supporting graphics taken directly from Towers Watson’s most recent (2012) instalment of the study:

 

TW_Workforce2012.png

Unfortunately, these results aren’t uncommon or new. Peter Drucker was quoted some time ago as saying, “Most of what we call management consists of making it difficult for people to get their work done.”

But the path to addressing this problem is under our control according to research conducted by Teresa M. Amabile and Stephen J. Kramer:

“Ask leaders what they think makes employees enthusiastic about work, and they’ll tell you in no uncertain terms. In a recent survey we invited more than 600 managers from dozens of companies to rank the impact on employee motivation and emotions of five workplace factors commonly considered significant: recognition, incentives, interpersonal support, support for making progress, and clear goals. “Recognition for good work (either public or private)” came out number one.
Unfortunately, those managers are wrong.
Having just completed a multiyear study tracking the day-to-day activities, emotions, and motivation levels of hundreds of knowledge workers in a wide variety of settings, we now know what the top motivator of performance is—and, amazingly, it’s the factor those survey participants ranked dead last. It’s progress. On days when workers have the sense they’re making headway in their jobs, or when they receive support that helps them overcome obstacles, their emotions are most positive and their drive to succeed is at its peak. On days when they feel they are spinning their wheels or encountering roadblocks to meaningful accomplishment, their moods and motivation are lowest. 
GreatWorkday_Amabile.gif
“You can proactively create both the perception and the reality of progress. If you are a high-ranking manager, take great care to clarify overall goals, ensure that people’s efforts are properly supported, and refrain from exerting time pressure so intense that minor glitches are perceived as crises rather than learning opportunities.
Cultivate a culture of helpfulness. While you’re at it, you can facilitate progress in a more direct way: Roll up your sleeves and pitch in. Of course, all these efforts will not only keep people working with gusto but also get the job done faster.”

Teresa M. Amabile is the Edsel Bryant Ford Professor of Business Administration at Harvard Business School. Steven J. Kramer is an independent researcher and writer based in Wayland, Massachusetts

In short, we believe Towers Waston summarized it best in their report:

Companies are running 21st-century businesses with 20th-century workplace practices and programs. 

 

beacon and the Engagement Gap

How does beacon help battle the Engagement Gap? We simplify, support and automate a set of complementary, evidence-based, high-performance work practices, which includes; ensuring that goals are clear, people’s efforts are properly supported, progress is easy to measure and see, and that collaboration occurs to execute the most important work.

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