Category Archives: Leadership

Implementing Balanced Scorecard Model for Employee Engagement

The Balanced Scorecard Model (BSC) was introduced by Kaplan & Norton in their book “The Balanced Scorecard” (1996). It is one of the more widely used management tools in large organizations.

One of the major strengths of the BSC model is how the key categories in the BSC model links to corporate missions and objectives. The key categories which are referred to as “perspectives” illustrated in the BSC model are:

Financial Perspective:

Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate data will always be a priority, and managers will do whatever necessary to provide it. In fact, often there is more than enough handling and processing of financial data. With the implementation of a corporate database, it is hoped that more of the processing can be centralized and automated. But the point is that the current emphasis on financials leads to the “unbalanced” situation with regard to other perspectives. There is perhaps a need to include additional financial-related data, such as risk assessment and cost-benefit data, in this category.

Customer Perspective

Recent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any business. These are leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good. In developing metrics for satisfaction, customers should be analyzed in terms of kinds of customers and the kinds of processes for which we are providing a product or service to those customer groups

Internal Business Process Perspective

This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission). These metrics have to be carefully designed by those who know these processes most intimately; with our unique missions these are not necessarily something that can be developed by outside consultants. My personal opinion on this matter is that the internal business process perspective is too important and that internal owners or/and teams take ownership of understanding the process.

Learning and Growth Perspective

This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organization, people — the only repository of knowledge — are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode. Metrics can be put into place to guide managers in focusing training funds where they can help the most. In any case, learning and growth constitute the essential foundation for success of any knowledge-worker organization.

Kaplan and Norton emphasize that ‘learning’ is more than ‘training’; it also includes things like mentors and tutors within the organization, as well as that ease of communication among workers, the engagement of the workers, the potential of cross-training that would create pockets of bench strength and switch hitters, and other employee specific programs that allows them to readily get help on a problem when it is needed. It also includes technological tools; what the Baldrige criteria call “high performance work systems.”

Innovation Perspective

This perspective was appended to the above four by Bain and Company.  It refers to the vitality of the organization and its culture to provide the appropriate framework to encourage innovation. Organizations have to innovate. Innovation is becoming the key distinctive element in great organizations, and high levels of innovation or innovative thinking are talent magnets.

Taking the perspectives a step further, Kaplan and Cooper instituted measures and targets associated with each of those targets. The measures are geared around what the objective is associated with each of the perspectives rather than a singular granule item. Thus, if the objective is to increase customer retention, an appropriate metric or set of metrics is around how to measure the objective and track success to it than defining a customer.

One of the underlying presumptions in this model is to ensure that the key elements around which objectives are defined are done so at a fairly detailed level and to the extent possible – defined so much so that an item does not have polymorphous connotations. In other words, there is and can be only a single source of truth associated with the key element. That preserves the integrity of the model prior to its application that would lead to the element branching out into a plethora of objectives associated with the element.

Objectives, Measures, Targets and Initiatives

 

Within each of the Balance Scorecard financial, customer, internal process, learning perspectives and innovation perspectives, the firm must define the following:

Strategic Objectives – what the strategy is to achieve in that perspective

Measures – how progress for that particular objective will be measured

Targets – the target value sought for each measure

Initiatives – what will be done to facilitate the reaching of the target?

As in models and analytics, the information that the model spouts could be rife with a cascade of metrics. Metrics are important but too many metrics associated with the perspectives may diffuse the ultimate end that the perspectives represent.

Hence, one has to exercise restraint and rigor in defining a few key metrics that are most relevant and roll up to corporate objectives. As an example, outlined below are examples of metrics associated with the perspectives:

Financial performance (revenues, earnings, return on capital, cash flow);

Customer value performance (market share, customer satisfaction measures, customer loyalty);

Internal business process performance (productivity rates, quality measures, timeliness);

Employee performance (morale, knowledge, turnover, use of best demonstrated practices);

Innovation performance (percent of revenue from new products, employee suggestions, rate of improvement index);

To construct and implement a Balanced Scorecard, managers should:

  • Articulate the business’s vision and strategy;
  • Identify the performance categories that best link the business’s vision and strategy to its results (e.g., financial performance, operations, innovation, and employee performance);
  • Establish objectives that support the business’s vision and strategy;
  • Develop effective measures and meaningful standards, establishing both short-term milestones and long-term targets;
  • Ensure company wide acceptance of the measures;
  • Create appropriate budgeting, tracking, communication, and reward systems;
  • Collect and analyze performance data and compare actual results with desired performance;
  • Take action to close unfavorable gaps.

Source : http://www.ascendantsmg.com/blog/index.cfm/2011/6/1/Balanced-Scorecard-Strategy-Map-Templates-and-Examples

The link above contains a number of templates and examples that you may find helpful.

I have discussed organization architecture and employee engagement in our previous blogs. The BSC is a tool to encourage engagement while ensuring a tight architecture to further organizational goals. You may forget that as an employee, you occupy an important place in the ecosystem; the forgetting does not speak to your disenchantment toward the job, neither to your disinclination toward the uber-goals of the organization. The forgetting really speaks to potentially a lack of credible leadership that has not taken the appropriate efforts to engage the organization by pushing this structure that forces transparency. The BSC is one such articulate model that could be used, even at its crudest form factor, to get employees informed and engaged.

Economics of Employee Retention

It is a common fact that employee turnover in a company has significant cost consequences.  HR departments and managers deploy programs to create great work environments to prevent employee turnover. Some industries have higher turnover than others. However, despite the expected high turnover rate, companies are realizing that the acquisition cost of getting a new employee to replace someone who has left is meaningfully higher.

There are a number of tangible and intangible costs that have been connected to employee turnover:

  • Pre-departure costs—such as the reduced productivity of an employee who is discontented and using company time to look for another job, plus the costs of any efforts to retain the employee once he or she has announced his intent to leave.
  • Termination costs—those related to termination of employment, including exit interviews, security precautions, pay calculations, and other recordkeeping costs, plus the unemployment tax impact and payments for severance, accrued vacation time, retirement plan contributions, and any extension to benefits.
  • Recruitment costs—related to advertising, recruiting, interviewing, pre-employment evaluations, security and background checks, hiring bonuses, relocation, etc.
  • Training costs—the cost of training new employees in necessary job skills can be significant.
  • Productivity costs—related to new workers, who are generally less productive, require more supervision, and contribute less to customer satisfaction.
  • Vacancy costs—lost sales or lost productivity while the position remains vacant, plus the cost of overtime or temporary help to cover fill in.
  • Corporate culture – high turnover is a reflection of corporate culture. If potential candidate become aware of high turnover, this could further increase the corporate’s acquisition costs.

It has been estimated that the cost of employee turnover could range anywhere from 50% of the employee’s salary up to 500% of the employee’s salary.

Employee turnover= (Number of separations per year/ Average number of employees per year)*100

The general median is 130%.  Here is a specific scenario to think through:

Assume there are 100 employees in an organization. The average compensation is $50K per year. The employee turnover rate is 10%.  That means about 10 employees leave the company in any given year. If the average cost is $50K per year, and the median is 130% or 1.3X compensation cost, then the total impact in this scenario would be $650,000. Thus, it represents almost 13% of the run rate of payroll. If there are programs that could stem the flow out by 50%, that would save $325,000 which represents 6.5% of payroll. This is a fairly significant statistic. And since 130% is a median across all industries,  I contend that knowledge industries have a higher median than industries that are driven by low or medium skilled workers at the lower end of the pay scale.

So what are some of the ways that would minimize this turnover? First, whatever the turnover number, the company would want to compare themselves to similar organizations in the specific industry or region. In fact, some turnover may be healthy to the company. Second, one single program may not be good enough. They have to consider multiple programs that could be deployed concurrently or over time.

So, companies seeking a performance-oriented approach to employee retention might seek to enhance work value in some of the following ways (courtesy of the Performance Improvement Council of the Incentive Marketing Association):

Employee involvement in job design, goal setting, and selection of rewards.

Clear communication about company goals and ways employees can contribute to and share in its success.

Incentive programs that reward people for significant and measurable performance improvements.

Recognition programs offering meaningful recognition to employees for both tangible and intangible contributions to their company.

Project-oriented approaches in which all employees can work on diverse, limited-term assignments rather than being sequestered within a single department or function.

Developing talent exchanges to enhance careers by connecting employees with appropriate projects, roles, and positions within their companies.

Training through coordinated programs designed to enhance employee knowledge and then rewarding employees for that increased knowledge. Consider cross training to enhance skills and improve productivity. This both satisfies employees and equips them to perform better.

Fostering feelings of support by setting clear goals for employees and rewarding them upon accomplishment, and by promoting consistent values and recognizing people who embody them. This directs retention resources to actions and values that have a measurable benefit to the organization.

Creating an atmosphere of fun with spot “atta-boy” rewards, contests, or meetings, specifically related to organizational goals and values. This creates an atmosphere conducive to retention while keeping the focus on achieving goals.

Addressing the measurement issue by instituting “real-time” goal setting, performance measurement, and skills development programs to ensure that people always know where they stand, and to address performance issues and skill gaps before they become problems.

Fair Compensation. No one said that compensation will have no effect on turnover and retention. Determine a fair wage in your labor market and do what you can to meet it. A fair and equitable wage and benefits package is the foundation for a successful employee retention program.

Build trust. As mentioned above, a “climate of trust” is one of the factors that influence employee retention. Trust is built with employees through fair working conditions, management responsiveness to employee concerns, realistic performance expectations, and open communication, including one-on-one communications between managers and employees whenever possible.

Don’t limit motivation efforts to star employees. Incentive, reward, and recognition programs should be expanded to include as many employees as possible, rather than just the top 5 or 10 percent. Remember, it is the large middle range of employees that can contribute the most in terms of improved productivity and lower turnover costs.

The Role of Motivation

Higher levels of motivation can translate into a 53 percent reduction in employee turnover, according to a recent study by Stephen Condly, associate professor at the University of Central Florida, Orlando, conducted for the SITE Foundation. No retention strategy can succeed without addressing the issue of employee motivation.

“Incentives, Motivation, and Workplace Performance,” a study conducted by the professors at the University of Southern California for the International Society of Performance Improvement, found the following factors critical to fostering motivation and loyalty.

  • Work value. The research confirmed that people stay motivated when they value their work, no matter how mundane the task. Someone building a house for low-income tenants might get pleasure from the most arduous labor, knowing the good that can come from the effort. Organizations can foster work value by recognizing contributions in a meaningful way, and regularly communicating the organizational goals toward which each employee can contribute. They can add to satisfaction through use of incentive programs that set goals for quality or quantity, and reward those who achieve or surpass them.
  • Training. Many people draw satisfaction from developing the capability to do their jobs better or acquiring additional skills or responsibility.
  • Support. Most people gain satisfaction from knowing that their organization appreciates their effort. This often comes in the form of meaningful recognition to those who achieve their goals or who exemplify important organizational values.
  • Emotional appeal. Yes, people work better when they feel happy. Properly structured incentive and recognition programs can foster an atmosphere of fun and excitement, even in dreary jobs.
  • Measurement. Knowing how one is doing in the pursuit of a goal is another way to create satisfaction. Effective measures of quality and productivity keep employees focused on goals, especially if accompanied with proper recognition when they succeed.

Standing Ovation Problem and Product Design

When you seed another social network into an ecosystem, you are, for the lack of a better word, embracing the tenets of a standing ovation model. The standing ovation model has become, as of late, the fundamental rubric upon which several key principles associated with content, virality, emulation, cognitive psychology, location principles, social status and behavioral impulse coalesce together in various mixes to produce what would be the diffusion of the social network principles as it ripples through the population it contacts. Please keep in mind that this model provides the highest level perspective that fields the trajectory of the social network dynamics. There are however a number of other models that are more tactical and borrowed from the fields of epidemiology and growth economics that will address important elements like the tipping points that generally play a large role in essentially creating that critical mass of crowdswell, which once attained is difficult to reverse, unless of course there are legislative and technology reversals that may defeat the dynamics.

So I will focus, in this post, the importance of standing ovation model. The basic SOP (Standing Ovation problem) can be simply stated as: A lecture or content display in an audience ends and the audience starts to applaud. The applause builds and tentatively, a few audience may members may or may not decide to stand. This could be abstracted in our world as an audience that is a passive user versus an active user in the ecosystem. The question that emerges is whether a standing ovation ensues or does the enthusiasm fizzle. SOP problems were first studied by Schelling.

In the simplest form of the model, when a performance or content consumption ends, an audience member must decide whether or not to stand. Now if the decision to stand is made without any consideration of the dynamics of the other people in the audience, then there is no problem per se and the SOP model does not come into play. However, if the random person is on the fence or is reluctant or may not have enjoyed the content … would the behavioral and location dynamics of the other participants in the audience influence him enough to stand even against his better judgment. The latter case is an example of information cascade or what is often called the “following the herd” mentality which essentially means that the individuals abnegates his position in favor of the collective judgment of the people around him. So this model and its application to social networks is best explained by looking at the following elements:

1. Group Response: If you are part of a group and you have your set of judgments governing your decision to stand up, then are you willing to reserve those judgments to be part of group behavior. At what point is a person willing to seed doubt and play along with a larger response. This has important implications. For example, if you are in an audience and a member of a group that you know well, and a certain threshold quantity in the group responds favorably to the content, there may be some likelihood that you would follow along. On the other hand, if you are an individual in an audience, albeit not connected to a group, there is still some chance of you to follow along as long as it meets some threshold for example – if I can see about people stand, I will follow along. In a known group which may constitute you being a participant among five people, even if 3 people stand, you may stand up even though it does not meet your random 10 people formula. This has important implications in cohorts, building groups, providing tools and computational agents in social networks and dynamics to incline a passive consumer to an active consumer.

2. Visibility to the Group: Location is an important piece of the SOP. Imagine a theater. If you are the first one in the center of all rows, you will, unless you turn back, not be cognizant of people’s reactions. Thus, your response to the content will be preliminarily fed by the intensity of your reaction to the content. On the other hand, if you are seated behind, you will have a broader perspective and you may respond to the dynamics of how the others respond to the content. What does this mean in social dynamics and introducing more active participation? Simply that you have to again provide the underlying mechanisms that allow people to respond at a temporal level ( a short time frame) to how a threshold mass of people have responded. Affording that one person visibility that would follow up with a desired response would create the information cascade that would culminate in a large standing ovation.

3. Beachhead Response: An audience will have bias. That is another presumption in the model. They will carry certain judgments prior to a show – one of which is that the people in front who have bought the expensive seats are influential and have “celebrity” status. Now depending on the weight of this bias, a random person, in spite a positive audience response, may not respond positively if the front rows do not respond positively. Thus, he is heavily inclined to discounting the general audience threshold toward a threshold associated with a select group that could result in different behavior. However, it is also possible that if the beachhead responds positively and not the audience, the random person may react positively despite the general threshold dynamics. So the point being that designing and developing products in a social environment have to be able to measure such biases, see responses and then introduce computational agents to create fuller participation.

Thus, the SOP is the fundamental crux around which a product design has to be considered. In that, to the extent possible, you bring in a person who belongs to a group, has the spatial visibility, and responds accordingly would thus make for an enduring response to content. Of course, the content is a critical component as well for poor content, regardless of all ovation agents introduced, may not trigger a desired response. So content is as much an important pillar as is the placing of the random person with their thresholds of reaction. So build the content, design the audience, and design the placement of the random person in order that all three coalesce to make an active participant result out of a passive audience.

Inspirational speech – stay hungry, stay foolish

This is an inspirational speech. A must see for anyone who wants to follow their heart and believe that they can make a difference. Enough said. Enjoy.