I’ve always found it interesting that the topic of continuous improvements’ financial benefits is less of a focus than the steps taken to improve work. I find it tends to be for one of the following reasons:

  1. It can be difficult to calculate the financial benefits
  2. People like to believe it’s a leap of faith (or that it isn’t required)
  3. An overall lack of awareness of the potential impact of Lean

By my nature, I would tend to be less oriented towards financials given my propensity to focus on people and how they feel. But here is why it matters so much: 

Only when you really understand the financial potential of continuous improvement will the right decisions be made about how much time, energy and resources to invest.

The Financial Impact of Engagement is Mind-Blowing!

Engagement has been well-proven to have significant financial benefits that largely surpass the benefits related to efficiency or waste reduction. One of my favorite studies found that the profitability of engaged organizations was on average 11% higher than the disengaged organizations in the study.¹

Tapping into the discretionary efforts of your team who are clearly aligned to a vision for success is simply more profitable than many other approaches to improving results. Naturally, an engaged team is more motivated to grow and improve because they tend to be driven by internal motivations, which are considerably more powerful than external ones. 

Now comes the hard part, how do you measure the financial benefits of something like engagement? 

The Challenge of Measuring Engagement’s Financial Benefits

The financial benefits of engagement can be seen in any of the following:

  • Improved efficiency
  • Reduced scrap
  • Better quality
  • Better retention
  • Fewer accidents
  • Better attendance
  • Improved profitability
  • Increased  shareholder value
  • And many others…

Try Using the 1% Rule

In order to establish a structure for considering the benefits, I calculate the following based on figures of the financials:

  • What is a 1% improvement in efficiency worth in dollars?
  • What is 1% of better quality worth in dollars?
  • What is 1% improved safety worth in dollars?

While the figures in the financials may require investigating how quality is reflected in the results, such as line items for wasted materials (i.e., scrap) or the cost of rework.  As another example, improved safety costs might be found in workers compensation costs.

Establishing the Right Investment

As the benefits of engagement are converted into dollars and cents, it becomes feasible to evaluate the appropriate level of investment in activities and behaviors that drive it.  Typically, even the one percent figures make it obvious that the current level of investment tends to be pennies on the dollar.

The real leap of faith is in understanding that increasing engagement will in fact improve profitability at significant levels.

Measuring the Benefits, Requires Measuring Engagement

There are certainly surveys available, such as the Gallup Q12, that have scientific validity related to engagement. I’ve rarely seen organizations devoted to continuous improvement, use engagement surveys to measure the benefits of their improvement efforts.  However, continuous improvement is founded in the concept of measurements. By tracking how the expansion of improvement capabilities and focus throughout a workforce measurably improves engagement we will be able to show how these concepts are inherently linked.

I would like to hear from any of you that have experience with seeing continuous improvement or operational excellence as a method to increase engagement. Reach out to me here, I’d love to chat.

P.S. Download my free report “Ten Guidelines for Higher ROI from Continuous Improvement Initiatives,” to discover how your people-centric organization can make a difference and achieve exponential ROI.

¹ Macey, William H., et al. Employee Engagement: Tools for Analysis, Practice, and Competitive Advantage. John Wiley & Sons, 2011.

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