Tuesday, November 10, 2009

Leaders: Are You Measuring Your ROE?

If you are a business executive you are no doubt familiar with the concept of ROI. ROI stands for Return on Investment and measures the increase in value or profitability on money that is spent. For example, if the company spends $1000 on marketing they expect additional sales in excess of $1000 to cover their costs and provide them with additional profits. Failure to earn back the dollars spent plus additional revenue will likely result in them not investing more on that same plan.

Businesses routinely measure their ROI on all types of expenditures and are constantly looking to maximize their ROI by comparing their various investments against each other. The higher the ROI the happier the company.

So what is ROE?

ROE stands for Return on Employees and measures the value that you are receiving from each employee in comparison to the salaries and benefits that they are paid. The more return you receive from each employee the more you want to continue to invest in them. While those employees who have a small or negative return might find themselves being replaced by new employees with a higher potential.

Why have you never heard of ROE?

Maybe because most companies fail to measure the return from their biggest ongoing investment: their employees.

For most companies, the closest thing they do to measuring their ROE is the annual performance review. The purpose of the annual performance review is to identify where each employee is doing well (providing a positive return) and those areas where the employee is not doing as well (providing no or very little return). Theoretically, the annual performance review is the perfect time to accurately measure the ROE of every employee in the organization and determine who to invest in, where to invest, and how much to invest.

Of course you and I know better. For too many managers the annual performance review is an unpleasant task that is required to be completed, in a limited timeframe, following a rigid format, that doesn’t allow or encourage any real attempt at measuring how valuable each employee really is. Managers often view performance reviews as a chore, required by Human Resources, forced on them when they have the least available time and keeps them from doing the things that are really important, like completing their weekly status reports.

It’s no wonder that most performance reviews are not worth the electrons used to create them.

It’s time for companies to take a whole new view of their employees and start to measure the return each employee brings them. Performance reviews are a possible place to start, but not the way most companies currently do them. It’s time to start looking for a Return on Employee for every employee, and that means providing the same diligence to our employees that we do to all of our other investments.

At ECI Learning Systems LLC, we are dedicated to helping companies get the greatest return from their most valuable asset: their employees. We work with you to align 3 key organizational factors:
• Your Company Culture
• The Leadership Styles of your key managers
• The Expectations of your Employees

When these 3 factors are aligned, you create an energy in your company that improves productivity, reduces absenteeism, increases creativity, and positively impacts your bottom line. Contact ECI Learning Systems LLC today to get your free Workplace Evaluation.

Until next time....

Dave Meyer
ECI Learning Systems, LLC

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