HumanSigma: Managing the Human Difference

When Motorola, Inc. introduced the concept of Six Sigma in the mid-1980s, a new business process-improvement movement was born. Six Sigma integrated a metric to count quality defects with a disciplined process to eliminate them. It galvanized business management and spearheaded the Total Quality Management movement.

But once an organization has reaped the benefits of process improvement, what's next? What if the business challenge is not managing products or processes, but managing people? We asked Curt Coffman, Gallup's Global Practice Leader for Workplace and Customer Management and coauthor of Follow This Path, for insights into HumanSigma, Gallup's metric and process for managing the human difference in organizations.

GMJ: How is HumanSigma different from Six Sigma?

Coffman: Six Sigma is a metric and method to improve quality and reduce errors in business processes. It focuses on reducing variation in quality by reducing errors in products and processes to below a standard threshold -- usually 3.4 defects per million opportunities.

HumanSigma, in contrast, is not necessarily about eliminating error, although that can be a byproduct of a HumanSigma intervention.

HumanSigma focuses instead on reducing variance in key employee and customer outcomes by improving an organization's human performance and moving it toward excellence. Its goal is to reduce the number of disengaged employees and customers and move them toward engagement with the company and its products or services.

GMJ: What does the term HumanSigma mean?

Coffman: It means nothing more than the human difference. Or to put it another way, the potential for considerably improved financial performance that resides within a company's human aspects of performance -- its customers and employees.

GMJ: Why is this concept relevant to managers right now?

Coffman: In today's intensely competitive marketplace, businesses must be concerned not just with price, product, and positioning, but also with the people who are crucial to the success of their organizations. They need to be concerned about quality in relationships with customers and employees. Believe it or not, all organizations experience significant variability in the degree to which local workgroups engage their employees and their customers.

GMJ: But aren't there many factors that cause variation in performance?

Coffman: Sure. Among them are the demographic makeup of the local market area, the presence or absence of specific competitors, and others. But variation in engagement levels persists regardless of those factors. What's more, unmanaged variation relates directly to differences in the human aspects of organizational performance -- and it costs organizations millions of dollars per year in lost revenues and profits and anemic growth. Gallup's HumanSigma approach provides organizations with the ability to diagnose and manage this human performance variation.

GMJ: Give me a concrete example of what you mean.

Coffman: Everyone has heard a Nordstrom story. Stories about this incredibly successful retailer are never about systems, processes, products, or price -- they're almost always about people who made a difference for another person. That's what we mean by the human difference. And it translates into increased productivity and profitability. It used to be that people believed you couldn't measure this human difference -- what we call HumanSigma -- let alone manage it. But Gallup has discovered that it can be measured and managed.

GMJ: How well have businesses managed the people who make a difference in their organizations?

Coffman: Very badly. For instance, within a business or organization, some workgroups have 100% turnover, while others have only 10%. Some workgroups engage just 10% of their customers, while others engage 50% or more. That's human variation in organizational performance.

Dr. Edwards Deming and Dr. Joseph Juran, the quality gurus, noted that the greater the variance on an important business metric, the greater the danger to the sustainability of the enterprise. Why? Because wide variance means that the business is not managed effectively. If a manufacturing company has plants that produce products with three errors per million -- while other plants produce the same products with 300 errors per million -- that variance is dangerous. It not only means lost profits to the company, it means lost customers.

So good process management focuses on reducing variation -- on managing quality -- and businesses have learned to do that very well. The next challenge for businesses is to manage human performance just as effectively -- and businesses that can do this will have an incredible competitive advantage for the future.

But there's a risk here: You don't want to reduce variance by getting everyone to be average. No business needs more mediocrity. Instead, you want your managers and employees to work toward excellence. You want to push the performance of your average and below-average employees and managers toward the top.

GMJ: How can businesses do that?

Coffman: By focusing attention where change really occurs: at the workgroup level, one manager and one workgroup at a time. At Gallup, we use the Q¹² to measure a workgroup's success at creating a great place to work on 12 key variables that link to employee retention, customer engagement, productivity, safety, and profitability. Q¹² gives businesses a common language to use across all workgroups, and this is the first step to reducing variability.

Likewise, Gallup uses CE¹¹ to measure a workgroup's success at creating engaged customer relationships on 11 key variables. Those variables assess both the rational and emotional elements of the customer's experience with the company. Customer engagement links to revenue growth, cost of service, and profitability. Like Q¹² , CE¹¹ gives businesses a common language to use across all workgroups to create dialogue about the customer experience, and this is the first step to reducing performance variability on the customer side.

GMJ: But the metric that businesses really care about is bottom-line financial performance.

Coffman: Right. But no one can walk into his office on a Wednesday morning and say, "I've blocked out nine to noon to manage profitability. So hold my calls, I'm getting our profits up." Instead, it's an ongoing process, and it involves the engagement you build with your customers and employees -- which will drive profitability, growth, earnings, and stock price value.

Let's look at the linkages between employee and customer engagement and financial performance from Gallup's research database. The HumanSigma graph is divided into four quadrants, and the lines that divide it represent the 50^th percentile of performance -- scores above the 50^th percentile represent above-average performance, and scores below the 50^th percentile represent below-average performance.

Let's use an organization that employs hundreds of employees in several call centers as an example. We can take each workgroup's CE¹¹ and Q¹² scores, plot them in the graph, and see how their performance measures against other workgroups' performance. What we're looking for are workgroups with optimized performance -- that is, they're above average in both customer and employee engagement. (See "Optimize" in See Also).

Let's say, for instance, that one workgroup is at the 25^th percentile in Gallup's database for customer engagement and at the 25^th percentile for employee engagement. That would place its performance in the lower left quadrant. This workgroup is substantially below par on both measures. This group is not optimized, and its business performance will suffer as a result.

Consider a second workgroup, one that is at the 51^st percentile for customer engagement and at the 51^st percentile for employee engagement. That would place its performance almost exactly in the middle and just barely inside the upper right, or optimized, quadrant.

GMJ: So this workgroup is just dead average.

Coffman: Actually, no. While it's just slightly above average on each metric, the simple fact that it's above average on both measures means that it's successfully addressing the engagement needs of both customers and employees.

Being good at several things is hard work. This is a key point about HumanSigma: It's better to be slightly above average on both CE¹¹ and Q¹² than exceptionally good on one but below average on the other. The 50^th percentile on both measures is just the starting point for an optimized workgroup. But clearly, the better a workgroup engages its customers and employees, the more effective it will be.

Finally, think about a third workgroup, one that is at the 75^th percentile on employee engagement and at the 75^th percentile on customer engagement. Its scores would place it in the upper right corner of the upper right quadrant -- which is where you ultimately want all of your workgroups to be. If they're not there, they should be working to get there.

After I plot all these workgroups based on the engagement they're building with employees and customers, we find that some managers and employees are good at building employee engagement but less effective at building customer engagement. For other workgroups, it's just the reverse. Some are bad at both, and they'll be in that bottom left quadrant. Truly great workgroups tend to be much more scarce, and those are the workgroups in that upper right box.

GMJ: So how do managers and their people get their workgroups into the upper right box?

Coffman: There are two ways to get there. The first is a cyclical or transactional intervention, which tends to be more topical and short-term, but it recurs regularly. For example, in the Q¹² action-planning process, employees and managers meet regularly to discuss their Q¹² scores and choose several items to focus on sustaining or improving during the coming months. Those are cyclical interventions. They build dialogue between managers and employees and are essential to maintaining a focus on creating a great place to work. The same process holds for increasing customer engagement.

Other times, businesses need to implement structural or transformational interventions. These focus on how the business is managed, how leadership is formed, and how decisions are made and executed. Structural interventions involve how companies select employees, identify and promote managers, pay and appraise employees, do succession planning, and recognize and develop employees. For example, if your business pays mediocre performers the same as its best performers, your star performers will figure this out and resent it -- or leave. In that case, the company needs a structural remedy -- it needs to create a pay plan that rewards excellence.

GMJ: How does HumanSigma differ from other management systems?

Coffman: HumanSigma focuses on two highly related outcomes: customer and employee engagement. And instead of treating them as independent variables that need to be managed independently, the HumanSigma approach manages them as if they are integrated and highly dependent, which they are.

GMJ: Give me an example.

Coffman: In the past, human resources did the employee survey. Sales and marketing or operations did the customer satisfaction survey. But those two departments never interacted to ask key questions like: "What's the true picture? How do our customers view the company? How do the employees view the company? And how are they related?"

It's like looking at someone's vacation photographs: Sometimes they focus on the person, and the background is out of focus -- or they focus on the background, and the person is fuzzy. That's how businesses viewed customers and employees. What HumanSigma offers is a way to look at customer and employee relationships and bring them into focus at the same time. Only then do businesses have a true picture of how they are influencing customers and managing employees -- the two variables that drive value in most businesses.

-- Interviewed by Barb Sanford