EMPLOYEE VALUE EQUATION

The employee value equation, as we highlighted in chapter 1, is of particular importance in service delivery. At IKEA, it comprises the elements shown in figure 2-3 and is based on research informed by employee interviews and surveys.

Figure 2-3 IKEA Employee Value Equation

"Business"/Mission and Value

When we first conceived the employee value equation, we overlooked the importance of business and mission. Our research since then has caused us to change our minds. We are now more sensitive to the idea that some business opportunities offer jobs that appear more glamorous or purposeful than others. It helps explain why some young people are attracted to certain industries over others.

Similarly, mission has value for employees. It often influences their choice of a place to work. And it even influences the amount of pay they are willing to sacrifice in order to work there.

Organizations deliver value to employees through much more than the wages they pay. First, they provide a business activity (whether for-profit or not-for-profit) to which employees can relate and a mission in which employees can believe. An organization's mission—its know why—has the capacity to become an important source of satisfaction, and therefore something of significant value, for employees. That helps explain why outstanding talent is attracted to many not-for-profit organizations such as Médicins Sans Frontières (MSF, Doctors without Borders), a French-based organization devoted to providing health care in disaster-afflicted and war-torn areas of the world. Such altruism conveys a visceral sense of importance of mission that can be worth a great deal to the right person.

Years ago one of us (Schlesinger) researched and reported on the notion that the goal is to create jobs that provide "money and meaning." Many service industries—such as entertainment, airlines, gaming, and education—satisfy employees seeking things like excitement or satisfaction on the job but have relatively low pay scales, especially for managers. Among administrators and educators alike in education, meaning is traded for money. Employees in other industries trade excitement for money. Anyone who has worked with Bill and Melinda Gates Foundation associates knows that they have skills and capabilities for which they are probably underpaid. At the same time, the enthusiasm they have for what they do in eradicating polio and other diseases from the face of the earth is irrepressible.

A mission that inspires also generates value by attracting the best talent in a given field and motivating employees to perform enthusiastically and well. ING Direct found this to be true when it founded a savings bank in North America—not exactly a groundbreaking business concept. But this savings bank was different. Its mission was not just to encourage savings, it was to "bring Americans back to savings" through higher interest rates made possible by lower banking costs, which resulted from, among other things, the elimination of traditional bank branches. In its hiring, ING Direct's management made a conscious effort to distinguish its mission from that of other financial institutions, such as credit card issuers, whose efforts, ING interviewers pointed out, are directed at encouraging customers to spend, not save, their money. Similarly, Google's mission of "organizing and making available the world's information" is a grand promise, much more inspiring to prospective employees than providing search capabilities or selling advertising. It has inspired young, talented, creative Millennials to join the ranks of Googlers. If these organizations are any indication, an organization's mission can be just as important as its business in attracting employees.

Other Elements of the Employee Value Equation

IKEA's business of providing "affordable solutions for better living," is one element of the employee value equation. Other elements include opportunities for personal development, frequent feedback, and ultimately greater latitude to solve problems for valued customers, factors that contribute to the employee's capability to deliver results. Still others are the quality of the workplace, which is determined by such things as the "fairness" of one's manager (often defined as whether the manager hires, recognizes, and fires the right people in a timely way), the quality of the work performed by peers in the workplace, and the degree to which good work gets recognized. Thus, value is enhanced for employees by the degree to which they consider their total income to be reasonable and their access costs, influenced by everything from the ease of the commute to the job to the continuity of the job itself, low. All of these elements are reflected to some degree in the employee value equation offered by our example company, IKEA.