Engagement – it’s a "no brainer"!
8 June 2011 Chris Roebuck
Chris Roebuck explains how highly engaged employees deliver a more effective performance and a better bottom line – at no extra cost to your organisation.
Sometimes I am concerned by the lack of knowledge among the CEO and top leadership community regarding the compelling case for building employee engagement. As soon as one finance director had seen the evidence he exclaimed, "This is a total no-brainer – we should have been doing this for years!" This also underpins the case for developing good leadership: good leadership builds engagement that delivers a better bottom line – it's that simple.
This article is designed to help senior corporate leaders understand the potential benefit that better engagement driven by good leadership can bring to their organisation. It sets out some simple, effective and low-cost ways in which organisations can rapidly engage staff more effectively and get extra performance from those staff. The strong evidence presented here is based primarily on data from the Corporate Leadership Council 'Driving performance and retention through employee engagement' 2004 study of 50,000 employees around the globe.
The core problem: generally low engagement
Data shows that less than 25% of staff in most organisations are engaged, roughly 65% "just do the job", while 10% negatively impact upon colleagues, i.e. are disengaged.
The 65% who "just do the job" could potentially give the organisation 30% more "discretionary" effort if they so desired. However, even if they don't they are still likely to be rated as an acceptable performer by most performance management systems.
If the organisation can get those disengaged 10% to become engaged it will improve their performance by up to 57%.
Strategic benefits of engagement
The benefits of getting engagement up are both clear and significant:
- Companies with high engagement are 71% more likely to outperform their sector peers.
- Highly engaged companies produce earnings per share that is 2.6 times higher than competitors with low engagement (Source: Gallup).
- It could increase revenue by up to 43% (Source: Hay).
- Companies with greater than 10% profit growth had 39% more engaged staff and 45% fewer disengaged staff than those organisations with less than 10% growth (Source: Hewitt).
- Bank branches with high employee engagement achieved 16% higher profit margin growth than those with lower engagement (Source: Standard Chartered).
- Accenture managed to increase its net revenue by 21.6% in six months by implementing an engagement initiative.
- Companies with high engagement scores improved their operating income by 19.2% over a 12-month period compared with a decline of 32.7% in those with low scores (Source: Towers Perrin).
- Engagement can halve the number of days lost through sickness (Source: CBI).
The key driver of better engagement is good leadership: top tier leadership development organisations outperform their peers in total shareholder return (TSR) by 9.6% over a three-year period. This means the average organisation (with a £2bn market value) increases market capitalisation by approximately £200m due to development and talent. Organisations with low-quality leadership, on the other hand, lose about 5.8% in TSR and about £110m on market capitalisation (Source: Corporate Leadership Council).
By implementing the strategic engagement and alignment project 'Towards the Integrated Firm' at UBS, we delivered an increase in market capitalisation of about 15% according to analysts. So the figures are compelling.
Impact of senior leaders and the organisation on engagement
CEOs and the top team can have an impact and their demonstrated behaviour is vital if a good culture is to be created to drive improved performance. These are the potential increases in discretionary employee effort delivered by each of the factors and behaviours (known as influencers) listed:
- is open to new ideas +22.9%
- cares deeply about employees +20.7%
- makes employee development a priority +19.7%
- is strong in leading and managing people +15.6%
- is strong in strategy selection and implementation +15.6%
The organisation has:
- effective communication +29.2%
- a reputation of organisational integrity +27.6%
- a culture of innovation +26%
- a culture of flexibility +24.7%
- customer focus +23.3%
- future orientation +23.1%
- internal equity and recognition +21.5%
- overall company success +21.5%
- a culture of risk-taking and lack of a blame culture +20.6%
- community involvement +18.6%
Hewitt's 'Top Companies for Leaders Reports' 2005/7 had a sample of 273 organisations. This showed that top quartile performing companies have a higher focus on developing leadership than bottom quartile. Furthermore, 85% of the top 20 performing organisations held their leaders accountable for developing talent.
Yes, that's right – showing you actually care about your staff can improve their performance by up to 20%. And how much does this cost? Nothing.
Impact of line managers on engagement
It is possible to gain the benefits of good leadership that builds engagement at an operational level, even if an integrated approach to leadership is not present at a strategic level. Individuals, teams and departments can perform well even if the rest of the organisation does not. Of all the key influencers listed above, the line manager is responsible for six of the top ten that produce high performance and 17 of the top 20 influencers of retention. So it really is line managers that drive performance and retention. This provides a compelling argument for leadership development at all levels – not just the top; however, it also applies at the top, as the CEO is a line manager for the top team and the directors manage their direct reports.
In many cases it is simple day-to-day actions that can be taken by leaders at all levels that make a real difference to performance. For example, clarifying the line of sight between individual and organisational objectives can improve discretionary effort by up to 28%, while giving fair and accurate feedback can result in a 39% effort increase. Just the simple action of demonstrating you care about your people can increase effort by 26%. These cost an organisation nothing to implement and not only deliver better performance, but also start to create a culture that adds further benefit in due course.
A good line manager who inspires and develops employees can increase an individual's potential by 43%, engagement by 42%, ability by 36% and performance by at least 30%. They can also reduce the risk of loss of talent by 87%. So this really is a no-brainer: having good line managers improves a company's bottom line – therefore everyone, from CEO to first line managers, needs to be a good leader.
Impact of basic organisation-wide operational activities on engagement
It is possible for an organisation to improve engagement at an operational level across all line managers by putting basic policies in place, such as on-boarding and development plans, which increase engagement. These also have additional benefits as they create an environment where line managers can develop their leadership capability within a practical framework.
For example, well designed, credible development plans can improve the development of potential talent by 37.8%, engagement by 45.4%, ability by 15.7% and aspiration by 22.5%. Unachievable development plans can reduce potential by 18.9% and development plans that managers don't support or take seriously reduce potential by 12.5%.
On-boarding of new hires can also have a significant impact on the performance of new staff. If the following content is included in the on-boarding process the following potential increases in effort could be obtained:
- Clearly explaining the importance of the job +23.4%
- Teaching about the organisational vision and strategy +21.9%
- Teaching about the group or division +21.5%
- Clearly explaining performance objectives +20.9%
- Clearly explaining job responsibilities +20.3%
- Introducing the new hire to other new employees +19.2%
Importance of emotional drivers
When developing leadership capability, It is important that line managers and top management understand that rational approaches alone are an insufficient way to maximise engagement and thus performance.
Of an employee's decision to give high performance, 57% is rational and 43% emotional. Over 80% of this emotional motivation is determined by the immediate line manager's approach to the situation. However, for the emotional elements to be effective there must be a core rational component in place. In practical terms that means that in order to build engagement, drive performance, enable change and become world-class leaders at all levels, a company must first present a rational case for action, including a personal benefit for the individual or team, followed by an emotional case that includes an element of building inspiration and vision.
Keeping it simple works
Any organisation can add potential value at operational level by initiating these most basic of processes. Furthermore, it is worth noting that consistency of leadership and approach is important. As we all know from personal experience, frequent changes in projects, assignments and line managers can reduce our performance. Research suggests that this reduction may be up to 27%, so consistency is essential.
The data above sets out the specific areas that are known to improve engagement. What's next is simple. Ask yourself, how can you improve what you do in those areas? And if you can make that happen then improved engagement should follow.
It is worth remembering that, even if the organisation doesn't have a detailed strategy covering this at strategic level, you can still make an impact yourself as an individual leader. No matter where you are in the system, even if the rest of the organisation is not doing the above, there is no reason why you and your team should not be an island of excellence in a sea of mediocrity – at least then you will have the self-satisfaction of leading a team that performs well, who support you, who enjoy coming to work. And thus it could increase your chances of promotion.
If you are the CEO, it's you who has the power to make sure that the islands of excellence cease to be just islands; you must strive until your organisation becomes a veritable sea of excellence.