Chapter 2
Business Case
‘If opportunity doesn't knock, build a door.’
Milton Berle
They call it La Grande Boucle. The Big Show. The most challenging endurance spectacle in the world. 200 riders, 2000 miles, 23 days. No one from Britain had won the Tour de France in over 100 years. Then two different British cyclists won it in succession. How did this happen? Dave Brailsford set up Team Sky in 2009, and brought with him an approach that had proved to be extremely successful in his management of the highly successful British cycling team at the Beijing Olympics. He called this approach the ‘aggregation of marginal gains’, where every aspect of performance is examined in minute detail for possible improvement and the cumulative effect of many small gains delivers a significant competitive advantage. Many of these small innovations were derided to begin with, but not when Team Sky started to win. It took three years. Now the approach has been so clearly successful that it's been widely adopted across the sport.
Employer brand management is similar in many ways. It's an endurance sport, not a sprint. Gains are cumulative, seldom immediate. Progress is made by paying attention to all the moving parts, not just one or two high profile elements. Because of this it can be difficult to point to one aspect of employer brand management, and say: ‘if we do this, we will win’. You need to look at the bigger picture. If you can improve awareness levels by a few per cent, and your ability to get across the right messages to the right people by a few per cent. If you cut the number of mis-hires by a few per cent, and increase the number of high performers who choose to join you by a few per cent. If you can improve engagement levels by a few per cent, and keep your best performers for longer. If you can invest a little more up front, and save a little more over the long run as a result. If you apply yourself to all of these different elements in a consistent and coherent way, will it add up to higher performance? The answer is most definitely ‘yes’.
While an argument generally has to be made for investing in employer brand development over and above regular current recruitment activities, it's still relatively rare for companies to define a formal business case. In a survey conducted at the beginning of 2013 by People in Business and Top Employers among a global sample of 250 organizations, the vast majority of investments in this area were being made on the basis of general aspirations (in relation to reputation and attractiveness) rather than more formal calculations relating to costs saved or improvements in performance. Nevertheless, it is possible to make a more formal and potentially quantifiable case for employer brand management. While the value drivers will vary from company to company, I suggest the following avenues of investigation.
1. THE COST BENEFITS OF A STRONG EMPLOYER BRAND
In 2011, LinkedIn surveyed 2250 corporate recruiters in the USA to learn more about the impact of a strong employer brand on time to hire, cost per hire and employee turnover.1 Their research revealed that the average cost per hire in organizations with a strong employer brand was two times lower than those with employer brands ranked moderate to poor. In addition, they discovered that the employee turnover rate among companies with a strong employer brand was 28% lower than companies with weaker employer brands. Given the average cost of turnover replacement, including training and the loss of productivity, can range from 90 to 200% of an employee's annual salary, the cost savings involved in this lower rate of attrition are clearly significant.2
Cost savings derive from a number of factors.
- (a) Targeting the right potential candidates
The first step in effective employer brand management is to identify the kind of talent the company needs to succeed. This should include the more general cultural and attitudinal traits considered desirable among all employees (Google refers to this combination of culture-fit qualities as ‘Googliness’). The next step is to invest in the research required to understand the key motivational factors, behaviours and media preferences of this overall target group, as well as the more specific skill-groups or segments the company needs to attract. When you're clear about who you're targeting you're less likely to waste time and money on misplaced research, media and activities that build awareness and consideration among the wrong kind of candidates. It also helps to reduce the administrative burden and cost of sifting through and rejecting large numbers of unsatisfactory (and potentially unsatisfied) applicants. Companies like P&G have made a clear effort to define the kinds of qualities they are looking for in order to reduce the total number of applications they receive.3
- (b) Rationalizing your creative spend
Effective employer brand management requires a more consistent approach to creative presentation. By focusing investment on a single creative framework with a shared selection of high quality creative assets, rather than taking a more localized and ad hoc approach, companies can make significant savings. This logic extends beyond global advertising campaigns. It also extends to the rationalization of career sites and other online domains where coordinated investment in website development and recruitment marketing content generally benefits from similar cost advantages. When Shell first made the switch to a global employer brand framework, they claim it helped to reduce their overall spend on creative collateral by 75%.4 When Dave Lee introduced a more strategically focused and integrated approach to managing the US Army employer brand in 2008–2009, the Army was able to reduce its overall budget by several million dollars, despite recruiting significantly more people, and simultaneously improving its quality of hire.5
- (c) Building brand awareness and equity
Decades of brand research have demonstrated that clear, consistent and distinctive brand messaging builds greater awareness and a stronger, more credible and differentiated reputation over time than more fragmented approaches. Once familiarity and a positive brand image have been established, the impact of subsequent activities can benefit significantly from what is called the ‘brand halo effect’.6 The brand ‘halo’ relates to the beneficial effects (and cost savings) that a positive brand reputation brings to every aspect of marketing activity. For example, for the same level of marketing investment, communication carrying a familiar brand name is far more likely to attract attention than an unknown brand. Likewise, a generally favourable brand image is far more likely to generate a positive response. Investing in your employer brand reputation pays back over time through more efficient and effective recruitment marketing. In simple terms this means you get ‘more bang for your buck’ with a strong brand than a weak one.
- (d) Enhancing your pulling power
In addition to more cost efficient and effective ‘push’ marketing, a strong employer brand reputation will attract/‘pull’ a much higher proportion of unsolicited applications (at minimal cost in terms of sourcing, though this may incur greater administration and selection costs). Likewise, a positive employer brand experience will encourage a higher level of advocacy and referral activity (a source of hire known for its low cost and high quality). It will also enable you to access a much wider pool of potential talent. Conference Executive Board (CEB) research suggests that a strong employer brand reputation will enable you to attract consideration from at least 20% more of the labour market than weaker ones (Figure 2.1).7In Towers Watson's 2012 Talent Management and Rewards Study (involving 1605 participants from 30 global markets), they discovered that companies who claimed to have differentiated their EVP and tailored it to critical workforce segments were 11% less likely to report problems attracting critical skill employees in fast growing economies, and 6% less likely to do so in developed economies.8
- (e) Hiring good people for less
Convincing mid-career candidates to leave one organization and join another typically requires a salary increase or ‘conversion premium’. CEB research indicates that that the average conversion premium required to attract a mid-career candidate to an organization with a strong employer brand reputation was close to half that demanded from an organization considered to have a weak employer brand reputation.7
- (f) Reducing unwanted attrition (and re-hire)
If you're clear about the kind of people who will fit in and get on within your organization, you're clear about the kind of employment deal you're offering them, and you deliver on your employer brand promises, you're likely to enjoy a significantly lower level of unwanted employee turnover. As indicated in the opening paragraph, the cost savings can be significant, particularly with regard to ‘mis-fit’ attrition within the first few months, before an employee has been able to make a meaningful contribution to performance.Towers Watson's 2012 Talent Management and Rewards Study, revealed that companies who claimed to have differentiated their EVP and tailored it to critical workforce segments were 18% less likely to report problems retaining critical skill employees in fast growing economies, and 9% less likely to do so in developed economies.8
After McDonald's in the UK introduced its first formally defined EVP and employer brand management in 2005, its overall employee turnover rate fell from 80% in 2004 to under 38% in 2010, and its 90-day crew turnover rate declined even more impressively, from 25% in 2004 to below 5% in 2010, resulting in significant cost savings.9 A comparison made of the turnover rates in companies listed in the top 100 Fortune Best Places to Work compared with general industry averages also demonstrates highly significant differences (Table 2.1).10
Another example is provided by the Dutch supermarket chain Albert Heijn (otherwise abbreviated to Ahold). When they applied an employer brand led approach to improve employee engagement among the 60 000 15–22-year-olds within the company, they reduced their annual turnover within this segment by 15%.11 They calculated that this saved them 14 million Euros, and their Net Promoter (employee advocacy) score rose by 6% points, to become the highest in the supermarket sector.12 As Rene Herremans, the Director of Employer Branding & Employee Engagement for Ahold Europe, commented: ‘By focusing on employee engagement via our employer brand, we realized better customer satisfaction, better quality or work and better business performance.’ This work also led to Ahold winning the Dutch Labour Market Communication Award for Employer Brand Strategy and Effectiveness in 2013.
Figure 2.1 The pulling power of strong employer brands.
Source: Corporate Leadership Council. Attracting and Retaining Critical Talent Segments study
Table 2.1 Annual voluntary turnover by industry
| Annual Voluntary Turnover (2013) | Industry Average % | 100 Best % | Difference % |
| Manufacturing & Production | 10.5 | 5.8 | −4.7 |
| Financial Services & Insurance | 12.6 | 10.3 | −2.3 |
| Information Technology | 16.2 | 8.0 | −8.2 |
| Healthcare | 17.1 | 6.0 | −11.1 |
| Construction & Real Estate | 19.4 | 8.7 | −10.7 |
| Professional Services & Consulting | 25.9 | 10.4 | −15.5 |
| Hospitality | 38.0 | 24.5 | −13.5 |
Source: Great Place to Work® Institute (2013)
2. THE PERFORMANCE BENEFITS OF A STRONG EMPLOYER BRAND
As the findings quoted earlier from the BCG/WFPMA study (‘From Capability to Profitability’) indicated, employer branding, alongside effective recruitment, on-boarding and retention, appear to be highly correlated with strong business results. In the same study, they calculated that companies that had made the Fortune ‘100 Best Companies to Work For’ list at least three times between 2001 and 2011 significantly outperformed the S&P market average during this same period, finishing 99 percentage points higher (Figure 2.2).13
Figure 2.2 Strong employer brands outperform the S&P market average.
Sources: 2012 BCG/WFPMA proprietary web survey and analysis
Based on end-of-year closing prices
Average growth rate of companies' share price in percent (weighted by 2001 share prices), dependent on sample composition for each particular year
The potential factors driving these differences in performance are likely to be as follows.
(a) Hiring more high performers
The business value of getting the right people on the bus can be significant. Over the last few years there has been a growing shift in attention from ‘cost per hire’ as a stand-alone indicator of recruitment efficiency, to the more value-oriented ‘quality of hire’. Research from McKinsey suggests that in comparison to average performers, top quartile performers deliver 67% more revenue in sales, 49% more profit in general management roles and 40% greater productivity in operational roles.14 (Netflix calculated that the best performers are two times better than average, and in creative/inventive work they are ten times better than average.)15 A strong employer brand enables you to attract more candidates, through building greater awareness, consideration and preference among key target groups, providing the organization with a wider range of talent to select from. Universum's many studies of business and engineering student preferences clearly demonstrate an obvious correlation between strong brand image ratings and overall preference.
(b) On-boarding employees more effectively
While it may not necessarily be restricted to the kind of integrated brand management described in this book, a strategic and systematic approach to on-boarding is a necessary feature of most effective employer brand management programmes. In a study of nearly 200 organizations conducted by Aberdeen Group in 2012, it found that the 20% best in class on-boarding companies retained 86% of their first year employees (compared to 56% among the bottom 30%). It also found that these leading companies reported 77% of their employees met their first performance milestones on time, compared with only 41% of employees in the laggard group of companies.16
(c) Improving employee engagement
After more than two decades of rigourous and persuasive research, there can be few doubts that higher levels of employee engagement are associated with a wide range of positive business effects.
Towers Watson
In Towers Watson's 2012 Talent Management and Rewards Study they discovered that companies who had adopted an overarching Employee Value Proposition were five times more likely to report that their employees were highly engaged, and twice as likely to report achieving financial performance significantly above their peers. In a study of 50 global companies conducted in the same year, Towers Watson also found that companies with low engagement had average operating margins of just under 10%, compared with 14% among those with high engagement levels. In those companies where employees were both highly engaged, enabled and energized (a state Towers Watson describes as ‘sustainable engagement’) average one-year operating margins were close to three times higher at just over 27%.18
Gallup
Comparing the median differences between top and bottom teams, Gallup recently demonstrated that high levels of employee engagement were associated with 10% higher customer satisfaction, 21% higher levels of productivity and 22% higher levels of profitability. Gallup has also demonstrated that companies with high levels of engagement enjoy higher earnings per share (EPS). After examining the engagement data of 49 publicly traded companies, Gallup found that organizations with an average of 9.3 engaged employees for every actively disengaged employee in 2010–2011 experienced 147% higher EPS compared with their competition in 2011–2012. In contrast, those with an average of 2.6 engaged employees for every actively disengaged employee experienced 2% lower EPS compared with their competition during that same time period.1
Kenexa
In 2008, the Kenexa Research Institute conducted two studies exploring the relationship between employee engagement and business performance metrics. The first study, involving 64 multinational organizations from a cross-section of different industries, revealed that organizations with highly engaged employees achieve twice the annual net income of organizations whose employees lag behind on engagement. The second study conducted across a similar sample of 39 organizations indicated that organizations with highly engaged employees achieve a seven times greater 5-year total shareholder return (TSR) than organizations whose employees are less engaged.19
AON Hewitt
In an analysis of its US engagement database representing four million employees, Hewitt Associates discovered that average levels of employee engagement among companies that had delivered double-digit growth over the last five years were 20% higher than less fast growing companies.20
From higher levels of engagement to ‘Cultural Competitive Advantage’
The coordinated approach to engagement action planning recommended by most leading employee research providers could be described as a form of employer brand management. Anything that improves the overall employment experience should ultimately translate into a stronger employer brand reputation (if sufficiently amplified through recruitment marketing and employee advocacy). However, in most cases, engagement action planning is more typically aligned to general improvements in operational effectiveness than strategic differentiation. The factors that drive employee engagement within an industry sector tend to be fairly similar. If your actions plans are built in response to employees' engagement needs alone, you will no doubt improve employee satisfaction, but you will be improving in the same general direction as everyone else. The difference an employer brand proposition makes is to not only focus attention on these general improvement areas, but on a smaller number of priority areas. These are the more ‘strategic’ factors that add up to cultural competitive advantage, which can be defined as:
A powerful combination of differentiating organizational capabilities and distinctive cultural identity.
(d) Enhancing communication and change management effectiveness
In 2013 Towers Watson included an EVP measure in their Change and Communication ROI Report for the first time, and this produced some highly compelling results. This survey drew on a global sample 651 organizations, representing a broad range of industry sectors and headcounts. They found that the top third of organizations in terms of communication and change management effectiveness were significantly more likely to have defined a formal EVP than the bottom third.21
(e) Building brand engagement
While the focus of employee engagement activities tends to be reactive and generic, effective brand engagement is more proactive and specific. In the latter approach the organization chooses the brand pillars it wants employees to be engaged by, and prioritizes its activities and communication accordingly. In theory, the resultant brand mix should incorporate a more balanced selection of factors driving employee engagement and factors that are more directly related to performance. Given this mix, our hypothesis was that any correlations drawn between the perceived strength of these factors and business performance should be stronger than for employee engagement alone.
SUMMARY AND KEY CONCLUSIONS
- Employer brand management is an endurance race not a sprint. There may be some quick wins along the way, but the most valuable benefits are earned incrementally and cumulatively over time.
- Establishing a formal business case identifying where your employer brand investments can reduce most cost and add most value will help to win the vital support and commitment you need from your senior leadership team.
- LinkedIn research has found that a strong employer brand will halve your cost per hire and reduce your cost of attrition by a quarter.
- Employer brand management will help you save time and money by focusing your marketing efforts on the right target talent.
- A more consistent approach to employer branding will reduce your spend on creative development and design.
- Developing a strong brand reputation will extend your reach to a larger potential pool of talent, and help you hire great people for less.
- Companies with strong employer brands consistently outperform the market average.
- By helping you to hire people with the right capabilities and engaging them more fully, employer brand management will help you to build a culture of high commitment and performance.
- Research suggests that building both engagement and performance factors into your EVP and delivering them consistently will lead to higher levels of customer satisfaction and sales than high engagement is capable of delivering alone.
- A strong employer brand delivers specific benefits to talent management, but also general benefits to your corporate and customer brand that will increase the long term equity and valuation of your brand and business.