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Why employee engagement is crucial

BDO Brisbane /

Employee engagement is integral to driving successful organisations. Research clearly shows that highly-engaged employees are satisfied and feel a sense of attachment to their job and employer. They promote the organisation to their friends and family and work towards its success.

In one of the first published works in this burgeoning field, *Kahn (1990) defined employee engagement as “the harnessing of organisation members to their work roles; in engagement, people employ and express themselves physically, cognitively, and emotionally during role performances”.

The concept of employee engagement is relatively new to the business and academic world. However, research is continuing to link employee engagement to various organisational outcomes, including customer loyalty and performance errors (*Gonring, 2008), profitability, customer-focused behaviour, safety and turnover (*Harter, Schmidt & Hayes, 2002).

Research by *Harter et al (2002) has found low-to-moderate correlations between employee engagement and a range of performance measures that include customer satisfaction, profitability, productivity, retention and safety. There has been a growing body of research on the links between employee engagement and performance measures, as follows:

Customer satisfaction

Giving employees the drive to enhance the customer’s experience is integral as the reputations and bottom lines of businesses rely on the ability to inspire customer loyalty. Customers are more likely to recommend a business to others if they have had a positive experience and that positive experience is most often formed by interactions with frontline staff.

The attitudes of frontline staff are a product of their engagement, and to a lesser extent, the engagement of those around them. Employees are more customer-focused when engaged (*Harter, 2009) as they are motivated to increase their discretionary effort to achieve the success of the business, rather than simply for personal gain.

In their 2009 meta-analysis, Harter et al found that business units that scored in the top 25% for engagement had customer satisfaction ratings 12% higher than business units scoring in the bottom 25% of engagement. This improvement is due to the fact that engaged employees care more about meeting customer needs.

Profitability

It has been found that companies enjoy 26% higher revenue per employee when employees are highly engaged (Taleo Research, 2009). Furthermore, it was found that companies with highly-engaged employees earned 13% greater total returns to shareholders (*Taleo Research, 2009). Furthermore, a meta-analysis showed that businesses in the top 25% for employee engagement produced up to four more? percentage points in profitability. Repeating the study in 2009, it was found that the top 25% increased their profitability by 16%.

Research by *Towers Perrin (2003) indicates that the more engaged employees are, the more likely it is to exceed the industry average in one-year revenue growth. Specifically, trends show that highly-engaged employees work for companies that had revenue growth at least one percentage point above the average for their industry, while the most disengaged employees work for companies where revenue growth falls one or two percentage points below the average (*Towers Perrin, 2003). However, it should be noted that there is probably another factor at work here: organisations that are performing better may be more likely to attract more engaged people.

Productivity

Employees who are engaged with their job and their employer are more productive because they are motivated beyond personal factors. They are more focused and more motivated than their disengaged counterparts. This means they work more efficiently and with the success of the company in mind. Research consistently shows that low levels of employee engagement are detrimental to performance. In fact, it has been found that employees who are highly engaged are twice as likely to be top performers (*Taleo Research, 2009).

In 2009, *Harter et al conducted a meta-analysis encompassing 199 research studies across 152 organisations in 44 industries and 26 countries. The studies covered 32,394 business/work units and 955,905 employees. Their findings quantified significant differences between business units ranking in the top and bottom 25% on engagement. They found an 18% drop in productivity between the top and bottom performers.

Not only does high employee engagement increase focus and efficiency, it decreases absenteeism. Because engaged employees care about what they do, they recognise the importance of their effort in contributing to the success of their employer.

Retention

Engaged employees are less likely to leave their job. If an employee has no emotional commitment to their job, there is a greater chance that they will leave to pursue a job that offers, for example, higher remuneration or more flexible work conditions (*Haid & Sims, 2009; *Schaufeli & Bakker, 2004).

The *Corporate Leadership Council (2004) found that the most engaged employees were 87% less likely to leave their organisation. The same study found that the 100 best places to work (according to their research) had an average voluntary turnover rate of 13%, compared with an average of 28.5% at other businesses in the same industries. What’s more, other large-scale research has found that 12% of disengaged employees have no intention to leave, while that proportion rises to 66% in engaged employees. Considering that replacing an employee can cost one-and-half times their salary, retention has a significant impact on a company’s bottom line. Not only can the costs of replacing employees be a drain on resources, but once new employees are in place, they can take several years to generate the same revenue.

Safety

Employees who are engaged are more likely to be highly involved and absorbed in their work. If an employee is not engaged, they are less focused on their work and more likely to make mistakes. This has significant implications for industries in which safety is an important factor.

There has been extensive research into the link between engagement and safety outcomes. Harter et al (2009) found that the top 25% of business units (in terms of engagement) have 49% fewer safety incidents than the bottom 25%. The same study found that in health settings, the most engaged organisations have 41% fewer patient safety incidents (ie falls, medical errors, infection rates, and risk-adjusted mortality rates).

Furthermore, engaged employees are more likely to use their initiative to suggest and implement improvements to safety systems. Their engagement gives them a greater sense of ownership in their role, and increases the chance of them taking on the responsibility to act on potential problems.

Conclusion

Employee engagement drives business performance by improving retention, customer loyalty, productivity, safety, and ultimately, profitability. Engaged employees care about their organisation and work to contribute towards its success. Such employees are less likely to leave a business for another job, or take unauthorised leave. They are more likely to work better, faster and more safely. Importantly, they are also more focused on the customer experience, ensuring that customers are happy and profits are maximised.

In today’s world of economic uncertainty, measuring and improving employee engagement is critical to ensuring an organisation’s longevity and profitability.

Karina Collins is a partner in the advisory division of BDO Brisbane. As a consulting partner for BDO, Karina is responsible for the delivery of projects that result in organisational change and measurable improvement outcomes. Her areas of expertise include financial and operational analysis, benchmarking and review for cost structure and productivity improvements, strategic and operational planning and reviews, human capital (organisation review and redesign, workforce engagement and measurement) and performance improvement.

 
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