Create Awareness

December 12, 2008

It’s very strange:  In the roughly four years that I’ve been speaking to  management about the hundreds of studies that clearly demonstrate that high levels of employee commitment and engagement predict financial success, I’ve consistently found that virtually no one in the audience had ever heard of these facts. 

Here is a small sample of data supporting the idea that when employees feel very positively about the place where they work and the work they do, tangible success is achieved as measured by financial results:

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• “The Best Companies to Work For” are run by people who hold two goals in mind simultaneously:  to achieve their business targets and to uphold the welfare of their employees.  These organizations have higher market value, growth, return on assets and return to shareholders than peer organizations that don’t value and involve employees.
• The world-wide consulting firm Watson Wyatt administered surveys of the Human Capital Index (HCI) to 51 organizations in the United States and Europe.  When the HCI scores were compared with each corporation’s five-year total return to shareholders, companies with a low HCI score averaged a 21 percent total return; companies with medium HCI scores achieved a 39 percent total return, and those with high scores had a 64 percent return.
• When customers give a company high marks, that organization earns a 160 percent five year return to shareholders when compared with the S&P Index.  When both customers and employees give a company a high rating, that company’s five year returns to shareholders is 320 percent of the S&P.
• Vanderbilt University and human resource consultants, Hewitt Associates, studied the financial results of Fortune’s “100 Best Companies to Work For” from 1998 to 2003.  “Best Companies” cumulative stock returns averaged 50 percent above the market average.  The publicly traded companies on Fortune’s 2007 list of “Best Companies” consistently beat the market over the preceding ten years.

 
Over the last twenty years, numerous studies involving millions of people in many nations and industries have overwhelmingly demonstrated that when people feel very positively about their job and their workplace, these feelings of commitment and engagement predict positive financial results.  When employees are committed to their organization and find their work challenging and important, on average, that company will achieve 30 percent higher profits and a share price
2-3 times higher than a peer company whose employees are neither committed to the organization nor engaged in its work. 

The reason is very simple:  companies in which employees are really involved retain their employees and their customers.

The reverse is also true.  When companies see employees only as costs and not as key assets, and they use massive layoffs as the first tool to raise money and increase profits, employees reciprocate with powerful negative feelings.  People then come to work although they’ve already quit, they withhold discretionary effort, fear prevails, innovation disappears, and teamwork is only a slogan.  That’s a route to failure.

When executives are ignorant of these facts the result is that in the great majority of organizations decision makers don’t know the route to success is through making commitments to valuable employees so that employees reciprocate with strong feelings of commitment to the organization.  Ignorance of these data leads to callous practices to employees who become too scared for their own and the organization’s good.

The Message

A critical leadership task is to create widespread awareness of this information throughout an organization as a first step in reinstating employees as stakeholders and as assets.  The key message is simply, When employees are viewed and treated as critical resources, and commitments are made to them, financial success is very probable. 

People need to know that Commitment and Engagement are very powerful variables and are not just substitute words for the weak variables of morale and satisfaction.  Commitment and Engagement measure passion:  how strongly, negatively or positively do you feel about your organization and your work?  Where employees are committed to their organization and find pride in being a member of it, and they are fully engaged in their work because it fulfills their need to do work that matters, motivation, employee innovation, retention, discretionary effort and financial outcomes are all very high.

When these are the prevailing feelings, customers enjoy doing business with that organization and, like employees, they stay.  Replacement costs for employees and customers are low, positive feelings prevail, and sales and profits rise.
One way to think about these issues is to realize that there are three stakeholders in every company:  shareholders, customers and employees.  Success requires that all three constituencies are satisfied.

The reverse is also true:  when employees are treated as costs and not as assets, they feel abused and frightened for good reason.  When people are neither trusted nor respected and their work is not regarded as significant, they are neither committed nor engaged.  Instead, they become preoccupied with their negative feelings about their organization, their boss and their job.  The real cost of a non-engaged employee or worse, an actively disengaged employee is enormous because they alienate customers and customers leave.  So do sales and profits.

When management is ignorant of these facts, the decision makers don’t know that the surest path to success involves creating high levels of positive feelings in their members.  In fact, the most prominent current practices regarding employees essentially guarantees high levels of negative feelings and low levels of commitment and engagement - which is a route to failure.

The most prominent current practices regarding employees involve large lay-offs and outsourcing in the absence of a crisis.  Thus, most executives are making choices in regards to employees which will almost certainly assure employee alienation and business failure and they don’t know that will be the outcome of what they’re doing.

What might account for this widespread ignorance?  Perhaps the more powerful reason for this continued executive ignorance is these studies strongly disagree with the most wide-spread current policies regarding employees.  In practice, employees’ welfare is frequently disregarded even when the enterprise is profitable.  While drastic cuts in employee related costs may well be appropriate and necessary when the organization is in financial crisis, when red ink is not flowing and the goal is not survival but rather increasing profits and share price, these practices inevitably increase non-engagement and active disengagement.

When people feel there is no way for them to achieve any level of control over their life, when there’s no way to gain reasonable security, fear prevails.  Even when the economy was good, about half of all employees felt vulnerable economically and psychologically.  I call these feelings a “Psychological Recession;” it’s the feeling that while the present is awful the future will be worse.  Prolonged fear and depression invite failure because scared and worried people can neither concentrate nor focus.

The first task for change makers is to create real awareness at every level of an organization that these practices create serious problems with powerful negative effects that impede success.  And, there are policies which make success much more likely.  In order to have an impact, the message must resonate to how people are feeling and be honest, simple, brief, and focused.  It must begin with a sense of alarm that is based on the organization’s reality and then move to the idea that when the core issues are faced, the right changes can be made and success and a better future become very likely.  Experience teaches us that this message will need to be repeated often.