How Employee Engagement Drives Business Success
There is a direct, and measurable, relationship between employee engagement and a company’s success. Want to increase your earnings per share by almost 30%? Get your employees involved.
March 23 2011 by Eric Mosley
How do you define success? For most executives, it comes down to profit or revenue levels, brand equity, or percent of market share. But to truly understand the key drivers for all aspects of business success, it’s critical to examine and measure the true impetus: your employees. They are the ones who make your products and serve your customers. They are the face of your brand.
Employees are often the determining factor between successful companies and ones that never reach their potential. The difference: successful, admired companies have engaged employees. In a Towers Watson study of 50 companies over a one-year period, organizations with high employee engagement had a 19 percent increase in operating income and nearly 28 percent growth in earnings per share (EPS). Conversely, companies with low levels of engagement saw operating income drop more than 32 percent and EPS decline 11 percent.
When Michael Lewis introduced his book Moneyball, a bestseller that showed how statistical analysis and measurement could be used to create the ultimate baseball team, forward-thinking executives began to apply these same strategies to the business environment. These professionals were seeking ways to measure performance, engagement, even innovation. The idea of measuring the “intangibles” provided senior management with a new perspective into their organizations and armed them with insightful and, more importantly, actionable information about their employees. Rather than relying on perceptions, intuition, or “gut feel”, they now had access to concrete, relevant data.
Wells Fargo is a good example of a company that was able to successfully measure employee engagement, using what they termed the “happy-to-grumpy” ratio. They surveyed and reported data on engagement levels and also studied what motivated staff, with particular focus on team member engagement. The “what” behind the data provided insight into parallels between projects and time periods, linking internal drivers to business outcomes. Over time, the bank discovered a strong link between high employee engagement scores and elevated employee productivity and customer satisfaction.
Tom Davenport, co-author of Competing on Analytics, says “like metrics, analytics is not new, but in both cases what is new is basing your strategy on them.” For example, retail powerhouse Best Buy had been tracking and monitoring its employee engagement and customer satisfaction levels separately. In the past few years, they began evaluating the two together, exploring how they related to one another. If higher employee engagement led to higher customer satisfaction, which in turn translated into more sales, then a case could be made to invest in more strategic employee engagement initiatives.
Best Buy found just that. Higher employee engagement scores did lead to better store performance. The company found that for every 10th of a point it boosted employee engagement, its store saw a $100,000 increase in operating income annually. (CFO Magazine, “Measuring Up,” June 26, 2007, Harvard Business Review, September 2010)
The examples above demonstrate that management can analyze and measure the impact of engagement on their organizations. However, despite all the research available today, a large percentage of companies that have invested millions in programs to engage employees still fail to measure the effectiveness. They also fail to measure key drivers of employee engagement. As a result, CEOs remain in the dark about how these HR programs impact both employees and the bottom-line.
How can you influence the underlying drivers and factors for employee engagement? How can you measure and understand the company’s cultural foundation, which serves as the basis for engagement?
One way is strategic recognition. This type of program creates the opportunity for employees and their managers to recognize each other whenever they see good work, behaviors, or corporate values displayed. If recognition is implemented in a strategic way, it gives senior management a new window into the health of the organization. Acting as a barometer for engagement and employee performance, companies can monitor how often recognition occurs as well as in which divisions, geographies and teams. If recognition is infrequent, it could be an early warning that the organization is in trouble. Often recognition declines in organizations pressured to “hit their numbers” at the expense of all else. The same recognition decline occurs when executives and managers ignore employees’ emotional needs, believing compensation is the sole driver of results. The link between prolonged neglect of consistent recognition and deteriorating company health is not always realized — the focus is on productivity rather than on what LEADS to productivity (i.e., happy, fulfilled employees who are fully engaged in their work).
The “intangibles” discussed above, such as a sense of belonging, contributing to a meaningful goal, or knowing that one’s job is more than just a paycheck are critical employee performance drivers, but unfortunately are often overlooked. Although these are positive values most employers wish to instill in their workforce, they are too easily dismissed in the face of pressure to perform as an organization.
A recent study by the Hackett Group stated, “Money is nice. But attention, recognition and the chance to learn new skills are the keys to keeping top performers on board as the job market improves.” Employees “will be more hesitant to make a jump if they feel like they’re part of a family, an organization that’s investing in them.” This viewpoint was confirmed in a 2011 Globoforce survey that found 78 percent of people are motivated in their job because they were recognized.
Countless research proves that frequent and wide-spread employee recognition, tied to corporate values, produces a positive corporate culture and contributes to future company sustainability. But how can leaders look at recognition at their company, measure its effectiveness, and proactively manage the culture to greatest performance benefit?
Below are five steps that companies can apply to gain a deeper understanding of recognition at their company:
1) Determine What Success Looks Like
The success of any program requires a clear understanding of what defines success prior to program launch. Too often, when employee recognition programs are measured at all, they are measured on a tactical basis such as number of awards given and demographics impacted. These measures have no relevance to impact on overall strategic objectives. While metrics of success will vary based on unique company needs and goals, universal program metrics include: program costs, productivity and performance impacts, and contribution to understanding of company values and achievement of strategic objectives.
Take The Dow Chemical Company, for instance. The company realizes the power of its people; they are the main agent for organizational innovation and social transformation. Dow’s “Human Element” approach is a key component to producing products that make a difference in the planet. Building a technology-driven recognition program is enabling the company to align its global workforce with its company goals and values.
Dow’s strategy is fully anchored in its Performance Culture. To maximize the impact and driving force of recognition, Dow sought to create a culture in which employees are recognized for behaviors that contribute to the global success of the company. Over the past several years, Dow has invested significant time and resources to implement a single, global recognition program that supports the overall values and goals of the organization globally. With 50,000 employees in 62 countries, Dow’s decision to unify its dispersed recognition programs to one technology platform is helping the company toward its goal of creating a culture where employees are recognized for their contributions and are engaged in the company’s mission and vision.
2) Establish a Performance Baseline for Recognition
Once the metrics for success have been established, a baseline of current performance must be determined (such as in the illustration below). This serves two purposes. First, this baseline clearly illustrates the status of employee morale, productivity, and performance. Second, this baseline gives a level-set against which future success can be compared. Without a baseline, it is impossible to accurately or credibly report percentage improvements in any of the areas discussed above.
3) Measure Regularly and Consistently
Measurement should be done regularly and consistently to ensure the program stays on target. Measurements should be taken in two ways – via the program itself and through employee surveys. A reputable strategic recognition program should provide reporting functionality by budget spend; reasons for recognition by team, group and/or division; and program reach. These figures should be available in real-time, at the touch of button, and easily customizable to the audience.
Program understanding, adoption and true cultural impact, however, should be measured through a regular employee survey that targets all employees annually (at a minimum) and a percentage of employees more frequently (such as a quarter of the employee population randomly surveyed each quarter). Potential employee survey questions on recognition should refer specifically to employee understanding of why they receive recognition and the effect on their work.
Symantec, a global leader in providing security, storage and systems management solutions to help businesses and consumers secure and manage their information, frequently measures its strategic employee recognition initiative. Headquartered in Mountain View, Calif., Symantec has nearly 18,500 employees in more than 280 locations with operations in more than 40 countries.
When the company launched its recognition program – named Applause – in July 2008, Symantec saw 1,500 employees recognized in the first two weeks, nearly 40 percent of all employees recognized in the first five months and a 14 percent increase in employee engagement within the first year. With tracking and measurement mechanisms built into the program, division leaders were able to assess their performance in real-time and adjust areas as necessary. Management was and is today able to measure rewards against desired values, employee performance and business outcomes.
For Symantec, recognition moments are tied to company values. When measurement occurs, it’s easy to identify values that aren’t being reinforced or prioritized by employees. Once identified, behaviors can be monitored, targeted, and changed to meet company goals.
4) Analyze Results and Take the Big Picture View
Measurement only matters if one can analyze the results to look for trends and compare the results between two measurement tools. Look for trends over time for improvements in the success metrics established before program launch. Are there productivity improvements in areas where recognition is increasing? Have targets for program cost reduction been achieved? How do these results compare six months, a year, or two years after program launch?
While analyzing results within the recognition program itself is critical, it’s only one part of the measurement opportunity. As mentioned above, recognition is an engagement and performance barometer for a company. High recognition levels signal a strong culture of appreciation, where workers proactively notice and appreciate the work performance of managers and peers. However, recognition can also serve as a performance review appraiser for individual workers. Employees lacking recognition from managers or peers might be an indication of weaker performance, while frequent recognition may illuminate the hidden power players within an organization.
When addressing the true impact of recognition, it’s important to look at all areas that measure employee performance. Strategic recognition plays a versatile role within HR and can often provide results and measurements well beyond the core metrics set up within the program. It can serve as the eyes and ears for the performance of your entire workforce.
5) Report to Target Audiences in a Way that Matters
Once management has access to solid results, the next step is to communicate these findings to the organization’s various audiences. While program metrics of success should be focused on top level executive requirements, line managers and employees themselves should also be informed of program success.
The methodology used in reporting is just as important as communicating it. Never forget, results are not equally relevant to all audiences. For employees, recognition stories from colleagues across the company, demonstrated appreciation for employee efforts by the company, and continued investment in recognition going forward are of most interest. Managers care about the performance of a group or division against program targets and retention of top performers. Executives are concerned with program cost savings; understanding of values and objectives; and improvements in morale, productivity and performance.
As stated by Michael Hammer, best-selling author on re-engineering the corporation, “Companies have not brought to bear a rigorous, analytical mindset about what they measure, how and why. Nor do they regularly review what metrics they track and discard those that are outdated. Collectively, there is a lot of pressure on companies to perform better than ever, and to be smart about performance you have to be smart about metrics.”
Creating successful employee engagement programs is certainly no small task. Once that is accomplished, however, companies wanting to fully leverage the benefits of these programs need to pay close attention to Hammer’s advice. Many organizations have not thoroughly reviewed WHAT they measure, how and why. In addition, recognition and reward program “spring cleaning” – getting rid of old, musty engagement tactics that no longer work – needs to be done on a consistent basis and not just once a year.Tackling this is daunting for most companies, especially when faced with the pressure of simply staying competitive and getting the basic, daily tasks accomplished. However, as Hammer succinctly and wisely counsels: “To be smart about performance you have to be smart about metrics.” Reviewing metrics, and applying analytical data to make wise decisions about employee engagement provides major benefits – the biggest being increased productivity across your entire workforce on a global scale.
Those that have invested in employee engagement programs CAN measure the impact on employee performance. Those organizations that are able to look deep inside their organization and discover the foundational elements for their company culture position themselves for success. Looking inside will reveal what many companies have already discovered. The key to long-term success is highly correlated to employee engagement levels. When working together toward a common goal, the collective force of engaged employees can bring companies to new levels of innovation, growth, and bottom-line results.