- Report Proves “Employees Matter” to Your Bottom Line
- Death and Value-Driven Success
- Decision-Making Style May Impact Social Responsibility
- Fair Practices for Best Appraisals
Sometimes managers push back on my science-based approach to teambuilding by saying, in effect, “academics don’t know what goes on in the real world.” How delightful, then, to download a free report with 150 pages of real-world evidence that employee-centered business practices raise profits exactly as the research literature says they would.
Employees Matter: Maximizing Company Value through Workforce Engagement reports on structured interviews with 16 companies and additional research with eight others. It was written by Anne Claire Broughton, Senior Director of the SJF Institute. Affiliated with venture-capital firm SJF Ventures, the nonprofit institute renders assistance, mentorship, and best practices to “companies that provide green solutions and build workplaces where employees can grow and thrive.”
Three traits the profiled companies had in common were low turnover rates, “high customer satisfaction rates and strong year-to-year customer retention,” the report says. Most survived the Great Recession without layoffs, and all have had the kind of financial success any business owner wants. Those with full profiles in the report range from 50 employees to more than 3,500, with reported 2009 revenues from $6 million to $101 million. The report emphasizes that many provide lower-income positions; these practices aren’t just for highly paid knowledge workers.
Of the ten “Employee Engagement Strategies” Broughton says emerged from the interviews, I’ll focus on the ones most applicable to teams. The first makes chronological sense: “High Involvement Hiring.” The report mentions Zappos.com founder Tony Hsieh, who admitted he wasted $100 million on bad hires before switching to this philosophy. “Hiring practices used by Employees Matter companies include conducting multiple interviews with multiple current employees, and holding separate interviews for skill and culture fit.
“At employee-owned engineering consulting firm ATA Engineering, for example, up to 12 current employees might interview a prospective hire,” the report says. I have long taught that the best way to make sure a candidate will fit with your team is to include the team in the entire process.
Broughton writes that training is emphasized in all of the firms, “from initial orientation and soft skills (such as dressing for success and effective communication), to specific skill training, to ongoing coaching and management training.” PrintingForLess.com invests eight to 10 weeks in new-hire orientation. A third of marketing firm Red Door Interactive’s employees had taken management training, reminding me of the U.S. Marine Corps philosophy of training everyone to lead.
“Fostering a Culture of Mutual Respect and Trust” is exemplified by the “‘attitude of gratitude'” mentioned by co-founder Maria Kingery of solar company Southern Energy Management, and by the catch-phrase “FOH” (“Frank, Open and Honest”) described in the report and a later topic, Namaste Solar. In a related strategy, the companies also “enjoy a range of celebrations, from potlucks and birthday lunches to annual holiday parties to lavish company-wide trips to Las Vegas.” Anyone who has celebrated a sports victory or attended a post-show cast party knows the power these have for motivating a repeat performance.
Another common practice is, “Communicating the Company’s Core Values Clearly and Consistently.” Methods include “having new employees sign a mission and values statement, developing employee recognition programs crafted around core values, and reinforcing the core values in trainings and office signage,” the report says. This should occur at the team level as well. I was especially impressed by the “no gossip” policy of PrintingForLess.
Two of the strategies go hand-in-hand: “Sharing Key Success Metrics,” and “Performance-Based Rewards and Compensation.” CleanScapes, a waste management company, provides “‘CleanStats,’ a summary of key metrics shared with employees at weekly company meetings.” The effort by Full Sail Brewery to implement open book management includes “putting potentially confusing financial language into ‘per barrel’ terms–a frame of reference brewers understand…”
“And companies that value team-based performance are deliberate about tying some rewards with achieving metrics as a team,” Broughton reports. The president of a thriving U.S. furniture company is indirectly quoted to say, “If you want an increase in team productivity, make sure the compensation system rewards team results rather than individual behavior.” The report is replete with examples of bonuses based on performance improvements (such as gainsharing, giving a portion of a team’s financial improvements back to the team).
Finally there’s empowerment. “While the degree of employee participation in decision making varied from company to company in the Employees Matter interviews, making sure all employees are heard and have input on how work is done is key.” Broughton adds, “sometimes the best ideas for efficiency improvements come from employees on the production and shipping lines or on the phones.”
Some of the companies go so far as to make decisions by consensus. “Although it might be faster to use a ‘benevolent dictator’ decision making process, General Manager Jeff Young (of ATA) said, it would not result in the same broad level of buy-in.”
There is so much useful information in the report, any top leader should download it. But I especially recommend that entrepreneurs with team-sized companies do so. The report says a Yale business professor concluded after studying startups, “it is much easier to get the culture and human resources blueprint right the first time than to go back and try to change it later, and that firms that established a strong culture from the beginning had a greater chance of long term survival.”
In an interview, I asked Broughton where she would start. “Know what your core values are and focus on them…” she said. “Know your critical numbers and keep associated metrics,” making sure each employee knows what they need to accomplish and their individual impact on the metrics. But first, “make sure you hire the right people.”
Gaining the results these companies have achieved takes intentional effort over a long time, Broughton said. “They get it, and they do it, and they do it well, and they keep checking in to re-tool it if they need to.” The companies show the only barrier between you and higher profit may the one you put between what you know and what your employees do.
Perhaps Paal Gisholt, CEO of SmartPak, sums up the report best when he says, “‘it is really hard to ask your team to treat customers really well if they’re not being treated well themselves.'”
Source: Broughton, A.C. (2011), Employees Matter: Maximizing Company Value through Workforce Engagement, SJF Institute: Durham, N.C.
“We’re all going to die!” This was how Ryan Allis, CEO of iContact, started his presentation at a Greater Raleigh Chamber of Commerce event. He credited another speaker for the line, but his point was made: Keep things in perspective. He shared stories that proved having and staying true to one’s goals and values can contribute to the bottom line. He should know. He set a goal when he was 16 that he would have a $1 million business by the time he was 21. Sadly, he missed the milestone… by 18 days.
Allis said he gave up a $200,000 job right out of high school to go to college. (Granted, it was the Univ. of North Carolina, not that I’m biased.) While there, he and another Tar Heel started what would become iContact. The first year they lost $5,000. In 2008, they made $15 million. Allis described a corporate culture of practical jokes and parties that might have seemed alien to that audience, but sounded normal to someone recently moved from high-tech Seattle. He really caught my ear when he said his company used to have a list of 10 values “that was really sucky and nobody remembered them.”
This reminded me of a study I would carry to all of my trainings, “Inspiration and Cynicism in Values Statements.” A survey of executive MBA students found, “On the whole, respondents evaluated the impact of their firms’ value statements on decision-making positively.” Reasons included: “positive outcomes… both inside and outside the company, guidelines provided for decision-making, increased accountability, and clarity of expectations.” But I think it important to note that high-level executives made up half of those respondents. They may indeed use those values, but I am willing to bet most of their employees do not. Allis’ statement surprised me because he had recognized at the top level what you generally only hear from people down the line.
In response, he took his senior leadership team on a retreat and came up with five values that form the acronym WOWME:
- Wow the Customer.
- Operate with Urgency.
- Without Mediocrity.
- Make a Positive Wake.
- Engage as an Owner.
From the scientific standpoint, this was not the ideal way to create the list. The study found respondents were most likely to feel value statements had an impact when everyone in the company was involved in creating them, which fits what we know about the psychology behind motivation. There’s no better way to build buy-in than to involve from the start those from whom you want the buy-in. iContact is small enough that this could have been accomplished without a huge investment of time. Allis said they ended up laying off 10% of their employees who could not get on board with the new values as implemented. He probably would have lost far fewer with a bottom-up approach, and most of the turnover would have been voluntary, saving the company heartache and unemployment insurance costs. Plus, each team in the company could have brought out its team values, in alignment with the eventual corporate ones.
That said, everything they have done to implement the values are right on target. I caught him for a quick interview after his talk. Allis said the values are used on performance appraisals and in coaching sessions. The company also has a values recognition program that is very high tech: a poster and stickers. Each time someone exemplifies one of the values, they get a sticker by their name. With a certain number of stickers, they get a gift card. The person with the most stickers at the end of the year gets a prize, Allis explained.
The company lives its values in the more general sense through its “4-1s” program, under which it gives each year:
- monetary donations equivalent to 1% of payroll,
- its product for free to area nonprofits,
- 1% of each employee’s time (2.5 days) for volunteer work, and
- 1% of its equity to The Humanity Campaign.
Given the company’s financial success, it seems to be fulfilling his statement, “The purpose of business is to create value and solve human problems…” Allis is personally proving you can do both with his own extensive volunteer work, including serving as the head of Nourish International, which engages college students to fight poverty.
I can’t resist pointing out, however, that the whole company might not have bought into the values. Allis would probably have been surprised to learn that five months after WOWME was introduced, his company Web site still listed the old 10-item values list!
Source: Urbany, J. (2005), “Inspiration and Cynicism in Values Statements,” Journal of Business Ethics 62:169.
Part of the fun of going through studies—yes, I am weird enough to find it fun—comes when business researchers put together two concepts I did not think were related. For example, who would have thought a corporate leadership team’s decision-making style might impact whether its company was socially responsible? Apparently, Elaine Wong of the Univ. of Wisconsin–Milwaukee, Margaret Ormiston of London Business School, and Philip Tetlock of the Univ. of Pennsylvania would.
After looking through prior research on corporate social responsibility (CSR), they got the idea that leaders who take their time and seek outside information when making decisions would create high-CSR companies. The researchers defined CSR as trying to meet the needs of a wide range of stakeholders. “Further, any one stakeholder’s interests should not be satisfied at the expense of others, but rather, multiple stakeholders should be managed within a ‘mutually supportive framework,'” they explain, quoting an earlier study. To use extreme examples, a company with low CSR would care only about shareholders and focus on stock prices, while one with high CSR would balance the needs of shareholders, employees, the environment, and the community.
Wong, Ormiston, and Tetlock had a problem testing their idea, however. Top executives of Fortune 500 companies do not have time to take detailed surveys. Nor are they inclined to let outsiders sit in on their meetings regularly, and doing so for a good sample of companies would take those outsiders too long. The research team needed a peek inside dozens of leadership teams. They decided to use business writers as their proxies.
Starting with the 2002 Fortune 500 list of top-performing publicly traded corporations, they found 61 that had at least 10 articles of 1,000 words each published in journals or the business press about the company leadership’s decision-making style. (For comparison, this topic is around 975 words.) Then they had assistants do a “Q-sort.” Provided with 100 cards bearing pairs of opposite statements about decision-making, the assistants read all the articles and piled the cards into nine categories from “1, ‘upper statement is very characteristic of the group,’ to 9, ‘lower statement is very characteristic of the group.'” A sample pair is:
- “Upper statement: ‘The group assumes that there are clear right and wrong, good and bad ways of making decisions.'”
- “Lower statement: ‘The group assumes that most policy decisions require a fluid process, weighing competing values and making subtle trade-off judgments.'”
The results of the Q-sort were compared to the company’s CSR ratings according to a respected ranking from financial advisors Kinder, Lydenberg, Domini, and Company (KLD). KLD scores are based on ratings of “community relations, diversity, employee relations, environment, product, corporate governance, and human rights.” Each were also compared to company profits (technically its “return on assets”).
The first fact that leapt out at me was the lack of a significant correlation between a company’s prior social responsibility and profits. I have heard supporters of CSR claim it is good for the bottom line, and that was not true for this sample. But the flip side was also true. CSR practices did not hurt profits either, which undermines the argument of people who claim it costs too much.
To the point of the study, teams like the “Lower statement” bullet point above were more likely to have companies with high CSR. The scientific term is “integrative complexity.” Quoting other researchers, Wong, Ormiston, and Tetlock define this as “‘the capacity and willingness to tolerate different points of view'” plus “the ability to ‘generate linkages between points of view, to understand why people look at the same event in different ways, to confront trade-offs,'” and recognize different chains of cause-and-effect in a situation. People or teams with low integrative complexity rely on rules-of-thumb instead of deep analysis of each situation; see things in black-and-white instead of a continuum of gray; and limit discussion of different solutions. I would bet that such teams also make poor decisions. As discussed in other posts, the length and quality of discussions is well-proven to result in better decisions, as is valuing different perspectives.
Another way of getting that diversity is by delegating more decisions down the hierarchy. Sure enough, companies whose leaders left more decisions to the folks below them also had higher CSR. But the top team’s integrative complexity mattered more. Centralized decision-making reduced CSR if the top team made decisions the easy way, but had no impact on CSR if the team had high integrative complexity.
I’m not sure what lessons this provides for team leaders at lower levels. In chatting about it, my wise-beyond-her-years book editor Annie Land raised the connection to successes like Facebook and open-source-based Red Hat. Both have built their businesses by catering to the widest possible range of perspectives. My experience has been that teams that reach out to all of their stakeholders suffer fewer external blocks to their work. When I help a project team create a Communications Plan, members are often shocked when they realize how many ways their decisions impact other teams in the company. I have found that the exercise led to fewer team-to-team conflicts and smoother implementation of decisions affecting multiple groups. If your team’s stakeholders express surprise at your team’s decisions, or worse, actively resist them, changing your team’s approach to decision-making might help you practice better social responsibility within your company and lead to an easier worklife for you.
Source: Wong, E., M. Ormiston, and P. Tetlock (2011), “The Effects of Top Management Team Integrative Complexity and Decentralized Decision Making on Corporate Social Performance,” Academy of Management Journal 54(6):1207.
I once shocked a manager by telling her I thought she had rated me too highly in an annual performance review. I don’t recall the details anymore, just the stunned look on her face. Some mistake I had made during the year, though I had identified and corrected it at the time, made me feel that my colleagues had done a better job on one measure. Almost everybody got a 3 on almost everything, so a 3 seemed unfair. When I self-rated, I gave myself a 2. I ended up with a 3 anyway.
My apologies if this comes across as self-aggrandizing, but it illustrates a point: The most common complaints I have heard over the years about appraisals boil down to, “It’s not fair!” Many teamwork scientists and management gurus agree. John Hunter of Curious Cat Management Improvement Blog reports that J. Edwards Deming “emphasized that forced rankings and other merit ratings that breed internal competition are bad management because they undermine motivation and breed contempt for management among people who, at least at first, were doing good work.” I’ve said for years that performance appraisals are legal protection for bad managers, a waste of time for the majority. If you set measurable standards for your employees, communicate monthly on the results, and praise and correct at every opportunity, an annual review tells the employee nothing new. If you don’t do those things, the review refocuses their effort way too late—perhaps 12 months too late. Though I offer recommendations in Full Scale agile™ for harnessing appraisals to support team performance, that’s because appraisals are so prevalent, not because I like them.
Words like “fair” always cover a litany of traits, so I was intrigued when I came across a journal article defining the term, in effect. Two business professors, Richard Posthuma of the Univ. of Texas at El Paso and Michael Campion of Purdue Univ. started with a list of 1,000 possible sources and whittled it down to find 18 relevant articles in peer-reviewed journals. From those they compiled a list of 20 best practices for performance reviews (PRs) that employees will consider fair. See the study for the complete list, but let’s discuss the ones most directly related to teams.
To ensure the team is focusing its efforts on the priorities of your company (or “nonprofit” or “agency”), I recommend having measurable standards that follow directly from measurable company goals. Some should be individual goals, and each team member should also have the team goals on his or her appraisal. Three of the best practices Posthuma and Campion found relate:
- “The PR should be based on observable job behaviors to the extent possible.”
- “Objective performance data should be considered to the extent possible.”
- “The PR should be aligned with organizational goals and objectives.”
They note in relation to another practice that at the start of the period covered by a review, “employees should have a good idea of what will be expected of them.” As an example of all of these, say a nonprofit helping ex-criminals break the crime cycle has a goal for the year to “Increase case closings by 20%.” The job placement team thus might create a goal of “Increase client placements by 20%,” and it follows that a placement counselor could have, “Place 20% more of my clients.”
You can make your whole HR process more efficient by having every employee draft their own job descriptions and negotiate them into final form with their supervisors. The method also lets you identify gaps between what managers expect and what people think the managers expect. Then use those descriptions as the basis for job ads, interviews, hiring decisions, reviews, and performance improvement plans if needed (to try to correct poor performance before firing someone). This alignment also reduces your odds of legal liability, according to employment law and HR experts. Posthuma and Campion list:
- “The content of the PR should be based on a job analysis or shown to be job related.”
- “Subject matter experts should have input on the factors to be evaluated in the PR.” They add that the best SMEs are people who are doing or have done the jobs.
I am, obviously, a big advocate of employee empowerment. It is the most powerful method of improving a host of measures related to cost-effectiveness, worker and client satisfaction, etc. The professors say a best practice consistently shown to raise employee satisfaction is, “Employee participation should be allowed… in the PR process (e.g., setting goals, providing input on performance).”
It is irrational to promote people into management without training them on how to lead people and yet expect them to succeed. Several of the appraisal best practices relate to training managers and employees on the process, and the former on how to provide feedback in a legal and respectful way. Most of us hate to give negative feedback, which is why I included that topic in a communication skills class offered through TeamTrainers.
If you want performance appraisals to matter to employees, then their appraisal of your appraisals has to matter. This study suggests there is a right way to review, and the professors say following it “should increase the acceptability of the information employees receive during their reviews, reduce the likelihood of complaints, and increase motivation…” If you’re a manager, that should increase your motivation to take the action below and use these “fair” practices.
Source: Posthuma, R., and M. Campion (2008), “Twenty Best Practices for Just Employee Performance Reviews,” Compensation & Benefits Review 40(1):47.