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Who Says You Can't Measure the ROI of Employee Engagement Processes?

APQCThis invaluable employee engagement statistical process control created by the American Productivity and Quality Center for the organization now called the Incentive Research Foundation provides a clear roadmap for the implementation of measurable performance improvement programs. This process demonstrates how almost any job function can be measured and the process used to accomplish it using employee involvement to enhance buy-in. The Incentive Research Foundation is the IRR (Incentive, Rewards, and Recognition) industry’s most prolific source of practical research.

By Bruce Bolger

Background
Overview of the Master Measurement Model
A Measure of Caution
Employee Involvement Is Critical: An Easy-to-Implement Involvement System
A Few Definitions
Measuring Up
Family of Measures
Original Sponsers 

Don McAdamsThis employee performance statistical process control, originally created by the American Productivity Center executives in the late 1990s and executives Carl Thor and Don McAdams, now retired, provides a clear framework for the proper design and implementation of an ROI-based incentive program and specific performance measures for 10 diverse professions that can be used by any size organization at no cost. The PDF below also provides details on how to translate those measures into financial metrics. Click here for a PDF of the complete original report.

The Master Measurement Model is an open-source (non-proprietary) method born of the same widely available statistical process controls used commonly in total quality and performance management today but largely overlooked in IRR (Incentive, Reward, and Recognition) programs.
 
Just as the human capital management analytics field has refuted the notion that human capital reporting is difficult or burdensome, this 25-year-old report demonstrates the practicality of measuring engagement efforts based on the same basic systems that remain used in all aspects of performance management today, just as companies use Six Sigma or other systems to manage people and processes.
 

Background

 
In 2004, the Incentive Research Foundation republished an updated version of the Master Measurement Model of Employee Performance, which remains the "bible" of people performance management today. This PDF of the report published by IRF at the time as well as in the predecessor publication to ESM, Motivation Strategies magazine, which published the original report as part of its effort to promote the work. (Note: the EEA’s Bruce Bolger served on the board of the precursor organization of the IRF at that time that both approved and funded creation of this report.)
 
Because the Master Measurement Model is based on the same statistical process controls commonly used today in manufacturing and performance management, the Enterprise Engagement Alliance has republished the model from its Motivation Strategies print magazine archives to help dispel the notion that engagement processes cannot be measureda, as the report is otherwise no longer available online.

 
Overview of the Master Measurement Model

 
The following is the verbatim introduction of the original report written by APQC executives Carl Thor and Don McAdams, as it provides an interesting historical background comparing what was being discussed in 2004 versus what is being spoken of and practiced today.
 
The authors write;
 
This is a much-needed guide for measuring performance in the workplace. If you’re a creative executive or manager, and you’re constantly seeking ways to improve productivity and quality in the workplace, this guide will help you.
 
With today’s emphasis on energizing employees toward greater performance — especially in the service sector — the job of gauging and improving output has become paramount. And while many have deemed “performance” an immeasurable intangible, this guide shows how every job and every task can be measured, improved, and rewarded.

The American Productivity & Quality Center (APQC) received a grant from the SITE Foundation (the group that became  known as the Incentive Research Foundation) to prepare the 10 measurement models in this guide. The models display a step-by-step process for selecting criteria to measure all kinds of workers, converting these measurements into concrete numbers and dollar values that can be used to create incentive program budgets.


  TYPES OF EMPLOYEE MEASUREMENTS
Introduction  
Model 1: Field Service
Model 2: Engineers
Model 3: Teachers
Model 4: Customer Service
Model 5: Production Line Workers
Model 6: Nurses
Model 7: Accountants
Model 8: Hotel Employees
Model 9: Lawyers
Model 10: Bank Tellers
 
Once these budgets have been established, the exact nature of the program and the awards to be offered can be determined.

Corporate America’s quest for greater productivity, quality and morale is heightening. And while “employee involvement” has become the catchword in many forward-thinking organizations—with their quality circles and labor- management committees—many companies are pushing their commitment to employees a step further. They’re turning to incentive programs in the workplace.

These aren’t the traditional programs that target only dealers and sales forces, but programs that take aim at the very soul of the company: its employees—factory workers and field workers. With increased productivity and quality as their goals, savvy managers have begun looking to incentives to boost efficiency, morale, and creativity. This corporate enlightenment comes with its problematic baggage. For its salespeople, companies can measure the number of units sold, dollars made, and percent-of-goal. The same with its dealers. But how does one measure the progress of field service representatives? By the number of customers in a day? Number of complaints? Complexity of the job? And how can a hospital gauge its nurses’ performance? By their tardiness, enthusiasm, number of patients?  What measurements convey the improvement of performance of production line workers? The amount of suggestions, training hours, items processed?

In each case, the answer is simple. Measurements are everywhere, but first they must be identified. With some ingenuity, managers can devise incentive campaign goals and measurements for almost any job and level. As with salespeople, every occupation sells “products” and serves “customers.” True, these may not be immediately apparent to the naked eye, but this guide shows how a little insight can help detect them, and how objectives and measurements can be sculpted around them. And most important, this guide shows how to translate measurement results into the funding of an incentive program.
 
The American Productivity & Quality Center received a grant  to prepare the 10 measurement models in this guide, which is designed for today’s creative managers. The models display hundreds of ideas for selecting criteria to measure employees and workers, converting these measurements into concrete numbers and finally, translating them into progress (or regress) and incentive dollars.
 

A Measure of Caution


Before excavating their calculators and tape measures, managers should first understand that the world of measurement abounds not only in numbers and percentages, but in perplexing dilemmas.

One manager might decide to log the number of units produced, but what happens when “units” are open to debate? For example, what are a teacher’s products? Students, books, test grades? What does a nurse purvey? A critical service, certainly, but how does one quantify it—by the number of patients, hours on duty, number of emergencies? When measuring service-oriented functions, it is best to develop a family of potential measures to gauge the quality— not just the quantity—of the service.

In Measurement Model #3 for teachers (see the PDF), for instance, early measurement considerations aim at teachers’ involvement in the community, their students’ test scores on national exams, and the number of new materials they furnish per school term. In similar cases, only carefully thought-out measurements will be able to track quality-oriented tasks.

Another problem may surface: too many products and/or services to measure. For customer service representatives, for instance, one could track any of a dozen factors: number of contacts per rep, customer waiting time, avenge “cycle time” (time from initial contact through solution), percentage of errors passed on to order fillers, etc. When this happens, planners need to prioritize all measurements, weighting them by degree of importance.
 
There are problems on the customer side too, since “customers” often connote all kinds of groups. In the teaching model, we decided that parents—not children—were the customers. Only when the children grow up and take a more active role in their education do they become customers. There also can be “internal” customers, as in the case of field service representatives (Model #1). In addition to responding to their customers in the field, reps have to answer to their own bosses, who are concerned about costs per call and customers’ equipment.
 

Employee Involvement Is Critical: An Easy-to-Implement Involvement System


These are all critical judgments, but resourceful managers won’t be making them alone. They can form employee focus groups, “nominal group techniques,’ interviews and questionnaires to help establish objectives and ways for measuring them. The nominal group technique deserves special mention. This is a popular tool used by many corporations. Organizations gather together a small, “nominal” portion of the group targeted for the incentive and bring in an outside facilitator. The group works together to supply prospective measurements and objectives for an incentive program. The meeting is a structured affair usually lasting several hours, with bosses and supervisors absent. In the end, the group’s final family of five or six measures is submitted to management for its consideration.

A Few Definitions


After conducting numerous corporate brain- storming sessions and interviews, managers likely will discover that most product/service objectives fall into two major categories: productivity and quality. Put simply, productivity is the relationship between what is put into a piece of work (input) and what is yielded (output).
 
Productivity naturally increases when more output derives from the same input, or when the same output comes from decreased input. Productivity measurements (calls per day, number of completed projects, cycle time, for example) will yield concrete numbers. Some corporate cultures speak of efficiency instead of productivity, but the terms are inter-changeable.
 
Utilization, another concept, refers to the amount of input that is actually allocated for that use. This especially applies to vehicles, meaning it is reflected by a spectrum of potential measurements. In our 10 models, we suggest measures for timeliness, creativity, innovation, customer satisfaction, absenteeism, staff turnover, market share, new product/service introduction, safety, recognition (from the outside world), record completeness and downtime. Unlike productivity measurements, numerical measurements here often have to be “created” via ratios, test scores, customer evaluations, internal audits, etc.
 

Measuring Up


After hammering out a number of productivity and quality objectives, management will encounter the next question: How can these things be measured? Or, put another way: What measures or indicators should improve if we do better work for this objective?
 
If the goal is to “reduce the rate of errors:’ one can easily measure the number of errors against total units handled. If an engineer’s goal is to complete as many projects as possible, then designs per engineer (weighted by difficulty) will offer an indication of progress.
 
It is not a good idea to devise dozens of measures for each occupation. A “family” of three to measures will do, especially since most occupations are too complex to capture all facets in just one or two dimensions. On the other hand, people really can’t focus on more than five or six measurements without having their priorities muddled.
 
Once workers have proposed a number of basic measuring ideas, managers or facilitators can ask them to vote for their favorite ideas, rating them from best to worst. This final, prioritized list can be submitted to division or department managers, who can review it and perhaps alter the priorities. The final set of measures should possess “balance.” That is, some measure should address productivity and some should tackle quality. Some should take aim at inside operations while others target customer issues.
 
 
Measure
Base Data New Data New/ Base  
Weight
Weighted Result
 
Measure A
 
12.11
 
12.52
 
103.4
 
.50
 
51.7
Measure B 83.40 79.70 95.6 .25 23.9
Measure C 1,817 1,902 104.7 .25 26.2
Total Weighted Result       1.00 101.8

Weighted results. When considering the final measures, managers should weight them differently, since different factors play varying roles affecting productivity arid quality. We strongly suggest “weighting” each measure of the family with percentage weights from 10% to 50% (adding up to 100%, of course). Also, managers may have to make some adjustments along the way mainly to deal with “mix effects” and “price effects.”

Mix effects. An analyst may write “reports,” but it would be misleading to use “reports per person” as a measure, since some reports are simple and others more time-consuming. It would be like rating 10-meter divers for their number of dives, rather than the complexity and quality of each plunge. It would be best, then, to devise point systems, allotting more points for difficult reports and fewer points for easy reports. One benefit of point systems, especially during an incentive program, is that management can change point weights at any time to stress different products or accent different areas of performance.

Price effects. Still another common adjustment is for price effects or inflation. A dollar measure such as “$ Sales per Salesperson” can rise two ways: from an increase in sales price per unit, or from an increase in the number of units sold. But only the latter effect belongs in a productivity measure. So, to ensure consistency, all sales figures across all time periods need to be translated into base-period dollars. If a program employs measures without this adjustment (a common mistake), it won’t provide an accurate reading on the cause of the upswing. 
 
Measuring the value of performance. Note that the PDF provides a process for translating performance into dollar values for each of the 10 professions using a process applicable to any job function.

Family of Measures


In all our measurement models, we use a set “family of measures” to gauge progress (see Table 1 in the PDF.). There are, of course, more sophisticated and complicated ways to structure a report, but all analyses should include these vital elements:
  • Numbers from a previous time period (Base Data).
  • New numbers from the current period of the same length (New Data).
  • The percentage change (New/Base).
  • The pre-assigned Weights.
  • The relative importance of that change (Weighted Result).
 
Both the Base and New Data can be expressed as numbers of units, dollars, hours, points, percentages, etc. The measures can span any period of time--hours, months, years.

The New/Base Data (new data divided by base data) yields a percentage that shows the increase or decrease for the particular objective. In Table 1, Measure A improved by 3.4 percent (103.4), while Measure B declined 4.4% (95.6). One hundred percent is considered “par.”

Weighted Results are derived by multiplying Weight times the New/Base. In essence, the weighted results are weighted averages -- mathematical calculations that give insight into the progress of each objective. Adding them together produces the total weighted result, 101.8, which reveals that for these measures, the group’s overall productivity and quality rose 1.8 percent. In each of our 10 measurement models, we will see how managers also can employ Base Data and New Data figures to approximate a potential budget for   an   incentive   program   and   awards.
 

Original Sponsors


Here are the original sponsors of this research in 1996.
 
  • Bill Communications, Inc.
  • Carnival Cruise Lines
  • Corporate And Incentive Travel Magazine
  • Doral Resorts in Florida
  • EGR International Meetings And Incentives, Inc.
  • Hall-Erickson, Inc.
  • The Hertz Corporation
  • Hong Kong Tourist Association
  • Irish Tourist Board
  • ITT Sheraton Corporation
  • The Journeymasters, Inc.
  • Northwest Airlines
  • Norwegian Cruise Lines
  • Ocean Reef Club -- Key Largo Pacific World Ltd.
  • Pan American World Airways, Inc.
  • Premier Cruise Lines, Ltd.
  • Sunbound, Inc.
  • Thalheim Expositions
  • Tri Companies, Inc.
  • Viajes Turquesa Del Caribe Wyndham Hotels & Resorts
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Master the “S” of Environmental, Social, Governance (ESG), A.k.a. Stakeholder Capitalism
 
The Enterprise Engagement Alliance at TheEEA.org is the world’s first and only organization that focuses on outreach, certification and training, and advisory services to help organizations achieve their goals by fostering the proactive involvement of all stakeholders. This includes customers, employees, distribution and supply chain partners, and communities, or anyone connected to an organization’s success.
 
Training and Thought Leadership 
  • Founded in 2008, the Enterprise Engagement Alliance provides outreach, learning and certification in Enterprise Engagement, an implementation process for the “S” or Social of Stakeholder Capitalism and Human Capital Management and measurement of engagement across the organization.
  • The Enterprise Engagement Alliance provides a training and certification program for business leaders, practitioners, and solution providers, as well as executive briefings and human capital gap analyses for senior leaders.
  • The EEA produces an education program for CFOs for the CFO.University training program on Human Capital Management.
  • Join the EEA to become a leader in the implementation of the “S” of ESG and Stakeholder Capitalism. 
Engagement Digital Media and Marketplaces
Video Learning
The EEA Human Capital Management and ROI of Engagement YouTube channel features a growing library of 30- to 60-minute panel discussions with leading experts in all areas of engagement and total rewards.
 
Books
Enterprise Engagement Advisory Services 
The Engagement Agency helps:
  • Organizations of all types develop strategic Stakeholder Capitalism and Enterprise Engagement processes and human capital management and reporting strategies; conduct human capital gap analyses; design and implement strategic human capital management and reporting plans that address DEI (Diversity, Equity, and Inclusion), and assist with managed outsourcing of engagement products and services.
  • Human resources, sales and marketing solution providers profit from the emerging discipline of human capital management and ROI of engagement through training and marketing services.
  • Investors make sense of human capital reporting by public companies.
  • Buyers and sellers of companies in the engagement space or business owners or buyers who seek to account for human capital in their mergers and acquistions

Click here for complete information on Enterprise Engagement Alliance benefits and to join.  

For more information: Contact Bruce Bolger at Bolger@TheICEE.org or call 914-591-7600, ext. 230. 
 
 
 

 
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