There is lots of talk about turning employees into anbassadors. But how do you know whether they are successful? And more to the point. How do you know that being an ambassador has created financial vlaue for the company? As the old adage goes, “What gets measured gets managed and what gets managed gets done!”. We have long measured the short and long-term value of a whole host of things: from internal technology all the way to outside customers. So why shouldn’t this apply to those that bridge the inside-outside gap, to employees? Including to employee ambassadors.
Now I know what you are thinking. Don’t we already use a balanced scorecard of measures including employee measures. That is true, (although we should note that employee measures were never a part of Kaplan & Norton’s original balanced scorecard), but are soft employee measures really enough? Or is it time that we started to calculate the hard financial value of employees, particularly front-line employees, whose actions are directly responsible for the creation or destruction of customer value?
A simple comparison with the components of Customer Lifetime Value provides a strawman to illustrate how Employee Lifetime Value (ELV) could be calculated:
- Customer Revenues in CLV corresponds to Employee Revenues in ELV. The revenues just needed to be allocated across employees instead of across customers. And following the customer value chain should allow the revenues from non-front-line staff to be calculated as well. If customers are not willing to pay for their work, or it doesn’t directly support activities that they are willing to pay for, then the activities have no value and should be scrapped.
- Customer Costs correspond to Employee Costs. The same customer value chain thinking applies to the calculation of costs as well. Indeed, employee costs should be much easier to calculate than customer costs because they are regularly monitored by Human Resources.
- Customer Lifetime corresponds to Employee Lifetime. Again this is much easier to calculate than customer lifetime due to the involvement of Human Resources. You even know their individual reasons for defection if you conduct Exit Interviews.
- Customer Value at Risk corresponds to Employee Value at Risk. This is the calculation of how much of the value locked-up in an employee (and therefore in their value-creating interactions with customers) could be lost by management decisions, for example, the decision to cut-back on employee training because a recession is looming.
- Customer Portfolio corresponds to Employee Portfolio. Just as companies need to manage customers as a portfolio of balanced value and risk, so they need to do the same for employees too. Some employees may be natural innovators who create additional value through their experimentation, but also create additional risk at the same time. Companies need a balanced portfolio if they are to prosper.
Once we start to calculate the hard financial value of employees (and modern value managemnt systems allow us to do this if we want) then we can start to manage employees as a critical part of the value creation system. We can start to optimise the mix of employees so that they maximise their contribution to value creation. We can start to optimise the mix of training, technology and support so they maximise their contribution. We can reward star employees based upon the financial value they create. And we can start to get rid of employees who destroy value, or who don’t create anough value to cover their costs of employment? Tough, certainly, but companies are not an arm of government Unemployment Bureaux. And no harder than doing the same for customers. And isn’t it time that we started to make decisions based upon some semblance of facts, rather than the wooly decisioning that passes for human resource managtement in most companies.
I know that this may fly in the face of your value system, particularly if you were brought up in a social democratic country in Europe. As I said at the beginning, this is a strawman for you to pick apart and improve with your own constructive suggestions. I look forward to your comments and the ensuing discussion.
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What do you think? Are employees too valuable to measure with hard numbers? Or are they just another factor in production like land and capital?
Post a comment and get the conversation going.
Independent CRM Consultant
Interim CRM Manager