By Dan Hilbert

If leadership knew that strategic management of one single, Human Capital metric would largely guarantee market leading success of their organization, do you think business leaders would be interested? What about stock holders? This is no touchy-feely conversation. This is now groundbreaking science. This single metric has been the secret sauce of long-term successful mega corporations: Exxon, GE, IBM and Schlumberger to name a few, and nearly all modern professional sports dynasties including the New England Patriots and the San Antonio Spurs. And that metric is PerformanceTurnover™.

We’ve started to use correlation analysis of client data to find the key Human Capital drivers which measurably impacts business operations, profitability, accidents, customer service and productivity. There were a few likely suspects, but one jumped through the roof: Performance Turnover.

So what is PerformanceTurnover™? It’s quite simple. It’s the number of low performers who leave the organization for every top performer who leaves. We express it as a ratio like: 11/1, 7/1, 5/1. With a large sampling of data, the results are stunning and without exception, a direct barometer of earnings-per-employee, shareholder value (“TSR”), sales, customer satisfaction, accidents and operational productivity. As the PerformanceTurnover™ metric goes higher – 11/1, 15/1, 25/1, every measurable output improves – again, without exception. And it doesn’t matter statistically how good or bad the performance review process guidelines are. In reality, we strongly believe that better performance review processes will deliver better operational and financial results, but the results are tangible regardless of the quality of said processes.

Inside of a single business unit, earnings-per-employee varied significantly in “like” business units in “like” locations. And the one Human Capital metric that was a clear statistical indicator is PerformanceTurnover™.

A major customer was having problems with sales reps underperforming. Sales rep turnover exceeded 50% annually. The logic to all of us seemed to be, “Reduce sales rep turnover, increase sales, reduce both recruiting and training costs.” Made perfect sense to all involved – Right? Once we got our hands on their data and input it into the SonarVision™ analytics module, literally in seconds, we all clearly saw there was a problem with our assumptions. The exact opposite was reality. The divisions with the highest turnover of sales reps generated considerably more revenue-per-sales rep and more importantly, earnings-per-employee, than those with lower sale rep turnover and it wasn’t even close.

From there, we took a look at the PerformanceTurnover™ ratios and it was a spot-on correlation. The three most profitable business units had PerformanceTurnover™ ratios of sales reps between 10/1 and 12/1. Over 90% of their turnover was involuntary. The two lowest performing business units had much lower revenue-per-sales rep and earnings-per-employee. Their PerformanceTurnover™ ratios were 4/1 and 3/1, and 71% of their sales rep turnover was voluntary.

In many ways, we’ve all known this in our gut for quite some time. Even though Exxon, GE, IBM and Schlumberger didn’t have this type of data, for decades the success of their businesses has been based on a simple premise, “We are only as strong as our weakest link.” To that end, these mega-successful corporations have Human Capital management models that support this maxim. Exxon and GE have formal models to empower this Human Capital model. Every year, the lowest 10% of performers are given six months to a year to rise from the lower 10% ranking. If not, they are no longer with the organization. IBM and Schlumberger have slightly different variations built around the same premise. And these long-standing companies also share a number of other common traits:

1. They have dominated their market sector for the better part of 40 plus years.
2. They are globally successful.
3. They have all had to change their primary success formulas and markets in the past two decades, abandoning long standing successful business functions.
4. After reinventing their businesses, they dominate markets again.

For CEOs, CFOs and COOs, no other single business or financial metric exists by which you can measurably drive such high levels of financial results, operational performance, risk management and value. For managers, this can be a tough metric to enforce; however, if you want to be the best in your field, this is the not-so secret sauce. The difference now and five years ago is that it has become a science that can not only be managed, but statistically predicted, linked directly to driving specific business results, strategic plan objectives and management careers.

HR cannot implement this without leadership advocacy. However, HR can process, analyze and show business leaders to key becoming industry leading organizations and teams. HR often wants more Southwest Airlines stories where happy employees giving away peanuts for free, and getting paid peanuts, lead to a successful business with happy employees. That’s a great story, but only paints part of the picture and rare.

In our highly competitive, increasingly fast-paced global economy, leeway does not exist to ignore factual, metrics driven processes that indisputably produce unprecedented business value, the ROIs upon which is staggering. C-Suite and executive teams spend considerable amounts of money and time trying to find one key competitive advantage. Its insanity when a transformational business advantage is sitting right under our noses, implementation of which is inexpensive and payoffs begin in six months across every component of the organization.

This may seem like a bold and somewhat confronting statement. Actually, it’s the exact opposite. If you are a CFO, you would laugh (or cry) at the thought of doing business without financial modeling software. A COO of a refining company would do the same when contemplating doing business without Plant Management software. CTO – without IT management and performance optimization software. Dell, Motorola, HP without Supply Chain Management software – same result. In the world of the C-Suite, it’s indispensable.

What does the single metric of PerformanceTurnover™ have to do with financial modeling, supply chain management and IT management? These are now mature industries by which mission critical functions are managed and optimized. At the core of these essential management systems are data which a few years back was not measurable, predictable or linkable to business outcome. PerformanceTurnover™ is that same type of data point that creates entirely new industry management solutions. The difference here is that PerformanceTurnover™ impacts the value driven by every employee, including those responsible for managing and optimizing all of the other mission critical management systems. And, let’s not forget, Human Capital costs are usually the highest expense at most companies.