When you spot a penny on the ground do you pass it by or pick it up? I have a compulsion for picking up pennies when I see them. It is not because I think I can buy a lot with a penny in the 21st Century. For me it is a mindset, a disciplined attitude about saving money. When the opportunity presents itself, my natural instinct is to pocket a penny because I am keenly aware that pennies make dollars, dollars make hundreds, and hundreds make thousands of dollars.
This same mindset is required when evaluating Performance Labor Management Systems and programs. It is the cumulative pennies that are saved over time from such programs that create significant value. Consequently, I am amazed that in today’s economic times executives are willing to walk by pennies on a daily basis that add up to millions of dollars in savings for their organizations. Is it a lack of focus on their part? Is it because executives are looking for the quick win, the silver bullet? Or is it because they just don’t understand that value of Performance Management Programs?
We recently completed an ROI analysis for a Labor Performance Management Program for a mid-sized CPG Company. The labor savings were conservatively 16% (approximately $1m annually); the simple payback calculation (less the time value of money) was less than 4 months. The program NEVER got off the ground, not because the executives did not understand the savings, or believed in the savings. Rather, the executive team spotted the pennies, and they consciously walked by them! Why?
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As a trained engineer I have a tendency to look at problems logically. But in this business case, obvious logic did not apply. I actually threw pennies on the ground in frustration and asked the Executives if their culture was such that they regularly ignored money at their feet. Their answer was an astonishing “yes.”
I walked away from the meeting perplexed, but intrigued as to why $1M annually wasn’t enough motivation for that company. After some reflection and an internal team meeting, I came to conclude that the underlying issue was the CPG company was OK with, and actually preferred, the status quo.
Labor Performance Management systems raise the bar on personal and organizational accountability. A million dollars in annual savings was not enough incentive for that leadership team because they themselves did not want to have to be transformed and hold themselves to a much higher standard and level of accountability. Tolerance for change may well be why companies leave the pennies on the ground. Employees at all levels can be averse to change, even executives, illustrating why Change Management is a critical component to the success of any Performance Management program.
McKinsey’s Emily Lawson and Colin Price provided a holistic perspective in The Psychology of Change Management, which suggests that four basic conditions are necessary before employees will change their behavior: a) a compelling story, because employees must see the point of the change and agree with it; b) role modeling, because they must also see the CEO and colleagues they admire behaving in the new way; c) reinforcing mechanisms, because systems, processes, and incentives must be in line with the new behavior; and d) capability building, because employees must have the skills required to make the desired changes.
The lesson learned for me, and hopefully you, is that opportunities exist, sometimes right at our feet, if we’re willing to look for them and make the effort to pick them up.