How Employee Engagement drives Business Success

how do you improve employee engagement and how to use employee engagement to boost your business and how do you build employee engagement
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Engaging for Success: enhancing performance through employee engagement Engaging for Success: enhancing performance through employee engagement A report to Government by Printed in the UK on recycled paper containing a minimum of 75% post consumer waste. David MacLeod and Nita Clarke Department for Business, Innovation and Skills www.bis.gov.uk First published July 2009. Crown Copyright. BIS/Pub 8859/07/09NP . URN09/1075Engaging for success: enhancing performance through employee engagement A report to Government David MacLeod Nita Clarke The text in this document may be reproduced free of charge in any format or medium providing it is reproduced accurately and not used in a misleading context. The material must be acknowledged as Crown copyright and the title of the document specified. Where we have identified any third party material you will need to obtain permission from the parties concerned. For any other use of this material please write to Office of Public Sector Information, Information Policy Team, Kew, Richmond, Surrey TW9 4DU or e-mail: licensingopsi.gov.uk The views expressed in this report are the authors’ and do not necessarily reflect those of the Department or the Government. The authors are not responsible for any third party material. Original material for the case studies has been supplied by the organisations themselves and were chosen to reflect a range of sectors of the UK economy, but do not constitute a representative sample. ii Contents Foreword by Secretary of State 1 Introduction 3 Chapter 1: Employee Engagement – What, why and how 7 Chapter 2: The Case for Employee Engagement – The Evidence 34 Chapter 3: The Barriers to Engagement 66 Chapter 4: Enablers of Engagement – What has to happen to make engagement work 74 Chapter 5: Recommendations 117 Annexes 124 iii Foreword by Secretary of State This timely Report sets out for the first time the evidence that underpins what we all know intuitively, which is that only organisations that truly engage and inspire their employees produce world class levels of innovation, productivity and performance. The lessons that flow from that evidence can and should shape the way leaders and managers in both the private and public sectors think about the people who work for them. They should also shape the way employees approach their jobs and careers. A recession might seem an unusual time for such reflection – in fact, the opposite is the case. Because Britain’s economic recovery and its competitive strengths in a global economy will be built on strong, innovative companies and confident employees, there has never been a more important time to think about employee engagement in Britain. This report helps take forward that debate. It sets out what government can do to help promote an understanding of just how much greater employee engagement can help improve innovation, performance and productivity across the economy. It launches a challenge that my department will take forward in the months ahead. Rt Hon Lord Mandelson Secretary of State for Business, Innovation and Skills 1 Introduction 1 We were asked by the then Secretary of State for Business in the autumn of 2008 to take an in-depth look at employee engagement and to report on its potential benefits for companies, organisations and individual employees. W hen the new Secretary of State, Lord Mandelson, met us in the spring, as the recession was biting, he encouraged us to examine in particular whether a wider take up of engagement approaches could impact positively on UK competitiveness and performance, as part of the country’s efforts to come through the current economic difficulties, take maximum advantage of the upturn when it comes, and meet the challenges of increased global competition. 2 Our answer is an unequivocal yes. In the course of the past eight months we have seen many examples of companies and organisations where performance and profitability have been transformed by employee engagement; we have met many employees who are only too keen to explain how their working lives have been transformed; and we have read many studies which show a clear correlation between engagement and performance – and most importantly between improving engagement and improving performance. 3 We believe that if employee engagement and the principles that lie behind it were more widely understood, if good practice was more widely shared, if the potential that resides in the country’s workforce was more fully unleashed, we could see a step change in workplace performance and in employee well-being, for the considerable benefit of UK plc. 4 Engagement, going to the heart of the workplace relationship between employee and employer, can be a key to unlocking productivity and to transforming the working lives of many people for whom Monday morning is an especially low point of the week. 5 We deal with the different definitions of engagement in the report. But at its core is a blindingly obvious but nevertheless often overlooked truth. If it is how the workforce performs that determines to a large extent whether companies or organisations succeed, then whether or not the workforce is positively encouraged to perform at its best should be a prime consideration for every leader and manager, and be placed at the heart of business strategy. 6 Where this happens, in places like John Lewis Partnership, Tesco, the London Ambulance Service, Sainsbury’s, Standard Chartered Bank, BAE Systems, Toyota, Babcock Marine Clyde, Google, Telefónica O2 UK and many more, the results can be tr ansformational – because employee engagement enables an adult, two-way relationship between leaders and managers, and employees, where challenges can 3 Engaging for success: Enhancing performance through employee engagement be met, and goals achieved, whether it be improved patient care, higher quality production, or more satisfied customers. 7 Of course a sustainable business strategy and access to cash are vital, just as good policy and planning are for successful public services. But in a world where most factors of production are increasingly standardised, where a production line or the goods on a supermarket shelf are much the same the world over, employee engagement is the difference that makes the difference – and could make all the difference as we face the realities of globalised competition and of the millions of graduates and even more skilled and committed workers that China, India and other economies are producing each year. 8 As our public services face the reality of an end to the years of rapid growth in investment, it is hard to see how the quality of service we all aspire to see – employees and citizens alike – can be achieved without putting the enthusiasm, commitment and knowledge of public service employees at the forefront of delivery strategies. 9 Nor is employee engagement only relevant in retail, where customers expect a cheerful face on the till, rather than a languid hand waving them to a far-off aisle in response to a query about the availability of marmalade, and where employees’ attitudes demonstrably and immediately impact on customer satisfaction. As Sir Alan Jones, Chairman Emeritus of Toyota UK told us: “Wherever you work, your job as a manager is to make your people be the best they can be – and usually they don’t know just how good they could be. It’s individuals that make the difference”. For Toyota, this approach is not based on altruism – though it is based on a profound respect for its members. It is predicated on the firm belief that the most valuable asset the company has is its people, and that enabling them to have an intellectual and emotional relationship with their work, as well as a financial stake in the success of the company, is the key to continuous product and productivity improvement from the shop floor to the boardroom. T oyota’s people are their competitive advantage. 10 The way employee engagement operates can take many forms – that is one of the most fascinating aspects of the topic – and the best models are those which have been custom-developed for the institution. As everyone knows, John Lewis Partnership is a company owned by its employees – but the company is clear that its model of shop-floor voice and engagement, which is such a critical factor in its continued success, is not simply a function of its ownership structure, but stems from a profound belief, first articulated by its founder, that people working in the business are central to its success. 11 Many company leaders described to us the ‘light-bulb moment’ when an understanding of the full potential significance of employee engagement dawned. Tesco Chief Executive Terry Leahy has recorded his reaction when he realised that the company knew more about its customers than it did about its employees, and 4 Introduction how the company then set about understanding what the workforce wanted, what motivated them at work and what workplace approaches would best build on those understandings, working in partnership with the retail workers’ union USDAW. As Tim Besley, leading economist and member of the Monetary Policy Committee put it, “there is an increasing understanding that people are the source of productive gain, which can give you competitive advantage.” 12 Individual employees in companies with strong engagement strategies described to us how their working lives have been transformed for the better. Mandy Symonds of United Welsh said: “Being involved not only gives me real opportunities to influence the decisions which affect me and my future, it also means I am more aware of the wider picture. As a result I can be confident United Welsh are going places, so for me it’s the place to be.” 13 Company accounts that show the workforce as a cost on the balance sheet, alongside capital depreciation, encourage a boardroom mindset which ignores the people factors. Many people we spoke to also pointed to the limitations of an approach which regards the workforce en masse as ‘human resources’ leading to a monolithic and one-dimensional view of people. As Will Hutton, Executive Vice Chair of the Work Foundation told us: “We think of organisations as a network of transactions. They are of course also a social network. Ignoring the people dimension, treating people as simply cogs in the machine, results in the full contribution they can make being lost.” 14 Within the public sector there is a growing understanding of the importance of engagement as a medium for driving the performance and well-being of public servants. This is reflected in the decision of the Civil Service to carry out its first service-wide survey of employee engagement later this year; it is expected to be one of the largest single surveys of its kind ever carried out in the UK, covering some 500,000 civil servants. 15 We hope this report will set out a compelling case to encourage more companies and organisations to adopt engagement approaches. We believe the evidence we cite of a positive correlation between an engaged workforce and improving performance is convincing. We have also set out to demystify engagement by defining what it is and what it can do for organisations and individuals. W e look at the crucial role of leadership, of so-called soft skills, the role of line managers, the importance of employee voice and the positive role trade unions and employee representatives can play. 16 Furthermore we hope it makes the case why, faced with the challenges of recession, “although adopting employee engagement strategies is challenging for firms at this juncture, actually it’s more important than ever.” In the words of David Yeandle of the EEF, the manufacturers’ organisation: “It will be hard to get through the recession without engaging your workforce.” 5 Engaging for success: Enhancing performance through employee engagement 17 That is why our core recommendation to government is a concerted effort involving all the stakeholders in the employment field, to raise the profile of this topic, so more and more people ‘get it’. We propose a national awareness campaign, facilitated by the Department for Business, Innovation and Skills (BIS). We are delighted that so many of the leading business figures we have spoken to in the course of this review have agreed to join a national high level sponsor group to promote a real discussion, should the Secretary of State accept our recommendations. 18 Engagement is about establishing mutual respect in the workplace for what people can do and be, given the right context, which serves us all, as individual employees, as companies and organisations and as consumers of public services. It is our firm belief that it can be a triple win: for the individual at work, the enterprise or service, and for the country as a whole. 19 During this review we have heard from hundreds of people with fascinating and often inspirational stories to tell. We have spoken to many individual leaders, companies and organisations, as well as representative bodies including the Confederation of British Industries (CBI), the Trades Union Congress (TUC), the Institute of Directors (IoD), the Federation of Small Businesses (FSB), Business in the C ommunity (BITC) and British Chambers of Commerce (BCC), as well as professional bodies such as the Chartered Institute of Personnel and Development (CIPD) and the Chartered Management Institute (CMI). We’ve discussed the topic with practitioners, and with academics and thought leaders in the field. A ser ies of regional road shows was also held, attended by a wide range of stakeholders. We also visited man y organisations practising engagement. We received a wide range of evidence, and an open call for submissions on the BIS website recorded over 300 responses. A full list of contributors is included at Annex A-D. 20 We are also very grateful for the time and commitment from the practitioners, experts and leaders, who so generously gave their time individually and collectively to greatly enrich this report. Throughout, we have been supported by a superb team from BIS, led by Tom Ridge. Rob Vondy, Area Director of Acas North West, has also been an invaluable source of advice and support. We owe them all a huge debt; this report could not have been produced without them. David MacLeod Nita Clarke 6 Chapter 1 Employee Engagement – What, why and ho w 1 This chapter summarises our findings on the importance of employee engagement to the UK, looks at some of the barriers to engagement as well as some of its characteristics, and outlines our recommendations to the government. 2 The following chapters detail more of the evidence about engagement (chapter 2), the barriers (chapter 3) and some of the factors that lie behind successful engagement (chapter 4). Our recommendations in full can be found in chapter 5. 3 This report is about unlocking people’s potential at work and the measurable benefits of doing so for the individual, the organisation and, ultimately, for the UK. 4 It is about retaining and building on the commitment, energy and desire to do a good job that characterises most people, that ‘first day at work’ feeling, to maximise individual and organisational performance. 5 Business and organisations function best when they make their employees’ commitment, potential, creativity and capability central to their operation. Clearly, having enough cash, and a sensible strategy, are vital. But how people behave at work can make the crucial difference between business and operational success or failure. 6 Employee engagement strategies enable people to be the best they can at work, recognising that this can only happen if they feel respected, involved, heard, well led and valued by those they work for and with. As a representative of the home insulation company KHI put it: “employee engagement is when the business values the employee and the employee values the business” (submitted via the review’s online call for evidence). 7 Engaged employees have a sense of personal attachment to their work and organisation; they are motivated and able to give of their best to help it succeed – and from that flows a series of tangible benefits for organisation and individual alike. 8 “You sort of smell it, don’t you, that engagement of people as people. What goes on in meetings, how people talk to each other. You get the sense of energy, engagement, commitment, belief in what the organisation stands for,” is how Lord Currie, former Chair of the Office of Communications (Ofcom) and Dean of Cass Business School, puts it. As a number of business leaders told us, “You know it when you see it.” 7 Engaging for success: Enhancing performance through employee engagement 9 It is of course not that simple. There is no one agreed definition of employee engagement – during the course of this review we have come across more than 50 definitions; three of them are quoted below. “Engagement is about creating opportunities for employees to connect with their colleagues, managers and wider organisation. It is also about creating an environment where employees are motivated to want to connect with their work and really care about doing a good job…It is a concept that places flexibility, change and continuous improvement at the heart of what it means to be an employee and an employer in a twenty-first century workplace.” (Professor Katie 1 Truss ) “A positive attitude held by the employee towards the organisation and its values. An engaged employee is aware of the business context, and works with colleagues to improve performance within the job for the benefit of the organisation. The organisation must work to develop and nurture engagement, which requires a two-way relationship between employee and employer.” 2 (Institute of Employment Studies ) “A set of positive attitudes and behaviours enabling high job performance of a 3 kind which are in tune with the organisation’s mission.” (Professor John Storey ) 10 Early on in the review, when we spoke to David Guest, Professor of Organisational Psychology and Human Resource Management at Kings College London, he pointed out that much of the discussion of engagement tends to get muddled as to whether it is an attitude, a behaviour or an outcome or, indeed, all three. He went on to suggest that “… the concept of employee engagement needs to be more clearly 4 defined … or it needs to be abandoned”. We have decided, however, that there is too much momentum and indeed excellent work being done under the banner of employee engagement to abandon the term. Not everyone who practices engagement uses the term: Liz Sands, Buyouts Director at 3i Private Equity, told us 3i probably doesn’t use the term ‘employee engagement’ at Board level but “it is fundamental to driving improved performance in the business and the organisation as a whole is signed up to it for that reason”. 1 Gatenby, M., Rees, C., Soane, E. and Truss, C (2009) Employee engagement in context. London: Chartered Institute of Personnel and Development 2 Robinson, D., Perryman S., & Hayday, S. (2004). The drivers of employee engagement. IES Report 408 3 John Storey, Patrick M Wright, David Ulrich eds. (2008). The Routledge Companion to Strategic Human Resource Management. 4 David Guest, ‘Review of Employee Engagement: Notes for a Discussion, December 2008’ unpublished paper prepared specifically for the MacLeod Review 8 Chapter 1: Employee engagement – what, why and ho w 11 There are differences between attitude, behaviour and outcomes in terms of engagement. An employee might feel pride and loyalty (attitude); be a great advocate of their company to clients, or go the extra mile to finish a piece of work (behaviour). Outcomes may include lower accident rates, higher productivity, fewer conflicts, more innovation, lower numbers leaving and reduced sickness rates. But w e believe all three – attitudes, behaviours and outcomes – are part of the engagement story. There is a virtuous circle when the pre-conditions of engagement are met when these three aspects of engagement trigger and reinforce one another. 12 For the purposes of this report, and building on David Guest’s input, we believe it is most helpful to see employee engagement as a workplace approach designed to ensure that employees are committed to their organisation’s goals and values, motivated to contribute to organisational success, and are able at the same time to enhance their o wn sense of well-being. 13 Engaged organisations have strong and authentic values, with clear evidence of trust and fairness based on mutual respect, where two way promises and commitments – between employers and staff – are understood, and are fulfilled. 14 Although improved performance and productivity is at the heart of engagement, it cannot be ac hieved by a mechanistic approach which tries to extract discretionary effort by manipulating employees’ commitment and emotions. Employees see through such attempts very quickly; they lead instead to cynicism and disillusionment. By contrast, engaged employees freely and willingly give discretionary effort, not as an ‘add on’, but as an integral part of their daily activity at work. 15 But is employee engagement something new, or simply old wine (long-standing management approaches) in new (fashionable management-speak) bottles. Is it just the latest management fad? We believe that while it does have clear overlaps with analytical antecedents such as commitment, ‘organisational citizenship behaviour’, job involvement and job satisfaction, there are also crucial differences. 16 In particular, engagement is two way: organisations must work to engage the employee, who in turn has a choice about the level of engagement to offer the employer. Each reinforces the other. 5 17 As IES say, an engaged employee experiences a blend of job satisfaction, organisational commitment, job involvement and feelings of empowerment. It is a concept that is gr eater than the sum of its parts. 18 Employee satisfaction and engagement differ in their predictive power over outcomes. Measuring satisfaction or morale per se does not tell you how employees are behaving – measuring engagement can go a long way towards doing so. 5 Robinson, D. (2008) ‘Employee engagement: an IES perspective’, Presentation to the IES HR Network. 9 Engaging for success: Enhancing performance through employee engagement 19 Despite there being some debate about the precise meaning of employee engagement there are three things we know about it: it is measurable; it can be correlated with performance; and it varies from poor to great. Most importantly employers can do a great deal to impact on people’s level of engagement. That is 6 what makes it so important, as a tool for business success. Engagement is measurable 20 To deal with measurability briefly first – since that is a foundation for insights for action. Employee engagement is not a science, but the development of survey tools 7 and questionnaires such as Gallup’s Q12 allow levels of ‘engagement’ within an organisation to be measured. Exactly what aspect of engagement these questionnaires analyse will vary. Some describe the level of engagement within the organisation on a scale, or as a percentage. This can enable a comparison between different parts of the same organisation – engagement levels between different branches of the same bank for example – and can enable benchmarking of results against significant external databases, often for the same industry. Some enable the identification of the prime drivers of employee engagement for an organisation through regression analysis. The nature of the engagement – with the job, with the team, with the organisation – can also be identified. 21 Again, measurement of engagement is not an exact science. Some surveys look at the pr econditions for engagement, and/or the outcomes of engagement, while others emphasise employee attitudes. Typical questions might include: ‘Do you have the right materials and equipment to do your job properly’?; or the employee might be asked to register their agreement with statements such as ‘I am personally motivated to help this organisation’, or ‘I have useful conversations with my line manager’. Employees at Accenture, for example, are asked to complete a ‘Personal Engagement List’ and rank a range of factors such as reward and recognition and quality of life. They then discuss the results with their ‘career counsellor’ assigned to them b y the organisation and action plans are put into place to close any gaps between importance and satisfaction. 22 But the data gleaned from engagement surveys should be good enough to allow organisations to address their identified issues – for example where the scores might be lower than expected – and analyse the factors behind their success, for example increased scores year on year, within the context of their organisation’s strategy and goals. The most important thing is for an organisation to be able to arrive at a shared definition in the context of their business, and for this to translate into action. 6 To be clear, this report presents the evidence available; it has not been part of the scope of this review to validate it. 7 The Q12 was developed by and is owned by the Gallup Organisation. http://www.gallup.com/consulting/52/employee-engagement.aspx. Other employee engagement measurement tools also exist. 10 Chapter 1: Employee engagement – what, why and ho w 23 That is not to say that a sophisticated or expensive survey or questionnaire is always appropriate or necessary to measure engagement levels; many organisations supplement questionnaires with staff focus groups. For small organisations in particular the cost will almost certainly be prohibitive and may seem bureaucratic and burdensome. However, many leaders of small and medium businesses told us that once a business grows to a size where, in the words of one of the employers we spoke to, “we can’t all go to the pub together”, gauging levels of engagement makes good business sense. We deal with some of the specific issues for SMEs in chapter 4. 24 We have also been struck by the number of people who told us of the equal importance of using instinct and judgment. It is also clear that simply doing a survey and publishing the results is not the same as an engagement strategy. Measuring engagement is simply a tool to allow you to find out how engaged your people are. Pfizer emphasised to us that engagement is a process not an event. Mark Mitcheson, Talent and Organisation Capability Lead at Pfizer, says: “We work hard to avoid falling into the trap that some other organisations make – assuming that doing a survey is doing engagement – it’s an important part of the process, but only part of it. There is a danger that you can spend too long looking at and analysing the g fi ures, ra ther th an engaging with staff on how to improve.” As Andrew Templeman, of the Cabinet Ofc fi e Capability Building Programme put it to us: “No one e ver got a pig fat by weighing it”. It correlates with performance 25 Levels of engagement matter because employee engagement can correlate with performance. Even more significantly, there is evidence that improving engagement correlates with improving performance – and this is at the heart of our argument why employee engagement matters to the UK. 26 The following chapter sets out the major evidence for these correlations. Here we highlight some of the findings. 8 27 Gallup in 2006 examined 23,910 business units and compared top quartile and bottom quartile financial performance with engagement scores. T hey found that: ●●T hose with engagement scores in the bottom quartile averaged 31 – 51 per cent more employee turnover, 51 per cent more inventory shrinkage and 62 per cent more accidents. ●●T hose with engagement scores in the top quartile averaged 12 per cent higher customer advocacy, 18 per cent higher productivity and 12 per cent higher profitability. 28 A second Gallup study of the same year of earnings per share (EPS) growth of 89 organisations found that the EPS growth rate of organisations with engagement scores in the top quartile was 2.6 times that of organisations with below-average 9 engagement scores. 8 Harter , J.K. et al (2006), Gallup Q12 Meta-Analysis 9 Gallup Organisation (2006). ‘Engagement predicts earnings per share’. 11 Engaging for success: Enhancing performance through employee engagement 10 29 Tower Perrins-ISR carried out a global survey in 2006 which included data gathered from opinion surveys of over 664,000 employees from over 50 companies around the world, representing a range of industries and sizes. The survey compared the financial performance of organisations with a highly-engaged workforce to their peers with a less-engaged workforce, over a 12 month period. ●●T he results indicated a signic fi ant d ifference in b ottom-line re sults in c ompanies w ith highly-engaged employees when compared with companies with low levels of employee engagement. ●●M ost noticeable was the near 52 per cent gap in the performance improvement in operating income over the year between companies with highly-engaged employees versus companies whose employees had low engagement scores. Companies with high levels of employee engagement improved 19.2 per cent in operating income while companies with low levels of employee engagement declined 32.7 percent over the study period. 30 In evidence to the review, Standard Chartered Bank reported that in 2007 they found that branches with a statistically significant increase in levels of employee engagement (0.2 or more on a scale of five) had a 16 per cent higher profit margin growth than branches with decreased levels of employee engagement. It correlates with innovation 31 Gallup indicate that higher levels of engagement are strongly related to higher levels of innovation. Fifty-nine per cent of engaged employees say that their job brings out 11 their most creative ideas against only three per cent of disengaged employees. This n fi ding w as e choed in r esearch fo r t he C hartered M anagement In stitute in 2 007 which found a signic fi ant a ssociation a nd in u fl ence be tween em ployee en gagement and innovation. Based on survey n fi dings f rom a pproximately 1 ,500 m anagers throughout the UK, where respondents identie fi d t he p revailing m anagement s tyle o f 12 their organisation as innovative, 92 per cent of managers felt proud to work ther e. 32 As Professor Julian Birkinshaw of the London Business School told us: “employee engagement is the sine qua non of innovation. In my experience you can have engaged employees who invest their time in multiple directions (such as servicing clients, creating quality products) but you cannot foster true innovation without engaged employees.” His view was echoed by Kieran Preston, director general of Metro, the public transport provider for West Yorkshire: “Employee engagement is important to Metro as it drives challenge and innovation and keeps Metro at the forefront of best practice in transport.” 33 Both Sainsbury’s and O2, two companies that have recorded significant recent successes, believe that their recent growth has been predicated on a transformation 10 Towers Perrin-ISR (2006) The ISR Employee Engagement Report. 11 Krueger, J. & Killham, E (2007) ‘The Innovation Equation’. Gallup Management Journal 12 Kumar, V. and Wilton, P. (2008) ‘Briefing note for the MacLeod Review’, Chartered Management Institute 12 Chapter 1: Employee engagement – what, why and ho w of their approach to their workforce, based on highly developed engagement models. “In our business with almost 150,000 people, engagement is a k ey concern. In businesses of our scale, you don’t even get started without engagement,” Justin King, CEO of Sainsbury’s told us. Public sector impacts 34 In the Civil Service indicative evidence suggests that departments with high engagement levels (measured through staff surveys) also tend to perform well in capability reviews – a key metric of departmental performance. Seventy-eight per cent of highly engaged public sector staff believe they can have an impact on public services delivery or customer service – against only 29 per cent of the disengaged. (Towers Perrin 2007) Research in Canada suggests that the link between engagement, customer service and profitability in the private sector could translate to the public sector – with trust and public confidence at the end of the chain, 13 rather than profit. “The Civil Service faces unprecedented challenges tackling complex policy issues every day. In order to meet these challenges we must harness the talents of all our staff to the full. Our employee engagement programme enables us to do this by understanding and improving civil servants’ experience of work, helping to ensure that they have access to the opportunities they need to achieve success in their roles. This, in turn, supports our drive to deliver improved public services and better outcomes for citizens.” Sir Gus O’Donnell, Cabinet Secretary and Head of the Home Civil Service. 35 Some have questioned which is the chicken and which the egg – does engagement lead to performance or is it the other way around? Marcus Buckingham, who has studied this area for many years, concludes from various longitudinal studies that it is engagement that leads to performance, and this is a four times stronger 14 relationship than performance leading to engagement. ISR, from different studies, have reached the same conclusion. 36 However, there is no single study that has proved beyond doubt that engagement explains higher performance, or improving engagement causes improved productivity and performance; it is difc fi ult t o im agine c omparators w here a ll f actors a re t he same, which is what would be required to prove causality. But while each of the studies indicated above, together with individual company studies, are all open to some degree of challenge, taken together they offer a very compelling case. 37 And as Professor Chris Bones, Dean of Henley Business School, pointed out, it is hard to believe that the many blue chip and admired companies and organisations putting substantial effort and resources into assessing and improving engagement – 13 Canadian Government Executive: June/July 2006 – http://www.tbs-sct.gc.ca/rp/pstc-eng.asp. Acccessed 1 July 2009 14 Quoted during telephone conversation with Review team, 2009 13 Engaging for success: Enhancing performance through employee engagement such as Diageo, Rolls-Royce, AstraZeneca, first direct and many more – would be doing so if they were not convinced of its importance to their bottom line. “The way employers treat employees has a direct effect on how employees treat customers. Customers, or service users, vote with their feet depending on the quality of the interaction they experience with any given organisation. Quality customer and employee interactions are, over the long run, the lifeblood of any business. These quality interactions ensure brand loyalty, advocacy and can give an organisation a competitive edge, which if rooted in their ‘culture’ can be hard if not impossible to replicate”. Jonathan Austin, Best Companies Other outcomes of engagement ●● Eng aged employees in the UK take an average of 2.69 sick days per year; the 15 disengaged take 6.19. The CBI reports that sickness absence costs the UK 16 economy £13.4bn a year. ●● Se venty per cent of engaged employees indicate they have a good understanding of how to meet customer needs; only 17 per cent of non- 17 engaged employees say the same. ●● E ngaged employees are 87 per cent less likely to leave the organisation than 18 the diseng aged. The cost of high turnover among disengaged employees is signic fi ant; s ome e stimates p ut t he c ost o f re placing e ach e mployee a t e qual to ann ual salary. ●● Eng aged employees advocate their company or organisation – 67 per cent against only three per cent of the disengaged. Seventy-eight per cent would recommend their company’s products of services, against 13 per cent of the 19 disengaged (Gallup 2003). Public sector employees are less likely to be 20 advocates for their organisation than private sector staff. ●● R esearch by Ipsos Mori on Audit Commission data showed that staff in councils rated as ‘excellent’ had much better results than those in weak or poor councils when asked about factors such as being informed and consulted, having confidence in senior managers and understanding the overall objectives of their organisation; they were also twice as likely to be 21 advocates for their organisation than staff in weak or poor councils. 15 Gallup, 2003, cited in Melcrum (2005), Employee Engagement: How to Build A High Performance Workforce 16 CBI-AXA (2007), Annual Absence and Labour Turnover Survey 17 Right Management (2006), Measuring True Employee Engagement, A CIPD Report 18 Corporate Leadership Council, Corporate Executive Board (2004)’Driving Performance and Retention through Employee Engagement: a quantitative analysis of effective engagement strategies’ 19 Ibid. 20 Ipsos MORI/Improvement and Development Agency (2006). Lessons in Leadership 21 Ibid. 14 Chapter 1: Employee engagement – what, why and ho w Engagement levels in the UK are low – and vary widely 38 There is a wide variation in engagement levels in the UK within organisations and companies, and between them. The Corporate Leadership Council (CLC) report that the highest scoring companies record 23.8 per cent of their people in the high engaged category; in the lowest scoring companies only 2.9 per cent of their people 22 are in the highly engaged category, using the same measurement techniques. IES found engagement in organisations varied between age groups, between the type of 23 organisation and between different job roles. The most recent Workplace Employee Relations Survey (WERS) from 2004 indicates that job-related satisfaction varied across workplaces, suggesting that it was partly determined by 24 the workplace itself not just by demographic or job-related characteristics. 25 39 A study by Professor Katie Truss and Kingston Business School for CIPD in 2006 found that only three in ten of UK employees were actively engaged with their 26 work, findings echoed by a YouGov survey for the TUC in 2008. Recent work from CLC indicates that one in five UK workers may be disengaged – with only four per 27 cent exhibiting the highest levels of engagement. 40 Within the public sector, levels of engagement are comparable. According to Towers Perrin, 12 per cent of UK public sector staff are highly engaged and 22 per cent are 28 29 disengaged , figures borne out by results from the annual NHS staff survey. 41 Even if these figures are only indicative, they still suggest that overall levels of engagement in the UK are lower than they could be. 42 Evidence about the effect of the current economic climate on engagement is mixed. 30 The CLC findings from across 60 companies in the third and fourth quarters of 2008 suggest that the number of highly disengaged employees has increased from one in ten to one in five from the first half of 2007 to the second half of 2008. 43 On the other hand recent evidence from the CIPD suggests that job satisfaction and 31 employee loyalty levels are holding up (in comparison to figures from 2006). 22 Corporate Leadership Council, Coporate Executive Board (2004) ‘Driving performance and retention through employee engagement – a quantitative analysis of effective engagement strategies’ 23 Institute for Employement Studies evidence to IES HR network, March 2008. 24 Kelsey, Alpin, Forth et al (2006) Inside the Workplace: Findings from the 2004 Workplace Employment Relations Survey also at http://www.berr.gov.uk/whatwedo/employment/research-evaluation/wers-2004 .Accessed 1 July 2009 25 Truss, C., Soane, E., Edwards, C., Wisdom, K., Croll, A., and Burnett, J. (2006). ‘Working life: employee attitudes and engagement 2006’ CIPD. 26 TUC, ‘What do Workers Want?’; YouGov poll for the TUC August 2008 27 Corporate Leadership Council /Corporate Executive Board (2008). ‘Improving Employee Performance in the Economic Downturn’ 28 Towers Perrin, Executive Briefing: Engagement in the Public Sector, 2007. 29 Healthcare Commission (2008). Sixth Annual National NHS staff survey 30 Ibid. 31 C Truss et al, CIPD and Ipsos MORI, revised 2009 15 Engaging for success: Enhancing performance through employee engagement The impact of the engagement deficit 32 44 Even though according to CLC research 97 per cent of business leaders say that innovation will become more important over the next three years, managers appear to be increasingly less likely to encourage and support employees to try new things. From 2008 – 2009 the numbers saying their manager supported new ways of doing things declined from 51 per cent to 40 per cent; the numbers reporting that managers were encouraging them to develop their own ideas declined from 51 to 43 per cent; and those reporting their manager encouraged them to try new ideas out declined from 48 to 38 per cent. No fewer than 42 per cent of employees would refuse to recommend their organisation as an employer to friends and family, 33 according to a report by ACCOR. 45 Engagement and involvement are critical in managing change at work; according to PricewaterhouseCoopers (PwC), nine out of ten of the key barriers to the success of 34 change programmes are people related ; only 24 per cent of private sector employees believe change is well managed in their organisations (15 per cent in the 35 public sector) according to Ipsos MORI. 46 The increasing evidence that individuals’ skills are being under-utilised at work – a significant sour ce of disengagement for the individuals affected – also suggests significant wastage and is a concern highlighted by the UK Commission for 36 Employment and Skills (UKCES). The most recent WERS survey found that over half of employees surveyed thought the skills they possessed were higher than those required to do their job. 47 A further challenge is that employees’ freedom to take decisions and organise their work – an important component of engagement – appears to be falling, according to the British Skills Survey. Task discretion declined between 1992 and 2001, and the proportion of people saying they had a great deal of discretion over how to do their work fell from 57 to 43 per cent over the same period. 48 The disengagement gap may also be a factor behind Britain’s continued lag in the international productivity league table, according to a recent report from the Advanced Institute of Management Research on the Organisation of Productivity (December 2006). 49 Concern over engagement levels is widely shared. From a global sample of 60 corporations the Corporate Leadership Council found that over 80 per cent of senior 32 Ibid. 33 Accor: Reward to Engage: Rewards, Benefits and Employee Engagement in Today’s Organisations and at http://engagement.accorservices.co.uk/website/employee-engagement-whitepaper-form.html. Accessed 1 July 2009 34 PwC, Managing Change in Your Business, September 2000. 35 Ibid. 36 Kelsey, Alpin, Forth et al (2006) Inside the Workplace: Findings from the 2004 Workplace Employment Relations S urvey. Also at http://www.berr.gov.uk/whatwedo/employment/research-evaluation/wers-2004. Accessed 1 July 2009 16