Your Greatest Asset. Your People.

Measure employee lifetime value (ELV) for a “greater” return on investment. John Mullins from Peopleswitch on how higher ELV leads to greater ROI.
Your Greatest Asset. Your People.
John Mullins

Hands up 🖐 all of you who’ve ever heard leadership claim that people are their greatest asset.

It’s a global mantra that rolls off the tongue with an almost glint-like sparkle that can capture hearts and minds no matter where you are. It even finds its way into annual reports and branded marketing collateral. The problem is, the accountants don’t quite agree. I’ve yet to see people listed as anything other than a cost to a business. Let alone trying to objectively claim them to be of any definable asset value.

If we are serious about increasing the value of our “greatest asset”, just maybe we need to start showing a real credible return on investment, convincing leadership that people should truly come first.

Just in case you hadn’t noticed, people are stubbornly complex and very hard to work out when it comes to the intrinsic value they hold. There are just too many subjective variables for any self-respecting bean counter to feel comfortable, and in truth, generally accepted accounting principles don’t seem to want it any other way.

Well, my friends, I think the world is changing and just about every management rule, theory or invented people practice is due for a shakeup. If people are our greatest asset, we should be treating them like that. And even more importantly, if we are serious about increasing the value of our “greatest asset”, just maybe we need to start showing a real credible return on investment, convincing leadership that people should truly come first.

Okay, settle down. I hear you. It’s been tried a thousand times before and HR has failed to make a convincing enough argument for leaders to take them seriously. Well, like I said: The world is changing. This time around we’re going to draw inspiration from the very models and theories that help business leaders justify the spend on customers and the profit returns they expect to achieve over time. More than ever, we need to show the business case for people and culture. In the modern world of work, these assets could really be your only true competitive advantage. What we need to show is Employee Lifetime Value (ELV).

We really do live in a very upside-downy world, though, when it comes to people. Businesses continue to defy what behaviour science tells us, and for years we’ve treated our approaches to the customer experience completely separate to the way we treat our own people. Well, as Nathalie Schooling from nlighten says,

“You can’t develop exceptional CX (customer experiences) without great SEX (staff engagement experiences).”

And that’s why I believe learning from customer lifetime value and applying that to employees is a better way forward.

Let’s take a look at the basics of the ELV approach.

Over time, it is expected that an employee will provide a certain value to the organisation. There is usually a ramp up and ramp down before they leave. Depending on a few factors, including salary cost, this value could still be quite high and extend over a reasonably long period if all things work out well. Our problem is that we don’t always measure and prove that in any consistent or meaningful way.

In a world that has become data science-driven, it’s almost hard to believe that the inner workings of culture and people practices have not received the same kind of attention that we place on customer behaviour, investment and returns. Especially when you think about how much value we’re actually talking about. These people assets that our leaders seem to think are so great, well I can tell you, they’re not cheap! So it kind of makes sense that we should throw as much data science at this as possible, right?

So let’s go back to the basics, after all, we’re quite new to this, and what we’re really after is to convince leadership to put their money where their mouth is. Invest in people and culture, and enjoy the major returns on investment.

My early thinking on ELV was influenced by Maia Josebachvili who started applying this to mapping return on investment in various people processes, like recruitment.

Taking just 4 typical employee touch points across the spectrum of the employee lifecycle, we can jump in and start to prove more scientifically how much more value we could achieve from our greatest asset.

The typical employee lifecycle with an average investment in these touch points could include an onboarding period to achieve full productivity, a productivity boost as skills fully kick in, a further ramp up as experience and learning are applied and finally a ramp down when the person decides to leave the business. The touch points in this case are onboarding, quality of skills hire, growth and development, and workplace culture. The ELV graph would look something like this:

Now imagine if there was a more committed approach to investing in these touch points to improve the experience by as little as 10–20%. If you scan the internet you’ll find stats that show even greater productivity and profitability improvements, but for now let’s work on conservatives. Suddenly, your ELV graph would look more like this:

The type of investment we’re talking about is improving the onboarding experience to reduce the time to productivity. Don’t leave onboarding to chance. Quality of skills hire does demand that you tap into the skills, but if you invest in hiring the best, chances are you’ll get that skills boost. Investing in growth and learning gives you a gradual improvement over the average, but most significant is the investment you make in culture. A positive workplace culture will drive up retention levels, and you’ll hold on to your best people longer.

In my view, the gap on its own is already a great case for investing in people and culture, but what it’s missing is some real figures. The good news is that we can apply that with some basic salary and revenue information. If you want to impress the accountants, work on salary cost versus revenue targets. Sure, that works really well in sales orientated roles, but what about more generic roles? As long as you have a consistent performance target metric, you can apply this and with simple tracking and measurement, you can show how much more value your people and culture investment will generate. In one example, over a 3 year period this value difference was over $1m. Show me one executive who wouldn’t be at least curious on how to achieve that.

The really great news is that ELV also brings a bonus feature. The more you invest in people and culture, even your loyal employees who do end up leaving one day will remain as employee net promoters or brand ambassadors. So, unlike the average employee whose value reduces to zero and in some cases generates negative value, your ELV positive employee holds value for you and the brand even after they are gone.

It’s time for us to really think of our employees as more than just resources. If they are our greatest asset, we must maximise their value and we can only do that by investing in their experience with us. If we increase and prolong the ELV that value will multiply massively. No more added costs to re-hire, remove consistent low productivity or corrective action expenses to just get a person to average levels. Now is the time to put people first and unlock the true value of your greatest asset.

If you would like to hear more about how investing in people and culture can boost your returns, contact peopleswitch or check out Hi5 (free 14-day Business trial).