Proving The Link Between Employee Engagement and Business Performance

Written by EO Executives on Oct 26, 2015

Employee engagement is not a new topic, yet it is a concept that is being increasingly talked about.  In particular it’s the link between employee engagement and customer satisfaction that is creating the most buzz, so I spoke with three thought leaders in the HR space to understand more about how to measure, link and implement these internal and external performance indicators.


Niall Cluley is the current HR Director of the Fitness First Group, and has broad sector experience across Telecoms, Retail & Leisure, Utilities, FS and Proffesional Services organisations. Niall is particularly passionate about developing customer experiences through creative and sustainable people solutions.

 

John Wrighthouse is an experienced HR Director, having held positions at Homeserve, American Greetings and Nationwide. John’s experience covers organisations both large and small, and has significant experience leading and driving HR solutions that transform individual and organisational performance. He also holds a number of Non Executive positions.

 

Carole Band is Head of HR at Mitsui and is CIPD qualified. Carole has worked across multiple functions within HR with particular experience as an OD facilitator and L&D specialist.

 

 


Carole Band summarises the popularity surrounding engagement well when she says, “Engagement is not a new concept, however the technology, terminology, and HR interaction is.” Band and her team at Mitsui know that organisations are now more competitive than ever - “keeping them engaged and retained whilst understanding their impact on business performance has put engagement top of the agenda.”

The rewards of getting this right are evident, as a happy, fulfilled team creates more than just a positive company culture. Research from the Hay Group has shown that companies with highly engaged employees can improve business performance by up to 30% in comparison to companies with low engagement levels.

John Wrighthouse comments that “the theory suggests that having more engaged workers means they will be more productive and work harder for their employer. Fair enough. But dig down a bit further and very few say much about the impact (and influence) of higher levels of employee engagement on customer behaviour and their intent to purchase and repurchase.”

For Wrighthouse, although it may be difficult to establish a meaningful link between employee engagement and customer satisfaction its not enough to just intuitively accept that creating a great place to work through high levels of engagement will naturally lead to increased business success. “It leaves unanswered the question of ‘how’ and ‘how much’ engagement we should try and engender”. “Put simply”, Wrighthouse says, “if I had a single £1 to invest in employee engagement where would I invest it to get the best result?”

Fitness First’s Customer Satisfaction/Employee Engagement Model

This is where the link between employee engagement and Net Promoter score starts to emerge. Whilst NP Score has been used by many businesses large and small to gauge their customer satisfaction performance, it has in the past been seen as an external factor that needs to be influenced by sales and customer service departments, not directly linked to broader internal employee engagement and satisfaction.

But understanding the relationship between employee engagement and NPS can help businesses avoid blindly allocating scarce resources on areas that may or may not give the best performance outcomes.

Niall Cluley, realised the importance of understanding this link and set about developing his own model to use at Fitness First.

“By working with best in class companies and an economic modelling specialist we [Fitness First] have been able to develop and prove our own service profit chain by club/store and understand the relationship and correlation between drivers of engagement in our business and overall business and member outcomes.”

As Cluley explains, using this model has not turned up unexpected results. “As we expected, the way our teams are connected with our purpose, values and the atmosphere in a club is key to member satisfaction and advocacy.” But by focussing on a club by club basis Cluley has been able to “identify the theoretical 'size of the prize' in terms of ROI for improving engagement”.

When it comes to engaging employees, Cluley believes there are five key focus areas:

  1. “Connecting teams with the purpose and their role - why are we here, what is our ambition/objective and what impact they can have?

    How people feel about senior leaders and the ‘my company’ factor is always in my experience the top driver of engagement ahead of anything else you do on training, well-being, CSR etc.”

  2. “Acting on and living your culture and values - this starts with leaders but needs backing up with real 'proof points' i.e. if collaboration is a core value then you MUST genuinely do it!” 

  3. “Driving a rewarding performance culture by linking the customer experience with the employee experience – for example our new global employer brand is ‘be inspirational’ and focuses on bringing the value propositions together.”

  4. “Training and support – learning and mastering new skills, providing choice and autonomy when it comes to gaining career experiences are key to driving a sustainable culture of engagement platform. “ 

  5. “Recognition – in my view this is where companies need to let go and democratise recognition. No longer is it either relevant or appropriate for management to be the only people to award recognition.”

Sears Roebuck’s Employee Engagement Model

It’s not just Cluley and his team at Fitness First who have successfully linked NPS to Customer satisfaction. US retail store, Sears Roebuck, created a business model called “employee-customer-profit-chain” and according to Wrighthouse, its simplicity was the key to its success.

Wrighthouse explains how it measured three areas:

  • “A compelling place to work” – employee attitude
  • “A compelling place for a customer to buy from” – customer impression
  • “A compelling place to invest “– return on investment

 “As an example, when looking at the ‘quality of management’ as a driver of employee attitude, the Sears model found that a 5 point increase in employee attitude drives a 1.3 point increase in customer impression which, in turn, drives a 0.5% increase in revenue growth.”

So what does this mean? “In practical terms, if Sears knew nothing about the performance of a store except that employee attitude had improved by 5 points, they could predict that if revenue growth in the district were 5%, revenue growth at the particular store would be 5.5%. Working backwards, Sears discovered that responses to 10 specific questions in their employee survey of 70 questions had a higher impact on employee behaviour.”

“In practical terms” Wrighthouse adds, “the model can help management decide between competing demands for investment.” “The question becomes, ‘which of the proposed activities (employee training, leadership coaching, better pay and benefits etc.) will ultimately lead to increased customer satisfaction and better sales performance, and If so, by how much?”

The model unravels the myriad of performance data already found within the business but that was traditionally looked at in isolation, such as sales performance, customer retention, employee retention, employee satisfaction and leadership characteristics.

As Wrighthouse says, “The Sears model turns intuition into reality and produces a very measurable ROI on the investment in people.”

Nationwide’s Employee Engagement Model

In the UK there have been a few forward thinking organisations that have taken the Sears Roebuck model and applied it to their own business. Notably, Nationwide Building Society through its Genome work modelled the drivers of employee engagement and the predicted increase in customer satisfaction, customer retention and business performance.

Wrighthouse explains how the Genome work asked the question “If the product, pricing, promotion, and delivery were equal, why weren’t all stores performing well?”

The analysis enabled Nationwide to identify the other factors that were influencing performance – namely that the stores in the top third of performance had lower levels of sickness absence and employee turnover and higher customer satisfaction.

The Genome work looked at the factors that differentiated performance of stores between those ranked at the top and those at the bottom: “if product, pricing, promotion and delivery were equal, Genome sought to identify the other factors that influenced performance.”   The analysis found that those stores in the top third of performance demonstrated a lower level of sickness absence and employee turnover and higher customer satisfaction. “The analysis was more striking for those stores in the bottom third of relative performance: higher absence and employee turnover and lower customer satisfaction. Sickness absence was 1.09% higher and employee turnover 3% higher in those stores with lower engagement.”

“If nothing else, the employee-customer-profit chain model opens up a dialogue about the drivers of business performance.” “Its not utopia” says Wrighthouse, “but it supports the process of focusing time and allocating resource towards those things that predict performance and a greater return on investment”.

By quantifying the impact that employee engagement had on customer satisfaction and business performance Nationwide was able to incorporate this analysis into their HR delivery model and allocate resources to the drivers of employee engagement that gave the best ROI.

So On The Whole, Are Businesses Winning At Employee Engagement?

If you are to believe some of the research studies then unfortunately not. A study by Gallup revealed the frightening reality of how far most businesses are from having a fully engaged workforce. Their research found that only 13% of employees worldwide feel engaged at work. In other words, only one in eight of your employees are committed and likely to be making a positive contribution to your organisation.

This is a problem that needs to be addressed, and for Cluelly that starts by getting internal feedback. “Before looking at research we are speaking to our leaders and employees to listen to their thought and feedback". Not only this, but by working closely with Marketing, Fitness First have realised the connection with customers and employees.  "As we expected the way our teams are connected with our purpose, values and the atmosphere is key to promote member satisfaction and advocacy". 

The key is to first address organisational retention, policies and leadership development to yield better business results as well as understanding how they work with, inform and develop their employees. As Band succintly sums up “All of this informs us how to successfully drive engagement and change with them, not to them.”

There’s clearly work to do then, both in terms of understanding the relationship between employee engagement and customer satisfaction as well as improving levels of engagement across the business as a whole. As Cluelly warns, "Avoid engagement solely being a management responsibility. Having a great place to work is everyone's responsibility, so find a way for everyone to play their part". 

Whatever approach you take, one things for sure – Employee Engagement and its link to business performance is a topic that's not going away any time soon.

What Next

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