Leadership Math

Simple Math

 

Leaders often use simple math. However, the numbers they most often look at – sales, profitability and even employee retention stats – are trailing indicators. They only tell them what happened in the past. A more effective approach to creating success is to look at the math tied to underlying factors and leading indicators.

Case Study

A client firm was working hard to grow revenue. The company had several initiatives in place focused on this goal. Cost controls were tight, wasted effort appeared minimal, and managers were highly focused on doing things right. Still, revenue was stagnant.

After consultation, we collected employee data from several key teams, which triggered a series of revelations. For example, a team of software engineers did not feel their strengths were being utilized. In debriefing them, we came to understand that they were also in the dark regarding their growth opportunities within the firm. The company was losing two engineers to competitors annually. It took six months for new engineers to get fully up to speed; replacing them was time consuming and expensive.

Each person on this team of 17 was responsible for driving about $2 million in annual revenues. That’s $34 million. Their total annual salary expense was about $2.5 million. If you’re a manager you’d like to retain (or improve) that 14:1 ratio. If you’re a software engineer, you’ve got some idea of your value and you want to work in a place where you feel appreciated and where you feel the company is investing in your growth and development.

Opportunity

The math made the solution obvious: foster employee development; this boosts retention. Although it may seem counter-intuitive to prioritize staff development in times of lackluster financial performance, the returns are well worth it.

This Glass Door-based data demonstrates that top performing individuals work at places committed to investing in their development. As the math demonstrates, these places [green line] significantly outperform their peers. Recognizing the opportunity, the firm made human resource development a priority starting with that team of engineers.

Solution

Unlike cutting expenses, employee development does not instantly, visibly impact profitability. Building engagement and improving retention rates takes time. To address the gaps related to utilizing their strengths and growth opportunities the engineers elected to create individual development plans. They would review them with their manager, get guidance, and update them quarterly. The time investment allowed their manager to know each person as an individual, which improved his ability to understand individual strengths and interests, and further improve retention.

Now back to the math… let’s say creating each plan required an hour, as does the initial manager meeting. And each of the three subsequent quarterly update meetings take a half-hour. Assuming a $150k salary and benefits package, the annual investment per engineer is $324 for the 4.5 hours per year it takes to develop and monitor their plans.

A senior executive estimated the cost of losing and replacing just one talented engineer at $400k all told. At roughly 1,200:1, that’s another favorable ratio with a clear bottom line impact. Additional benefits include better relationships among staff, deeper engagement, and increased innovation. Leadership math is simple. Which math will have the greatest impact on your results?

Next Step

If you want a sense of how well you know an individual team member, pick one and give yourself one point for each of the questions you answer with “yes.” If you scored fewer than ten points, the team member’s resume may already be in circulation.