Why employee engagement is not an ‘option'

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"Why is it that some people still deride engagement as a waste? If it is so crucial to business success what’s holding up its wider adoption across all types of business? What would persuade the ...


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Happy employees are more productive. So why is engagement still seen by some as a potential waste of budget?

Employee engagement still causes plenty of debate. Is it a crucial investment – and a critical business measure – or a complete waste of time, effort and budget? The jury, for some, is still out.

At Personal Group we decided to do something about this, and commissioned a major investigation into the whole issue of engagement. The Business of Engagement is the result. Prefaced by Alex Edmans, professor of finance at the London Business School, the report carried out in-depth interviews with 10 leading CEOs and business leaders across the UK over a 12-month period to test our hypothesis that happy employees are more engaged, and therefore more productive.

What we have learned from this detailed study – which includes a close examination of all the major research in this area over the last few decades – is that there is a tangible link between successful engagement and productivity. According to Edmans once you take account of other possible influences such as company size, recent performance, and growth opportunities, organisations with high levels of employee satisfaction deliver returns on stock that are 2.3% to 3.8% higher than their peers – which over a 28-year period would mean investors gain a compound return of between 89% and 184%.

So far, so positive. But more importantly we wanted to understand what makes for successful engagement, and the role HR can play in that success. Why is it that some people still deride engagement as a waste? If it is so crucial to business success what’s holding up its wider adoption across all types of business? What would persuade the sceptics to embrace change? And what steps could HR teams who are already convinced of the benefits take to supercharge their existing engagement measures?

As with so many things in business, successful engagement starts at the top. To be effective engagement needs strong leaders committed to delivering results. Even if that means – as happened with one of the companies in our study – the senior team getting back on the ‘shop floor’ to help out after a bank holiday weekend backlog of customer calls. Too many attempts at engagement fail because it’s obvious to the employees that their managers haven’t bought into the idea and often fail to live up to their side of the bargain.

While engaged employees perform better, those who are unhappy and disengaged are dangerous when it comes to the bottom line. A Gallup study found that 54% of disengaged employees were considering leaving their present jobs. But the impact isn’t just on staff turnover. Disengaged employees are far less willing to ‘go the extra mile’ when required and are more likely to be absent from work. Potentially even worse than being absent is presenteeism: employees who are physically present at work but completely disengaged from what they are doing. This will all negatively affect the bottom line and the kind of service customers feel they are, or more likely are not, receiving.

Critical too is how your employee engagement is measured. If you don’t set out to ask the right questions or fail to act on what is revealed by your latest employee satisfaction survey then the whole exercise will quickly be seen as a box-ticking exercise. Instead leaders need to identify what needs to be measured, make the survey a central part of the wider engagement strategy and, most importantly, commit to acting on the results. Remember as well that verbatim comments need to be captured. They are easily as vital to success as quantitative feedback, so you need a mechanism to incorporate them.

Engagement can’t be the sole responsibility of HR. It’s often far too easy for senior management to ‘delegate’ engagement without providing adequate levels of support to enable HR to succeed. But equally HR has a vital role to play, and engagement offers an excellent opportunity to get closer to the key drivers of the business. Absenteeism, retention figures, employee turnover, and participation levels in reward and recognition programmes are already critical HR measures. When it comes to the implementation and measurement of engagement programmes, HR is in an excellent position to move closer to the central functions that drive any business by linking engagement scores to organisational productivity. Rather than having engagement ‘delegated’ to them this is an opportunity for HR to take the initiative and gain the recognition it deserves as a key driver of organisational performance.

I’ll leave you with one final statistic quoted in our report, The Business of Engagement. Employees who are happy and feel in control are 57% more likely to be engaged and 53% more likely to be productive. When you look at it like that I hope you’ll agree that real employee engagement is no longer a ‘nice to have’. Instead it’s crucial to organisational success, because the only thing your competitors cannot copy are the people who make your business what it is. Keep those people happy and you’re well on your way to achieving that success.

Mark Scanlon is chief executive of Personal Group

Download your free copy of The Business of Engagement

Comments

"Why is it that some people still deride engagement as a waste? If it is so crucial to business success what’s holding up its wider adoption across all types of business? What would persuade the sceptics to embrace change?" Mark, the answer to your question is that no studies, including yours, make any effort to identify EE successes. The why not invest is the first problem. If an EE initiative can't be expected to be cash flow positive, then right off the bat you have skeptics. None of the studies, including all of the Gallup studies, make any mention of studying the before and after EE initiatives engagement levels nor, more importantly, any financial improvements. Every metric used to sell EE, including those above completely ignore the more likely conclusions. Companies with high financial performance, likely have better leadership. The higher engagement is a result of the better leadership and success of the company. Higher engagement is the result of being successful, not the cause. Taking the next logical step, if HR is the one leading EE projects, who would expect them to make a major impact on senior leadership. In our firm, we implement a ten week EE improvement with a corresponding improvement in the income statement. We are paid on the change to the income statement occurring exclusively from employee input to a single nine-word question from the CEO. The difference is that all the input comes to us, reporting to the CEO we are responsible for fighting for the employee's suggestions. The results have reached into the hundreds of millions, a corporate bully or two are casualties, many sacred cows are killed as are many dumb policies. Morale goes off the gauge. There's your answer, no need for HR to do anything, in fact, they are quite likely to be on the receiving end of some of the thousands of suggestions, the results are fifty times the fees, so need to have a discussion about the budget. So my question, if EE is so great, where are the successes. When we present, the EE and financial results of every project are part of the presentation. www.emgc.com


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Jim, Thanks for the comments. You say that ‘Higher engagement is the result of being successful, not the cause’. You are right to bring attention to the causal relationship between engagement and success, success does increase engagement but it also works the other way around. In the past, this has been difficult to demonstrate empirically. However, Professor Alex Edmans of London Business School, who wrote the preface to our report, addressed this problem directly in his 2012 study on this subject, the results of which were subsequently published in the Harvard Business Review. Professor Edmans’ solution to the problem of determining cause and effect was to study the relationship between employee satisfaction and firm value, controlling for other factors that drive return. His study found that companies listed in Fortune’s “100 Best Companies to Work For in America” generated 2.3% to 3.8% higher stock returns per year than their peers from 1984 through 2011, that’s 89% to 184% cumulative higher returns over the period. Previously, academics have tried and failed to demonstrate a causal link between satisfaction and other metrics of success, such as profit. The problem is that profit in one year facilitates profit in a second year, as money is reinvested with long-term growth in mind. Therefore, if you show that satisfaction in one year is followed by an increase in profits in a second year, you cannot be sure that both the engagement and the second years’ profits were not both caused by profits in the first year. The great thing about stock value is that an increase in one year does not in of itself create momentum that leads to further increases the year after. In an efficient market, all the relevant information is in the public domain and stock value increases or decreases in line with expectations about the company’s future. If a company makes a profit, the stock market value increases to account for both that initial profit and the future profit that the first profit is likely to enable. Because employee engagement is intangible and under-appreciated in the market, the market does not take sufficient account of it - or its long-term benefits for a company. Edmans’ study demonstrates that companies with high levels of job satisfaction saw their share price consistently increase faster than the rest of the market. This is because it takes time for that intangible quality to manifest itself on the bottom line. Until the market begins to take full account of employee satisfaction, investors will continue to be able to find undervalued assets in the shares of companies with high satisfaction levels. It is for this reason that Personal Group works to improve the employee engagement of its clients: because it demonstrably creates long-term value.


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