CFO Corner: The Dirty Secret of Business Vast Money Likely Wasted on Engagement Efforts

What’s the return on investment on the money spent on human engagement tactics? That is a key question that both CFOs and CEOs need to ask. The sad fact is that most assume that measurement is impossible and treat stakeholder engagement as a sunk cost. It’s not just another version of the concept that we hope half of our stakeholder engagement efforts are working, we don’t know which half. The danger is that we’re not measuring the damage we’re doing with half-baked, reactive engagement measures.

By Nick Shepherd

The Failure to Measure Enhances Risks
The Need for a Strategic and Systematic Approach to Measurement
The Tools of Human Capital Measurement Exist

Allocating financial resources is one of the hardest challenges that leaders face. Understanding and measuring the investment and outcomes related to the conditions that foster employee engagement has never been more important. There is a proven correlation between organizational performance and employee engagement, but if senior managers are not assessing the return on investment of their investments in building engagement, they are investing in the dark. Worse yet, while many major tech companies begin to make significant changes in work-from-home and other Covid-era policies, how many have firm human capital metrics in place to track the impact of these changes on retention, productivity, quality, willingness-to-refer, etc.?

Scientific research on employee engagement has demonstrated the important link between conditions in the workplace, human engagement, and performance but basic questions remain. Beyond the basic question of what makes for effective front-line management, are we measuring the impact of such tools as incentive, rewards, recognition, motivational events, or for that matter learning, diversity, equity, and inclusion, safety and wellness? Anecdotal evidence is strong that there remains insufficient rigor in the measurement of most stakeholder engagement tactics, particularly in comparison with capital investments or acquisitions. One reason may be the incorrect assumption they cannot be measured or because of the natural inclination of any managers with budgets to avoid deep scrutiny from financial management.

The Failure to Measure Enhances Risks

It’s one thing to fail to measure the positive impact of engagement processes; it’s another to overlook the potential consequences of poor engagement design or implementation. Many organizations, most notably Wells Fargo, have suffered enormous losses by setting up incentive programs that in effect encouraged employees to act against the best interests of the customer and the company.

One could argue that stakeholder engagement is at the same stage as quality management in manufacturing. Companies simply built high levels of defects into their business models until the Japanese employed total quality management strategies that transformed market shares in the automotive, electronics, appliances, and other markets that’s never been recovered. Based on my decades of experience in financial management, the same is true of people management today.

Multiple questions arise when it comes to all the tactics companies employ to motivate sales or non-sales employees or independent contracts. Are tools such as incentives, rewards, and recognition, etc. creating behavior that leverages greater collective engagement or are they focused heavily on individual performance that can in some cases lead to shortcuts or unethical behavior? Are we investing adequately in tactics such as defining, sustaining, and measuring job design, professional development, workplace cultures, turnover, referrals, and performance, safety, physical and mental health, especially the special role of everyone in a leadership position? What macro measures are being used to measure the overall impact of these efforts?

The Need for a Strategic and Systematic Approach to Measurement

The fundamental issue is that most CEOs sign off on large stakeholder engagement expenditures with little clear measurement, often in an active, reactive manner, in which various efforts are siloed rather than aligned to achieve a common purpose with clear measures.

Clearly incentives work well to drive individual performance; they are a foundation of human motivation. Yet pursuit of individual goals sometimes conflicts with the cooperation and collaboration necessary for an effective group work environment. Is the organization failing to see the negative impacts on perceived unfairness – a demotivator when individuals rather than the workgroup receive credit? Is the ROI measuring only the observed success, not the tradeoffs being made to achieve it?

CEOs and CFOs need to closely look at group incentives such as gain-, or profit-sharing, or employee ownership, that have been used successfully by many organizations to drive group engagement while reducing the upward spiral of fixed costs. Is there a good balance between individual and group incentives?

It has been said that employees leave relationships – not organizations. Is employee turnover being impacted by poor relationships? How healthy and productive are these internal relationships, especially between departments? Effective leaders build effective relationships. Are investments in leadership focusing on management of “task” oriented development, focused on improving levels of performance and productivity? Is job design being carefully considered to make work more fulfilling and productive?

Levels of employee engagement are significantly affected by the quality and behavior of those in leadership roles. Is the ROI on anything around leadership development even known and measured?

The Tools of Human Capital Measurement Exist

Finally, it’s important to dispel the notion that stakeholder engagement efforts can’t be measured. In fact, with technologies such as Enterprise Engagement platforms, organizations can clearly track the correlation between how people feel, what they know, what they do, whether they stay or refer others, etc., and much more.

In addition, multiple tools exist to measure the impact of any stakeholder engagement effort, including:

Master Measurement Model of Performance
This timeless report from the American Productivity & Quality Institute demonstrates how total quality management systems can be applied to people engagement in a highly measurable manner.

The ROI Institute
This organization has created a highly effective method for evaluating the return on investment of almost any type of endeavor in both qualitative and quantitative ways.

Humanizing Human Capital
A thorough guide to the principles of measuring the impact of human capital on organizational success; one of the five foundational books of the Enterprise Engagement Alliance enterprise engagement curriculum. This include information on human capital metrics that can be utilized to better understand the impact of human resources decisions on the business.

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