Chapter 21

Ten Ways Engaged Employees Help Your Bottom Line

In This Chapter

Recognizing the many advantages of engaged employees

Backing up those advantages with numbers

Some people believe that employee engagement is just a soft science, all about “making employees happy” and other touchy-feely stuff like that. But the fact is, employee engagement has a real impact on an organization's bottom line. In fact, employee engagement can be so effective, even the numberiest of numbers people can appreciate its importance! This chapter outlines ten key effects of an engaged workforce on a company's profitability.

It's All About the Effort, Baby!

Someone once said, “Hard work is the yeast that raises the dough.” (Get it? Dough, like money?) Hard work is also synonymous with “above and beyond” effort or discretionary effort — a term you may see in this book one or two (or 800) times.

When you engage your employees, you capture their heads and their hearts. As a result, they put forth a tad more effort than they would otherwise, and most likely, a tad more effort than your competitors’ employees. The aggregate effect of all your employees giving a tad more effort, or of their discretionary effort, is exponential.

When you capture the discretionary effort of your employees, you win. If you don't, you risk losing. It's that simple. I've devoted my career to helping managers engage their workforce because I've seen it work!

Voluntary Turnover Is Expensive

There's no doubt about it: Turnover is expensive. Indeed, according to some studies, the true cost of replacing a departing employee — factoring in recruiting costs, training and development, loss of production, and so on — is, on average, 100 percent of that person's salary — or more, depending on the person's role in the company.

Worse, voluntary turnover often leads to something I call the “Pied Piper effect.” You see this at parties all the time: Toward the end of the evening, a few people will stand up and say, “Well, it's getting late . . . we'd better get going.” What usually happens? Everyone else starts asking for their coats. This happens at work, too. When someone quits, it often prompts others to consider alternative employment options. I've seen it time and time again.

Not surprisingly, however, voluntary turnover among engaged employees is significantly less than among employees who have “checked out,” so to speak. Indeed, a 2013 Gallup Business Journal article asserts that firms with a highly engaged workforce enjoy 65 percent less voluntary turnover than firms with a disengaged staff! Obviously, given the cost of replacing an employee, this has a favorable effect on your bottom line.

I'm Really Not That Sick!

The aforementioned Gallup report included another interesting tidbit: Employers with a disengaged staff see a whopping 37 percent greater absenteeism than their engaged counterparts. This reinforces observations from my own personal experience: Engaged employees come to work, while disengaged ones are quick to stay home. (Not surprisingly, that same Gallup survey reported that employers with an engaged workforce enjoy 22 percent higher profitability than companies with a disengaged staff. Coincidence? I think not.)

The Bottom Line Is the Bottom Line

Have you ever worked with someone who did something wasteful — maybe he tossed a whole ream of printer paper in the recycling bin after spilling soda on the top few sheets, or poured half a pot of coffee into the drain to brew a fresh batch — only to defend himself by saying, “They have plenty of money around here!” or “Have you seen the cars those guys in the C-suite drive?”

An engaged employee would never do this. Engaged employees treat the company's resources as if they have a personal stake in the company. They're invested — with their heads and with their hearts — in the business, and they don't waste resources. They walk around like they own the place . . . but in a good way.

Of course, to prevent wasteful behavior, leaders must demonstrate that they're walking the walk themselves. Obviously, that means they must not be wasteful. In addition, they must prove their mutual commitment to their employees. If a company's leaders eat in their own dining room, park in an executive parking lot away from the “peons,” or enjoy other “us versus them”–style perks, then odds are they won't find their employees eager to protect each paper clip!

A Happy Customer Is a Returning Customer

By now, hopefully you get the cycle: Engaged employees lead to satisfied customers, which leads to business success. As the iconic Harvard Business School instructor Ben Shapiro, who has written countless case studies on customer satisfaction, says, “You take care of your employees first and foremost, then they will take care of your customers, and then you can just put the cup under the dispenser and watch the nickels fall in.”

Don't believe me (or Ben)? Try flying on Southwest Airlines, shopping at an Apple or Nordstrom store, or staying at the Four Seasons. You'll see firsthand the connection between employee engagement and customer satisfaction! And not surprisingly, these are all examples of companies with healthy bottom lines.

Innovate or Perish

Polaroid. Wang. Blockbuster. Eastern Airlines. American Motors. What do these organizations have in common? These companies were once dominant in their industries. They were great places to work. They built their cultures on employee satisfaction, offering their employees lots of “stuff.” These cultures, however, did not place a strong enough emphasis on sustainable innovation. As a result, when faced with a changing market, these organizations, and countless others, lost their competitive advantage — and in most cases, filed for Chapter 11 protection or shut down altogether.

Employers who seek to engage their employees invite diversity of thought by being inclusive, seeking input from junior staff — rather than simply from those employees who are responsible for the status quo — to help create the future. For their part, engaged employees are curious, are committed, and give above and beyond.

Engaged employees also suggest new ideas and process improvements. Indeed, when I lead employee engagement surveys for clients, employers who score well overall also tend to receive responses from employees who are rich in ideas for process improvements and other suggestions. Commentary from employees of low-scoring organizations inevitably include critiques and complaints.

Could an engaged workforce have saved Polaroid, Wang, Blockbuster, Eastern Airlines, and American Motors? I can't say for sure. But it would've given them a fighting chance!

Hey, Want to Work for My Company?

When you eat a great meal at a new restaurant, or stay at a charming bed-and-breakfast, or fall in love with your new car, what do you tend to do? Simple: You tell people!

For years, marketing and branding experts have identified the importance of word of mouth in advertisement. If someone you know recommends a restaurant, hotel, or product, odds are you'll be more likely to try it than you would a competitor's. The same is true with employers. If someone you know recommends her employer, the next time you're in the hunt for a new job (assuming you're in the same industry), you'll be more likely to apply there.

Engaged employees are more apt to recommend their employers than employees who are disengaged. If your employees are engaged, this can save you big money in recruiting costs. More important, studies show that recruits who are referred to you by existing employees are more likely to be engaged, have longer tenure, and be high-performing employees themselves! That's a win-win-win.

“I'll Volunteer”

Engaged employees are quick to volunteer to help out, even when not asked. They're the first to jump onboard companywide task teams and committees. They're even willing to help out another group for the good of the company. Because engaged employees are so willing to go above and beyond, they see bridges between departments and business units where their disengaged counterparts see walls.

You won't hear an engaged employee respond, “Not my department!” when someone seeks his aid. And when employees help each other, everybody wins!

Doing Well by Doing Good

As I mention in Chapter 6, research indicates that firms that clearly articulate their purpose outperform their peer group by a factor of six. Six! Moreover, purpose-driven employers create cultures of employees with a deep purpose. However, you don't get purpose-oriented employees solely by capturing their heads. Purpose-driven organizations capture both the heads and the hearts of their employees. Therefore, these employees are more emotionally committed to their employer. Purpose-driven employers also see spikes in the number of employees participating in corporate social responsibility efforts, volunteerism, giving-back initiatives, and so on — all of which ultimately show positive business results.

Can You Expand Your Margins?

For my left-brain readers, here are the facts, Jack: In a 2012 study of 32,000 employees at 50 companies across 30 countries conducted by Towers Watson, companies with low engagement scores had an average operating margin of just under 10 percent. Those with average engagement scores fared slightly better, with average operating margins of 14 percent. But those with the highest engagement scores had an average one-year operating margin of — wait for it — 27 percent. Boom!