Monday, August 3, 2009

Employee Engagement Drives Innovation and Customer Loyalty

Engaged employees care about the future of the company and are willing to invest the discretionary effort Engaged employees feel a strong emotional bond to the organization that employs them.

Employee Engagement – Business Imperative to Innovation Results

A quick ‘Google’ search on Employee Engagement on the internet will reveal endless statistics, but here are just three from ISR, a Chicago based HR research firm which studied the engagement of 664,000 employees from 71 companies around the world.

ISR found that: operating income was up 19.2 percent in high engaged companies versus a decline of 32.7 percent in low engaged companies, 13.2 percent improvement in net income growth over a one-year period for companies with high employee engagement, and a 27.8 percent improvement in EPS growth in companies with high engagement.

Clearly though, not every employee or manager in an organization is engaged. In fact, the most commonly cited statistic (by Gallup) states that only 29% of employees are engaged, and have a feeling of passion and pride in their work and a desire to go the extra mile for their customers and company.

Gallup’s extensive research suggests that close to 60% of employees are not-engaged.

They are the middlemen and women who neither over perform nor under perform, but turn up each day to work. They do a job which is OK, but not at a level of excellence which is needed to make the organization world class, or have a dramatic positive impact on its bottom- line profits. The real opportunity for profit growth in any company comes from helping not-engaged employees become engaged.

More shockingly, Gallup suggests that as many as 17% of employees are actively disengaged, undoing the good work of engaged employees, sapping morale and spreading toxic energy throughout the organization.In a football team of 11 players, that is nearly 2 players who are damaging the team’s performance. What team could ever win with two toxic employees on board hampering its performance? In your own organization, you may be able to divide your staff into the same three categories. The percentages may differ a little, but it is likely that you will have employees who are engaged, not-engaged and actively disengaged.

Emotional Attachment to Jobs is Important

Employees engaged work with passion and feel a profound connection to their company. People that are actively engaged help move the organization forward. 84% of highly engaged employees believe they can positively impact quality of their organization's products, compared with only 31% of the disengaged 72% of highly engaged employees believe they can positively affect customer service versus 27% of the disengaged. 68%of highly engaged employees believe they can positively impact costs in their job or unit, compared with just 19% of the disengaged

Engaged employees feel a strong emotional bond to the organization that employs them. This is associated with people demonstrating a willingness to recommend the organization to others and commit time and effort to help the organization succeed
It suggests that people are motivated by intrinsic factors (e.g. personal growth working to a common purpose, being part of a larger process) rather than simply focusing on extrinsic factors (e.g.. pay and reward.

Employee Involvement in Critical to Job Performance

Eileen Appelbaum and her colleagues (2000) studied 15 steel mills, 17 apparel manufacturers, and 10 electronic instrument and imaging equipment producers. Their purpose was to compare traditional production systems with flexible high-performance production systems involving teams, training, and incentive pay systems. In all three industries, the plants utilizing high-involvement practices showed superior performance. In addition, workers in the high-involvement plants showed more positive attitudes, including trust organizational commitment and intrinsic enjoyment of the work. The concept has gained popularity as various studies have demonstrated links with productivity. It is often linked to the notion of employee voice and empowerment.

Employee Commitment

It has been routinely found that employee engagement scores account for as much as half of the variance in customer satisfaction scores. This translates into millions of dollars for companies if they can improve their scores. Studies have statistically demonstrated that engaged employees are more productive, more profitable, more customer-focused, safer, and less likely to leave their employer.

Employees with the highest level of commitment perform 20% better and are 87% less likely to leave the organization, which indicates that engagement is linked to organizational performance

For example, at the beverage company of Molsons Coors it was found that engaged employees were five times less likely than non-engaged employees to have a safety incident and seven times less likely to have a lost-time safety incident. In fact, the average cost of a safety incident for an engaged employee was $63, compared with an average of $392 for a non-engaged employee. Consequently, through strengthening employee engagement, the company saved $1,721,760 in safety costs in 2002. In addition, savings were found in sales performance teams through engagement. In 2005, for example, low-engagement teams were seen falling behind engaged teams, with a difference in performance-related costs of low- versus high-engagement teams totaling $2,104,823.3 (Lockwood).

Life insurance industry

Two studies of employees in the life insurance industry examined the impact of employee perceptions that they had the power to make decisions, sufficient knowledge and information to do the job effectively, and rewards for high performance. Both studies included large samples of employees (3,570 employees in 49 organizations and 4,828 employees in 92 organizations). In both studies, high-involvement management practices were positively associated with employee morale, employee retention, and firm financial performance. Watson Wyatt found that high-commitment organizations (one with loyal and dedicated employees) out-performed those with low commitment by 47% in the 2000 study and by 200% in the 2002 study.


In a study of professional service firms, the Hay Group found that offices with engaged employees were up to 43% more productive. The most striking finding is the almost 52% gaps in operating incomes between companies with highly engaged employees and companies whose employees have low-engagement scores. High-engagement companies improved 19.2% while low-engagement companies declined 32.7% in operating income during the study period.

For example, New Century Financial Corporation, a U.S. specialty mortgage banking company, found that account executives in the wholesale division who were actively disengaged produced 28% less revenue than their colleagues who were engaged. Furthermore, those not engaged generated 23% less revenue than their engaged counterparts. Engaged employees also outperformed the not engaged and actively disengaged employees in other division. It comes as no surprise, then, that engaged employees have been statistically linked with innovation events and better problem solving.

Generating Engagement

Recent research has focused on developing a better understanding of how variables such as quality of work relationships and values of the organization interact and their link to important work outcome.84% of highly engaged employees believe they can positively impact the quality of their organization's products, compared with only 31 percent of the disengaged.

From the perspective of the employee, "outcomes" range from strong commitment to the isolation of oneself from the organization. The study done by the Gallup Management Journal has shown that only 29% of employees are actively engaged in their jobs. Those "engaged" employees work with passion and feel a strong connection to their company. About ⅔ of the business units scoring above the median on employee engagement also scored above the median on performance.

Moreover, 54% of employees are not engaged meaning that they go through each workday putting time but no passion into their work. Only about ⅓ of companies below the median on employee engagement scored above the median on performance.Access to a reliable model enables organizations to conduct valuidation tudies to establish the relationship of employee engagement to productivity/performance and other measures linked to effectiveness.

It is an important principle of industrial and organizational psychology (i.e. the application of psychological theories, research methods, and intervention strategies involving workplace issues) that validation studies should be anchored in reliable scales (i.e. organized and related groups of items) and not simply focus on individual elements in isolation. To understand how high levels of employee engagement affect organizational performance/productivity it is important to have an a priori model that demonstrates how the scales interact. There is also overlap between this concept and those relating to well being at work and the psychological contract.

As employee productivity is clearly connected with employee engagement, creating an environment that encourages employee engagement is considered to be essential in the effective management of human capital


* Employer engagement - A company's "commitment to improving the partnership between employees and...employer. Employers can stay engaged with their employees by actively seeking to understand and act on behalf of the expectations and preferences of their employees.

* Employee perceptions of job importance - According to a 2006 study by Gerard Seijts and Dan Crim, " employees attitude toward the job['s importance] and the company had the greatest impact on loyalty and customer service then all other employee factors combined.

* Employee clarity of job expectations - "If expectations are not clear and basic materials and equipment not provided, negative emotions such as boredom or resentment may result, and the employee may then become focused on surviving more than thinking about how he can help the organization succeed.”
* Career advancement/improvement opportunities - "Plant supervisors and managers indicated that many plant improvements were being made outside the suggestion system, where employees initiated changes in order to reap the bonuses generated by the subsequent cost savings."

* Regular feedback and dialogue with superiors - "Feedback is the key to giving employees a sense of where they’re going, but many organizations are remarkably bad at giving it." “What I really wanted to hear was 'Thanks. You did a good job.' But all my boss did was hand me a check.”

* Quality of working relationships with peers, superiors, and subordinates - "...if employees' relationship with their managers is fractured, then no amount of perks will persuade the employees to perform at top levels. Employee engagement is a direct reflection of how employees feel about their relationship with the boss.”

* Perceptions of the ethos and values of the organization - "'Inspiration and values' is the most important of the six drivers in our Engaged Performance model. Inspirational leadership is the ultimate perk. In its absence, [it] is unlikely to engage employees.”

* Effective Internal Employee Communications - which convey a clear description of "what's going on". "'If you accept that employees want to be involved in what they are doing then this trend is clear (from small businesses to large global organizations). The effect of poor internal communications is seen as its most destructive in global organisations which suffer from employee annexation- where the head office in one country is buoyant (since they are closest to the action, know what is going on, and are heavily engaged) but its annexes (who are furthest away from the action and know little about what is happening) are dis-engaged. In the worst case, employee annexation can be very destructive when the head office attributes the annex's low engagement to its poor performance... when its poor performance is really due to its poor communications.

* Reward to engage - Look at employee benefits and acknowledge the role of incentives. "An incentive to reward good work is a tried and test way of boosting staff morale and enhancing engagement." There are a range of tactics you can employ to ensure your incentive scheme hits the mark with your workforce such as: Setting realistic targets, selecting the right rewards for your incentive program communicating the scheme effectively and frequently, have lots of winners and reward all achievers, encouraging sustained effort, present awards publicly and evaluate the incentive scheme regularly.

The Importance of Managers on Employee Engagement

It's widely accepted that the greatest impact on whether an employee is engaged or not,comes from their relationship with their direct line-manager. The greatest impact on the line-manager’s level of engagement, comes from their own higher-level manager who sits above them. This manager/higher-level manager relationship carries on throughout the organization all the way up to the CEO’s office.

It goes without saying, you will forever struggle to have fully engaged employees unless you have fully engaged managers. According to Gallup, a disengaged manager is 3 times as likely to have disengaged employees working for them, than an engaged manager.

Research and one's own personal experience suggests that the impact managers have on the morale, performance and engagement of employees has a larger bearing on an employee’s attitude, commitment and drive than any other single influence in the organization. It is that linkage between line-manager.

The link between engaged employees, happy repeat and referral customers, and revenue and profit growth is conclusive. Statistics suggest that around 20% of employees are actively disengaged

For there to be engagement in your company, there has to be a two-way relationship, a bond and an understanding between managers and employees, at whatever level they are in your organization.

Unlike in personal relationships between friends and family where the connection evolves naturally, business relationships require a degree of framework, and a common language, so the employee has a better understanding of the company, and feels more involved in it.

Pathway to Results - Turn Your Managers into Mentors

The most effective way to create this relationship is for your managers to become mentors to their employees and proactively involve them in your business.This is something the ancient Chinese also understood, in the proverb, ‘Tell me and I willforget; Show me and I may remember; Involve me and I will understand.’


Richard Parkes Cordock said...

outrageous plagiarism!

Ed Rivis said...

Why are large chunks of text here exactly the same as found in an article by UK author Richard Parkes Cordock???

Carol said...

How true it is Engaged employees care about the future of the company!!!
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katty said...

Thank you so much for sharing such an interesting piece which is definitely worth sharing. The ideas and insights are very worth reading.
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