How to measure and manage it
Dr. Nicos Rossides, Group CEO
“Companies that place employees at the core of their strategies produce higher long-term returns to shareholders than their industry peers” (Bilmes et al, 1997). Employee studies only confirm what already makes intuitive sense: committed employees tend to work harder to help their company succeed, and, by virtue of their longer tenure, are associated, inter alia, with reduced turnover, recruiting and training costs.
Even in an economic downturn, employee engagement is crucial. Fully engaged employees deliver higher performance which may be critical for business survival; in the longer-term they may help companies not only weather tough times but, when business conditions improve, ensure they are stronger and better placed to take advantage of future opportunities.
What is not so obvious is how to measure the nature and impact of the employee-company relationship, the degree of employee alignment on brand values, and how to use the findings to drive organisational change that will deepen the employee/employer relationship
What are the relevant employee metrics?
Understanding the dynamic of employee attitudes and behaviours has become a vital ingredient to a company’s survival in what has become an increasingly competitive and challenging labour market. It is now widely accepted that employee attitudes towards their place of work can be a crucial determinant of whether an organisation can deliver superior performance over time.
Early work in this area concentrated on the definition and measurement of employee satisfaction. This gave an impetus to a plethora of employee satisfaction surveys, which aimed at gauging satisfaction and then managerially acting on the information to drive organisational change. These surveys, however, did not provide reliable guides as to how people consequently behave. Furthermore, they were unable to prioritise the key issues that would link employee behaviour to desired HR strategy and, ultimately, business outcomes.
Authors such as Herzberg have found that it is misleading to assume that “hygiene” factors (such as reducing time spent at work, increasing wages and fringe benefits) are the key to a motivated workforce. Rather, the key to motivation lies in what may be termed “job enrichment” – which may be defined as the creation of a work environment that provides the opportunity for an employee’s psychological and professional growth.
However, while useful, motivation research has not adequately addressed the complex issue of what makes employees more psychologically attached and, hence, more supportive towards an organisation. A more sophisticated construct (which includes motivational factors) is needed that is predictive of future behaviour and can be related to specific organisational change management programmes.
Almost everyone wants a few essential things at work: to feel respected and trusted, to feel they have some influence over decisions that affect them, to feel successful and competent. Then there are more person-specific needs and expectations: some employees want security, while others want the chance to take risks and be entrepreneurial. Some employees like a very expressive, flexible environment, while others like a workplace that is more structured with fairly tight reporting structures and decision rights.
The concept of employee engagement is a relatively new term which has attracted considerable interest in recent years as a means of better understanding employee attitudes to their job and employer, and subsequent behaviours. Employee engagement has been defined as “the extent to which employees commit to something or someone in their organisation, how hard they work, and how long they stay as a result of that commitment” (Corporate Leadership Council), and “an employee’s attitudinal attachment to his or her job and company, intention to act in the company’s best interest and willingness to invest discretionary effort in achieving business goals.” (R.Jesuthan).
Another recent strand of research has focused on the employee as a living embodiment of brand values. Whilst it is often assumed that this can be taken for granted, it is rare for organisations to articulate their brand values to their employees and to systematically seek to translate these into the everyday conduct of work. Truly engaged employees are the best possible advocates of the brand – much more so than advertisements or slogans.
How Do We Measure Engagement?
While generic research solutions tend to focus on employee issues which are known to drive engagement, specifically their desire to remain with a company, this is not the only consideration affecting the intention to stay with an organisation. Those intentions can also be shaped by a host of emotional factors which tend to vary among different groups of employees. Therefore, an employee engagement measurement tool that does not segment employees according to their felt desire, need, and sense of obligation to the company will omit information that is critical to the accurate prediction of employee retention.
A number of recent studies from the Gallup Organisation, Corporate Leadership Council and Towers Perrin HR consultancy have shown that, in a typical organisation, 20% of employees at any one period are actively disengaged from the organisation, while a further 60% are moderately engaged only – they turn up for work, perform their duties and then go home, without being prepared to go the extra mile for the company. As a consequence, only 20% of the workforce is actively engaged with the organisation and its objectives.
As an increasing body of empirical evidence suggests, there are clear linkages between levels of employee engagement and operational and financial performance as well as customer loyalty. Employee engagement is increasingly seen, therefore, as a key driver of retention and performance, with a critical link to customer loyalty.
As for the brand values dimension, the extent to which these values are linked to behaviours at all levels of the organisation can indeed be measured – which translates to promoting the brand from the inside out.
Drivers of Employee Engagement
Whilst defining employee engagement is a crucial step in understanding the concept, the real value for a company comes in determining what drives engagement. Tower Perrin identified a set of workplace attributes that, in combination, are critical to building high engagement.
In order of importance, the factors are:
- Senior management interest in employees’ well-being;
- Challenging work;
- Decision-making authority;
- Evidence that the company is focused on customers;
- Career advancement opportunities;
- The company’s reputation as a good employer;
- A collaborative work environment;
- The resources to get the job done;
- Input on decision-making; and
- A clear vision from senior management about future success.
The evidence suggests that the stronger these attributes are in the workplace, the stronger the level of employee engagement. And, as engagement builds, two important outcomes emerge – a decline in the likelihood of an employee leaving the company, and a stronger orientation around customer needs.
The Impact of Disengagement
For companies, the impact of employee disengagement can be severe. A Gallup study in 2001 indicated that “actively disengaged” employees are costing the US economy between $292 billion and $355 billion a year. The Gallup research demonstrated a tendency for actively disengaged workers to be (in comparison with colleagues):
- Significantly less productive;
- Less loyal to their companies;
- Less satisfied with their personal lives; and
- More stressed and insecure about their work.
Disengagement also poses two distinct staff retention risks for employees. One is the loss of key people, as some of those most disaffected can also be those most important for the future success of the organisation. The other is that keeping disaffected and non-productive people within an organisation can have a damaging impact on the morale and productivity of other workers in the company.
While product and process technology, protected or regulated markets, access to financial resources, and economies of scale can still provide competitive leverage, these traditional sources of competitive advantage are not as powerful as they once were. Organisational culture and capabilities are comparatively more important, as is the ability to attract and retain top talent.
The creation of an engaged and committed work force can be viewed as one strategy for running a company as opposed to an alternative, more traditional model which is based on imposing control - i.e. placing emphasis on establishing order, exercising control and striving to achieve operational efficiency. Underlying the engagement strategy is a management philosophy that acknowledges a company’s multiple stakeholders (owners, employees, customers, etc).
What has become increasingly evident is that due to the importance of employee engagement to the health of a company, it must be regularly measured and, if resources permit, related to other key performance measures such as customer loyalty, operational excellence and financial health. This underpins the concept of the “balanced scorecard”, which has emerged as one of the premier management tools for translating organisational vision into a set of measurable strategic and/or tactical objectives: financial, internal, key stakeholder relationships and the capacity to innovate.
Indeed, an effective employee engagement tool should be incorporated in the business planning process as it touches upon virtually all of a company’s work processes by:
- Providing insights to improve business performance through reduced turnover, recruiting and training costs;
- Categorising the employee base by the degree of engagement;
- Analysing what customers value, and providing a linkage to how employees impact the delivery of positive customer experiences;
- Providing a guide for more effective and efficient allocation of time and money to Human Resource projects that have maximum impact on engagement
By prioritising the key drivers of engagement, segmenting employees based on the strength of their relationship with the organisation and evaluating, and evaluating their alignment with the brand promise, companies can achieve differentiation and drive unique value creation.
Employee Engagement in an Economic Downturn
Even in an economic downturn, employee engagement is crucial – arguably more so than in more normal trading conditions. Fully engaged employees deliver enhanced performance which is critical for business success. Maintaining high levels of employee engagement can not only help businesses survive the recession but help them become stronger and better placed to take advantages of opportunities when more prosperous conditions return.
Organisational change can be extremely damaging to employee engagement, particularly redundancies, and employers need to be very mindful of the impact on staff morale and performance of lay-offs and other short-term cost cutting measures. Keeping engagement at high levels should be a priority, not only for the short-term survival of a company but its longer-term health. Otherwise, when conditions improve and labour markets tighten again, there is a risk that many top performing employees will simply leave for better opportunities elsewhere.
Engaged employees are the key to a company’s ability to grow and prosper and have a positive impact on the customer experience – acting as living embodiments of the brand promise. This is particularly so in today’s economy, where attraction and retention of experienced, skilled, and creative employees (who, in turn, act as advocates of the organisation to key stakeholder groups) can make the difference between success and failure. There is clear evidence to suggest that what employees look for in their work is a mixture of both tangible and intangible elements that create a stimulating environment where their contribution is recognised and appropriately rewarded, where they have to chance to develop and participate, and where the leadership of the organisation supports their efforts. In fact, emotional factors play a much more important role in shaping attitudes and behaviour than previously thought.
Companies looking to get greater engagement from their workforce – and, given the high cost of disengagement, this should be all organisations which want to survive and prosper – should actively consider whatever changes are needed to their internal and external processes to build this engagement and safeguard their futures.
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