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Is measuring ROI for labor the answer?

January 22, 2014

Through a special arrangement, presented here for discussion is a summary of a current article from the Mark Heckman Consulting blog.

As consumers become increasingly more comfortable with ordering everything from soup to nuts online, the onus on bricks and mortar retailers to create a "value-added" in-store environment correspondingly increases.

As intuitive as that sounds, many retailers still regard training and employee retention as a luxury they cannot afford, as labor costs remain the "easiest" target for cost cutting. For those that continue to view labor first and foremost as an expense, the future is bleak. Conversely, for retailers who have structure and priority for training and retaining associates, your path is paved with satisfied, loyal shoppers.

It's all about metrics. If retailers make a point to measure training and labor in a ROI model, instead of purely looking at it as an expense, they have at least put themselves in position to accurately track the fruits of their training efforts.

"Sales per labor hour invested," or "sales per labor dollars invested" are two measurements that can begin the process of considering store associates as "assets," rather than expense items. Further, most HR departments can measure, at least directionally, the cost of employee turnover. Without this number in the equation, retailers are just fooling themselves when they believe that cuts to benefits, hours, and full time status save expense without having any consequences on both the top and bottom line.

In my view, the HR and finance departments should team to own this process. Together they have the tools and the structure to affect training, compensate performance, and provide the financial impact to the P&L for training and retaining a productive team. Done correctly with sustainable commitment to associate training, bricks and mortar retailers will not only sell more soup and more nuts, they will attract the best people in the market to help them do it.

Discussion Questions:

What do you think about the value of creating a ROI metric around training and labor? Which metric - sales per labor hour, sales per labor dollars invested, employee turnover expense - will prove to be particularly revealing?

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Instant Poll:

Which metric will likely provide the best measure around labor ROI?

Comments:

Mark has it right - sales training is never an expense, but an asset. Without it, all the heavy lifting tries to be done by marketing and store design. It's a triangle; without one side, the brand faults ... or often defaults....

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Bob Phibbs, President/CEO, The Retail Doctor

How about if we start with just measuring individual employee performance? In working with retailers to quantify success factors, I'm constantly amazed at how few retailers actually measure and provide associates with feedback on their sales productivity.

When we look at the performance continuum within a single store, the top associates' productivity is typically 3 to 5 times that of the bottom associates. If all associates learn to achieve 50% of the top performers, stores could increase sales double digits!

Mark Heckman is right. In order to compete with low prices of ecommerce, retailers have tended to treat labor as a cost center rather than an asset that can be used to grow sales and profitability. From our experience in growing sales and gross margin dollars, the best metrics are sales tickets or transactions per hour, and market basket profit attached to the core items sold.

Nothing wrong with ROI metrics, but it is the individual performance feedback on sales ticket and market basket that changes associate behavior on the floor.

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Chris Petersen, PhD, President, Integrated Marketing Solutions

Mark's best point is the attraction issue. Vital to every brick and mortar shop is good people. Some may not agree, but people are one of the critical keys as brick and mortar stores lift their differentiation from online shops. The sales per labor hour metric has direct correlation to the training. If you train better, then they will sell better. When they sell right, they can sell past the online price issues that wreak havoc on stores.

The secret is to get the whole store associate program tuned up so you can attract the best people. Really good associates can sell past price and can make sure that a shopper leaves the store with a full bag of merchandise that makes them smile.

Good selling!

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Tom Redd, Vice President, Strategic Communications, SAP Global Retail Business Unit

The previous article mentioned that consumers prefer product reviews over employee information. Why would consumers not want to rely upon the advice of employees? If this is accurate, then what is the value your employees are providing? Determine what impact you want your employees to have, measure the results, provide relevant training, and re-measure.

The specific metric used needs to be related to your goal - what value do you want your employees to provide?

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Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

There is great truth in this article starting with: "For those that continue to view labor first and foremost as an expense, the future is bleak."

BUT...NO, this isn't all about metrics! Here we go again, trying to make everything "mechanistic" and "measurable." After all, we learned from drinking the Newtonian Kool-Aid, "If you can't measure it you can't manage it." I swear we're a step away from assessing the ROI of our spouses, the love of our dog, the joy of music, the value of prayer.

Even the use of the words "training" and "labor" are remnants of this severely limiting and outdated mindset. Honestly, what "energy" do those words bring you? Do you want your kids dreaming about the day they can "be trained to do labor?" All so someone can measure it for a spreadsheet?

I can't even make myself respond to the Instant Poll today!

The "investment" is in helping our team members become all they can become, bringing their substantial talents and gifts to the fore, and opening up possibilities in our organizations for them to apply them in unique, innovative and profitable ways.

Here's my Thought-For-The Day: Let's move beyond the exhausted mantra of "What is measured gets done" to the infinite power of "What is believed gets done." If we truly "believe" in our people and in what is collectively possible, this conversation is irrelevant.

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Ian Percy, President, The Ian Percy Corporation

The first thing is we need to clarify is whether this is training specifically on sales technique and product knowledge, or operational metrics. Assuming it is the former, you should and can measure the impact of the training more likely on sales per hour or margin dollars per hour normalized for store volumes. (E.g. high traffic stores have higher potential.) The retailer can also measure across stores with and without training investment.

Retail comes down to the people running the stores and interacting and if you measure on an individual level, you will quickly see the leaders and laggards. It's not an expense, but an investment and should be measured as such.

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Robert DiPietro, GVP Product Strategy & Business Development, Affinion Group

How about if we quit thinking like accountants and start thinking like customers?

Service oriented customers don't care how you calculate the value of an employee -- they just want to be taken care of and, if they aren't, they leave, often replaced by a lower value customer.

Also, I've said for years that retailers are missing a bet trying to economize on labor. It isn't just training costs that get wasted -- it's the opportunity cost of those dollars, decreases in shrink and -- oh yeah -- higher sales to consider.

Hire right, train right, retain and evolve your employees and if you are looking for the right metric to judge performance by, try sales.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

In today's competitive environment, retailers can't afford not to provide adequate training to their employees. It's simply a cost of doing business. That said, having a metric to evaluate the value would certainly be useful.

Mark raises interesting questions about the metrics to be employed. While the sales based metrics are probably more tangible, the customer experience is also key. Maybe it should include a factor more directly related to customer equity or satisfaction.

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Raymond D. Jones, Managing Director, Dechert-Hampe & Co.

Wow, so I commented on the "Uber-digital" article right before this one with the key recommendation for stores to rethink their store staff investments. This is weird!

Okay, yes, there have been very tangible ROI metrics for store labor expense for years. Any and all of the metrics mentioned, as well as others simply need to be consistently measured weekly by store to gain a clear picture of where any waste may be.

I think as we train staff to work with mobile shoppers in store, we will begin to see true ROI in the area of "percent of total customers making a purchase from each department." If you look at sales percent to total, one department will have to give up percentage to give it to another department. However if you drive the staff to make a shopper feel more comfortable to make a purchase in every department, that the total number of customers shopping each department will tend to increase...which is a direct reflection of the ROI of staff involvement.

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Ralph Jacobson, Global Consumer Products Industry Marketing Executive, IBM

These questions remind me of the early days of IT, when companies complained about chargebacks and wanted to know if IT was worth the investment. (Those of us in IT always wanted to respond with "let's turn it off and find out.")

Customers love to feel connected and valued, and sales associates fill that role. Turn it off at your peril.

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Cathy Hotka, Principal, Cathy Hotka & Associates

There is so much to say about this topic, and I am glad the issue has been raised by Mark Heckman and the comments provided by the respondents.

ROI when it comes to evaluating HUMAN performance is not as straight-forward as it is with machinery, plant, equipment, etc. kinds of decisions. However, that does not mean it should not be pursued. The difference is in choosing the following:

1) Objectives (what are you hoping the trainees will be able to do as a result of the training?)
2) How performance will be reviewed/evaluated
3) Standards of performance (is a growth of "x%" considered sufficient on some measure?)

Any of those can lead to "noise" in the determination of success of training efforts.

However, for the moment we shall assume that it is still a worthwhile endeavor to "measure something" related to performance (and the points above certainly bring that into question - however, without disagreeing with those points, there are more confounds to address even given that we accept the premise of pursuing an ROI).

Being overly simplistic, so as not to create an encyclopedia out of this response:

The first qualification for assessing training is the attendees/participants reaction (what do you think about the material? Was it worthwhile? Did you like the instructor?, etc.). The so-called "smile sheets that conclude most training sessions is an example of this. It does NOT measure in any substantial way a change in behavior or performance. It just "feels" right - sort of like a Cosmo Quiz.

Next, we provide quizzes or tests to ensure learning. Can the trainee demonstrate they recognize the right response, can they assemble something in order, do they fill in the blank, are there actions they can display when prompted, etc. Again, this does not mean they BEHAVE differently - just that they seem to "know" what to do.

The third approach is to see if the behavior is done on the job - so, do they use the process, can they complete the checklist on the job, etc. While this is certainly demonstrative of the training's impact - it does NOT measure ROI, performance, or "move the needle" in any way. It is ASSUMED that if behavior changes, and the needs were correctly identified - then the behavior meets the need and something positive occurs (again - that is not necessarily true).

Lastly, the performance (sales, customer complaints, profit, etc.) changes post-training. However, here is the potential problem - was it the result of the training? Did the economy, competition, customer, etc. have an impact that was OUTSIDE the reach of training? Contrarily, are there influences (management, compensation/incentive, opportunity to perform/behave, etc.) that had a negative impact on the performance - so people KNOW how to behave, are ABLE to perform, but CHOOSE not to perform (and thus - it is not the fault of the training or the trainer, but a larger systemic issue).

As you can see, by only taking a small slice of the issue, it can get fairly complex pretty quickly. Then, you add the STRATEGIC overlay provided by other commenters here who raise the appropriateness of looking at ROI vs. employee potential and belief in employees, etc.

I have plenty more to share about this topic - however this is too long as it is. Feel free to contact me to discuss further.

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David Zahn, Owner, ZAHN Consulting, LLC

If this metric refocuses retailers on the value their staff can bring to customers, then it's critical. It is far too easy for managers to adopt an arrogance respecting their staff - forgetting their critical strategic advantage.

It my seem odd, though. We manage telemarketing for campaigns. And we have to use massive centers with lower paid reps. But we never forget that contact with our rep may be the most powerful brand interaction a customer has. Why? Because it's human. And second to the product delivering what we claim it does, all the human feeling and satisfaction wrapped up in that contact is critical.

Doug Garnett, Founder & CEO, Atomic Direct

I don't think it is a bad idea. However, not all retailers should use the same criteria. Retailers fall into different categories based upon what they are selling and how they go to market. A retailer offering prepackaged goods (Walmart, Safeway, etc.) needs employees primarily to locate product and check consumers out. Both of these functions can be automated so employees need less training. Clothing retailers, on the other hand, can utilize help who have the ability to interact with customers and assist them with choices (don't need 50 year old clerks trying to help 16 year old shoppers). Hiring here is as important as training. If you hire a 20 year old clothes horse, you minimize your training as opposed to hiring an A+ student with no sense of fashion.

How you go about doing ROI without considering inventory selection and pricing is beyond me. You can never make an apples to apples comparison as each retail location is different. Hiring is 90% of the equation. Hiring right gives you employees who are capable of thinking, adapting and consulting.

Trying to determine ROI on employees is going to be horribly difficult and I am afraid will open the door for more lawsuits.

Ed Dennis, Sales, Dennis Enterprises

For my new forthcoming book "On Fire at Work: How Legendary Leaders Ignite Passion in their People without Burning them Out" I had the opportunity to interview Melissa Reiff, President of The Container Store. Their employment practices are a radical departure from the traditional 'old school' approach in most retail environment.

  • They have never had a layoff, even during steep recessionary periods.
  • The average floor salesperson makes $50K per year.
  • They have less than 10% turnover on an annual basis.

"One great employee can outperform three average employees, so we hire right and pay people what they are worth. And we train them relentlessly." Melissa told me. "Our full time employees receive 263 hours of training - product training, leadership training, operational training - capitalism, foundation and principles training. This helps them to be knowledgeable and confident. Customers feel like they're in really good hands. We take care of our employees by putting them first."

If that's not an ROI metric that speaks volumes about the importance of training retail employees and treating them like gold, I don't know what is.

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Eric Chester, Keynote Speaker, Author, Reviving Work Ethic, LLC

I totally agree with Ed Dennis, not all retailers should use the same criteria for the same reasons he illustrates. I think the Container Store example by Eric Chester is a bit misleading because the Container store obviously has much stricter hiring standards. Why not take it a step further and discuss the labor metrics of the sales people in the stores on Rodeo Drive in Beverly Hills?

Retail is just like horse racing. For retailers it's different horses for different courses. For employees, the better horses earn bigger purses at bigger tracks.

David Livingston, Principal, DJL Research

While I agree with Mark's idea of an investment orientation for retail human resources, I believe well supported practices may be even more important than training.

As employers we are obligated to remove as many obstacles to good performance as we can: A well-trained store staffer cannot close a sale on an item that is out-of-stock. A well-trained staffer cannot resolve a customer problem if there is an irrational policy in place. A well-trained staffer cannot deliver adequate attention to shoppers if burdened by hours of onerous tasks.

In short, you can't train your way to success unless you first design and implement practices that clear a path to success. This is where I'd be looking for ROI. Empower and enable employees. Don't waste their time and good will on needless work to remediate the consequences of inadequate systems, rules or practices. Don't breed cynicism by training on goals and values that are thwarted at every turn.

A practice-first orientation will attract the highest caliber and most motivated employees, help keep them longer, and enable the best possible return on training investments.

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James Tenser, Principal, VSN Strategies

I have been on the road today and did not have a chance to read this until just now. In some ways I am glad because I got to read everyone else comments.

So here is my takeaway:

1. We need to stop training employees. We need to start developing them. We train animals; we develop people.
2. Employees need to be look at as investors. They invest time and energy and are looking for a return. I am only interested in hiring smart investors.
3. We need to remember that a dollar saved is in many cases worth more than a dollar of sales. It is easier to reduce turnover and less expensive which means you will also sell more because of better employees. For every dollar you reduce in cutting turnover, you need to sell at least $15.00 in merchandise.
4. Finally the old statement: Why train them when they will eventually leave anyway. The problem is, what happens if you train them and they stay?

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Mel Kleiman, President, Humetrics

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