Monday, March 18, 2013

Start with Why

Start with Why
Value of Engagement - Big Bottom-Line Impact.

What do you think of when someone mentions employee engagement?  Is it employee happiness, employee job satisfaction, employee fulfillment, employe well-being?  Well you do get these.  However, these are byproducts. It’s really about the money.

Employee engagement is evident in the level of discretionary effort and discretionary thinking employees give you.  These turn out to have a big impact on the bottom line, particularly the part about discretionary thinking (it’s the source of innovation).

Discretionary effort and discretionary thinking impact the bottom line in three principal ways:
  • Margin improvement (innovating ways to do things more effectively and efficiently)
  • Top-line growth from existing business (delighting more customer)
  • Growth in new business (innovating new products/services for new markets)

How big is this?  It’s huge! Just look at the first one, operating margin:

Towers Watson published a study of 50 global companies showing the average difference in operating margin among three different levels of employee engagement. The root of this difference is the same whether you’re a global company or a SME  company. If you are a $ 100 million revenue company with low employee engagement you’re averaging around a $10 million operating margin.  However, if you manage to engage more employees to reach the ‘high’ engagement level, your operating margin jumps to $27 million.  That seems to be worth a little bit of effort.

‘High’ engagement does not mean that 100% of your employees are fully engaged.  In fact the percentage of fully engaged employees in a ‘high’ engagement company would typically get you and “F” in school.  It means that between 40% and 60% of all employees are fully engaged.  This means that the 27% operating margin that Towers Watson reported includes employees who are not fully engaged, they tend to drag the margin downward.  Thus, it’s likely there is still more upside opportunity.

Recognizing the polluting nature of partially engaged population dynamics, Gallup took a look at teams where all members were fully engaged.   This allowed them to better isolate the impact of 100% full engagement.  Their study produced a bigger lift but then they measured more than just the operating margin.  They showed a 240% lift in performance vs the 170% lift in operating margin that Towers Watson reported.

Are there companies that operate with near 100% of their employees fully engaged?  Yes there are.  (see Morning Star ) It can be done and you can do it too.

If you’re a stockholder or owner in a company where the percent of employees who are fully engaged is not approaching 100%, then you should be pretty unhappy with the leadership team.  Their failure isn’t just picking your pocket, it’s ripping the pants right off you.

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