UK PLC wasting billions on hidden employee costs

By Peter Grant, CEO, CloudApps

According to Economist figures the UK achieved 0% GDP growth so far this year,  unemployment in some European countries is still very high, and growth low. So why is it that billions of potential pounds that could be reinvested into UK PLC continue to be wasted through unnecessary spending?

After decades of intermittent one-off efficiency drives such as staff reductions, equipment cut backs and reduced bonuses, much of the obvious, organisation-wide, cost cutting has been done. But deeper, recurring savings at the individual employee level are still achievable. These savings could fuel an increase in profits or provide the additional investment badly needed to fuel growth and can be achieved without impacting employee morale.

Highlighting the variable annual costs created by employees companies can practically benchmark the total employment cost of each member of staff. In the UK, this averages £4,000 per employee, a cost easily saved by encouraging simple changes in employee behaviour.

The Triple Bottom Line

The Triple Bottom Line, coined by John Elkington in his 1997 book Cannibals with Forks, identified three pillars that need to be measured within a full cost accounting framework as Economic, Environmental and Social factors. The problem faced by many businesses is how to measure these accurately.

With regard to measuring and reducing your environmental and economic impacts, there are broadly speaking only two approaches:

1. Controlling physical assets
2. Influencing people’s behaviour to reduce consumption

The first approach of controlling assets may seem the best place to start. For much of the last century, squeezing additional costs (Economic pillar) out of the business proved straightforward. Organisation wide process reform using IT to automate administration, outsourcing non-essential processes, or asking supply chain partners to take lower margins, in exchange for long-term commitments, worked well.  Consequently many adopted this approach.

Equally sustainability-led projects (Environmental pillar) focused on physical assets and it also showed financial payback. This approach led to projects such as data centre refits, solar panel installations and smart lighting & heat controls. However there are a finite number of such projects and whilst they might be considered to be the “low-hanging fruit” they often have a high capital cost and a lengthy return-on investment, measured in years. Automation has its limits; there are only so many light bulbs to replace!

The other approach, influencing people’s behaviour, has often been ignored, because employee behaviour is less easy to track, change and apportion the associated costs. Furthermore, existing methods of engaging with employees to influence behaviour have been lack-lustre, failing to create meaningful involvement over an extended period of time.

Current approaches such as coffee room poster campaigns, part-time green teams or passive, largely unread intranet information sites have simply not created the sense of urgency or ownership needed to generate long-term behavioural change.

Successful employee engagement also brings less tangible but equally important benefits including employee loyalty and enhanced brand perception. It encourages an inclusive employee culture that drives further innovation and potential revenue streams. For instance, in 2011 alone UK retailer Marks and Spencer unveiled the M&S Plan A approach which is estimated to have generated £70 million additional profit and accounted for a 3% rise in brand value, making M&S the second most valuable UK retail brand.

RICE

Research data, based on UK government statistics, makes clear the real cost to an organisation, in energy and business travel terms, of each UK employee.  Named the “Recurring Investment Cost of Employees” (RICE) Index it takes the average cost to businesses across the last 5 years and highlights that UK business has swallowed a staggering £150 billion annual energy & business travel bill.

Most Finance Directors have no clear benchmark on per-employee costs for energy, carbon, or landfill waste. Only when a cost can be reliably apportioned per-employee can the ‘We’re all in it together’ message become more than ‘management by posters’. As Bill Hewlett, co-founder of Hewlett-Packard said, “You cannot manage what you cannot measure.”

Failing to address these costs is wrong not just ethically and environmentally, but also financially.

Employee Engagement

Customer case studies show, when employees are engaged in a meaningful way and empowered to act, they will generate average cost savings of 9% for business travel and 10% for energy.

A global organisation with 8,000 employees and an annual travel expense cost of £15M found that, by using  CloudApps’ SuMo (Sustainability Momentum) employee engagement solution, they were able to drive the following results:

• 9% (£1.35M) reduction in overall annual travel expense costs
• 27,000 hour efficiency gain achieved by finding alternatives to business travel
• 10% reduction in annual carbon footprint

During the same period, a control group of employees who were not using CloudApps SuMo saw their travel footprint and costs actually increase by 2.1%

Interestingly, the employees who were using SuMo changed their normal travel behaviour resulting in:

• 25% reduction in taxi use
• 15% reduction in mileage claims
• 6% reduction in flights

Making employers and employees aware of the cost of their behaviour is difficult, but to make a difference it needs to be actionable. This is where the ‘Nudge, Nudge, Think, Think’ philosophy, developed out of research by Richard Thaler and Cass Sunstein, comes into play.  They looked at how people could be persuaded to make beneficial decisions without coercion. The Nudge Theory contends that persuasion and the power of introspection can achieve behaviour changes more effectively than corporate edicts and rigid policies.

Customers and employees increasingly base decisions on where to buy and who to work for on an organisation’s corporate sustainability credentials. Employee behavioural change also creates efficiency gains. Workers in the UK currently spend 54.3 million hours per annum in business related vehicle journeys. This amounts to 3 working days for every employee, every year.

By motivating staff from the bottom up, as opposed to the top down approach, UK PLC really can make substantial savings.  Could this be the key to unlocking the funds needed to boost the UK economy?

To download a copy of the RICE Index visit http://www.cloudapps.com/rice-index-whitepaper/