Bonus Episode: The Employee Engagement Industry Has Failed

[Music] hello everyone welcome to the 21 hats podcast I'm your host Lauren Feldman in this week's bonus episode Bill fch a business consultant explains why he thinks much of the effort that he and many others have put into creating Employee Engagement over the past three decades has been a wasted effort well-intentioned but wasted the fact is PCH says employees today are no more engaged than they were some 30 years ago when the concept of Employee Engagement first G currency so what's the answer fch has come to the conclusion that it's something he calls economic engagement which happens to be the name of his Consulting business what exactly is economic engagement he says it's getting employees to focus on serving customers and doing so profitably he says it's not so much about sharing financials with employees but about getting employees to understand the strategies and actions that really drive a business's profitability botch is so convinced that he's cracked the code that he's gone beyond mere Consulting and has been buying stakes in businesses so he can Implement his ideas and prove his concept so far he says it's working even in Good Times owning and running a business can be a lonely Pursuit our hope is that these weekly conversations brought to you by our sponsor the great game of business will let owners know they are not alone in facing challenges same thing with our daily newsletter the 21 hats Morning Report which in magazine named the best newsletter for business owners and which you can subscribe to for free fre at 21h hats.com where you can also find transcripts of our podcast episodes and lots of other articles and interviews joining me on this episode is Bill fch the episode is titled the employee engagement industry has failed welcome bill it's great to have you here you've spent decades working mostly with privately owned companies and you recently had an epip that things haven't gone over the last few decades quite the the way maybe you thought they would and you think there's a better way uh of running businesses can you tell me what it is that you've realized thank you Lauren I I think that's really an apt question because I I actually found that I was in the employee engagement industry and didn't even know it explain that maybe that's like a lot of good discoveries what what I mean by that is as follows 30 years ago I started in this space it just so happens that 30 years ago William Khan a professor coined the phrase Employee Engagement and about the same time Gallup came up with their g12 which was a measure of Employee Engagement by the way I didn't know either of those things 30 years ago well if you look at the original g12 data on employee engagement it said that less than a third of employees were engaged at work and it was like it was a very damning thing did that get a lot of attention 30 years ago oh yeah I mean it's it fundamentally created an industry and it was the employee engagement industry and and gallup's not the only company but I think they're certainly uh one of the most prominent and they have their g12 here's how you measure Employee Engagement and so that was happening I was just working with companies to improve Financial results in the lives of the employees that was I we we didn't even use the phrase Employee Engagement in any event 30 years later the same measure same g12 measure of Employee Engagement that gallop is Champion the data they share says that less than a third of employees today are engaged to work so 30 years later nothing has changed but it's but we've spent billions of dollars countless research I mean which company you know it's sort of like the quality industry only it's sort of worse because they didn't go anywhere which company you know of that is not talking about Employee Engagement well but at the same time we've just been through this period post pandemic with the great resignation as it was labeled which was kind of the the sudden discovery that people wanted more out of their work hours that they wanted purpose they wanted to care about what they were doing and that they were willing to and eager to switch jobs to find that and and and a better paycheck of course but purpose mattered yeah do you think purpose didn't matter 5 years ago we weren't talking about it as much I'll take that point and I and I I think I agree with that but when when did purpose start becoming important or when did purpose get lost and put another way for 30 years I've been working on improving the business results and of course the lives the employees that drive those results so it was all about purpose and and very measurable purpose you spent a cple couple of those decades working at the great game of business which happens to be my sponsor where the the focus is on opening the books to help employees better understand what drives the business and get more engaged in the business that was a privilege and that was 19 years of my life focus on that and was it uh was it great absolutely did I learn both boatloads from Jack back and the the rest of the crew at great game without question so nothing but Applause by the same token over time I I had another Epiphany this was in 2008 2009 because I was working with a variety of coaching clients in those days very much as part of great game coaching and the economy tanked I remember that anybody who was working with a business remembered that and every one of the clients I had had exactly the same problem a shortage of Revenue and a surplus of costs so suddenly The Epiphany was we really got to get after revenue and it just so happened there had been visibility to Fred Reichel and net promoter score but it was picking up momentum and I want to tell you we were desperate I we were trying all kinds of things you know all kinds of different companies and my compens was tied to their results so I had more than a casual interest and part of the problem was there were more and more marketing dollars chasing fewer and fewer sales so that ratio kind of went to hell so I mean it was it was a tough time but we were getting sort of strange results some companies would give us really strong scores but then we'd ask you know anybody that would value the same sort of things that you know our company provides and they were kind of quiet and then only had folks that gave us mediocre net promoter scores but they would give us two and three different companies that they thought would be valuing the same sorts of things that our company had I started realizing the number wasn't nearly as important as understanding the why and the dialogue with these customers and that became a new insight into what we're doing because whether it's great game of business business or open book management there is at best a tangential reference to customer and customer is at the core of what any business is about like of course John case and I ended up writing an article that John case has been your co-author he happens to be the former Inc reporter who coined the phrase open book management precisely correct but when John case and I co wrote I believe the title of the article was open book management 2.0 we call it economic engagement and it wasn't to say anything that that was bad about open book management but it was to say but there are some additional things that you want to consider to be that much more successful and and the the notion of customer was absolutely one of those things what changed in your mind in a way it was kind of simple and it was SW to some extent by the research that we've been doing over the last several years kind to test this hypothesis and that is that if you look at the galop 12 questions you will not find the word customer or profits anywhere in there and by the way this isn't just Gallop 12 if you look at most measures of Employee Engagement you will not see the word customer you will not see the word profits because the focus of the questions is fundamentally how can we the company serve the employees which is you know it's kind of like a nice thing but you're saying that the focus was on serving the employee not serving the customer or the or the business yeah and the that may sound like a small difference but it's kind of huge there are a lot of businesses who say I put my employees first if I take care of my employees they'll take care of the cust customers I understand and that I would call is Honorable and a leap of faith how do the employees actually know the specifics of what the customers need or want what are the boundaries around what they can or cannot do which starts bringing in the economics so I I'd simply say when um when Kodak went out of business because they were for years and years and years and years and years I mean they built housing for their employees that they treated them incredibly well was without question and they ended up letting most of them go so what you're telling me is over that 30-year period you're describing the massive interest in Employee Engagement that sprung up not only failed to increase Employee Engagement it didn't serve the businesses either yeah I think folks would argue that point and I'd love to be involved in the argument because they can come up with particular companies that are known to be strong in Employee Engagement Costco I'm a big Costco fan that would be an example but I know the folks at Costco including some members of the management team and the notion that they are not focused on the customer is laughable so it's the lack of focus on customer and then the reason I throw in profits is if you're serving customers unprofitably then you don't get to do that very long so if you're really going to have employees that are at the big table right thinking acting if if you're a great game of business thinking and acting like owners I I I tend to like the word partner but thematically it's meaning the same thing they need to understand what the fundamental purpose of the business is which I would think is real simple serving customers and doing it profitably when our country was agrarian like 100 plus years ago and most folks worked in a family business often times a farm or ranch or dry goods store you know a Foundry the distinction between the folks that own the company and the folks that were running the company just kind of didn't exist they tended to be one and the same we've lost that connection as a function of the Industrial Revolution which was a great great advance but now as we move into what most folks would have recognized for years is the knowledge Society how do you capture the hearts and minds of the employees if you're not talking about serving customers and doing it profitably I just I I don't know how to do that so what does that mean what are companies not doing that they should be doing it really spills right into the research that we did because we had to Define these things really precisely in order to measure whether they exist or not explain the research you you did this you embarked on this research to see if you were right that Employee Engagement hadn't improved it wasn't designed around Employee Engagement although that we we kind of arrived at that perspective it was really centered around what originally was called um open book management but evolved into what we now call economic engagement because the fundamental differences were just two and that is one a much more focus on the customer and I'll get back to your question there okay and then number two is not so much focus on the financials but understanding the economic drivers that drive the financials so in an engineering firm for instance that I I worked with we spent no time looking at the financials we spent all kinds of time looking at Revenue per paid hour which was something that everybody understood and what drove the economics so back to the question you posed centered around what we tested what we tested was does what we now refer to as economic engagement does it drive improv business results that that was our test question then we had to Define exactly what we meant by economic engagement there were five drivers it starts with customer engagement and then uh economic understanding transparency performance-based compensation and employee participation and each one of those five things were broken down into three questions that we would ask folks and they would be able to objectively say always sometimes never and that allowed us to in effect score but as it relates to specifically to the customers uh I I don't have it in front of me but I'll get it pretty close one of the questions as an example is do you systematically have conversations with and capture what employees value on a regular basis what employees value or what customers value I said employees thank you very much what customers value if any of your audience is interested in seeing where they stand um we can provide them the link they can do the survey themselves sure please send that to me and I'll include the links in the show notes for the podcast what we found was that again what we called economic engagement that we were testing to see whether it drove Financial results what we found was kind of astounding and that is out of eight waves of research with 50 to 150 companies per wave two of which were done in Switzerland all of the rest were North America what we found is if the companies that were in the top quartile of of economic engagement had double the profit grou of the peer group and the peer meaning the average and the peer group had more than double the profitability of the bottom quartile well when you see that once it's pretty interesting when you see it eight times as my uh Harvard Business School buddies would say because they were helpful in the research the likelihood that that is statistically significant is pretty high so I'm struggling a little bit with understanding the difference between open book management and economic engagement as you describe it and I guess I would point out first of all I would guess that most of the people listening to this podcast are only Vaguely Familiar with open book management to begin with I think many people are generally aware that the notion behind it is that you show employees the books so that they understand how the business works and for example they see profit margins for different product lines and they get a sense of which products to emphasize that to me sounds like economic engagement how are you distinguishing between the two yeah so the the fundamental starting point is different the the starting point is not sharing financials the starting point is reaching out and speaking with your customers and understanding what they value Because unless you know that you you can't intelligently talk about the economics because the economics are defined by what your customers value no I have not said anything about opening the books once did I so how do you create economic engagement so the point is so you create economic engagement by one understanding what your customers want to Translating that into a uh a metric that defines the economic objectively in your company number three is make that make sure that that is transparent throughout the organization do you notice I still haven't said the financials and it's not that it's not that financials are bad or the financial literacy or teaching employees about financials is a bad thing it's just not a necessary thing you're kind of suggesting it's Overkill that you can just focus on a subset rather than the whole yeah and you can get people sort of rallied around what are the customers telling us they really need how does that translate in terms of how we measure what we're doing and we can start making that very transparent even tie an incentive system TI it and then recognize folks that are participating and making good moves and improving it and again I I didn't mention the financials once we may share with them that in fact after the that yeah it's it's driving the numbers and over time they may come come to understand that but the notion of Starting by explaining the financials is just it's it's not as productive a way to go it's a lot of work it it really is and the other thing that's true is because I've seen this happen we're pulling everybody to together today and we're going to teach you about the income statement and the balance sheet Envision what the faces of the people look like as they're entering that room well I I've been in some of those rooms and I I know what you're referring to and I know it can be hard to get there but I have been in those rooms with people who have kind of gotten there and who appreciate what those numbers mean and take it very seriously if you know they're responsible for a light item and it's not where it's supposed to be it can be an inspiring thing to see when when it's working I'm sure you've seen that oh again I want to say it's not that that isn't Noble or well- intended I'm just saying most of the time it's not I understand could you walk us through an example you consult with a company and you want to bring these thoughts to Bear where do you start can you give us an example of how it unfolds and what difference it makes it's actually pretty straightforward so it's what do we hear from our customers what do they value if the company doesn't already have that then there's a customer survey that we arm them with so that's that's one data point the second data point is let's get the input from our employees but again very different than the um like the Gallup 12 Employee Engagement uh questions it's questions along the lines of what's the biggest opportunity for improving results at the company what's the biggest opportunity for increasing our sales by further delighting our customers is questions along those lines and what we found to be useful is doing that with both employees and with the management team but separately so we can see whether the management and the employees have a similar or different perspective next we're going to look at the financials classic Financial Trend analysis so in the financial Trend analysis first and foremost we're going to look at whether they're hugely in debt and and if they're hugely in debt and cash flow negative then the financials are screaming and we're going to have to do something about cash but nonetheless looking at what are the financials telling us about the circumstance of the company so pulling that data together is we ask them exactly the same questions as we did in the research on economic engagement so we can see front end where they stand on customer engagement on economic understanding on transparency on employee compensation and participation it's almost like going to a physician an internist and getting a sense for the entirety of your health condition and then once we have that we're typically going to go through all of that information because we G at all at the same time we're going to go through that information with a working group of like not less than four and not more than 10 individuals that make up the leadership of the company ideally including a couple of I I'll call it employee leaders and when we're going through that we ask each of them to think as though they were the president of the company and this data was prepared for them alone for them to help them think through what are the key issue or issues associated with the company now we've gone through all that data in a working meeting that typically takes about an hour and a half in the first half we're going through all the data now we're going to ask everybody to report out what did they see as the key issue or issues facing the company not for all time but for the like the next year and everybody reports out so we go from that individual perspective on the key issues to a group perspective on what the key issues are once we've got that group perspective we say okay what would be an objective measure that would deal with those issues I'm thinking about uh Adams Beasley a uh Remodeling Company um that I started working with in 2018 and went through that process where they came out is gross margin dollars per job does that you know they they do large jobs and it was a combination of more jobs was good but higher margin percentage was also good and the net margin dollars and the product of those two really drove or addressed the various issues that they had brought up with that we said great okay now what we need to do is three things because we've got the input from the customers we've got the input from the entire organization we've distilled it down to that economic understanding right that thing that we're going to drive now we got to make it transparent that's called a scoreboard so we're making it transparent so everybody can see what's going on but everybody can also see how they fit into the puzzle and commensurate with that we put together a incentive plan so if we're successful at improving that performance metric then how much is that worth and a portion of what we're creating goes to the employees the rest days with the company and the final thing is then roll out uh final thing in terms of launching it is roll out where we're just laying out for everybody hey here's what you told us here's what developed out of this it sounds like that conversation LED you pretty deeply into financials you know talking about the company realizing that more jobs is good but the margin on those jobs might be more important you know that's a financial analysis isn't it the comment I would make is a couple fold typical financials would do not show that but it's not a conversation that comes up just by asking how can we better serve the customers yeah but suffice it to say that Financial Trend analysis is absolutely one of the things do we do in the front end of this but input from the employees on ious jobs input from the management on various jobs and their thoughts about what are really the important things to drive the business were at least as important and most of the time um Lauren I find that there's a certain amount of confirmation because the it's like what the customers are telling us oh what the employees are telling us oh what the managers are telling us oh what the financials are telling us it's it's not all that common that those are like four areas pointing in completely different direction but the the the point that I was going to make though is you could say we're like kneed deep in the financials or you could say we're not at all on the financial it kind of depends on your definition of what the financials are we spend zero time talking about here's what the monthly income statement and balance sheet looks like zero we spend all the time focus on in in the outset right right in this first year we spent all the time saying hey how can we increase our gross margin dollars and of course that means we got to get really tight with our customers and it's all kind of nuance things like when a customer asks for a change order are we getting compensated for that you spent most of your career as I understanded as a as a consultant but you believe in what you're saying here deeply enough that you're putting your money where your mouth is and you have been buying businesses with the intent of running them with this philosophy in mind how's that going absolutely and great I I think the notion of putting your money where your mouth is is just the right thing to do and that that's one of the reasons I've always had a compensation agreement with my clients where my compensation is tied to their results but that that's near term kind of results like you know their annual incentive plan or something like that there's a next level of a one of two owners of a Remodeling Company on the west coast we're starting to see this is a hell of a great opportunity to do what uh the PE world does in in rollups only roll up with a notion that we're going to create a bunch of employee partners SL owners the exit strategy will likely be and ESOP so yes it been going on for a while but um moving more aggressively in in terms of Consulting to investment can you give us an example of a a company that you bought where was it when you started where did you take it yeah then well the um I think of one week bath as an example where I'm a 30% owner think of lean manufacturing kind of Concepts applied to how you would remodel a bath this is kind of the deal right what another company would do in two months to remodel a bath we're going to do in a week not we are going to what what we do is do it in a week so that business premise was the case um long before I first knew and he or like most of the folks that I've worked with he already had an orientation towards uh what you might call Employee Engagement but the idea of a weekly meeting seeing where we're at on every project forecasting out uh initially gross margin now we progressed to net income was not really in the cards and um Matt has me being relatively quiet about our financial success but suffice to say that I feel really good about the um increased value of my uh quarter million dollar ownership did you work with them to help the employees better understand how to serve their customers absolutely I think of Carson and what she's done with respect to our uh marketing efforts and in particular accelerated our repeat and referral business or or the the folks out in the the field and the kinds of things that they do routinely and they do it because they know it's the right thing to do but in particular our scores on customer satisfaction we're like off the freaking charts it's the entire group that are driving that but the folks that are on the front lines are the folks that are actually installing these basss in like unbelievable lengths of time and by the way are we as good as we're going to be hell no is there a strategy behind that or is it just an overall approach to doing everything you can to serve the customer it's it's really a great question Lauren uh because we keep learning we see a um a a latest Yelp rating and then we say who the devil ran that job and inevitably the individual is a weekly meeting 30 minutes that we we're going through all this stuff what did you do what was the magic and then they tell us occasionally something must go wrong how do you handle it when something doesn't go well with a customer it's like I I gotta love you Lauren you're absolutely right and one of the things we got a little more aggressive about was following up with past customers because we really weren't doing and I'm talking about customer that we install bath like five or 10 years ago so this is this is sort of a weird example of when it didn't go right okay so we call up our past customers because we're looking to strengthen our relationship and so forth and um one one individual we ask um hey we you know we're uh one we back we're all we really appreciate the privilege of working with you we just following up on uh kind of how we did from a perspective years later so tell tell me it's the it's the net promoter score question from Red Fred REO given the work we did for you in the past um would you be willing to refer us to a friend or colleague and the woman said hell no but we know that whether they say yes or no we don't care we say the next question is why and the woman said you know the damn faucet still leaks we installed the thing 5 years ago I mean there's no warranty involved it's really a good thing that I was not on the phone okay I would not have able to call very well at all wait a second you're not good at dealing with customers I would have been horrible at this worse than horrible okay I'd have been pissed off okay but you know whatever fortunately I wasn't on the call on this one so um the individual I I I I think it was Robbie says oh that's a really really bad could we have somebody come by and and just fix that and she's just the nastiest lady in the en well what the hell are you going to charge me for that and Robbie says well we're we're not going to charge you we just want you to be happy and the woman is now sort of like confused and maybe in disbelief so Robbie says I see that Raul is going to be out in your neighborhood like next week could I just schedule him to come by I don't think it'll take much time and at this stage she's going like really and Robie says well yeah well do you how many referrals we have gotten from this woman now wow and we never would have done it it never would have happened and do you know how many folks at one we bath know that story all of them because it's important that they know that story let me tell you you want to leave the world better than you found it then invest in companies that are doing this because you'll get higher returns and you'll improve the lives of customers and you'll improve the lives of employees and you'll improve your life and and we think that's how we're going to change the world my thanks to Bill fch and of course to our sponsor the great game of business which helps businesses use an openbook management system to build healthier companies you can learn more at Great game.com wait wait don't leave yet if you have a question or a comment that you'd like the 21 hats owners to address send it to me by replying to your Morning Report or by email at Lauren 21h hats.com that's l r n21 hats.com do it now before you forget and don't be afraid to tell Jay what you really think you can take it and if you got something out of this conversation help us reach more business owners tell a friend subscribe and review us wherever you get your podcast follow us on Twitter subscribe to the morning report at 21h hats.com this episode was produced by just thubron founder of blank word Productions okay now you can leave thanks for listening everyone hey