As a former C level operational and human resources executive and current management consultant I have long believed that the current relationship model between employer and employed is outmoded and needs to be changed. I am by no means alone, nor is this idea a new one.
"Companies have a hard time distinguishing between the cost of paying people and the value of investing in them"
-Thomas A Stewart
Michael Porter- HBR
"How else could companies overlook the well-being of their customers, the depletion of natural resources vital to their businesses, the viability of key suppliers, or the economic distress of the communities in which they produce and sell? How else could companies think that simply shifting activities to locations with ever lower wages was a sustainable ’solution’ to competitive challenges? Government and civil society have often exacerbated the problem by attempting to address social weaknesses at the expense of business. The presumed trade-offs between economic efficiency and social progress has been institutionalized in decades of policy choices.”
It is interesting that these individuals writing over 50 years apart recognized that the current models aren’t optimizing organizational performance at best and at worst are consuming significant opportunity for increased productivity, profitability, and organizational health.
Nilofer Merchant puts it even more succinctly in a recent blog post for HBR- People Aren’t Cogs!
As it currently stand two out of three employees are currently dissatisfied with their employment. That is especially prevalent in the emerging generations. The Department of Labor estimates that the phenomenon they refer to as presenteeism; where people are present, but contributing at less than their capabilities and spending time and energy attending to non work issues represents a productivity “bleed” of over $200 billion annually to the U.S economy alone.
The cost of delivering health care to the U.S. economy represented 12% of GDP in 2010 and is expected to reach 16% by 2020. Much of those costs can be attributed to the same causal factors as presenteeism- stress, depression, etc.
Recent studies also indicate that the over the next 15 years the demand for experienced human capital is expected to increase by 25% while the supply decreases by 15%.
On the positive side organizations that have successfully embraced an engagement based culture can show clear positive impacts in three key areas:
Depending upon what business you are in your costs for “human capital” on average represent 60 to 70% of total expenditures. As we know in some businesses it is much higher. As we point out, the best companies are recognizing this and leveraging their return on investment in this area. A 2008 study by Development Dimensions International (an international training and consulting firm) indicate that moving an employee’s level of engagement from low to high represented a 21% increase in individual performance. Employees at the highest levels of performance have per capita productivity of 20% higher than the average across industries and offices with high levels of engagement are 43% more productive according to studies by the Society for Human Resources Management and the Hay Group.
Engaged customers also enhance your productivity through repeat business and word of mouth recommendations.
Engaged employees tend to stay with their current employers at a rate of 85% versus 27% according to a 2008 study by BlessingWhite, an international consulting firm. The savings from reduced turnover alone are huge. Additive to that other studies showed similar correlations to companies with double digit versus single digit revenue growth and an average total shareholder return of 24% for organizations where 60 to 70% of employees rate themselves as engaged versus 9.1% total shareholder return for organizations with an engagement percentage of 49-60%. In retail environments stores in the top 25% engagement level deliver 36% higher operating income than stores with low engagement.
Customer engagement shows similar statistics including higher loyalty, increased revenue, increased profit, and increased wallet share. When you combine high employee and high customer engagement the results show literally a 100% difference in financial performance on a peer to peer basis.
Beyond the financial and productivity gains let’s talk about sustainability of the organization. I want to talk about three different areas identified by Peppers and Rogers (an international HR Consulting Firm) identified in their 2010 Engagement study:
- Brand- a 2003 study stated the experience a customer has with your employees influences repeat purchase decisions so much that “they are your brand.” In the same study they reported that 51% of consumers report than “outstanding service” is the number one reason they continue to do business with an organization and that conversely 80% state they will discontinue doing business because of a bad experience.
- Strategy- the biggest reason CEO’s fail is not bad strategy, but bad implementation of their strategy according to a study by Ram Charan reported in Fortune magazine. Engaged employees play a critical role in that implementation.
- Human Capital- over the next 10 to 15 years the demand for experienced talent is expected to increase by 25% while the supply decreases by 15%. Under these circumstances retention of critical talent becomes even more important. “Engaged” employees are 87% less likely to seek alternative employment than non engaged employees.
I could go on stating statistics and defining the issue, but I like to think I have made my point.
I like to think at this point we can move on to two more important points for discussion:
- What is engagement?
- How do I develop and sustain an engaged work environment?
I think what is very important in defining engagement is to start with being clear about what engagement isn’t.
Engagement is not morale. Engagement is not happiness. Engagement is not employee tenure. Engagement should not be measured by traditional climate or attitude surveys.
In my mind engagement is the voluntary and discretionary effort provided by employees to advance the goals and performance of the organization. Before the vernacular of engagement became prevalent I used commitment to describe what we currently call engagement and I think the definition provided by Ken Matejka in his book, Why This Horse Won’t Drink!, provides a great metaphorical description-
“Employees feel physically, psychologically, and emotionally impelled. They voluntarily give up other options.”
Engagement is both a process and a culture. It is based on relationships and trust rather than technology. It is about people.
The Peppers and Rogers study provided some additional information I think is very valuable for any organization considering implementing an engagement strategy.
They distinguish between the traditional view of the intellectual, behavioral, and emotional elements we have traditionally associated with engagement. To describe those a little more fully, the intellectual level is where an employee agrees with your company vision statement and/or a customer values the attributes of your brand. The behavioral level, recommending or purchasing your product or service is where you start to see energy or discretionary effort. The third level, the emotional level, is where you actually see “buy in” and enthusiasm. They go on however, to describe a different more comprehensive model which includes five levels and incorporates critical concepts like satisfaction, quality, and loyalty.
The “new” levels in hierarchical order are; satisfied, loyal, recommend, best products and services, and pride. Most importantly they also describe the critical foundation that this system is based upon, a foundation called trust. The point here as I have discussed thoroughly is without a trust based relationship, the rest of the engagement initiative is a wasted effort; and trust is built at the front line level between the immediate supervisor and the employee.
I think there are a couple of key points that I want to underscore:
- * Engagement involves the whole employee, it is not a purely intellectual model so traditional explicit memory or learning models will not create and sustain engagement.
- * The role of first line management and supervision is critical to implementing and sustaining an engaged culture. It may be born in the Boardroom, but it lives on the frontline.
- Because of its prevalence today I think it is also important to talk about the role of Social Media as it relates to engagement.
I want to start right from the start and indicate in my opinion although there can and should be a relationship, they are not synonymous. Social Media is a tactic, engagement is a culture.
A few weeks ago I had the opportunity to introduce Ryan Estis, a rising young star in the worlds of both social media and engagement. He did an excellent job of discussing the changing world we live in and the importance of re-evaluating our approach to a number of things like talent acquisition and retention, communications, work structure, and other dynamics that are occurring and will continue to occur in our world and our workplace.
He paid particular attention to building and communicating a brand, and I don’t mean your marketing strategy, but rather your corporate identity and how that is becoming increasing important to attracting and retaining not only customers, but employees.
The new generations expect to be treated as stakeholders, not human capital. They expect that they will have a say in how their work is structured, receive regular feedback about their performance and career aspirations, the balance between their work and personal lives, and an opportunity to have access and to exchange information with management and leadership.
If you are prepared to embrace an engagement culture, I would recommend to you that you consider the following roadmap.
Building an Engaged Culture
An engaged culture starts with five elements as a foundation that I outline in my Commitment to Compliance Model™. In my experience none of these elements is “optional”. You have to have all five and you have to have them essentially simultaneously, you can’t go back and attend to one or more elements later.
The five elements in my model include:
- Equitable Rewards
- Mutual Loyalty
In addition to the five elements you must also accept the premise that every employee is entitled to the following:
- Clear expectations
- Meaningful, timely feedback
- Equitable compensation
- A work environment that is physically, psychologically, and emotionally safe. By that I mean no harassment, no bullying, etc.
- Clarity about our purpose as an organization and context about your role in it.
Just as with the five elements these entitlements are critical and non negotiable.
When you embrace this model you are building a ∫ rather than trying to bolt it on.
One of my favorite authors Thomas Stewart describes a brand this way and differentiates between branding and brand.
He describes branding as the marketing, sales and other strategies we use to try to position ourselves in a certain way with our customers, communities, and shareholders. Brand on the other hand is how they see us. That is what I describe as alignment or true engagement. I believe strongly that building that into the fabric of your organization is much better strategy than trying to bolt it on.
I think organizations like Starbucks, Zappo’s, Google, Virgin Airlines, and a few others have real definable brands. I also believe that fit is an important component of their hiring process and that their human resources professionals look beyond skills and attributes in their hiring and selection processes. I will go even further out on the limb and say that compliance is not their primary mandate or value proposition.
People aren’t assets per se. Their efforts and contributions when they are aligned with the interests of the enterprise become powerful assets, but the ownership of that contribution always rests with them. I don’t think we can extract those efforts and contributions; we can only create an environment where they share them.
As you move into the tactical part of reinforcing your brand and creating your engagement culture the concept of fit becomes critical. You are inviting people to join a culture, not just an organization.
Hire Hard - Manage Easy
As a former HR professional I can tell you that this area is replete with opportunity. By and large we do a poor job of hiring. The Department of Labor estimates employee turnover costs our economy over $5 trillion annually. When you add the costs of presenteeism into the mix you are looking at $5.3 trillion per year largely attributable to fit. In most organizations we have delegated recruitment and selection to the most junior people in HR. We have increasingly relied on “smart technology” to do the screening rather than people. It doesn’t work in a vacuum.
The recipe for hiring hard and managing easy at its most simplistic involves these elements-
- Hire for attribute, train for skill!
- Hire smart people. You can teach smart people to do almost anything, but you can’t teach people to be smart!
- Hire whole people whose values are congruent with those of your organization and don’t rely exclusively on interviewing to test that congruence!
The most important part of the hiring process is the determination of the key attributes of your culture and how they will represent themselves in the interactions between your employees and your customers/stakeholders.
The second part is screening to make sure you have the correct match. I believe strongly in a combination of assessment and interviewing. The assessments should be scientifically validated and administered and interpreted by professionals with appropriate training.
The third part is onboarding- the integration of the person into your organization. I have seen many organizations do a great job of hiring and fail miserably at integration. Your new employees first weeks on the job either reinforce or totally destroy the context you provided during the interview process.
Technology will not overcome bad hiring and frankly neither will training. If you start with an inferior “resource” either by poor selection techniques or poor orientation you will never end up with a superior result. The $5 trillion we lose to turnover annually isn’t an anomaly, it is a consequence.
Creating the Environment
Creating and maintaining the appropriate environment involves three primary elements:
- Clarity- what is the mission or value proposition of the organization. Why does it exist?
- Context- how does the role of the individual employee fit into the larger mission and how do they know they are performing appropriately.
- Alignment- creating systems so that line of sight is both very clear and reinforced by other organizational systems. I believe a big part of the role of “new” HR is to train and reinforce those elements as being essential to everyone in management not just leadership and human resources.
This is another area quite bluntly where I see organizations stumble. It goes back to creating a living brand.
Years ago Roger Deprey described a human resources pyramid – a corollary to Maslow’s hierarchy and indicated that every employee in every organization asks and needs clear answers to six questions and they need them in a very particular order.
- What is my job?
- How am I doing?
- Does anyone care?
- What is our mission/vision/value proposition?
- How are we doing?
- How can I contribute?
A clue I would give you is that if your employees can’t answer the first three questions they aren’t asking the last three.
I would also encourage you to consider the following key elements of an engaged environment and themes that are emerging from the “new” workforce
- Maximum Delegation
- Personal Responsibility
- Clear Boundaries / Big Picture
- Shared Ownership of End Result
- Access To Information
- New Skill Acquisition
- Coaching and Mentoring
These things are all relationship rather than process based and incorporate the fundamental concepts of personal competency and accountability. They also illustrate an expectation on the part of employees in a partnership model rather than a transaction model.
The Role of Human Resources Professionals
The new Human resources profession needs to have some essential skills-
- We need to know our craft, that is possess technical skills in areas like selection and placement, performance management and rewards, communications, training and development, and yes, compliance.
- We need to be highly skilled facilitators. We need to deploy basic management competencies so that everyone in management and leadership recognizes that basic competencies like setting clear expectations, giving and receiving feedback, taking appropriate corrective action, and coaching and developing staff are their responsibilities –with no exceptions.
- We need to be excellent project managers. We need to understand the businesses and organizations we serve and build linkages between our employees, business goals, and the larger interests of the enterprise or organization.
Too many human resource professionals are highly skilled at compliance. Compliance in this highly litigious and complicated environment is important, but in my mind the critical value that the profession can provide is not limited to or represented by this narrow role.
What we have long referred to as soft skills or the peopley stuff are in fact the critical skill sets that need to be represented in management and leadership today.
Engaged organizations that build on a new kind of relationship between individuals and the enterprises they work for and relate to outperform their competitors in every key performance indicator.
Gallup in a recent study stopped just short of saying that engagement may be the most important long term measure of organizational success and sustainability!
Technology and process solutions like six sigma, lean, and others are enablers. They are tactical not strategic and they will not yield long term, sustained gains.
Perhaps I don’t have a full appreciation for capital or technology, but I have yet to encounter a situation where I saw either become physically, psychologically, or emotionally impelled. Come to think of it I don’t think I ever saw a brand or an organization become impelled either- only people.
The Business Case
For any of you that remain in doubt about the relationship between employee engagement and business strategy I have some “data” to share with you from The Hay Group and a few others…
- Our studies (Hay Group) show that high engagement can improve revenue growth by 250 % and reduce turnover by as much as 40%
- 70% of organizations with high engagement exited the downtown with higher levels of employee motivation than pre recession.
- 90% of the Fortune Magazine Worlds’ Most Admired Companies have developed and maintained an explicit employment brand.
- The World’s most admired companies incorporate building human capacity, teamwork, and customer loyalty into their performance rewards and management programs.
- From another source we see a direction connection between not only engaging with your employees and your customers, but also with your community-
- A 2010 study by Cone indicated that 80% of Americans indicated they would switch brands to a supplier or retailer associated with a good cause assuming price and quality are equal or close. If you are in a “commoditized” market you might want to pay attention to that!
- Another study by the Minnesota Council on Foundations is in 2008 indicated 87% of employees surveyed feel a stronger sense of loyalty when their employer is associated with philanthropic endeavors or programs.
There is nothing “soft” about hiring and aligning the best talent as a deliberate, planned business strategy. Engagement is not an a program to be delegated to your HR staff, it needs to developed and addressed at the C level and it needs to be a critical business endeavor, not something ancillary or to be attended to when “things slow down”.
You should also be asking yourself does my HR and management team have the core competencies and organizational credibility to develop and execute an effective employment branding iniative and employee engagement strategy?
Having done this on more than one occasion I will give you a hint- engagement and employment branding are not about surveys and compliance; they are about relationships, trust, and linkages. They are also customized and organization centric- they don’t come from templates.
Maybe issues like employee retention, higher productivity, increased profitability, and customer acquisition and retention aren’t critical issues to your business, but if they are I can tell you from personal experience that Lean and Six Sigma aren’t going to get you there and neither is the latest technology. You will have to achieve it the old fashioned way- developing relationships with people…
Apple was recently identified as the most valuable company in the United States. They enjoy per capita revenues annually of $356K per employee. They have an engagement strategy as does Microsoft, Starbucks, Zappo’s and other organizational benchmarks.
The final key thought I would leave you with is that each of these organizations developed and implemented an engagement strategy that was customized to them and their culture. While there are common elements including those represented in my model be wary of templates and “best practices” that were developed for someone else.