Chapter 15

Measure Up: Measuring Performance and Engagement

In This Chapter

Building a balanced organizational-level scorecard

Measuring individual performance

Measuring team performance

Measuring employee engagement

Picture this: You're in the midst of a hotly contested game. Fans scream as both sides battle for the win. You glance up at the scoreboard . . . and it's blank. There's nothing — no score, no indication of how much time remains, nothing. “We're winning!” one coach screams. “No, we're winning!” screams the other.

If you're a player, what do you do? Do you continue to play? Is there a letdown? Can you sustain your momentum, not knowing if you're winning or losing? Do you even care anymore? If no one is keeping score and no one is keeping time, how will you know if and when you've won or lost?

This scenario might seem ridiculous. It could never happen, right? Wrong. Sadly, it happens all the time in business. Employees often don't know if they're winning or losing, if their business is succeeding or failing, or if they're high, average, or low performers. Employees are motivated to achieve — indeed, it's a key intrinsic motivator in just about everyone. Plus, it drives engagement. But if we don't know what the achievement metrics are — what constitutes “achievement” — how do we know if we've, well, achieved it?

This chapter is all about “keeping score” — that is, measuring performance on an organizational, individual, and team level. As you'll soon see, these measurements are a key component of employee engagement.

Score! Building a Balanced Scorecard to Measure an Organization's Performance

Business is not T-ball. Employees want and need to know the score. Yet, very few companies establish an organizational scorecard, often called a balanced scorecard, to aid in this. In layman's terms, a balanced scorecard is a set of quantitative metrics that a company can track and report on, hopefully to all employees. Simply put, a balanced scorecard provides a snapshot of the performance of a company (or individual, department, or business unit) compared to its objectives (see Figure 15-1).

Firms that select the right metrics to measure and effectively communicate those metrics reinforce their organizational line of sight (discussed in Chapter 6) between the organization's purpose, values, vision, and strategic plan. Under this system, daily operations are clearly connected to programs and services that themselves ultimately link to long-term goals.

Such an approach can assist not only in bolstering a company's mission, but also in boosting employee engagement. After all, employee engagement is simply an outcome of a number of factors, not the least of which is the company's commitment to helping its employees reach their potential and the employees’ commitment to helping the business reach its business goals. Measuring, tracking, and communicating performance goals on an organizational level, as well as the employee level, reinforces this mutual commitment.

Designing an effective balanced scorecard

An effective balanced scorecard is one that captures the right blend between profitability and other key organizational metrics. These would include both hard metrics (sometimes called “what metrics” or quantitative metrics) like profit, revenue, growth, and sales, along with soft metrics (often referred to as “how metrics” or qualitative metrics) like training and development, wellness, trust, purpose, recognition, and so forth. (Naturally, many of these soft metrics are more difficult to measure.)

There is no cookie-cutter approach to identifying which metrics to measure. They must flow from your company's strategic goals, and many are industry specific. For instance, in the retail industry, shrinkage metrics (that is, metrics pertaining to theft and damaged goods) are critically important. In the hotel industry, room occupancy is a key metric.

Pinpointing your metrics requires some thinking. Often, you have to drill down to smaller, more concrete goals and measurements to achieve the desired results. Suppose, for example, that you want to improve customer satisfaction. It's not enough to simply measure customer satisfaction; you must also measure the various aspects of your business that affect customer satisfaction. For example, one metric would obviously be customer service. But that's not the only one you need to measure. After all, you could have a whole team of Susie Sunshines providing extraordinary customer service, but if your product has defects, customer satisfaction will be compromised. This is why companies also include quality metrics when pursuing customer satisfaction goals. Likewise, if you have very high voluntary employee turnover or low employee engagement, there's a good chance your customers will be negatively affected. (This reinforces yet again the importance of employee engagement in key business metrics!)

Take time upfront to determine the metrics that make the best sense for the goals you're trying to achieve. This sort of advanced planning is essential to inculcating engagement and driving performance.

If this is your first attempt at building a balanced scorecard, the key is to keep things simple. Don't over-engineer the scorecard or make it overly complicated. Organizations that measure and communicate zillions of metrics cause their employees to lose focus, and blur that ever-important line of sight. The key is identifying which metrics deserve focus on your balanced scorecard in the upcoming year. This isn't to say that other key metrics that don't appear on the scorecard won't be tracked — it's just that they won't be as widely broadcast throughout the year.

Maintaining your balanced scorecard

After you build your scorecard, you must maintain and update your metrics. This includes an annual review of key metrics. Each year, preferably before the new fiscal year, your leadership team must decide which metrics to track over the next 12 months. Some metrics should always be included in your balanced scorecard — think metrics pertaining to profit and growth. In addition, the balanced scorecard provides an opportunity to highlight other key metrics to reinforce the organization's focus on needed changes and to get the attention of leaders and employees. Indeed, smart organizations, aware of the old adage “You get the behavior you measure,” routinely tweak their scorecards to reinforce what's important in the coming year.

Once, a former employer of mine detected an increase in DSOs (short for “day sales outstanding”). When DSOs go up, that usually means customers aren't paying on time. High DSOs can significantly affect profits. By adding DSOs as a metric to our balanced scorecard, we were able to focus our entire staff on DSOs. Within a year, we significantly reduced this metric, greatly improving profitability.

In addition to an annual review of key metrics, you also need to perform a monthly update. (If you're a publicly traded company, it may need to happen quarterly.) The update involves communicating results for each metric to all employees. For more on communicating results, read on.

Communicating results

It's not enough to merely track metrics. You must also communicate the results to all employees. Failure to do so will result in their disengagement. When it comes to communicating these results, keep these best practices in mind:

• Keep it simple and execute flawlessly. It seems like more and more restaurants these days have, like, 82 pages of menu items. I don't know about you, but this confuses the heck out of me. How am I supposed to choose, with so many options? The truth is, most people go glassy-eyed when faced with too many choices, and employees are no different. If you try to communicate a sea of metrics, you'll lose them. Focus on a few key metrics, and execute your communication of these key metrics flawlessly!
• Take it from the top. The president or CEO should communicate updates on performance on a monthly basis (or, if a publicly traded company, quarterly). This should be done in whatever venue works best for the CEO and in terms of organizational logistics (for example, single site versus multi-site and across time zones). Culture and style are also factors in terms of message delivery (that is, whether the results should be communicated via e-mail, video, town hall meeting, mobile application, blog, and so on).
• Build in repetition via a cascading message. Employ a “waterfall” messaging model, starting at the top, to ensure everyone receives the message (see Chapter 5). Also, ensure that the next level down communicates its own metrics in the same format, sequence, and time frame. For instance, the CEO of a large retail chain might communicate his or her organization-wide metrics on a Monday. That same week, the district manager should communicate district-wide results to his or her direct reports. Shortly thereafter, the local store managers should communicate their single-store results with all their employees. In an ideal world, individual department managers would then meet with their employees to discuss how their department results affected store-wide, division-wide, and company-wide results. This reinforces the line of site between what's important at the CEO level and what's important at the level of the individual employee. In addition, the repetition of messaging reinforces the key measureable metrics, which both drive and reinforce organization-wide behavior while building both alignment and engagement.
• Make it interesting. Keep your balanced scorecard vibrant and colorful. Metrics don't have to be boring. The look and feel of your scorecard will go a long way toward getting your employees to embrace it. Repeat after me: The accounting team should not design your balanced scorecard. Don't get me wrong: Accountants do a lot of things right, and heaven knows, you need their input. But your balanced scorecard has to really captivate your employees. The more you leverage various tools to communicate your metrics, the more you'll engage your employees in the metric process. Think USA Today, not The Wall Street Journal.

  When you assemble your balanced scorecard task team, include your best IT, marketing, communications, HR, organizational development (OD), finance, and accounting brains.

• Make it accessible. Your balanced scorecard should reside somewhere, preferably on your intranet, Microsoft SharePoint, or other central repository of organization-wide information. That way, it's easily accessible to all employees. In addition, you might want to make the scorecard accessible to employees on the go, via smartphone. If you have the resources, you may even create a balanced scorecard mobile app for employees.
• Take the good with the bad. Use your scorecard to promote and highlight positive trends, as well as to highlight some negative trends that need attention (sort of an “early warning system”).

To instill engagement at every level and to ensure that communication is not solely of the “top-down” variety, you might follow the example of one manager I encountered, who often asked his most junior staff to share scorecard results in meetings with the entire office. This small but powerful idea increased the junior staff's engagement levels and reinforced the importance of business metrics for all members of the office — not just the leadership team. It also was a great development opportunity for junior staff, tying them to the larger organizational goals.

Take It Personally: Measuring Individual Performance

Building a balanced scorecard to gauge your organization's success isn't enough. To increase the chances that your organization's goals will be met, you must connect the metrics in the balanced scorecard and other key organizational goals to each employee's job. This is critical in building that “line of sight” I keep mentioning, which is key to employee engagement. Typically, this is done through the dreaded performance appraisal process, which is generally despised by managers and employees alike. (For more on performance appraisals, turn to Chapter 16.)

Trust me: If there's one thing I've learned over the past 30 years, it's that employees don't want to be average — they want to win! To really get the most out of your people, you have to define and communicate what constitutes “high performance.” If you don't, you can't expect improvement from your employees. The best scorecards build in “average” and “high-performance” norms to activate their employees’ achievement gene. Your staff needs to have a clear picture of what's optimal, not just the minimum required to get by.

Most companies benchmark against competitors but shy away from benchmarking within their own organization, but this approach is foolish. You need to know who your top-performing employees are (or aren't) before you can determine why they perform highly (or don't). How do you define those individuals? What are their performance benchmarks?

A few years ago, I met with a manager to discuss his business metrics. Every single one was dead average: profitability, write-offs, business development, and so on. But this manager didn't want to share these stats with his staff. “Finding out they're average will demoralize them!” he insisted. “I hate to disappoint you,” I told him, “but they are average. And they need to know that in order to improve.” After all, why would an employee change her ways if she believes she's performing at a high level?

If you don't communicate average and high-performance norms, the best you can hope for is to sustain mediocrity. Case in point: After the aforementioned manager started sharing metrics with the members of that average business unit, the results were immediate. Stunned to discover that they were merely C students, team members immediately researched what high-performing units did differently. They met and collaborated, eventually developing dozens of ideas on how to improve. Over time, they reached top 25 percent performance!

So, what individual metrics should you measure? Not to be coy, but I can't really say. After all, there are probably dozens — if not hundreds — of different types of jobs at your company, let alone in the world, and there isn't one set of metrics that would apply to all of them.

I can say, however, that the best performance management and measurement systems include a blend of quantitative metrics (the “what”) and qualitative metrics (the “how”). If an organization can capture and report on quantitative benchmarks for average and high-performing norms, employees will better understand what defines success. (Again, you're trying to leverage the natural achievement gene in us all!) For illustrative purposes, Table 15-1 provides examples of both quantitative and qualitative metrics.

Table 15-1 Examples of Quantitative and Qualitative Metrics

Team Player: Measuring Team Performance

In addition to tracking performance on the organizational and individual level, you should also include metrics for teams — that is, internal business units and/or profit centers. For example, suppose you work for a national retail chain. If you include these types of measurements, employees who work at one of your retail stores can see how their store is performing compared to other stores in the chain. This can spark competition between the stores, which drives both engagement and results.

This process must be complementary, not destructive. Be sure you strike a balance between promoting internal competition and establishing a “We all work for one company” culture!

A great benchmarking tool for this process is the Team/Business Unit Performance Benchmark Matrix (shown in Figure 15-2). In this matrix, you can use any two measureable data points as your benchmarks (quality, employee turnover, customer satisfaction scores, shrinkage, and so on). Here, I used profit and growth in a comparison of five profit centers. (Each profit center is indicated by an icon, to preserve the anonymity of the other units — this helps you straddle that fine line between teamwork and competition.) In this matrix, the profit centers are assessed the same way employees are (see Chapter 12), as investment teams, performers, potentials, and transition teams. Using this matrix, teams and business units can quickly determine whether they're “losing” to other groups in the organization. Believe me, no team wants to find itself in that bottom-left quadrant. When they do, they'll become engaged and commit to moving out of the “transition” category!

Measuring whether a team is functional or dysfunctional is important. (For more about this, I recommend a great book by Patrick Lencioni called The Five Dysfunctions of a Team [Jossey-Bass].) To determine this, you can conduct a survey among team members, asking them to rate the following statements on a scale of 1 to 10 (with 1 being “not at all” and 10 being “excels at this”):

• Our leadership team makes decisions unselfishly, for the greater good of the company. They don't make decisions in their own self-interest.
• Our leadership team is seen by its employees as aligned on mission, strategy, goals, and priorities. They focus and align in one consistent direction and behave in a way that supports this focus.
• Our leadership team “walks the walk and talks the talk.” They live the values the organization stands for. (Mutual commitments and values may include integrity, respect, balance, open communication, flexibility, safety, innovation, and so on.)
• Our leadership team automatically and consistently assumes the best intentions in one another. They don't assume that others have ulterior motives, especially when they disagree. All team members assume that teammates want what is best for the organization. It's okay to have different opinions, and the team can engage in an open and respectful discussion.
• Our leadership team openly discusses issues in meetings. We have open, respectful, yet challenging conversations in meetings. We don't have contrary discussions in the hallway, after meetings. Team members say what they want in the room, not after the meeting. We avoid “I won't comment on your sandbox if you don't comment on mine” behavior.
• When a decision is made in a meeting, our leadership owns the decision as ours and fully supports it outside the meeting. When decisions are made, our leadership supports them with employees. Employees hear a single voice.
• Our leadership is acutely aware of the impact of the shadow they cast on our organization. They recognize that employees notice everything they do — from their actions to their words to their moods. They act with the knowledge that others look up to them and emulate their behavior. They're seen by their employees as being aligned.
• Our leadership fully participates in initiatives instead of just “blessing” them. Because of the shadow phenomenon, which states that leaders have a tremendous influence on the company environment, leaders support company initiatives. They share in the responsibility, knowing that how we are led determines how we lead.
• All teams are managed and measured with the same level of accountability. Team members openly admit their weaknesses and mistakes. Team members willingly make sacrifices (such as budget, turf, and head count) in their areas of responsibility for the good of the team.
• We as individual team members are slow to seek credit for our own contributions but quick to point out those of others. Individual members focus on the needs of the team and not their individual or promotion needs.

Consider using a free survey tool, such as SurveyMonkey (www.surveymonkey.com), to conduct this survey.

For best results, individual responses should be kept confidential. Results should be tabulated and used as a benchmark. After results are tabulated, the team should meet to discuss them and identify an action plan for improvement.

Measure by Measure: Measuring Employee Engagement

You need to measure employee engagement, just as you would any other business objective, regardless of whether employee engagement becomes part of your balanced scorecard.

Key metrics for measuring employee engagement

Historically, the gold standard for measuring employee engagement has been voluntary employee turnover. The problem? Voluntary turnover is a trailing indicator rather than a leading indicator. That is, you can't use this data until an employee has “left the building,” so to speak. Also, not all voluntary turnover is created equal. That is, voluntary turnover among disengaged or low-performing staff is of far less concern than voluntary turnover among high-potential or high-performing employees. In fact, in this case, high voluntary turnover can be good!

Of course, if you are losing star employees in droves, that's clearly a problem, and you need to identify the underlying causes. Obviously, you can accomplish this only if you know who your high potentials and high performers are. If you're not capturing this data, you should. At the very least, you should be benchmarking your voluntary turnover against others in your industry. Yes, it's a trailing indicator, but it's still a revealing data point.

In addition to measuring voluntary employee turnover (flawed though that measurement may be), you should also measure the following at both the organizational level and the department or business-unit level:

• Employee engagement survey results: Unlike voluntary turnover statistics, employee engagement survey data are leading indicators. If you conduct a survey, you'll be able to benchmark your results against other firms in your industry. Even more important, you can benchmark your progress against your historical survey data and can compare business units with other business units — both of which are important benchmarks.
• Recognition: Recognition is a key — and free! — engagement driver, but few firms measure it. If you budget a nominal amount per department for recognition efforts, funded at the corporate level, you'll be able to track the amount spent on these efforts on a departmental basis. (For more on the importance of recognition to employee engagement, see Chapter 17.)
• Employee referral percentage: This is defined as the percentage of new hires who have joined your firm because of an internal employee referral. If none of your internal employees is referring your firm to others, that may indicate a serious lack of engagement.
• Training and development investment: Best-in-class organizations spend between 3 percent and 5 percent of payroll on training and development. Budgeting and measuring your investment as a percentage of payroll by department will enable you to track who is investing in their employees. There is usually a clear connection between engagement and investment in training and development.

Assessing your team's level of engagement

Need a quick, easy way to measure your team's level of engagement? The following questionnaire is designed to enable you to do just that:

1. Which of the following statements most accurately reflects your team's sense of purpose?
   1. Because not all members express their views, it's not clear that there's a sense of common purpose. Members are more focused on “How do I fit in?” than “How will we work together?”
   2. Members disagree about the purpose and goals of the group and individual responsibilities. There's a discrepancy between what people want and what's realistic.
   3. A sense of shared purpose is emerging. Goals for the team and individual roles are becoming clear, and the group is beginning to develop methods for achieving them.
   4. Each member can describe and is committed to the purpose of the team. Goals and individual roles are clear and relevant to the overall purpose. Strategies for achieving goals are clear and well accepted.
2. Which of the following statements most accurately reflects your team's sense of empowerment?
   1. There is low confidence in the team's ability to realize a shared vision. Members are frustrated with leadership, policies, and practices. There is a sense of competition rather than collaboration among team members.
   2. Members feel relatively enthusiastic about the future of the team but haven't yet acquired the necessary knowledge and skills to be productive. Policies, procedures, and practices are unclear.
   3. Members feel cautiously optimistic about the ability of the group to solve problems and to achieve desired results. There is a growing sense of power as skills continue to deepen. The group is learning to work together and to help each other.
   4. Members feel a collective sense of power and have acquired the necessary skills and resources. Policies, procedures, and practices support the team's objectives. There is a sense of mutual respect and willingness to help each other.
3. Which of the following statements most accurately reflects your team's relationships and communication style?
   1. Members often interrupt, withdraw, or express negative reactions to the formal leadership and/or to each other. Communication within the group reflects conflict and/or frustration. The group shows little evidence of listening or understanding.
   2. Members act politely and cautiously toward each other, reflecting a lack of knowledge about one another. Members are often hesitant to express their feelings and opinions.
   3. Team members are increasingly encouraging and supportive of one another. They tend to withhold negative feedback. Members are listening to each other more and more.
   4. Team members express themselves openly and honestly without fear of rejection. Members listen to each other and express understanding and acceptance.
4. Which of the following statements most accurately reflects your team's flexibility?
   1. Frustration and tension in the group limit team members’ flexibility. Dissatisfaction is expressed by open aggression, withdrawal, and resistance.
   2. The team depends entirely on the leader or formal organization structure for direction and approval. Members are cautious, formal, and stilted in their communication with the group.
   3. Members are beginning to share responsibility for team functioning by using their strengths. There is an emphasis on maintaining harmony and good working relationships.
   4. Members flexibly fulfill various roles to complete tasks and for team operation. Members freely express opinions and feelings, and are adaptable to changing demands.
5. Which of the following statements most accurately reflects your team's performance?
   1. The team shows little evidence of completing tasks. The team's problem-solving and decision-making skills are underdeveloped.
   2. The team shows some evidence of completing tasks. Members have difficulty with problem solving and decision making.
   3. The team shows definite evidence of completing tasks. Team members are fairly adept at solving problems and making decisions.
   4. The team completes work quickly and effectively. Members have highly developed problem-solving and decision-making skills and value each other's perspectives.
6. Which of the following statements most accurately reflects your team's recognition and appreciation of each other?
   1. Team members rarely recognize or express appreciation for each other. They tend to criticize each other or focus on negative aspects.
   2. Members look to the leader for approval more than to other team members.
   3. Team members increasingly recognize and express appreciation for each other, reflecting a developing sense of harmony and trust. Even so, team spirit remains somewhat tentative or fragile.
   4. There's a strong feeling of respect and appreciation among team members. Individual and team accomplishments are recognized by team members, as well as by the leader.
7. Which of the following statements most accurately reflects your team's morale?
   1. There are feelings of frustration, pessimism, and dissatisfaction among team members. The team is fractured, with members competing with each other or withdrawing from the group.
   2. Team members feel a sense of expectancy and hope, as well as some apprehension, as they develop ways to effectively work together.
   3. Team members feel a growing sense of team cohesion and confidence as they work better and better together. Positive feelings outweigh negative ones.
   4. Team members feel a sense of pride and excitement in being part of the team. Their confidence is strong, and they're very satisfied with the work being done.

When you're finished, give yourself 1 point for every A, 2 points for every B, 3 points for every C, and 4 points for every D. Here's what your score means:

• 24 to 28 points: Way to go! You're part of an engaged team.
• 18 to 23 points: You're on your way, but there's room to be great.
• 12 to 17 points: You have a big opportunity for improvement.
• 7 to 11 points: Buy this book for every member of your team — your team's engagement is low.