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