CHAPTER 7
The Good Employer

Paul Levy walked the halls of Beth Israel Deaconess Medical Center.

But he may as well have been walking a tightrope.

The Great Recession had hit, and Levy, CEO of the Boston hospital, had to cut labor costs while somehow preserving a high level of patient care. As he considered his options, Levy watched as a janitor emptied the wastebasket, a food service worker delivered meals, and other low-wage employees pushed patients through the halls on gurneys. He listened as they spoke kind words to patients and their families, he witnessed their cheerful presence and gentle care, and he realized that these “low-skill” workers were delivering health care.

As layoffs loomed large, this was not an idle insight. Levy knew that these workers are normally the first to go. But he also knew that patients would suffer in small but real ways as a result. Levy was not content with “normal,” and so he called a meeting of all employees who were able to attend in the hospital’s auditorium.

He struggled to find the right words that would explain to all present what he had seen and heard: that each of them, down to the lowest-paid employee, was critical to delivering quality health care, and that perhaps there was some way that high-wage employees could find to save the jobs of their colleagues who earned less. He didn’t have to struggle for long. Before he was able to finish his thought, the auditorium erupted in applause. He had spoken a truth that touched the hearts of those present. Money-saving ideas poured in, and the hospital managed to save almost all of the positions targeted for layoffs.

In effect, Levy struck a balance when it comes to employees. Employees are both a cost and an asset. Finding the equilibrium between these opposites is most difficult in the midst of an economic downturn, but the challenge never disappears. Day in and day out, in good times and in bad, leaders and managers make myriad choices about their workers—the totality of which define their worthiness as employers.

The phrase good employer typically evokes images of generous, nice companies. Those attributes are part of the equation. But being a good employer, as we define it, is more complex—and more difficult to achieve. In order for any business to thrive (or even survive), there are many tradeoffs and judgments that must be made with respect to employees. To make these judgments wise ones, the worthiest employers measure workers, analyze workplace practices, and make sense of metrics in ways that might be considered cold and calculating rather than compassionate. Such data-driven management, though, can benefit both employees and employers.

This is especially true when companies possess another key element of worthiness as an employer: a compelling purpose. A company mission that goes beyond benefiting a narrow circle of stakeholders and solving a limited business problem can help focus firms on decisions and practices that both treat workers well and inspire them to give their best efforts.

Such a mission helps explain why Beth Israel Deaconess has become a standout hospital, ranked in the top 3 percent of hospitals in the nation.¹ Levy wrote on the hospital’s Web site: “We care for our patients and family members like they are members of our own family.”² That family sensibility figures into both keeping care quality high for patients and treating workers well, and it helped Paul Levy succeed in his high-wire budget act.

This chapter discusses the elements of the Good Employer, revealing a recipe for workplaces that are at once caring, exacting, and stirring.³

The recipe we spell out here—which is equally relevant for employers in for-profit and nonprofit sectors—is largely the product of two decades of research and client consulting by Laurie and Dan. They have conducted large-scale studies on training and other HR matters as well as helped dozens of firms of all sizes around the globe manage employees better. In the course of those efforts, Laurie and Dan have arrived at a framework for people management that has proven effective at improving business results.⁴

That framework consists of three main elements: a value-creating organization committed to employees, sound data analysis, and an inspiring purpose.

A Value-Creating Organization
Committed to Its Employees

A “value-creating organization” might sound like a corporate motto more appealing to CEOs or shareholders than to employees. But the truth is that great places to work also have to be places that create value for customers and other stakeholders, including owners who expect a good return on their investment. Only those organizations are capable of a long-term commitment to their employees, providing job security and opportunities for development and advancement. It can be a self-reinforcing cycle because organizations committed to employees typically bring out the best in their workers—who in turn create value.

In other words, chief among the ingredients for a value-creating organization is a long-term commitment to employees.

An organization with a long-term commitment to its employees is one where employees

• are rewarded for developing skills needed to meet the organization’s business goals

• are provided with opportunities for advancement

• receive recognition for their accomplishments

• feel secure in their jobs

It is this last point—job security—that has been among the most contentious in recent decades. Globalization and changes in technology have rendered lifetime job security a quaint relic of the past. As the pendulum has swung, some employers have gone too far in the opposite direction and shed workers at the first sign of trouble (or even before it). This, too, is not sustainable. A tendency toward hair-trigger layoffs is one of the manifestations of an excessive focus on short-termism. And, not surprisingly, it has long-term, negative consequences. It is a form of unworthiness.

You may remember the old saw from the days when socialism was more prevalent: “They pretend to pay us and we pretend to work.” So too it is with job security. They employ us—at least for the moment—and we pretend to do a good job. But it is unlikely in the face of chronic job insecurity that employees will either choose to or be able to perform at their best.

After all, why should employees give the gift of discretionary effort—that little extra push that is needed to ensure perfect quality, that little extra gesture that could delight a customer, that creative idea that generates cost savings—if they don’t know whether or not they will be laid off tomorrow, or next week, or next month? Moreover, the chronic state of worry that this produces renders employees less effective. They start devoting effort to polishing their resumes and networking, leaving less energy for work.

Sure, fear of job loss can induce a frenzied devotion to cranking out the work, at least for a while. The problem is that it’s rather like an overworked adrenal system. When the body is chronically stuck in fight-or-flight mode, it eventually becomes disabled. So while fear can motivate a workforce in the short-run, it is generally a lousy long-run strategy.

Worthy employers—employers that are committed to their employees—get this. HCL Technologies, the India-based technology company whose “Employees First, Customers Second” ethos was highlighted in Chapter 4, announced a no-layoff policy in the midst of the Great Recession.⁵ What’s more, in recent years HCL has increased employees’ income security by reducing the percentage of compensation that is variable (based on bonuses). HCL appears to have been handsomely rewarded for its foresight, enjoying significant growth during the downturn and gaining market share against rival Infosys Technologies. That’s what happens when employees reciprocate their employer’s commitment and give the gift of their discretionary effort.

Other elements are necessary to complement commitment to employees in developing and maintaining a value-creating organization. These fall into three primary categories: leadership, work, and learning.

Reams and reams have been written about leadership. It all boils down to what leaders say and what they do—their communication and their behavior.

The work environment is more complex. It consists of multiple components, including hiring practices, job design, work processes, conditions, accountability, and compensation practices.

Much has also been written about an organization’s ability to learn. This too can be winnowed down to two components—formal means for fostering learning and informal means for doing so. We discuss each in turn.

Leadership

COMMUNICATION

Communicating is easy. Effective communication is hard—especially if there are more than two people involved. Hence, this is a struggle for many organizations. It takes time, effort, intention, and skill on the part of leaders throughout an organization. It requires that leaders and managers effectively communicate what is expected of employees and, perhaps harder still, that they be genuinely open to two-way communication. Failure in this regard can lead to disaster.

On March 23, 2005, there was an explosion and fire at BP’s Texas City refinery that killed 15 people, injured over 170 others, and resulted in enormous financial losses. It was one of the most serious U.S. workplace disasters in nearly two decades. Within the next five months, the Texas City refinery experienced two additional (but less disastrous) process safety incidents. An intensive investigation concluded that weak leadership resulted in a corporate culture that “left safety processes to the discretion of managers and did not define what was expected of them … and that employees did not report accidents and safety concerns because they feared repercussions or judged that the company would not do anything about them.”⁶ A classic communication problem, with deadly consequences.

The benefits of effective communication by leaders, while typically more subtle, are nonetheless real. When Paul Levy at Beth Israel Deaconess Hospital acted on the courage of his conviction and spoke forthrightly to his staff about the need to make sacrifices to protect low-wage employees, he was handsomely rewarded for having done so. The hospital staff came up with ideas that generated enough savings to preserve all but 70 of more than 600 jobs that had been slated for layoffs.

That’s quite a payoff for one courageous communication. And truth be told, it probably was not just this single communication that generated such a tremendous outpouring of goodwill and good ideas from employees—although clearly Levy’s speech that day was critical. Rather, Levy had a consistent track record of focusing relentlessly on communication with employees. That is, for all intents and purposes, what he sees as the main job of a CEO.

BEHAVIORS

Leaders’ actions also speak very loudly. Essential leadership behaviors include

• working collaboratively with employees to eliminate barriers to effective work

• seeking and using input from employees in making decisions and plans

• following and demonstrating the organization’s values

• exhibiting principled and ethical behavior

Leaders’ behaviors have one of two manifestations—action and inaction. Toyota’s extraordinary fall from glory in 2010 is a case in point. Despite their much-lauded focus on quality and safety, leaders at the top of the organization apparently ignored customer feedback on safety problems with the accelerators in Toyota’s cars. After a series of deadly crashes, governments around the world forced Toyota into massive and expensive recalls of their vehicles. The damage to Toyota’s brand and its finances were enormous.

An NPR reporter noted “Older workers [at Toyota] haven’t really been that surprised. Many of them believe that, in fact, the problems stem from this extraordinary corporate culture…. The cost-cutting just was too great.”⁷

Leaders’ (in)actions revealed that saving on costs was more important than honoring Toyota’s stated values of quality and safety. In their quest for growth through cost cutting, Toyota’s leaders jeopardized the lives of customers and therefore the company’s long-term prospects.

A more positive example of leadership behavior comes from FedEx CEO Fred Smith. Smith responded to the Great Recession by chopping pay at the top, starting with his own. In a December 2008 blog item titled “Minimizing Job Losses and Protecting FedEx for the Long-Term,” Smith announced his salary would be cut 20 percent and other senior executives would have their salaries reduced by 7.5 to 10 percent. The rest of the salaried workforce exempt from overtime pay rules would take a 5 percent cut. The salary cuts did not affect hourly employees—workers such as couriers and package handlers.⁸ The move was in keeping with values Smith has been touting since he founded the company in 1973. The company’s “People-Service-Profit” philosophy stresses caring for FedEx employees as a foundation of great service, which will lead to a strong bottom line.⁹

“I am asking all our team members to keep focused on delivering an outstanding FedEx experience to our customers and to each other,” Smith wrote in the 2008 blog item.¹⁰ “That has made all the difference during past economic challenges in our history. Our ultimate success depends on it again today, and I know we’ll come through.”

Smith’s salary action inspired employee Kimberely Howell Jones, whose pay fell by 5 percent. “Thanks for Walking the Walk,” she wrote in response to the original blog. “During these tough times, it was good to know that our Leadership team led by example. The pay cut was difficult, but I knew I wasn’t in it alone.”¹¹

Together, the company did indeed bounce back quickly from the recession. For the year ending May 31, 2010, FedEx saw revenue grow 20 percent to $9.4 billion. It also posted a profit of $419 million, compared to a loss of $876 million the year before.¹²

As is the case with leaders’ communications, the benefits of exemplary behavior are typically more subtle. But you may have experienced it directly at some point in your working life. Think about the difference between the best and worst boss you’ve ever had. We’re willing to bet that your best-ever boss was pretty good at helping you to work more effectively, sought and used your input, followed the organizations’ values, and was a principled and ethical person. And we’re also willing to bet that your worst-ever boss had serious deficiencies on one or more of these fronts.

Now think about the difference in what you were willing to do to help these two different bosses achieve their goals. Play that out hundreds and thousands of times over. That’s a key difference between good employers and the rest of the pack. The good ones are filled with leaders at all levels who are worthy of the best efforts of their employees. If you don’t currently have the good fortune of working for such an organization, wouldn’t you prefer to find one?

Work Environment

HIRING PRACTICES

No organization can hope to create value if it doesn’t pay careful attention to hiring the right people and getting them up to speed once they are on the job.

In the supercharged competitive market for technology workers, Symphony Services—an India-based technology company—depends heavily on employee referrals to fill its open positions. This is a smart practice because employee referrals can be both an inexpensive and highly effective way to find good job candidates that fit in well with an organization’s culture.

To ensure that it remains worthy of these ongoing referrals, the company provides complete transparency to employees about where those they have referred are in the hiring process. An employee can check online at any time to see how many interviews have been conducted with the person he or she referred and when the next step of the process is scheduled. If ultimately that person is not hired, the employee can find out the reason why (with, of course, appropriate protections provided to ensure the job candidate’s privacy). This creates an environment of transparency, fairness, trust, and accountability, in exchange for which Symphony Services’ employees reward it handsomely. Over 50 percent of the company’s job postings are filled through employee referrals.

Zappos.com, the upstart online retailer acquired by Amazon.com, is legendary for its exceptional customer service and ultra-speedy delivery of purchases to customers. It has a very clever way of ensuring that it hires the right people—those who will thrive in its slightly wacky culture and continue to deliver on Zappos’s renowned customer service. Every new employee goes through four solid weeks of customer loyalty training, and about halfway through, new hires are offered $2,000 to quit. That offer generally comes from the training team, although CEO Tony Hsieh sometimes offers the money himself. Since Zappos’s entry-level customer service representatives earn about $11 per hour, $2,000 represents a hefty chunk of change. The deal is good for the duration of the training class, so new hires have a couple of weeks to consider it.

The offer has the effect of requiring that employees pay $2,000 for the privilege of working at Zappos. Those that turn down the cash are the ones who really want to be part of the organization’s zany, customer-centric culture. Very smart.

JOB DESIGN

Zappos’s unorthodox ways don’t end with its training and hiring process. As other employers are exercising increasing scrutiny over call center employees’ every working moment and keystroke, Zappos is doing just the opposite. Its call center jobs are designed to give employees an unusual degree of autonomy and authority in deciding how best to do their jobs.

One day a Zappos customer service rep was handling what seemed, at least initially, to be a routine request from a female customer for assistance in returning a pair of men’s boots. Detecting that the customer seemed upset, the service rep asked if anything was wrong. Yes, the woman replied. Her husband, for whom she had purchased the boots, had just been killed in a car accident—hence her need to return the boots.

The service rep kindly responded that she didn’t need to worry about a thing. All she needed to do was put the boots outside her front door, and the service rep would take care of the necessary (but nonstandard) process for having the boots picked up and returned. After taking care of that, the service rep spent a bit of time scouting around on the Internet (which is expressly prohibited in many call centers), located the funeral parlor where the memorial service was being held, and arranged for a beautiful bouquet of flowers to be delivered from Zappos. One of the people attending the service posted a tweet on Twitter about the bouquet. The posting went viral, and Zappos earned an extraordinary amount of free PR for this small act of humanity by an empowered call-center employee.

Not too long thereafter, at the ripe old age of 10 years and with only 1,300 employees, Zappos was sold to Amazon.com for roughly $1.2 billion in the midst of the worst economic downturn since the Depression. The “bouquet incident” was just one small part of creating extraordinary economic value, value based on lots of smart choices about how to get the people side of the business right.

Circuit City represents the other end of the spectrum in this regard. In 2008, just seven short years after business author Jim Collins identified it as one of only eleven “great” firms in Good to Great, Circuit City was bankrupt. One of the now-widely acknowledged factors that contributed to its speedy demise was a 2007 decision to fire 3,400 of its most highly paid sales employees and replace them with lower-paid employees.¹³ With the benefit of hindsight, it is now apparent that there was a reason why those 3,400 folks were highly paid—they had the skills, talents, and experience necessary to be successful, and their lower-paid counterparts did not. Because Circuit City did not clearly understand and define the skills necessary for its sales staff to be successful, it failed to properly design its sales jobs. This proved to be a fatal error.

PROCESSES

Another critical nuts-and-bolts factor that shapes whether an organization has a workplace capable of creating value for its customers and other stakeholders is the extent to which it has effective processes in place for getting work done. We have met many senior leaders who believe that they have no responsibility for ensuring that their organization’s work processes are sound—that this is a responsibility that can be delegated to others at lower levels in the organization.

It is, indeed, true that senior executives cannot and should not be involved in the day-to-day minutia of refining and honing work processes. But any number of post-mortem organizational autopsies have revealed that abdication of responsibility on mission-critical work processes can result in a speedy death.

In 2002, Dan and Laurie conducted an analysis of the work, learning, and leadership environment at Riggs Bank. Founded in 1836, Riggs was a proud Washington, D.C. institution, with its main branch perched across the street from the White House. It had successfully branded itself as the “most important bank in the most important city in the world” and boasted that it was the personal banker of more U. S. presidents than any other bank.

In our report to Riggs, we called their leaders’ attention to a dearth of defined processes—particularly with respect to hiring practices and employee training—in its international banking unit. Our warning fell on deaf ears. Within two years, Riggs found itself embroiled in a Justice Department investigation that eventually ended with the finding that Riggs’s international division had violated a number of money-laundering laws. Shortly thereafter, Riggs was sold for a pittance to PNC Bank. Many jobs were lost, shareholders’ value was destroyed, and a venerable 168-year-old institution ceased to exist. Process matters.

CONDITIONS

Conditions is a work environment category closely related to processes. By this we mean decisions and practices, some small and some large, that are made hundreds of times every day. For good or for ill, these decisions create the conditions in which people find themselves working.

Just as people need to floss their teeth, eat right, and exercise in order to have the best shot at a healthy future, organizations have to attend vigilantly to their own “hygiene” factors. It’s not sexy stuff, and hands-off executives would prefer not to be bothered. But people can’t hire someone to floss their teeth or exercise, and organizations can’t outsource this stuff either. Getting the day-to-day, essential discipline right is a critical task in maintaining an organization’s health and its ability to create value for customers and other stakeholders.

Among the conditions that are necessary for an organization to remain healthy and viable are

• a conscious, relentless focus on how to create great value for its customers

• a guarantee that employees have access to necessary materials and technology

• a physical environment that contributes to performance

• a place where learning is valued and new ideas are welcomed

You can get most of this right but be missing one piece of it—and a single piece can prove to be disastrous.

Self-delusion is disconcertingly easy. For example, what might be mistaken as a focus on creating value for customers could, in truth, be a focus on cost-cutting that crosses the line into dangerous. That seems to have been the case at Toyota. The veteran Toyota employees cited earlier believed that the emphasis on cost cutting negatively affected Toyota’s “reputation for safety and quality, which were always its watchwords.”¹⁴

When it comes to workplace conditions, vigilance is the watchword.

ACCOUNTABILITY

Accountability is the key to creating vigilance.

At some fundamental level, all of the corporate disasters mentioned in this chapter are grounded in issues related to accountability:

• The employee deaths, injuries, and financial loss that resulted from the 2005 explosion at BP’s Texas City refinery resulted from an absence of accountability on safety.

• The customer deaths attributable to Toyota’s faulty accelerator resulted from an absence of accountability for adhering to the company’s stated values of quality and safety.

• Circuit City’s decision to lay off its most highly paid sales people suggests that there was a lack of true accountability within the company for the quality of customer service (although Circuit City was ultimately held accountable by its customers).

• Riggs Bank’s descent into oblivion happened because employees were not held accountable for abiding by the law.

These lapses in accountability speak volumes about what a company values most. In all four of these examples, the decisions that ultimately led to these disasters reveal what leaders in these organizations were truly seeking. In each case, maximizing corporate profits was held to be more important than the publicly stated values of the company.

There is no denying that this form of unworthiness can lead to spectacular short-term gains. But ultimately such a strategy is not sustainable. As one of our colleagues is fond of saying, “It’s what you get away with in life that kills you.”

And in a world of increasing transparency, the expected life span of organizations that engage in these unworthy behaviors is likely to shrink. Toyota’s problems in one market quickly spilled over into its other markets. Things can unravel very fast these days.

True accountability requires attention, focus, and effort by leaders at each and every level in an organization. But it cannot occur without the authentic commitment of leaders at the very highest level of an organization, including the Board of Directors. It demands that employees at all levels—from the CEO and senior leadership team all the way down to the factory floor—be held accountable for producing quality work and exhibiting decision making and behaviors that are consistent with the organization’s commitments to customers and other stakeholders.

The litmus test for this is an organization’s systems for making promotions and determining compensation (including, very importantly, bonuses). If, for example, promotions and/or bonuses are based almost exclusively on meeting short-term profit targets, there will be enormous pressure for employees at all levels to meet these targets at the expense of whatever stated principles exist, or even at the expense of customers. This short-term focus is a path that moves organizations toward unworthiness.

FAIRLY COMPENSATING EMPLOYEES

In addition to creating a culture in which employees can and will perform at their best, fairly compensating them is an essential, foundational element of being a worthy employer. At some level, this is pretty simple stuff. Wages and salaries are easy to measure, and there are a variety of sources for easy benchmarking across employers, jobs, skill levels, and experience. Benefits can be trickier, but sources are also available in that domain to help employers identify appropriate levels of benefits.

At the end of the day, fairly compensating employees is hardly sufficient. While there are always some individual exceptions, survey after survey reveals that the top drivers of employees’ commitment to their employer (measured either by voluntary turnover rates or an employee’s intention to remain with an employer) has much more to do with other culture elements (such as the factors discussed above) than with compensation.¹⁵

For example, studies find that primary contributors to employee commitment include

• management concern for employees and customers¹⁶

• participation in decision making and autonomy, along with supervisory career support (information, advice, and encouragement)¹⁷

• nonmonetary recognition and competency development¹⁸

It’s much less expensive to stimulate employees’ discretionary effort through these nonmonetary practices than to attempt to purchase it through above-market compensation packages.

Learning

The ability to learn is an increasingly essential attribute for individuals and organizations around the globe. Globalization and changes in technology have both separately and together resulted in what economists blandly call a “skill-biased” economic evolution. That is to say, there is an increasing return to knowledge and skills. As a result, all economic entities around the globe—individuals, families, employers, and governments—are increasing the resources they devote to education.

There is an increasing return to learning for all who invest in it. But therein lies the catch-22. Investing requires a long-term focus; it requires an ability to balance the tradeoff between profits in the here-and-now for greater returns in the future.

Short-termism contributes to a chronic tendency on both the part of employers and individuals to underinvest in learning. Those who are able to overcome this tendency are rewarded handsomely for doing so.

Learning is an economic elixir. It makes both people and organizations more adaptable, more able to respond to change, more nimble. It serves as the bedrock for innovation; it is impossible to innovate without learning something new. And when it occurs in workplaces, it is one of those rarest of opportunities—where employers’ and employees’ incentives are in perfect harmony. In the vast majority of cases, it makes both better off.

There is one important exception. When learning is used to improve efficiencies that ultimately lead to employees being laid off, there is understandable reluctance on employees’ part to play ball. This, in turn, leads to stagnant environments where innovation is unlikely to occur, and decline is not far behind.

In an environment where learning thrives, it occurs in two ways: formally and informally. Both are critical in increasing an organization’s ability to create value.

FORMAL LEARNING

Because of its long-standing commitment to employees, the Container Store’s annual employee turnover rate is in the single digits. (This compares with turnover rates in retail stores that are often in excess of 100 percent annually.)

While low turnover carries with it significant organizational benefits of its own, it has a huge side benefit as well. The Container Store makes unusually large investments in employee training—with a full-time trainer assigned to each of its retail stores. It is able to make this investment because it is confident that its employees will be sticking around long enough for the company to reap the benefits of the investment. Employee training, in turn, makes employees more knowledgeable, less frustrated, and hence, less likely to quit, all of which produce delighted customers.

The result is a virtuous cycle of low turnover, value created for the company’s delighted customers, and profits that then fuel additional investments. This is just the opposite of the vicious cycle that other retailers too often create when they fail to invest in employees: generating high employee turnover rates, dissatisfied customers, and ultimately razor-thin profit margins.

Symphony Services, the India-based technology company, is another example of how a company in an improbable industry uses investments in employee training to create an extraordinary competitive advantage. The labor market for technology workers in India is extremely competitive, with an average annual employee turnover rate of about 30 percent. Many employers conclude that because of this high turnover rate, they can’t afford to invest in employee training.

Symphony Services turns that logic on its head. It makes huge investments in developing its employees’ skills; and then, because their employability is enhanced, they paradoxically don’t need to look outside the company to hone their skills and stay competitive. The large investment that Symphony Services makes in its employees provides them with the wherewithal to leave, but there is no need for them to do so.

As a result, Symphony Services is growing by leaps and bounds and is on a buying binge—acquiring other technology companies across the globe.

INFORMAL LEARNING

The means by which employees learn informally can be just as important (some argue even more important) than formal learning. Increasingly, work and learning are becoming blurred. Need to know something right now to help you get a task accomplished or a question answered? Just do a quick Internet search, and you are likely to find exactly what you need. Need to know who in your company knows the answer to your question? Just look on the company intranet to find the expert in that area who can quickly get you the knowledge you need. Need to be able to troubleshoot a problem? An electronic support system is likely to be able to help you figure it out. Just-in-time, bite-size learning increasingly happens all day long in many organizations. And it looks very much like work.

With over 40,000 employees disbursed around the globe, and 75 percent of its revenues this year coming from products that didn’t exist at the beginning of the year, technology company EMC is a good example of how informal learning can propel a business forward. With such short product-life cycles, standard operating process and bureaucratic decision making are precursors to death. And so EMC relentlessly promotes social networking as a way of getting work done faster, speeding innovation cycles, and reducing travel and meeting costs.

Got a problem that needs to be solved at EMC? No need to call a meeting—throw it out to EMC’s social network and they’ll solve it for you in a fraction of the time and cost that would be required through traditional ways of working and learning. Polly Pearson, EMC’s former VP of Employee Branding, is a zealot about the economic value that EMC’s social network creates.¹⁹ But it isn’t all about revenues and profits. With pride in her voice she shares the story of a young Asian EMC engineer who was diagnosed with an aggressive form of cancer that required an immediate bone marrow transplant. His doctors told him that because of his ethnicity, he had a zero percentage chance of finding a donor match. Not content with this answer, Polly threw the problem out to EMC’s social network. EMC employees, in turn shared the problem with their social networks—customers, competitors, and friends. In short order, two perfect matches were found.

There is no value that can be placed on that. It makes people proud to be at EMC. It makes them more willing to contribute to EMC’s mission and makes EMC more worthy of the gift of their discretionary efforts. It fuels another virtuous cycle.

Creating Business Intelligence for Being a Good Employer

So back to the beginning. Balance—masterfully managing the tension inherent in employees simultaneously being a major cost and a major asset to their employers—is the trademark of a worthy employer.

Traditional systems of measurement, which are so key to running a business, often make it more difficult to be a worthy employer. Although CEOs proclaim “Employees are our most important asset,” employees are nevertheless measured as costs. In addition, in publicly traded firms, investments in employee development are counted as overhead costs in annual reports and financial statements. Hence, one way to boost profits in the short run is to cut these costs.

But doing so increases the likelihood that future productive capability will be harmed, since those cut “costs” are actually investments necessary for future production and growth. In essence, traditional measurement fuels short-termism. For publicly traded companies (particularly those in the United States, where the influence of financial markets on management practices has been so pervasive), this has resulted in a chronic tendency to underinvest in the people side of the business.

At some level, of course, it makes sense for employees to be accounted for as costs. After all, they are not owned by their employer—and that is a good thing. But the lopsidedness of traditional measures does get in the way of balance. And hence, it gets in the way of being a worthy employer.

There is a nascent movement underway to correct this imbalance by collecting, compiling, and analyzing data in new ways to create true insight—actionable business intelligence—that helps employers better measure (and therefore manage) employees as both costs and assets.

The basic idea is pretty simple: it relies on taking disparate pieces of data and combining them in such a way as to create understanding that is not evident to even the most tuned in and intuitive of managers (or, for that matter, to anyone staring at mountains of unfiltered data).

Google, not surprisingly, is one of the pioneers in this regard. For example, in 2006 Google conducted an extensive survey of all of its longtime employees, with questions touching on personality, behavior, and other characteristics, such as pet ownership. The company then linked the data to various performance outcomes, including results of employee reviews and a measure of contributions to the company as a whole. The resulting analysis yielded insights on employee traits that were tied to better performance in a variety of job areas. Google then started looking for those job-specific characteristics as it hired new employees.²⁰

Similarly, Google recently began to analyze data from employee reviews, promotion, and pay histories to identify which of its employees are most likely to quit (getting “inside people’s heads even before they know they might leave,” according to an HR executive at the company)²¹ and then to work proactively to address their concerns before they actually take steps to leave. By using existing data both to identify potential new hires who are most likely to contribute to organizational success and to retain valuable existing employees who might be inclined to leave, Google is using “human capital analytics” to improve its capacity to create value.

Thus, the tools now exist that allow more organizations to apply analytics to create actionable business intelligence on the people side of the business. Done correctly, this has two benefits: It enables organizations to more efficiently create value for their customers and others. Simultaneously, it enhances their capacity for long-term commitment to their employees by providing quantitative information that can counterbalance the cost-focused nature of the standard accounting system. It makes it easier for organizations to develop the virtuous cycles described earlier in this chapter.

In order for this nascent movement toward more insightful business intelligence to have the greatest possible effect on the people side of an organization, however, it’s first necessary for organizations to move beyond the broadly accepted focus on employee engagement that exists within most HR departments. Attention paid to employee engagement is currently the primary mechanism that reflects an organization’s recognition that employees are assets as well as costs. Unfortunately, it has little, if anything, to do with how work gets done and value gets created in an organization. It is entirely possible, for example, that employees may be fully engaged—in the flow—in an organization with rampant inefficiencies, poor hiring decisions, and no significant organizational learning.

Organizations should not fall into the trap of equating employee engagement with business results. While engagement is necessary to produce results, it is not sufficient; and the two should not be confused with one another.

Moving beyond employee engagement toward measures that truly reflect employees’ central roles in their organizations’ creation of value will require that organizations begin to get serious about human capital analytics. Google is showing the way.

Inspiring Purpose

Goodness as an employer requires more, though, than sound metrics and more than the other ingredients we discussed above, such as a commitment to employees. It also requires an inspiring purpose. By purpose, we mean two things. In the first place, we refer to the “for whom” question—the people the company is designed to benefit. Then there is the “for what” question—what is the company trying to achieve?

For a long time, the “for whom” question has been answered by companies in a narrow way. A “maximize shareholder value” philosophy has governed many companies over the past several decades, indicating a dominant focus on company owners (and typically top executives, who received large quantities of stock or stock options) and little concern on the part of firms for their workers or the communities they touched.

Increasingly, though, companies are expanding what we might call the people purpose to include employees as stakeholders. Whether explicitly written into company bylaws—and demonstrated through workers owning stock—or implicitly adopted as an ethos, a stakeholder mindset helps ensure that companies will treat workers with dignity and respect. Remember HCL Technologies: its Employees First initiative is both a business strategy as well as a declaration that employee welfare is central to the company.

As HCL’s strong results in recent years indicate, a broad people purpose also can spur employees to put forth their best efforts. After all, the workers know they have a serious stake in the organization’s success.

A compelling “for what” purpose also can bring out the best in employees. A cause that fires up the imagination, stirs the spirit, or otherwise taps our better nature is likely to make us work hard and feel alive on the job.

It may be a grand vision such as IBM’s goal of a “smarter planet.”²² “To fill the earth with the light and warmth of hospitality” is the mission of Hilton Worldwide. FedEx has updated its shipping services mission to include greenness as a goal—it now aims to “connect the world in responsible and resourceful ways.”²³ The ambition also can be more modest.²⁴ Former Coca-Cola CEO Roberto Goizueta used to focus on the way the company’s soft drinks helped small merchants make a living.²⁵

The point is that it is a moving mission. This is an old, intuitive idea, one rooted in traditions such as community barn raising and cathedral building. The importance of purposeful work also has reemerged recently. A “noble cause” is critical to the highest-performing teams and organizations, according to authors Dave Logan, John King, and Halee Fischer-Wright. In their 2008 book Tribal Leadership, they estimate that less than 2 percent of workplace cultures have arrived at the ultimate, fi fth stage, including the team that produced the first Macintosh computer. Such teams or “tribes” have transcended concerns about individual achievement or even winning against other groups.²⁶

“Their language revolves around infinite potential and how the group is going to make history—not to beat a competitor, but because doing so will make a global impact,” the authors write.²⁷

In his 2009 book Drive, author Daniel Pink draws on a range of scholarly research to question the conventional wisdom that rewards and punishments are all you need to motivate workers.²⁸

Companies “should move past their outdated reliance on carrots and sticks,” Pink says. “That was fine for simple, routine 20th-century tasks. But for creative, conceptual 21st-century work, companies are much better off ensuring that people have ample amounts of autonomy and that their individual efforts are hitched to a larger purpose.”²⁹

Many companies today fail to spell out such a larger purpose. Instead they often set out business goals with a laser-like focus. Sure, it’s wise for businesses to specialize in a particular niche with products or services. But firms seeking an inspiring aim cannot limit their vision to something as cramped as, say, “providing the best room-reservation software for the high-end hotel market.” It’s hard to imagine workers getting fired up about such a narrow purpose.

For most companies, though, there’s a way to tie what they do to a broader goal that moves people. Remember Coca-Cola helping small merchants earn a living. Or if you’re making room-reservation software, you could link your company’s product with that larger vision that Hilton espouses. Perhaps something like: “We make it possible to spread the warmth of hospitality.”

It’s the old adage about the two bricklayers. One says he’s making a wall, while the other says he’s helping to construct a soaring cathedral. Which do you think is pouring more of his soul into the work?

That said, a lofty-sounding corporate purpose will fall flat or lose its uplifting power if it is not genuine. If a company claims to be about environmental stewardship but cuts corners on pollution controls or routinely puts short-term profits ahead of the planet’s health, it will not fuel employee passion or optimal performance.

A stirring, inclusive vision not only helps inspire employees on a daily basis but also can buoy an organization during tough times. Consider Beth Israel Deaconess Medical Center and a 2010 scandal it weathered involving CEO Paul Levy. Levy was fined $50,000 by the hospital for “poor judgment” regarding a personal relationship with a former female employee.³⁰ Officials with the Massachusetts Attorney General’s office probed the matter, finding that the woman was the only nonphysician director who received a bonus in all four years they reviewed. They also found that the positions she held at Beth Israel were newly created for her and not filled after she left. The investigation, though, found no evidence the hospital misused charitable funds to pay the employee’s salary, travel expenses, or severance.³¹

Levy apologized in 2010 for his “errors of judgment in this matter.”³² He resigned from Beth Israel the next year, saying he needed “new challenges.”³³

It’s hard to say whether Levy steered clear of more serious lapses because of the hospital’s ethos of treating “patients with the utmost respect and compassion, like our own family members and friends.” But that mission seemed to help the organization remain on an even keel even as the scandal unfolded throughout 2010. Board president Stephen Kay told the Boston Globe in September that the hospital was having “a great year,” adding “we have more patients than we’ve ever had before.”³⁴

The company also appeared to remain a good employer overall. In late 2010, Beth Israel spent $3 million in appreciation bonuses—$500 for full-time workers and up to $250 for part-time employees.³⁵

Cynics might see this as Levy trying to buy back the sympathies of his employees. But even before those payments were announced, and despite the scandal, some Beth Israel employees were giving the hospital high marks on Glassdoor.com. In August, a clinical research assistant rated the organization a 4 out of 5. Despite noting that “some internal competition and politics makes (the) workplace awkward at times,” the employee called Beth Israel a “great place to work,” citing learning opportunities and a “friendly, supportive staff.”³⁶

The hospital, in other words, continued to strike a balance between treating employees as costs and assets. All companies seeking to be good employers must do this. By caring for workers, being careful about how they’re managed, and providing them with a compelling overall purpose, companies will find they can be good to their employees and to the rest of their stakeholders.

CHAPTER SEVEN SUMMARY

The phrase good employer evokes images of generous, nice companies. While such attributes are part of the equation, being a good employer is more complex—and more difficult to achieve. There are many moving parts, tradeoffs, and judgments that companies must make with respect to employees.

The framework we provide is largely the product of two decades of research and client consulting by Laurie and Dan. It consists of three main elements: a value-creating organization committed to employees, sound data analysis, and an inspiring purpose.

A Value-Creating Organization Committed to Employees

• Great places to work also have to be places that create value for customers and owners. Only those organizations are capable of a long-term commitment to employees, which creates a virtuous cycle that brings out the best in employees—who in turn create value.

• Beyond commitment, the necessary elements fall into three primary categories: leadership, work, and learning.

1. Leadership boils down to what leaders say and what they do—their communication and their behavior.

2. The work environment consists of multiple components, including hiring practices, job design, work processes, conditions, accountability, and compensation practices.

3. Learning includes both formal and informal means for fostering employee skill development and knowledge sharing.

Creating Business Intelligence for Being a Worthy Employer

• The trademark of a worthy employer is the ability to masterfully manage the tension between employees as costs and employees as assets.

• The accounting system currently treats employees as costs. This creates constant balance sheet incentives to reduce expenditures in this area, without regard for employees’ value creation.

• Collecting, compiling, and analyzing data can create actionable business intelligence that helps employers better measure and manage employees, as both costs and assets.

Inspiring Purpose

• Goodness as an employer also requires an inspiring purpose by which we mean two things.

1. The “for whom” question. Whom is the company designed to benefit? Companies ought to expand their purpose to include employees, not just shareholders, as stakeholders.

2. The “for what” question. What is the company trying to achieve? A cause that fires up the imagination, stirs the spirit, or otherwise taps our better nature creates an environment where people work hard and feel alive on the job.

Good employers, then, are at once caring, exacting, and stirring.