There are enormous benefits for CEOs who embrace people practices and realise that building a remarkable workplace is no longer a business diversion. The proof is in the profits, writes Mandy Johnson
According to a recent CEO Institute survey, the number one issue keeping chief executives awake at night is “sourcing and retaining skilled staff”. Yet when PricewaterhouseCoopers asked 1300 global CEOs about their operational priorities, talent strategies didn’t make the top five. So while CEOs might claim to be suffering from insomnia, it seems they’re doing very little to create remarkable workplaces to alleviate the problem.
Why the disconnect? Some simply don’t rate people practices as a core profit driver. Others throw perks at employees like lollies to children, hoping to magically reduce their staggeringly high staff turnover rates. The rest? They simply don’t know where to start.
6 steps to building a remarkable workplace
In practice, the 80/20 rule applies – 20 per cent of strategies have greater impact than the other 80 per cent put together. Here are my top six steps that have led to remarkable workplaces around the globe.
1. CEO buy-in and a HR champion at the top table
“Best employer” companies are characterised by CEOs who passionately believe that the bottom line is driven by human endeavour and who embrace HR as a profit-generating strategy on the same platform as Sales, Marketing and IT. By prioritising and supporting people-centric initiatives, their companies achieve, on average, four times the profit growth (People Practices Inventory 2011) and three times the share market returns (Russell Investment Group 2011) compared to average companies.
As well as CEO buy-in, these businesses all have a high achiever at executive level that is responsible for driving organisational change through intelligent HR practices. They might amend internet security rules so people can work from home; introduce commuter-friendly shift times; procure high-impact training programs; or implement initiatives for increased communication, transparency and egalitarianism.
Unfortunately, standard corporate leadership consists of CEOs, CIOs, COOs and CFOs but still very few CHROs. Without an effective HR champion with direct influence at executive level, the modifications required at all levels of the business to build a remarkable workplace simply never happen.
2. Monthly one-on-ones
Of all the talent management strategies I’ve seen or used to build a remarkable workplace, the monthly one-on-one system – during which a manager takes time out to have a productive reflective discussion with each employee and create an individual action plan – is a standout. Not only does it nurture the vital bond between an employee and their immediate supervisor, but as a study by Bersin and Associates found, a monthly action plan alone results in twice the revenue per employee and a 27 per cent lower staff turnover rate.
When tech company Atlassian discovered that their twice-yearly staff appraisals led to disruptions, anxiety and a drop in both manager and team morale, they implemented monthly check-ins. The result: extraordinarily high engagement scores of 87 per cent and a boost to their bottom line.
Annual performance appraisals are still standard for many organisations. But imagine a coach who only met with his professional athletes once or twice a year and reeled off a long list of everything the athlete was doing wrong. Irregular check-ins are simply devastating to high performance.
3. Reward and recognise genuine achievement
In a 2012 Globoforce survey, 47 per cent of workers gave “not being recognised for their efforts” as the main reason for leaving their last job. Turn this around and there’s a serious prize on offer for those companies who get this right.
Take travel retailer Flight Centre’s renowned annual awards night. They fly thousands of high achievers to sumptuous locations, fete winners like superstars on stage, and entertain the crowd with celebrities like Bob Geldof and the Village People. It costs the company several million dollars each year, yet even at the height of the global financial crisis, this was one expense they refused to cut. As managing director Graham Turner explained, “It’s our people’s single greatest motivator.”
To underpin this kind of event, an organisation needs to create intelligent KPIs for each role. Yet many employers use subjective measurements that stoke employee resentment, or they make KPIs so complicated that employees can’t track and improve their own performance. The MAGIC KPI system (see side bar) produces the best outcomes and can be used to create fun recognition initiatives that build excitement and anticipation throughout the year.
It’s a matter of what gets measured gets managed. Delta Airlines reported a 564 per cent ROI on its rewards and recognition program; the Avis Budget Group an $11.4 million profit bounce; and Sutherland Global Services says the money put into recognition earns a 20-fold return and is their best investment. Senior vice-president Tom Steuwe’s only grievance: “I am kicking myself for not having done this five or six years earlier.”
4. Improve actual job roles
Herzberg’s famous large-scale study of workers showed unequivocally that achievement in the actual job itself was the greatest motivator at work. This included such aspects as doing creative, challenging and varied work, the opportunity to do a job from beginning to end, working without supervision, and being responsible for one’s own efforts. Salary, interpersonal relationships, company policy and working conditions were all inferior to these factors.
Even if an organisation is dynamic and inspiring, people will quit if their tangible job role isn’t engaging enough. If an organisation is truly focused on how it can keep improving employees’ actual roles, it’s amazing what can be done. Sometimes it’s as simple as removing unnecessary paperwork or axing overly bureaucratic systems. South Australia’s Holden Hill police had constant staff turnover of administrators because they hated typing up transcript tapes – a minor but monotonous part of the role. By transferring this duty to a casual staff member, they solved the problem and saved significant staff turnover costs.
5. Families, villages and tribes – create small, flexible teams in every area of the business
Neurological experiments show that decision-making performance falls off rapidly as the group size grows beyond seven. You often see this at dinner parties. When the group gets beyond this number, people split off and start to talk in separate groups; this is also what happens in teams. In Flight Centre, all business teams (families) are set at around seven people, because profits were found to drop almost by half as the teams increased in size. The company believes that this is because they emulate hunter-gatherer community size, a structure in which people inherently prefer to work. Gore, Virgin, Semco, Spotify and Atlassian are other companies that have adopted the small-team strategy to generate greater productivity and profits.
Flight Centre also groups its teams into local villages (maximum seven teams) and tribes (maximum 20 teams or 150 people), each with their own leaders and support staff. Based on economies of scale, this seems counterintuitive; however, the increase in productivity far exceeds the extra costs. Flight Centre doubled its profit in one year when it split its single Australian operation into six standalone teams. The same strategy proved so successful for Gore that founder Bill Gore only ever put 150 car parks at each of his businesses. As he told an interviewer, “When people start parking on the grass, we know it’s time to build a new plant.”
6. Bottom-up planning
Baseballer Babe Ruth once said, “You may have the greatest bunch of individual stars in the world, but if they don’t play together, the club won’t be worth a dime.” The conventional approach to business planning is that a manager attends an executive planning day and then tries to get the team to run with their company-devised strategies. The staff have no buy-in because they’ve had no access to the rationale behind the plan, so implementation is patchy at best. It’s akin to dragging dead horses across a desert.
In contrast, the individuals that make up a team are like an incubator of ideas. Tapping into these creates energy and excitement. Rather than one leader driving all the change, you then have the whole team driving improvements. Their plan has to align with the company’s overall goals, but this still gives individual teams a lot of scope.
The improvement is remarkable. One corporation I consulted to had business units that achieved over 50 per cent profit increases within three months of implementing this strategy. Multibillion-dollar online sales company Zappos and 43,000-employee Da Vita Healthcare are other examples of companies that have used this kind of democratic approach and shown that giving frontline staff more say in their own business really does pay off.
The proof is in the profits
With all of the above strategies, the proof is in the profits. Even during the global financial crisis, the Parnassus Workplace Fund – a group that only invests in organisations with a solid reputation for having outstanding workplaces – had an annual average return on investment of 10.81 per cent, compared to the S&P index’s 3.97 per cent. This shows that there’s an enormous upside for CEOs who embrace people practices and realise that building a remarkable workplace is no longer a business diversion. It’s now the main game.
Monthly: Effective KPIs can be tracked and reported monthly so have continuous “real time” relevance to the employee.
Achievable: The KPIs are realistically attainable yet still act as real motivation. Too often, companies put in place impossible stretch targets and of course are then happy to pay bonuses for superhuman performances.
Goal-oriented: The KPIs are aligned with the desired business outcomes of the individual’s actual job role and drive real business achievement.
Individual results: KPIs are most productive if a person feels they are in direct control of the outcome, so work best when they are based on the individual’s performance and not on team results.
Clear and simple: KPIs are objective, not subjective, and are simple enough that the employee is able to calculate them in their head and don’t require a degree in complex logistics to work them out. Only 1–3 per job role.
Mandy Johnson is a bestselling author; a former UK director and Australian head of HR at global travel giant Flight Centre Limited; and an active speaker and adviser to both public and private organisations.