Linkage Research: Financial Implications
By: Benjamin Schneider, Ph.D., Senior Practice Fellow, bschneider@valtera.com, and Karen M. Barbera, Ph.D., Senior Vice-President and Managing Principal, kbarbera@valtera.com
In our last blog, we looked at the influence of underlying employee engagement on service climate as reflected in the ACSI. Today we will look at the financial implications of those results.
The second set of results come from Valtera’s project on between 65 and 93 companies where we predicted the financial consequences of employee engagement for those companies. The figure below shows these results for engagement predicting ROA, profits (as a percent of revenues), and Tobin’s q, an index of market value adjusted for the replacement costs of assets. Again, using the top and bottom 25 percent of companies on engagement, we show dramatic differences in these important company financial performance indicators. In fact, companies with more engaged workforces had nearly double the shareholder value.
After demonstrating such dramatic results, Valtera has pursued additional research on its own, has partnered with a number of companies (Harrah’s, 3M) in making employee engagement happen, and has written about the results of its work with clients in the book Employee Engagement: Tools for Analysis, Practice, and Competitive Advantage (Wiley- Blackwell, 2009). These efforts have told us that to achieve high levels of employee engagement, companies need to pay attention to these points:
- People’s jobs must be designed to make use of their skills and abilities and appeal to their better instincts to be productive and useful.
- Companies must have a values position that is positive, inspirational, and carried out in ethical ways so that employees experience their work world as appealing and important.
- Managers must treat their employees with fairness and earn their trust. When people feel they can trust their managers, it permits them to feel and be engaged.
- The system as a whole must also treat people fairly and earn their trust, their efforts, and their engagement.
Valtera has in addition created action planning modules and resource banks of best practices for helping companies create the conditions for fostering employee engagement.
It has become very clear to us in our work with clients and in our extensive research that having an engaged workforce does not by itself guarantee success. Having an engaged work force sets the stage for creating strategic engagement—engagement that focuses on the important things company management wants to achieve. Creating and maintaining an engaged work force is the foundation for further strategic human resources management, where employees’ energies and competencies and engagement are focused—on service quality, on safety, on innovation and so forth.
Our research shows customer-focused engagement behaviors, as reported by employees in Fortune 500 companies, predicts the quality ratings of those companies for products and services. In Figure 4 it is clear that the top and bottom 25 percent of companies in those ratings do not even overlap when determined by the customer-focused engagement scores of employees.
The bottom line: if you create an engaged work force and then strategically focus them on what is important, the chances are great you will win.
For more on linkage research, download this whitepaper:
