Unlocking Hidden Profit: the business case for prioritising your People

In today’s increasingly fast-moving and volatile business world that’s typically demanding more and more, most organisations still default to measuring success through output-focused KPIs, sales figures, operational efficiency, project and task completion. But while these are certainly critical, they tell only half the story.

What’s missing? The human element is.

People performance, capability development, and leadership effectiveness are just as essential as hitting operational targets

Indeed, McKinsey research shows that organisations in the top quartile for leadership effectiveness and employee engagement achieve total shareholder returns three times higher than those in the bottom quartile, with significantly greater financial resilience and innovation.

Why the misbalance exists

The reason for this imbalance is quite simple: output is tangible, easy to track, and directly linked to financial performance. Measuring task completion, revenue growth, and cost efficiency provides clear-cut data that translates seamlessly into business reporting.

People performance, on the other hand, has traditionally been seen as intangible, harder to measure, harder to prove, and therefore easier to overlook and ‘get-by’ with a token HR process.

We also have a legacy and culture of managing in this way. Without thought-provoking development, managers and leaders are simply repeating what they learned from their managers, who learned from their managers before them. This cycle of prioritising task management over people development is difficult to break because it is ingrained in how business has always been run (the very definition of culture being ‘what does it take to fit in here?’).

It’s the ‘winning formula’ that leaders rely on, their recipe for success. But what is the cost of this? What is not achieved when we default to what feels safe and measurable, rather than challenging ourselves to redefine success?

The research-proven value of balancing People and task performance

Integrating people performance with task output is not just a theoretical ideal; numerous studies and real-world examples demonstrate that organisations embracing this balance achieve superior financial outcomes.

The University of Oxford and Harvard University analysed over 1,600 U.S. companies and 15 million employee surveys, finding that firms with higher employee well-being scores exhibited increased firm value, higher return on assets, and greater profits.

The top 100 'happiest' companies outperformed the S&P 500 and Dow Jones by 20% since 2021. Research from McKinsey & Company found that companies in the top quartile of organisational health, measured by factors like leadership effectiveness and employee engagement, had total shareholder returns three times greater than those in the bottom quartile, with returns on invested capital also twice as high.

Case studies of successful integration

There’s plenty out there, Rolls-Royce is a prime example (and a former employer of mine!). Under CEO Tufan Erginbilgiç’s leadership since January 2023, the company underwent a significant transformation by focusing on transparency, strategic clarity, performance management, and rapid execution.

This approach led to an eightfold increase in share price and a return to dividend payments, with the company meeting profit and cash flow targets two years ahead of schedule.

CEO Perspectives on culture and performance

A 2023 survey of 500 global CEOs by Heidrick & Struggles found that 71% identified culture as a top factor positively influencing financial performance, a significant increase from just 26% in 2021. Nearly half reported that focusing on company culture significantly improved financial outcomes, while 53% noted enhanced employee retention across various working models.

Why People performance matters

It’s not just theory. Research backs this up. A McKinsey study found that companies focusing on employee development outperform their competitors by 4.2x, with 30% higher revenue growth and significantly lower attrition.

Likewise, Gallup data shows that organisations aligning work with purpose see 64% higher engagement, which in turn drives a 21% productivity boost and a 41% reduction in absenteeism. So why isn’t this the standard approach? Because traditional KPIs are easier to measure. Sales numbers and project completion rates are clear-cut.

Measuring leadership impact, team cohesion, or individual capability growth takes more effort, but it’s where real, sustained performance gains come from.

Rethinking traditional KPIs

To get this right, we need to rethink what ‘performance’ means. Task-based KPIs alone don’t capture the full picture. Forward-thinking organisations are introducing measures like employee autonomy, skills growth, and alignment with company values as performance indicators. These provide deeper insights into sustainable success rather than just short-term outputs.

Embedding people performance into the Business

McKinsey suggests that the most effective performance management systems balance goal setting, regular feedback, and meaningful rewards, not just for hitting targets but for contributing to team success and cultural strength. This isn’t about being ‘soft’ on performance; it’s about making performance management work for both the business and its people.

The Leadership imperative

Leaders set the tone. They influence whether people feel empowered, engaged, and invested in the business. As I emphasise in my own work, leadership is about more than just hitting numbers, it’s about building capability, developing individuals, and creating high-performing teams that deliver results sustainably.

We need a shift. We need organisations that measure success not just by WHAT gets done, but by HOW it gets done and who grows in the process. Companies that get this balance right don’t just outperform the competition, they build stronger, more resilient teams ready to take on the future.

Nothing in life is easy, but consider getting the balance right and get in touch to discuss HOW to do it.

#Leadership #PeoplePerformance #EmployeeEngagement #CapabilityDevelopment #HighPerformanceTeams #HR #BusinessGrowth #PerformanceManagement #WorkplaceCulture #OrganisationalSuccess #FutureOfWork

Email: tony@tonyatherton.co.uk