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CHAPTER 5 EMPLOYEE ENGAGEMENT IMPACT ASSESSMENT

Introduction

5.1 This chapter looks at the impacts of employee engagement, and is presented under the following headings:

• Belief in Engagement - the extent to which the literature supports the contribution of employee engagement to improved organisational performance.
• Extent of Engagement - the extent to which employees are engaged based on survey evidence.
• Impact of Engagement - a review of the impact evidence relating to positive outcomes in the following areas: productivity, customer outcomes, employee retention, 'meaning at work', advocacy and organisational climate.
• Cost of Engagement - the extent to which the literature assesses the costs associated with employee engagement.
• Importance of Engagement - the Chapter concludes with a review of case study evidence which highlights the importance of employee engagement to employers.

5.2 From the literature it appears that the impacts of engagement, and of disengagement are wide-ranging and can have effects at all levels, from individual employees, to the climate of the team or department through to organisational performance. Far from being an abstract concept, the literature finds very real and measurable impacts upon organisational performance of the effects of employee engagement and disengagement. However, the robustness of the evidence base must be considered before drawing firm conclusions. The subject of engagement is still relatively new in the literature and is not a well-studied academic research field; in particular, many of the studies have been carried out by management consultancies and research houses who may in part be biased towards positive results. Further, there is very little consideration in the literature regarding the cost of engagement schemes and how these compare to any benefits received.

5.3 However, notwithstanding these caveats, the literature does provide sufficient indicators and consensus for some broad conclusions to be drawn out, as discussed below.

Belief in engagement

5.4 From the literature review it is clear that the overriding sentiment throughout the leading texts is very positive with regard to the impact employee engagement has on organisational performance. This is illustrated by some of the key statements that emerged from the literature: see Table 5.1.

Table 5.1 Literature view on impact of engagement

Extent of engagement

5.5 The research findings which are emerging suggests that only a small proportion of employees can be described as engaged, with a far greater proportion of respondents to surveys reportedly either not engaged or disengaged. For example, a Gallup survey of 2004 (carried out on US employees, as reported in Meere (2005)) found that nearly one fifth of employees were disengaged and over half 'not engaged': see Table 5.2. Meere (2005) also provides statistics relating to the UK, which show a similar trend: see Table 5.3.

Table 5.2 Results of US Gallup poll of employee engagement

Source: US Gallup results quoted in Meere (2005)

Table 5.3 Results of UK Gallup poll of employee engagement

Source: UK Gallup results quoted in Meere (2005)

5.6 The CIPD (2006c) Employee Attitude and Engagement Survey 2006 finds slightly higher results than suggested by the statistics above. Covering 2,000 workers across the public and private sectors in the UK, the survey finds that 35% of employees are actively engaged with their work. However, care needs to be taken when discussing what workers are engaged to. Robinson et al (2004) highlights that an interesting finding in the NHS survey was that the professionals surveyed often felt a higher level of loyalty to their work (or to their patients) than to the organisation as such. Robinson et al notes that to some extent this may not matter to the organisation if these individuals perform in a manner that achieves the objectives of the organisation anyway. However, where engagement with the organisation will clearly be important is in regards to organisational level changes in strategy for example. In these instances organisations seek to have employees aligned with the overall strategy and perform their work to that end.

Impact of engagement

5.7 The models presented in Chapter 4 illustrated the mechanism by which employee engagement can feed into overall organisational performance. It follows that if employees are not engaged with the overall strategies and objectives of an organisation then their day-to-day activities will not be focused on achieving these objectives. This section reviews evidence in the literature to determine the extent to which these effects can be described and quantified.

Productivity and organisational performance

5.8 The Corporate Leadership Council ( CLC) (2004) completed a study of engagement levels of over 50,000 employees across the globe and found that those employees who are most committed:

• Perform 20% better, which CLC (2004) claims infers that moving from low to high engagement levels will induce an increase in employee performance of 20 percentile points; and
• Are 87% less likely to leave the organisation, which CLC (2004) states indicates the significance of engagement to organisational performance.

5.9 On the other hand, in reporting on the costs of employee disengagement, Meere (2005) discusses a survey carried out by ISR on 360,000 employees from 41 companies in the world's 10 largest economies and finds that in companies with low engagement both operating margin and net profit margins reduced over a three year period, whilst in companies with high levels of engagement both these measures increased over the same time period.

5.10 Although this survey was based on private sector companies and measured organisational performance through financial indicators, the implications for an organisation, private or public are the same - the difference between low and high engagement can be real and substantial. The models discussed in Chapter 4 demonstrated the mechanisms through which low engagement can impact upon organisational performance, however that performance is defined and measured.

5.11 Melcrum Publishing (2005) also report that in the US, Gallup estimates that disengaged workers cost US business between $270 and $343 billion per year due to low productivity. Meere (2005) also reports evidence that close to one-third of CEOs identified engaging employees in the company's vision, values and goals, as one of the three factors most important to their organisation's success.

Customer outcomes

5.12 Customer focus is one organisational objective that does apply across both the private and public sectors, although it may manifest itself in a slightly different form. In this regard, a survey by Right Management (2006) found that 70% of engaged employees indicated they had a good understanding of how to meet customer needs, whilst only 17% of non-engaged employees scored high on this measure. As definitions of engagement would suggest, the engaged employees were found to have a better understanding of how their actions contributed to the organisation's overall customer focus.

Employee retention

5.13 Similarly, employee retention is an issue for the private and public sector alike. Right Management (2006) found that 75% of engaged employees planned to stay with the organisation for at least five years, whilst only 44% of non-engaged employees planned to stay. On this issue Towers Perrin (2003) also found that a highly engaged workforce is a more stable workforce - in their survey two thirds of highly engaged employees had no plans to leave their jobs versus just 12% of the disengaged. According to Towers Perrin (2003), whilst high engagement does not guarantee retention, it does increase the chances of retaining the very people who are probably going to be most attractive in a competitive labour market.

5.14 With regard to retention, Towers Perrin (2003) highlights an important impact related to the disengaged. Whilst organisations can potentially lose key employees through not successfully engaging them, there is also a risk to the organisation from the disengaged who are not actively looking for other employment and continue in their current employment but are disaffected and unproductive. Towers Perrin (2003) note that retaining the disengaged can have as serious consequences for performance as losing the highly engaged. The literature tends to focus on identifying the disengaged and outlining the potential negative impacts the disengaged can have on other employees and overall organisational performance. This may represent a significant gap in the literature where further discussion and research could perhaps be undertaken on how to reach the most disengaged, the extent to which it is worth trying to reach the most disengaged, and how the costs of these interventions weigh against any potential benefits of engaging these members of staff.

Meaning at work

5.15 Penna (2007) presents the results of research carried out in 2005 on 1,765 British employees to identify what creates meaning at work for UK employees, the effectiveness of employers in creating meaning and what an employer who creates meaning can reasonable expect in return. Although not explicitly referencing 'engagement' many of the elements examined in this research are important components of the definitions of engagement discussed in Chapter 2. 'Meaning at work' as referred to by Penna (2007) (discussed in section 4.6) is the vehicle through which employers and employees can be brought closer together to the benefit of both.

5.16 The headline result is that organisations that devote resources towards creating meaning at work can anticipate increased motivation, loyalty, pride, and productivity. On the other hand, a proportion of respondents did not experience meaning at work and as a result 15% of employees surveyed would not recommend their organisation as a place to work and 7% would actively discourage others from joining. As the report highlights, pride taken in working for an employer, and willingness of employees to recommend their employer as a place to work to friends, are excellent barometers of engagement.

Advocacy of the organisation

5.17 As mentioned in Chapter 2, CIPD (2006c) classifies three types of engagement (cognitive, emotional and physical) but states that engaged employees may also go one step further and act as advocates of their organisation. Advocacy can be in terms of recommending the organisation as a place to work, or in terms of believing in and recommending the products and services of the organisation. An interesting result that came out of the CIPD's annual employee attitudes and engagement survey ( CIPD 2006c) is that public sector workers are more critical of their organisation than their private sector counterparts. The survey concludes that employees who are more engaged are more likely to be advocates of the organisation. In the survey 37% of employees could be described as 'Champions' who willingly promote the organisation as an employer (potentially reducing recruitment costs by recommending/introducing key personnel) and its products/services, which in effect is free marketing and enhances the public image of the organisation.

5.18 Melcrum Publishing (2005) reports similar results and from their survey finds that only 3% of disengaged employees would advocate the organisation as a place to work, compared to 67% of engaged employees. Penna (2007) included similar measures in its 'meaning at work' research report, and finds that nearly a quarter of those surveyed would not recommend their organisation as a place to work. The report also notes a small hardcore of 'corporate terrorists' - the most disengaged - would actively discourage friends from joining their current organisation.

Organisational climate

5.19 CIPD (2006a) discusses the impact that engagement has on the sense of community within an organisation. Whilst managerial actions are important, the results of the CIPD survey ( CIPD 2006c) suggest that relationships among fellow workers are important in contributing towards job satisfaction. In turn, the impact of the organisational climate and the extent to which engagement is embedded in the organisation (or the individual team or department) is critical for employees in their willingness to stay working with their employer and the extent to which they advocate their organisation. This "affective engagement" is found to be strongly related to positive discretionary behaviour - or "going the extra mile".

Cost of engagement

5.20 Much of the literature reviewed does not raise the issue of cost alongside the benefits. One case study that does however is that of Cambridgeshire County Council, where it is questioned whether the outcomes achieved are worth the inevitable high cost of such a dedicated and comprehensive engagement scheme. In this case, Cambridgeshire County Council reported that the benefits do make the engagement measures worthwhile as there are time savings that result from a smoother process for implementing change and new policies. HR benchmarks suggest that the Council has the top quartile performance in terms of absence, coupled with bottom quartile results for HR delivery costs. A 2004 staff survey revealed that 85% of employees thought they were doing a worthwhile job, 85% said managers listened to their ideas, and 71% said they had enough opportunities to raise issues of importance. All of these results were up on the previous year, some as much as 15%.

Importance of engagement

5.21 Therefore between the impacts that engagement can have upon an organisation (as shown by the models in Chapter 4 and discussed here in Chapter 5) and the relatively widespread trends of disengagement found in various employee surveys, it is clear that engagement has become an important topic in recent years. Table 5.4 highlights the commitment to employee engagement by a selection of leading players from both the public and private sectors and the underpinning rationale for their uptake of this new approach. They have recognised the importance of employee engagement and have acted accordingly to leverage the organisational benefits such an approach can deliver. The information is presented via case study extracts.

Table 5.4 Importance of Employee Engagement - case study evidence

5.22 CIPD (2007a) suggests that employers want employees who will 'go the extra mile', whilst employees want worthwhile jobs. Where these objectives meet there is a 'win-win' situation where organisations can meet their needs and the needs of their employees. According to the CIPD (2007a), what organisations are looking for to bridge these goals in practice is an engaged workforce. The models outlined in Figures 4.5 and 4.6 demonstrated the way in which this process can work and the role that engagement plays in organisational outcomes.

5.23 As discussed, the impact of disengagement can have measurable effects upon performance, not only in quantitative terms of reduced productivity, reduced profitability, loss of customer satisfaction and/or employee turnover, but also upon the general climate of the organisation and other employees. With regards to the public sector, it is illustrated in Chapter 4 through a model based on Canadian research (Heintzman and Marson, 2006) that engagement can have a bearing on the performance of public institutions and the public's perceptions and levels of trust in those organisations. Thus the importance of engagement can be demonstrated in terms of the effect it is found to have upon improving the welfare of the individual, other employees and ultimately on organisational performance, however it may be measured. Increasing recognition of these very real effects has brought the subject to the fore for many organisations.

Summary and key findings

5.24 This chapter set out to review the evidence regarding the impact of employee engagement. It began by looking at the general sentiment throughout the literature and concluded that there is an overriding belief in the literature that employee engagement has measurable and significant effects on the organisation's success. The review of the evidence then looked at number of areas and found that:

• The survey evidence tells us that the majority of the workforce in leading western economies is not engaged;
• Engaged employees perform 20% better ( CLC 2004);
• Organisations with disengaged employees underperform against organisations with engaged employees (Meere 2005), with the costs of disengagement through lost productivity costing US businesses up to $343bn annually (Gallup results discussed in Melcrum Publishing 2005);
• 70% of engaged employees have a good understanding of how to meet customer needs as opposed to only 17% of disengaged employees (Right Management 2006);
• Organisations not only lose key personnel by failing to engage them but they can also be harbouring a large body of unproductive disengaged staff who have no intention of leaving;
• Employers who achieve meaning at work for their employees can expect increased motivation, pride and productivity;
• Engaged employees are more likely to advocate the organisation as a place to work and actively promote its products and services;
• There is an identifiable gap in the literature through the exclusion of the costs of engagement alongside the discussions of the benefits. The case study of Cambridgeshire County Council did raise the issue that intensive engagement programmes incur costs, however in that case they felt the cost was justified. Nevertheless, the benefits discussed here do need to be read in the context of an absence of counterbalancing arguments and evidence surrounding the costs of running engagement schemes; and
• Further, the literature does not discuss in detail how organisations should treat the most disengaged and because costs or cost-benefit analyses are not discussed, there is no discussion of how far organisations should go to try to engender engagement among the disengaged, or what level of engagement is optimal for different organisations.

5.25 The increasing interest and importance attached to employee engagement by organisations is evident through:

• The potential business benefits in terms of staff attraction, retention and performance; improved communication and service delivery to customers; and the bottom-line benefits these impacts confer in terms of sales and profits; and
• The extent to which major employers are taking notice of the potential impacts that engagement and disengagement can have on the ability of the organisation to achieve its objectives. Several major players such as Microsoft, the Royal Bank of Scotland and the BBC are actively addressing engagement within their organisations.

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