2010 March

Six Sigma for Humans? (HumanSigma®)

I believe Six Sigma can be a very effective tool to optimize business processes, but –perhaps through overuse– it has become a bit of a caricature of itself:

So I thought it was a bit unfortunate that the authors decided on this title for what is such a great resource, since it is likely to scare off many that are tired of the Six Sigma ‘management fad’.

I’ll leave the defence of Six Sigma to the many other blogs that evangelize on the topic, and instead talk about why this is such a valuable resource for those trying to improve their business.

This book illustrates that, not only is customer and employee engagement simple to measure, but there is a direct and quantifiable correlation to business performance.

For example, when you measure your customer and employee engagement, you will find that the parts of your business that have top 50 percentile scores on both will be providing you with 2-4+ times the returns of those that are below average in both categories.

This triggers the obvious circular debate on whether or not improved business performance leads to more engaged employees/customers or the other way around, but they –being Gallup– did research on this as well, and they claim that high employee and customer engagement scores predict business outcomes with much more certainty than business outcomes predict engagement.

This is where the Six Sigma-sourced concept of DMAIC comes in (define, measure, analyze, implement, control). If you know that improving customer and employee engagement has a direct link to positive business outcomes, why don’t you measure it and try and improve it?

I was sceptical that such a direct correlation could be made, especially since its hard to compare businesses to each other with so many potential variables between them. What convinced me was analysis of branch offices within the same company (fixing many of these variables). The authors (John H. Fleming, Ph.D. & Jim Asplund) describe studies where branches within a bank were measured for employee and customer engagement. When the results were plotted, they looked something like this:

It just looks like a random scatter plot, with some branches low on both employee and customer engagement (the book discusses how to measure this), some were strong in one area but weak in the other, and some had high levels of both customer and employee engagement. They suggest that all businesses have these pockets of engagement excellence and weakness. This gets interesting when they show how these business units perform financially:

What the numbers in the quadrants mean are, based on Gallup’s research, the branches/units in the top right ‘optimized’ quadrant of employee and customer engagement will be “3.4 times more effective financially than units that rank in the bottom half in both measures.” I have done a lot of work in the area of employee engagement, and often had to struggle with not having a ‘business case’ to prove its importance importance and value (beyond the intuitive); so it was exciting for me to see not only the quantifiable gains that employee engagement can bring (~+70%) but also that customer engagement is just as quantifiable!

The explanations of what ’3.4 times more effective financially’ were a bit weak in my opinion, and this is one of the few negatives I have about this book. They do cite some specific examples like “optimized HumanSigma stores generated $21 more in earnings per square foot of retail space on average than all other stores combined” (if I knew what was typical for retail, this might mean something for me… Google tells me average REVENUE per square foot should be ~$1000/yr, so a ~2% increase in margin sounds pretty good for retail). It seems that companies implementing HumanSigma will have to calibrate this methodology against their own important metrics to see how well this holds true for their own businesses (and some unfortunately will need to create these metrics in the first place!).

The main take away from this part of the book was that there is strong positive non-linear relationship between improving both employee and customer engagement and the resulting business outcomes.

In fact, the book goes into more detail on how, as business units move towards the upper right of the graph (an area they call ‘HS6′), the business performance is 5.2x the revenue growth! This detail also includes a distribution of business units in Gallup’s database with 5% falling into the HS1 band (1.0x) and about 1% of units that they have measured achieving ‘HS6′ status. About 60% of business units in Gallup’s database fall into the ‘HS2′ & ‘HS3′ bands where performance is between 1.8 & 2.5 times.

So how do you improve customer and employee engagement? The majority of the book covers this topic and provides a lot of good guidelines on not only what the key motivators to engagement are, but how to influence them. One such approach in the employee engagement domain was the topic of our previous post “Learning the Language of Inspiration”.

I will share some of the key learnings from this book with you in later posts. I highly recommend this book for anyone who wants to get more out of their business, large or small!

Can Passion be Bought?

Have you ever wanted to do a job so badly that you were willing to do it for free? Probably when you were young, and the realities of utility bills, mortgage payments and your child’s university tuition weren’t top of your mind.

I still would. I can think of a few people for whom I would work for without a salary: Steve Jobs, James Cameron, Warren Buffet, Louis Gerstner, Donald Clifton (if he wasn’t deceased) & Seth Godin to name a few (you listening guys?). The reason –of course– is that I am hoping some of their genius rubs off via osmosis, and that kind of genius is very rare (and valuable).

In a recent Globe & Mail article, Dave McGinn poses the question: Does low pay = high passion? Mr. McGinn covers both sides of the following debate: Can you screen out people that don’t have passion for a job by offering a low salary, or is this just a form of exploiting those that really need work?

I think if you have some star power, or you have your own great passion for the business, or you have a wildly successful company in a popular field, or all of the above, you will stand a good chance to attract people just for the desire to learn from you; but you won’t keep them that way.

People have a keen perception for fairness, and if it’s clear that someone is profiting greatly from your hard work, and you aren’t sharing in it, here are two of many negative outcomes:

Your best, brightest and most passionate will get hired by someone else trying to emulate your businesses’ success
They will go be passionate on their own and become your competitor, using all they learned from you

Don’t get me wrong, an apprenticeship is very valuable, and it may warrant lower salary and even result in attracting those with passion, but you just won’t keep the passionate employees that way.

How do you keep them? Pay them what they are worth AND give them all those other things that profitable companies can provide (benefits, flexible work hours, teleworking, gym, etc.). I suggest you read the article and form your own opinion on the ‘low salary’ option.

But lets flip this idea around: Does High Pay = Low Passion?

I think the answer here is a much easier yes. If you haven’t heard the term ‘golden hancuffs‘ before, you are about to: golden handcuffs include various means to lock in employees from leaving your organization. This can be in the form of pay unlikely to be matched at rival firms, or options that are going to vest over time.

But what if you stay at a job only because of how you are paid? Isn’t it likely that passion won’t be the main motivator in your work? Unfortunately a LOT of people identify their value by how big a salary they have, and their lifestyle grows to match their salary. They then need the salary for self validation AND lifestyle maintenance. Such a salary may even allow their husband or wife to take on a low-paying or high-financial risk job that they are passionate about (oh the irony), but that increases the reliance on the main-wage-earners large salary.

They then get stuck, they can’t leave, the risk of being the last-in at a rival firm is too high to make the jump, they rationalize their desire for the job based on the salary, and the passion (if it existed) dies. The motivator stops being the passion that got you to your role, but instead the fear of the high salary being taken away. It’s the passion that produces the salary, not the other way around.

I think the best option when it comes to salary is: pay a competitive wage, but look for alternatives to salary when fostering passion & engagement.