Measuring and Managing Your People Equity
Organizations are highly diverse environments. Some employees are super engaged. Others drag themselves to work. They have left their brains—and hearts—at home or with their hobbies. Some employees are extraordinarily capable. They not only have what it takes to get the job done, but they don’t hesitate to acquire specific skills and the knowledge and information needed to excel in the workplace. And some employees seem to be in perfect sync with the organization’s goals, objectives and values, while others either work at cross purposes or follow their own priorities.
Managing Alignment, Capabilities and Engagement (ACE) has become pivotal to meeting today’s talent management challenge, significantly increasing the value contribution each employee makes to his or her organization’s products, services, levels of innovativeness and financial performance. That total value contribution—an organization’s People Equity—rises or falls in proportion to the strength of the three ACE factors.
When we examine these three factors carefully, we find that each plays a unique role in contributing to business outcomes. Alignment—the line of sight from employees to the strategy and customers—drives financial and operational excellence. Capabilities—having the talent, information and resources to meet customer expectations—is a major determining factor in customer loyalty and buying behaviors. And Engagement—having employees who are strong advocates for the organization—is a powerful driver of employee energy, productivity and desire to remain with the organization. These three factors are indeed powerful determinants of organizational success, supporting by hundreds of research studies over the past 40 years.
In a recent study covering 2,000 organizations that was conducted by the Metrus Institute with the American Society of Quality, it was shown that organizations that scored high on ACE were more than twice as likely to be successful financially. In addition, they were much more likely to have higher quality employees and better retention of their people.
Within a large restaurant group, using a survey of their workforce, we discovered some restaurants with People Equity scored below 20 (100 is perfect) and others that scored above 90. As a customer, if you were to walk into two of the restaurants in the organization—one with high People Equity and one with low—you might think you were in two different organizations. We found high People Equity restaurants had a sense of excitement—a vibe. Employees were highly attentive to customers and seemed to self manage their behaviors in a positive way. Their speed, focus and quality were much higher than their lower People Equity counterparts, where there appeared to be low morale, lack of focus and inattentiveness to the customer. Restaurants with higher People Equity scores had higher customer satisfaction scores, lower turnover and were financially more successful. Let’s face it, customers value product and service consistency.
But one major challenge is measuring these "intangibles" effectively. Unless we can measure them to know if they are strong or weak, how can we manage them? Much work has been put into doing just that in the past two decades, often using surveys of employees to obtain good comparable measures that allow you to classify people and teams into eight groups that enable one to make different action and resource decisions (see Figure 1). (Click on diagram to enlarge.)
Measuring People Equity can help to answer some of the toughest and most significant human resource issues confronting every organization: why people decide to come to work or not; why people quit their jobs; why some serve customers well and others do not; or why some employees "get" how they add value to the organization when others do not.
People Equity measures enable organizations to predict employee retention, performance, quality output, customer loyalty and other important outcomes. This allows leaders to intervene in a timely fashion to improve ACE before poor results materialize.
From a decision standpoint, such information enables senior leaders to make a number of important decisions:
- Where to direct corrective resources and how broadly to target those resources. For example, are the corporate goals reaching all front-line service employees or only those in certain divisions? Your customers probably know already!
- Where to focus leadership development efforts. If some managers are leading groups that are scoring low in A, C or E, the organization is sub-optimized. This creates an organizational drag that is unnecessary. By measuring and knowing these gaps, leaders can improve their ability to manage their units to high People Equity.
- Where to invest resources to boost employee retention, customer buying behaviors, operational effectiveness and financial performance. Knowing ACE scores is one thing, but understanding "why" ACE is low or high is another. By designing surveys to include many of the drivers of ACE, it is possible to then target different drivers for improvement. For example, respect is often a driver of Engagement, but not the only driver. One unit may have low Engagement scores due to lack of respect while another has handicapped Engagement due to low growth opportunities.
While it would be nice to assume that organizations have one consistent People Equity profile, reality proves otherwise. Most organizations have a good deal of variance across different units and teams in their ACE scores. For example, in a recent study of over 70 hospitals, we found some hospitals with Engagement scores below 25 (on a scale of 100) while others were above 90. At which hospital would you prefer to have your next operation? When we examined the People Equity scores across the 70 hospitals, we also found that scores were highly correlated to a hospital’s financial performance. Hospitals with low Engagement and Alignment, for example, had union troubles, lower patient and physician satisfaction, and poorer financial performance than their high People Equity counterparts.
Action Tips: What Can I Do Tomorrow?
Here are a few questions to ask and steps to take to get fast tracked:
- Survey what’s important. If you are using an employee survey, does it capture the three key elements of People Equity—Alignment, Capabilities and Engagement? If not, your survey instrument is most likely missing huge opportunities.
- Manage variance. A good People Equity survey should enable you to allocate and target resources differently based on the strengths and weaknesses of different units.
- Get behind the People Equity scores. What are the drivers of low ACE scores? Low engagement in one unit might be caused by different issues than in another.
- Look for systemic gaps—things that might need to be tackled at the organization level that are handicapping your ACE scores across the board.
These steps should enable you to not only measure People Equity, but begin to correct ACE gaps that are inhibiting the organization from realizing its full potential.