“We will never achieve total customer satisfaction without a much higher level of employee satisfaction…”
I get asked all the time by different people: how “soft” HR can impact “hard” business results. For this reason, I decided to collect and share here some thoughts and tangible facts on this topic.
The paradigm: Employee Satisfaction drives Company’s Market Value
Based on research by one of the leading retail US-based companies for every 5% improvement in associates’ behavior, customer retention was increased by 1.3%, revenues by 1.04%, and profit by 0.4%. It is also important to note that this enormous boost in revenue did not require additional headcount or payroll, but simply an improvement in employee work environment. Moreover, line managers (not HR) are critical to the creation of such a positive work environment. This example is distinctive as it not only translates “soft” business issues (people) into “hard” (financial results) but also identifies people as the driver of business growth and success.
This example constitutes the paradigm of using employee satisfaction to drive customer satisfaction and consequently shareholder satisfaction. Along with other ongoing initiatives, this paradigm appears to be working.
The critical questions now are: Given the paradigm, how can the HR function add value to business success? What kinds of HR practices should be designed to enhance business competitiveness?
Strategic HR Framework
Companies that attempt to align HR practices with business strategy, use strategic HR frameworks that often involve three components along with the most pertinent questions a company could ask in its efforts to formulate plans for each component:
1. Business strategy: What is the business strategy of our company? How do we win in the marketplace based on customer buying criteria, competition, government regulations, supplier situation, etc.?
2. Organizational capabilities: In order to implement the business strategy, what are the critical organizational capabilities we need to develop? Companies often target two or three organizational capabilities that are critical but with which they have not totally succeeded. These capabilities might include competitive shared mindset, speed to market, innovation, etc.
3. Human resource practices: How should HR practices be designed and delivered to build these organizational capabilities? Are our leaders and employees competent, motivated, and empowered to contribute to the fullest extent in the development of these capabilities?
Now the question is: how HR can efficiently contribute to business competitiveness?
HR Measures that Drive Business Performance
HR practices can impact business success through building up organizational capabilities, improving employee satisfaction, and shaping customer satisfaction. HR measures should be developed to drive business performance. Unless HR measures are realigned to drive the activities and behaviors of HR professionals and line managers, HR practices can hardly be expected to demonstrate any impact on the bottom line. Dramatic changes in HR measures are urgently required to refocus the priorities and resources of the HR function. Instead of being HR-driven (what makes sense to HR professionals), the next generation of HR measures needs to be business-driven (how HR can impact business success). Instead of being activity-oriented (what and how much we do), HR measures should be impact-oriented (how much we improve business results). Instead of looking backward (what has happened), innovative HR measures should be forward-looking, allowing managers to assess and diagnose the processes and people capabilities that can predict the future success of companies.
Some companies distinguish three areas of HR measures that drive business performance:
1. Internal operational measures. They encompass traditional HR measures for which the HR function and HR professionals are (and have been) held accountable. The focus here is on the efficiency, quality, and speed of delivering HR practices and managing the HR function as a whole. This helps to answer the following question: “How well do we design and deliver our HR practices?” and take appropriate actions.
2. Internal strategic measures. They assess the effectiveness of HR practices in building organizational capabilities and enhancing employee satisfaction. This set of measures helps to answer the following questions: “How effectively do our HR practices build desired organizational capabilities? How effectively do our HR practices increase employee satisfaction?” and based on results undertake corresponding actions.
3. External strategic measures help to assess the effectiveness of HR practices in satisfying customers and shareholders. The purpose is to use HR practices to drive customer and shareholder satisfaction. This helps to answer the question: “How well do our HR practices increase customer and shareholder satisfaction?”
The internal strategic HR measures
The internal strategic HR measures help to assess the effectiveness of HR practices in building organizational capabilities and enhancing employee satisfaction. We can distinguish three critical organizational capabilities and specific measures which can be developed to track progress in them:
• Leadership effectiveness (covering both competency and diversity).
• Workforce competencies (including customer commitment and market focus, financial excellence, and operational excellence).
• Performance-based culture.
Many companies use 360-degree assessment to measure leadership competency of its senior and middle managers.
Workforce competencies are often measured by three aspects of the development process:
(1) the percentage of employees with documented development plans to develop required competencies;
(2) the number of hours devoted to development; and
(3) the results of developmental programs as measured by four levels: reaction and planned action, learning, on-the-job behavior, and business results.
Performance-based culture is regularly assessed through the tracking of aligned performance commitments, and employees’ surveys which include questions that focus on management accountability for performance, clarity of performance expectations, adequacy of performance feedback, and reward of goal achievement.
To ensure that HR practices are meeting employee needs and expectations, companies develop measures and indexes. The good example is an index build up from five metrics answering the following questions:
1. The meaningful job that contributes to motivation: Do you have a substantive, meaningful job that contributes to the success of your company?
2. Behavior and knowledge to be successful: Do you have the on-the-job behaviors and the knowledge base to be successful?
3. Training available to upgrade skills: Has training been identified and been made available to continuously upgrade your skills?
4. Career plan: Do you have a career plan and is it exciting, achievable, and being acted on?
5. Feedback: Have you received candid, positive, or negative feedback within the last 30 days which has been helpful in improving your performance or achieving your career plan?
By tracking these five metrics, companies can ensure that its HR practices are adding value through a more committed and competent workforce.
Unlike internal operational measures, line managers should be held accountable for the internal strategic measures. Managers are responsible for people management. While HR professionals may design and develop all kinds of HR practices (such as performance appraisal, reward systems, succession planning, promotion process), the effectiveness of these practices ultimately relies on implementation by line managers; therefore, line managers, more than HR professionals, should be held accountable for building critical organizational capabilities and enhancing employee satisfaction.
Nowadays the whole process of setting, tracking and developing employee satisfaction and engagement driving metrics can be easily supported by technology. Proper use of technology has a positive impact on HR operational effectiveness and drives business performance.
Robert Augustyniak – leading Skilo team and product business line at enxoo. Responsible for the go to market strategy, business development, and customer satisfaction.
Skilo is a cloud-based talent management platform for HR innovation that is adaptable and therefore, relevant to any organization and industry. It facilitates HR processes such as mapping competency frameworks, manager-employee evaluation, and feedback, enforcing skills development schedules and social collaboration to create a more engaged and productive workforce.
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