Employee Engagement: Tools for Analysis, Practice, and Competitive Advantage

Chapter 1

Engaging Engagement

Employee engagement is an engaging notion – we get excited by it, we get involved in it, we’re willing to invest time and effort in it, and we get proactive about pursuing it – that’s why you are reading this book. Engagement implies something special – something at least a bit out of the ordinary and maybe even exceptional. Moreover, it sounds like something maybe too good to be true, both for employee and employer. Many would envy those who are so absorbed in their work that time flies, who seem passionate about their work, who find meaning and challenge in their jobs, and frankly, who simply look forward to coming to work every day. It just seems like the kind of job that we all deserve – indeed, it’s what people expect when they start a new job. At the same time, we envy the organization where employees are focused, passionate, and want to be there and who are innovative, proactive, and do the right things the right ways. It’s no wonder then that some of the most admired business leaders speak wistfully about engagement, and see it as essential to organizational success. As Jack and Suzy Welch suggest: Employee engagement first. It goes without saying that no company, small or large, can win over the long run without energized employees who believe in the mission and understand how to achieve it.1

How Engagement Makes a Difference and What Engagement Is

The general thinking on the notion is that engaged employees give more of what they have to offer, and that as a result, an engaged workforce is simply a more productive one. In her testimony before the US Congress, workforce pundit Tamara Erickson said: Improving engagement – finding ways to encourage individuals to invest more psychic energy in work – is the single most powerful lever that corporations have to improve productivity.2

That’s a powerful statement and it raises difficult questions: Does a more highly engaged workforce truly produce superior performance in organizations? Just what is psychic energy? And just as importantly, how does the corporation create or release that energy?

The Business Case for Employee Engagement

The claims being made for engagement are substantial. If employees are more engaged their organizations should demonstrate superior financial performance, the ultimate metric against which success and failure is judged. We have good evidence from some of our research of that potential and it is shown in Figure 1.1. There, we show how employee engagement across companies is reflected in three different indices of financial performance.

We had employees in 65 firms in different industries complete our engagement index and then for each company we averaged the data from their employees. Then we asked the following question: If you take the top and bottom 25 percent of the companies on the engagement index and look at the financial consequences what are the results?

You can see in Figure 1.1 that for Return on Assets (ROA), Profitability (actually profits divided by revenues), and Shareholder Value the differences are quite dramatic with shareholder value being more than doubled. Shareholder value was calculated using an approach commonly used in financial research.3

Figure 1.1 Engagement and financial performance

Good to Know:

Shareholder Value as a Measure of Engagement Impact

One challenge in evaluating the impact of an HR initiative is the choice of the outcome measure. All measures are not equal; their interpretation is often clouded by differences within and between organizations. For example, accounting measures (like ROA) are generally not comparable across firms or at least industries. This makes it difficult to evaluate the impact of a program on the competitive advantages that accrue, for example, to an engaged workforce since such evaluation by definition requires a comparison between companies.

In contrast with accountingbased measures, measures of shareholder value are forwardlooking and cumulative. An appropriate measure of shareholder value allows for comparability across firms and industries. Most important, the cumulative and forward-looking nature of share-holder value means that it reflects anticipated and sustainable impact. It is sustainability that reflects the essential nature of competitive advantage.

Capital market measures of shareholder value, such as Tobin’s q, reflect the value of the firm that has been created beyond the replacement costs of the firm’s assets (that is, the ratio of the market value of the firm to the replacement cost of its assets). Thus, firms which have higher such ratios have greater anticipated market returns relative to the investments that have been made.

Figure 1.1 clearly shows that firms that achieve higher levels of employee engagement also create higher levels of shareholder value … certainly good news for their investors and the executive teams who design and implement their strategies.

If an engaged workforce produces such dramatic financial outcomes how can we understand what this energy is that is associated with engagement? It turns out there are two kinds of energy: psychic energy – or what people personally experience – and behavioral energy – what is visible to others. At least as important is the question: What kinds of conditions can we create in the work place to foster such energy? We briefly describe each of these.

Engagement as Psychic Energy: On the Inside

Psychic energy brings to mind powerful images. Simply put, those who apply more psychic energy to a given task focus intensely on it and spend less energy focusing elsewhere. Common sense tells us that an organization that can capture more of that energy on the tasks that need doing in turn has a greater opportunity to create value.

Most of us have had the experience of being totally absorbed, totally focused on the task at hand. We use various expressions to refer to these moments, such as being in the zone or in flow.4 We think of these moments as peak experiences, and in that sense they are memorable and positive. The question of whether we are satisfied at the time simply doesn’t arise because our attention isn’t on being satisfied, it’s focused on the task at hand. Most people can identify when they have such experiences and the common ingredient of those experiences: It happens when we have a clear objective or goal we are trying to attain, when we have a sense of urgency about completion, and when we put intense effort into attaining it.

It may have already struck you that if events like being in the zone are relatively uncommon, then the goal of creating an engaged workforce might be elusive. So, engagement is probably best thought of as something that comes in degrees, perhaps at the extreme levels representing being in the zone, but without necessarily implying that engagement can only refer to such extreme moments.

We make this important point because engagement can be an important concept only to the extent that it is realistically sustainable. Being in the zone isn’t ordinary. Nonetheless, the allure of the extreme is one that captures our imagination, and serves in the extreme as the defining nature of what engagement feels like.

It’s the emphasis on energy that sets engagement apart from other popularized HR concepts, especially employee satisfaction. Employee satisfaction implies satiation and contentment with what has been obtained whereas engagement implies going after, seeking, and striving. We’ll see later that it’s a little bit trickier than this – primarily because of the way these different ideas about employees have been understood and measured. Nevertheless the notion of energy is key to engagement whereas satiation is the key to understanding satisfaction. With energy in mind, let’s sketch out what it means to be psychologically engaged from an employee’s view by imagining we are interviewing employees about it. For example:

Describe the feelings of enthusiasm, focus, and being energized. Work doesn’t feel tiring, but exhilarating. I feel a sense of enthusiasm for what I do. I feel a sense of self – efficacy, not self – satisfaction, but of vitality and competence that comes from doing something that I personally value. I see myself as part of the vitality of the organization, as a significant contributor to accomplishing organizational goals.

Tell me how absorbed you feel in your work. I frequently have the sense of being lost in time, as ‘suspended’ in the present. I find that I am fully involved in my work. I am very attentive to what I am doing and do not suffer from distractions.

So, are you saying you are more focused? Good question. I feel fully absorbed and aware of my place in relationship to my co-workers and what they and the organization are trying to do.

Engagement is the psychic kick of immersion, striving, absorption, focus, and involvement. In its fullest form it is not a usual sensation for if it were we would not obsess about how to achieve it. But engagement is not only psychic energy felt and sensed by employees; it is observable in behavior.

Engagement as Behavioral Energy: How Engagement Looks to Others

Engagement is visible to others in the form of behavior and we want to focus in on that behavior because, ultimately, this is what produces results. Importantly, we know that employees can serve as effective and valid reporters of what is going on in the organization. So, it’s helpful to think of what an engaged workforce looks like to those who actually do the work inside the organization. We’re going to go into some detail about what behavioral engagement looks like. We do this because it is sometimes like other notions of behavior we have but it is more than those. For example, some speak about commitment to the organization and involvement in one’s work but if that’s all it is, then it seems we could stop right here, because much has been written about those topics. It’s precisely because engagement captures something different – something more – that we need to find a level of precision in our thinking and expression that distinguishes engagement from those concepts. As we’ll see later, thinking about engagement in the ways it is different can lead us to a path less traveled, one with very different consequences for the organization.

Here is what an engaged workforce looks like:

Employees will think and work proactively: Engaged employees anticipate opportunities to take action – and actually do take action – in ways that are aligned with organizational goals.

They will expand their own thinking about what is necessary as job demands shift and expand their roles to match these new demands: Engaged employees aren’t tied to a job description. Rather, they are focused on the goals they are trying to achieve and that are consistent with the success of the organization. Doing something more or different isn’t the question; it’s a matter of doing what’s necessary without thinking of whether what’s necessary is part of the job.

Employees actively find ways to expand their own skills in a way that is consistent with what’s important to their roles and organizational mission: Engaged employees take ownership for their personal development not just for their own sake but so that they can contribute more effectively. Employees see their own self-interest in skill development as consistent with what is good for the organization but they do more than think about this, they do it. So, this self-d evelopment behavior isn’t seen as a matter of ultimate selfsacrifice, but what makes sense in a relationship between employee and employer; engagement is not just about what I can get but what I can give.

Employees persist – even when confronted with obstacles: Engagement matters most when things aren’t easy to do, aren’t going according to plan, and/or when situations are ambiguous and call for a matter of trust on both sides. The reason why executives are so attracted to the notion of discretionary effort is that they recognize that all activity is not subject to management design or control, and that questions of motivation are quite difficult to address. What executives want are employees who don’t need reminding or prodding, and who not only sense the need to get things done but do it, whether or not now is the convenient time or it is perfectly clear who should be doing it.

They will adapt to change: A key characteristic of an engaged workforce is employees who adapt when circumstances require. This can take shape in different forms, but the key is that they respond to the uncertainty that is inherent in a changing business environment and they actively embrace change – indeed sometimes proactively suggest change.

We will expand on these component notions – both of what engagement looks like and what it feels like – in Chapter 2. For now, though, we offer the following working definition:

Engagement is an individual’s sense of purpose and focused energy, evident to others in the display of personal initiative, adaptability, effort, and persistence directed toward organizational goals.

Good to Know:

Engagement in a Talent Management Framework

Talent Management refers to those human capital systems that attract the right talent and leverage that talent in a way that achieves the greatest return from individual and collective employee capabilities. In addition to sourcing, recruitment, on-boarding, and selection, this embraces managing the employee – employer relationship including performance management and issues related to sustaining employee motivation. It is particularly out of concern for the latter and the desire to capture unrealized employee potential that engagement falls under the talent management umbrella. Perhaps less obvious, employee engagement addresses another focus of talent management, namely, the need for organizations to adapt quickly to changing conditions. A more engaged workforce is more adaptable and therefore can be deployed more readily and likely at lower overall costs.

How an Engaged Workforce Creates Positive Financial Consequences for Organizations

Earlier we made the business case for an engaged workforce. We showed (see Figure 1.1 ) how companies with an engaged workforce had superior ROA, profitability, and more than double the shareholder value if they were in the top 25 percent compared to the bottom 25 percent on engagement of the companies we studied. Since then we have been outlining the attributes of an engaged workforce in terms of the psychic and behavioral energy we can expect from engaged employees. But that energy itself of course does not translate directly into the financial outcomes we showed are related to that energy. Obviously there is a process whereby the translation into financial outcomes occurs. This process is our focus here because it has direct consequences for the kinds of conditions that must exist for: (a) employees to feel and be engaged; and (b) produce the financial consequences hoped for. Look at Figure 1.2 as we describe this process and focus in for now on the second and third boxes, the ones labeled Employee engagement feelings and Employee engagement behaviors. We’ll deal with the High performance work environment in the far left of the figure later.

Figure 1.2 presents a schematic overview of how we conceptualize engagement with both its antecedents and its consequences. The antecedents are in the work environment and we refer to and think of such a work environment as one that facilitates, permits, and allows employees to be engaged. Engagement has two important facets, one psychological and the other behavioral. The psychological has all to do with the way people feel – focused, intense, enthusiastic – and the behavioral has all to do with what they do – they are persistent, adaptable, and proactive. As shown in Figure 1.2, engagement provides the bases for creating tangible outcomes such as enhanced performance, and a set of intangible assets including customer loyalty, intellectual capital, and brand image rarely addressed in human resources and human capital writings. Also, engagement serves to lower the risk profile of the organization. This happens because employees are more dedicated to creating value for the company, more consistent in their interactions with customers and other stakeholders, and less likely to leave the organization. All these in turn impact cash flow and ultimately shareholder value.5 What we want to emphasize in particular is the role of employee engagement in creating the intangible assets shown in Figure 1.2 and thereby lowering risk, both of which extend far beyond the implications of greater productivity generically defined to create shareholder value.

Figure 1.2 Employee engagement value chain

We want readers to think strategically about these engagement components and to see that the engagement components and their relationships to productivity, intangible assets, and risk reduction constitute a strategic mapping process not unlike those advocated by Kaplan and Norton in their important book Strategy Maps.6 These models essentially provide an action plan for converting intangible assets into shareholder value.

Executives are more adept and comfortable in mapping the marketing and operational elements of their business strategies. They struggle with the human capital components of their strategies because they do not grasp how human issues map to the intangible assets they do understand – brand, customer loyalty, and innovation. There is a very large gap in thinking about how to move from the high performance work environment practices we will talk about next and these outcomes. As a result, the logic of cause and effect relationships – if I do X then Y is likely to follow – breaks down for a lack of rigor in thinking about the steps between engagement and ultimate outcomes like shareholder value.

As we shall see later in greater detail, the linkages shown in Figure 1.2 are supported by a significant body of research originating in multiple disciplines, including psychology, economics, and marketing. What is critical here is recognizing how engagement serves as the missing link between a high performance work environment and both the tangible outcomes and intangible assets that in turn create shareholder value. The concept of engagement offers us an opportunity to look inside the black box to see what the human assets that work for us feel and do and how that creates the ultimate competitive advantage for firms.

On High Performance Work Environments: Four Principles for Creating an Engaged Workforce

Now we can focus on the far left column in Figure 1.2 because something needs to get this process to unfold in the right ways. These high performance work practices address four key factors, each of which relates to what we consider a fundamental principle of engagement. Specifically, engagement follows when:

employees have the capacity to engage;

employees have a reason or the motivation to engage;

employees have the freedom to engage; and

employees know how to engage.

We now consider each in turn.

The Capacity to Engage

Do employees possess the goal-directed energy and the resilience to maintain that energy when faced with the usual obstacles to goal attainment? This energy flows from the sense of competence and self-sufficiency that all people desire, though certainly some are more self-directed than others. Engagement follows naturally out of the motivation people have for autonomy and competence.7 Organizations contribute to and facilitate this energy by giving employees