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leadership lab

Vaughan, Ont.-based management consultant, author of Maverick Leadership

Evaluating a company’s business performance is usually done through financial analysis and metrics that concentrate on such things as sales growth, profitability, return on equity, working capital and debt-to-worth ratio.

I grew up in business believing the key ingredient for success is profitability through healthy sales and revenue growth. At the end of the day, profitability separates the A team from the B team. While this is still true, in today’s business environment success or failure isn’t always owing to those traditional bottom-line metrics.

Take Amazon for example, which has a whopping market value of US$874-billion and a price-to-earnings ratio of 284. The price-to-earnings ratio is how much an investor can expect to invest in a company to make $1 of that company’s earnings, so in Amazon’s case that would be $284 to make a dollar, which on the surface doesn’t sound very good at all. What’s more, Amazon’s profit performance is mediocre and the company pays no dividend.

Tesla Inc., a company in California involved in electric vehicles, energy storage and the manufacturing of solar panels, is another one. It has a market value of US$51.6-billion, and a price-to-earnings ratio of zero, as it has never made a profit or paid a dividend.

Then there is Tim Hortons. Long a mainstay as a top Canadian brand, it now just makes it into the top 50, according to a recent Leger survey of consumers ranking company reputations. Other big Canadian companies that have dropped in reputation are Bombardier, Weston and Sears.

Shareholders generally assume a higher risk investing in companies that don’t show profitability, but the means of evaluating companies is changing. Today, managers and entrepreneurs should also pay attention to key, non-financial metrics and criteria that can affect success and valuation. What are they? At the top of the list is employee engagement and retention.

High turnover almost always translates into long-term problems. If people keep leaving the company, there must be a reason. It’s like a car that continues to run, but has that persistent noise under the hood.

People are still the No. 1 ingredient for business success, and that is true for those who work in sales, marketing, operations, finance and human resources. People make the difference. Executives and department heads can only get troop engagement through strong leadership and team play. That means constantly developing your people, challenging them and celebrating their success.

Merely promoting attractive jobs is no longer sufficient. In today’s competitive workplace and dynamic business landscape, you need to promote rewarding careers to engage and retain high-calibre employees. How? Performance reviews should include career planning and development criteria for your people. This helps build a road map for employees to learn new skills, reinforce their talents and develop their strengths.

Promoting from within the organization is another way for leaders to get the best out of people. But measuring employee engagement can be tricky. While many companies do annual employee surveys, big corporations recognize that employee engagement is also related to the introduction of new products and services, and they have specific measuring tools for this.

U.S. multinational 3M is known to constantly introduce new products. It has annual sales of more than US$30-billion and employs 91,000 people in 65 countries, measures how new products contribute to sales and has a target of earning 25 per cent of its revenues from products developed in the past five years. Procter & Gamble Co., a large global consumer product manufacturer, targets 20 per cent to 30 per cent of its revenue from sales of products less than three years old.

Many think employee engagement depends principally on compensation levels. While compensation is a factor, employee turnover is also influenced by recognition, company culture and values, and how leaders demonstrate care for the troops.

Companies that promote a good work-life balance and supplement the benefit package with health and wellness programs help keep people fit and contribute to greater employee engagement. In other words, they live their core values and don’t just talk about them. A good example is the Royal Bank of Canada. RBC has an in-house wellness program for employees and invests in continuing career development through tuition subsidies for courses for its people. It is no surprise the company is consistently ranked as one of the top employers in Canada.

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