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27 Reasons To Invest In People: The Evidence Keeps Mounting

67 percent of customers leave because of an attitude of indifference on the part of a company employee. (American Society for Quality, 2000) Enthusiastic workers often increase the quality of work by huge percentages-up to a 75 percent reduction in defect rates. (Sirota, Mischkind, and Meltzer, The Enthusiastic Employee, 2005) Business units with employee engagement scores in the top half compared to those in the bottom half reported 86 percent higher customer ratings, and 50 percent higher productivity (Coffman and Gonzalez-Molina, Follow This Path, 2002) The average cost of losing, replacing, and restoring equivalent productivity when a valued professional leaves, is on the average, one times salary. (Saratoga Institute study, 1997) Companies in the top quarter in training expenditure per employee per year ($1,500 or more) average 24% higher profit margins than companies that spend less per year.(Susan J. Wells, HR Magazine, 4/19/2001) Organizations that view their people strategy as a source of competitive advantage outperform those that do not by a margin of more than two to one, delivering a median shareholder return of 109 percent between 1996 and 1998, versus 52 percent for other employers. (Watson Wyatt,1998) The 20 percent of Taco Bell stores with the lowest turnover yielded double the sales and 55 percent higher profits than the 20 percent of stores with the highest turnover rates (Jac Fitz-Enz, The ROI of Human Capital, 2000) GTE found that a one percent increase in its Employee Engagement Index resulted in nearly a .5 percent increase in customer satisfaction with service. (Ulrich and Smallwood, Why The Bottom Line ISN'T, 2003) Based on a comprehensive review of the research, revenue gains of 40 percent or so can be realized by companies implementing work practices that result in high employee commitment. (Pfeiffer, The Human Equation, 2000) Public companies in the top 25 percent based on number of performance management best practices in use achieved a 7.9 percent higher total shareholder return (Hewitt Associates, 1996) Stock growth of public companies on Fortune magazine's Great Places in America to Work outperformed companies on Standard & Poor's by 133 percent to 25 percent for the five-year period 2001-2005. (Great Place to Work Institute, 2005) An additional 26 percent of shareholder value was attained by companies with significantly better people management practices. (Watson-Wyatt Human Capital Index, 2002) 41% of employees at companies with poor training plan to leave within a year vs. 12% of employees at companies with excellent training (American Society for Training & Development, 2003) A five-point improvement in employee commitment on a Sears employee survey drove a

1.3 percent improvement in customer satisfaction, which in turn drove a .5 percent improvement in revenue growth. (Rucci, Kern, and Quinn, "The Employee Customer Profit Chain at Sears", Harvard Business Review, 1998) Over a five year period (1996-2001) companies with effective human capital management practices (human capital index scores) achieved a 64 percent total shareholder return vs. 21 percent for low human capital index scores (Watson Wyatt, 2002) A five percent increase in employee retention at advertising agency Leo Burnett increased productivity by more than 20 percent and profits by 50-100 percent. (Reichheld and Teal, Bain & Company, 1996) A study of 30 steel mini-mills, some characterized by a "control" management approach, and other based on a "commitment" style with more training, decentralized decision-making, small-group team problem-solving, higher wages, and a higher-skilled workforce, concluded that "commitment" mills required 34 percent fewer labor hours to produce a ton of steel and showed a 63 percent better scrap rate. (Ichniowski, Shaw, and Prennushi, 2000) Human capital practices that most drive shareholder value are: Above-market pay, linking rewards to performance, competitive benefits with choice, commitment to performance management, flexible/collegial workplace, high trust in senior leadership, and managers that demonstrate company values. (Watson Wyatt Human Capital Index Study, 2002) Companies that successfully implemented "high performance work practices" and increased the use of such practices by one standard deviation achieved, on average, a seven percent decrease in turnover, and, on a per-employee basis, $27,004 more in sales, and $18,641 and $3,814 more in market value and profits, respectively. (Huselid, 1995) After factory floor workers were given the training and freedom to make repairs to their own equipment rather than having to call a supervisor every time they had a problem, they reported fewer occupational injuries and increased job satisfaction. (University of Sheffield, 1990) High-performance people systems are those that include "rigorous recruitment and selection procedures, performance-contingent incentive compensation systems, management development and training activities linked to the needs of the business, and significant commitment to employee involvement. (Becker and Huselid 1998) Top performers, or "A" players" in any function (not just employees in sales generating or billable positions) create from 80 to 130 percent more value than "C" players (Michaels, Handfield-Jones, and Axelrod, 2001) Companies that spend $273 per employee per year on training average 7% voluntary turnover compared to 16% for companies that average $218 per employee per year. Carroll Lachnit, Training magazine, September, 2001) High-performing companies share a set of general practices that lead to superior economic results: 1. reasonable job security,

2. highly selective hiring,

3. higher pay,

4. strong autonomous teams with decentralized decision making,

5. reduced status distinctions,

6. extensive training,

7. open information sharing,

8. linking of performance and reward (Pfieffer, 1998) Non-financial human performance, culture, and leadership factors drive at least 35 percent of a company's evaluation by stock analysts and investors.(Ernst & Young) According to one long line of research, differences in the quality of enterprise-wide people systems can increase a firm's market value by as much as $73,000 per employee (Huselid, et.al.) 50 percent of HR executives report that their companies are increasing their investments in tracking the impact that metrics such as turnover rates, productivity, and employee morale have on the bottom line. (Workforce Management, 2004) Enlightened CEOs already understand one undeniable conclusion from all this research-that investing in people is the surest path to business success, especially in a time when there are more jobs than people to fill those jobs. Other CEOs, who focus more on short-term returns than long-term success, who still believe in the "cannon-fodder" theory of human resources, who still insist that money is the main motivator, who are distracted from the organization's best interests by their own greed, or whose leadership ability is hampered by the limits of their emotional intelligence, may never be persuaded. Even so, smart, caring, and well-informed HR leaders must not give up the fight to educate and influence executives to do what is in their own intelligent self-interest and the long-term interest of the business to do. And when senior leaders respond by saying, "but we are already successful" the appropriate reply must be: "and think how much more successful we can be!"


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