The Economics of Engagement

In our discussions with leaders and partners, everyone asks about the economics. Since we started this adventure, we have wanted to create a “Calculator” which can measure the impact of greater engagement and retention. In searching online, I didn’t find any other calculators which were very interesting, but I did find a wealth of great research which supports the premise that investing in engagement is not only good for the lives of the individuals, but it is really good for the wallet!

I found four separate arguments, all supported by strong research, which are very compelling:

Engagement: The Center for Talent Solutions has determined that, on average, highly engaged workers are 22% more productive than normally engaged workers, 63% more productive that workers with low engagement, and almost 2.5 times as productive as actively disengaged worked. Further, Towers Perrin and Gallup have both determined that, on average, about 22-29% of workers are considered engaged, while at the other end of the spectrum, between 11-17% are actively disengaged. As productivity can translate directly into EBITDA, lower costs, or sales leverage, the simple goal is to create more highly engaged employees, thereby shifting the mix.

Retention: As you might expect, there are a number of explicit and implicit costs to losing people you don’t want to lose. First of all, productivity drops when someone decides to leave. You may pay some form of severance depending on how the exit is handled. You may have to pay more during the vacancy in over-time or contractor fees to get the work done. You will incur recruiting, hiring, and possible search expense to get a new resource. You may pay signing bonuses or incentives. You will face lower productivity while the new person comes up the learning curve, and you may incur additional training expense for the new employee. Then you might need to pay more for the new person and that person may end up being less productive than the old employee.

Employee Life Time Value (ELTV): This is a measure, much like Customer Life Time Value which is useful to assess whether investments in the employee are worth it: e.g. do the expenses designed to improve engagement and retention pay off over time. While engagement and retention are typically measured during a year, this allows you to see what impact investments have over a longer period.

Business Performance: Finally, there is study after study linking levels of engagement to basic business performance metrics like EPS and sales growth, operating measures and customer satisfaction. While these vary by industry, the companies on the '100 Best Places To Work' routinely out-perform their counterparts on most of the crucial financial dimensions.

Of course, each of these is related, but the fun part is that they can all be measured and tracked. This is not touchy-feely stuff – we are talking about raw productivity,as in people producing more output for the same amount of money. It's bottom-line stuff!

Well, you know me. Raging geek. You can take the boy out of the spreadsheet, but…… I got very excited. I immediately built an economic model that can show you the impact of these issues within your own organization. We are in the process of making it pretty, but we should be able to let our clients play with all the critical assumptions so they can determine what the potential impact of improving engagement is in their organization. We want them to be conservative and be able to play with different scenarios so they can find the right course of action. We’ll keep you posted.

Finally, last week was a big week for Dragonfly ORG. Our book, Enlightenment, Incorporated, Creating Companies Our Kids Would Be Proud To Work For was released on Amazon.com and a few other online stores. Very cool! We are happy with how it turned out and hope you enjoy it. If you want to order a number of copies, please contact us as we can get discounts for higher volume.

Scott

Making Empowerment More Powerful

Although the concept of “employee empowerment” has been around since the 1970’s, there is still much to be learned about how leaders can create an empowering culture, as well as identify ways the organization can benefit. And some new thinking on the subject just emerged from a group of researchers at the University of Georgia. They recently completed a comprehensive study of empowerment that not only demonstrates the extensive value to be gained, but teases out some interesting insight on how to deeply engrain empowerment into your culture.

The first thing the team did was build a rich definition of what we mean by the word “empowerment.” We often think about it in context of giving employees increased authority to make decisions as part of their work, and this is certainly true. But they also noted that empowered employees are independently proactive and believe that their work makes a difference. Essentially, these employees recognize that they are accountable for the viability of the business, and feel an obligation to act in ways that honor this responsibility. These talented individuals believe that the vision of the organization can’t be achieved without them.

Next, the researchers looked at whether an organization benefits when they build a culture that encourages empowerment, and as past research has demonstrated, the answer was a clear “Yes.” Empowered employees have greater job satisfaction, feel a stronger commitment to the company, and perform at higher levels. They are also experienced less job-related stress, which is a good thing in the tenuous world we live in today.

Finally, the research team tackled the question of how best to promote empowerment, and this is where it gets really interesting. Is it by providing tangible resources like training and budget? Did it happen by how the individual jobs or the organization itself is designed? While these factors may contribute to empowerment, a critical factor was something quite different. What they learned was that empowerment becomes stronger when employees believe that the organization “cares for and values them.” It’s a feeling, not a tool. And more specifically, it’s about being recognized as a unique human being with the ability to step up and make a difference, everyday.

Imagine the virtuous circle of success that’s created when employees can face the ever escalating challenges of life in today’s world with real confidence--and that the organization believes it too.

Jennifer