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Engaging Employees – Measuring the Return on Investment

Senior Management are highly influenced by anything that positively impacts financial performance so when it comes to employee engagement, as with all projects, a viable business case must be presented in order to gain buy-in before it can become a real business focus.

At any given time, there are many different variables that can impact upon organizational performance and as a result it is often difficult to determine the true relationship between highly engaged employees and high performing organisations.  In this short article, HDA reviews what is known of the real impact of an engaged workforce on both organizational performance and the bottom line.

HDA believes that an engaged workforce can have a significant impact on organizational performance – both directly and indirectly.  When employees are engaged they are open to releasing their discretionary effort; displaying a greater commitment to the organisation and thereby a greater willingness to contribute to company success (Towers Perrin).  The premise is simple – engaged employees equals committed employees; and committed employees perform 20% better and are 87% less likely to leave the organisation (The Corporate Leadership Council).   An organisation with an engaged workforce generally becomes more cohesive as employees develop a greater sense of belonging (Hewitt) and this in turn creates a competitive advantage, by enhancing recruitment and retention; and lowering rates of absenteeism (Mulcrum). 

Employees have considerable influence on the attitudes and behaviours of customers. As a result, the positive effects of engaging your workforce also expands into your client-base; with engaged employees leading to higher levels of customer satisfaction and retention and thereby greater organizational performance (North Western University).  

The Financials

In terms of financial performance, factors such as share price, income and profit are all positively affected by increasing levels of employee engagement. 

• Share prices of organisations with highly engaged employees rose by an average of 16% compared with an industry average of 6% (Sirota Consulting).

The Implications for Measuring ROI on Engagement-focused Initiatives

Research suggests that an investment in the engagement of your staff is likely to yield financial rewards for the organisation, specifically in terms of factors such as: Staff performance, client satisfaction, staff retention, reduction in disputes, share price, and so on - but how can this translate to your organisation and your engagement initiatives?

Engagement initiatives are varied, but could include a range of measurement, development and communication interventions, such as:

• regular staff surveys, feedback and agreed actions arising from analyzed staff feedback
• regular focus group activity which encourages staff opinion and feedback
• refinements to the performance management system to better manage performance gaps and development needs
• improvements to conditions of employment, compensation, benefits and incentives
• improvements to the working environment
• investment in leadership development and coaching to improve managerial skills
• investment in mentorship
• investment in staff development and training
• investment in staff career development and succession initiatives

HDA has found that although organisations regularly invest in engagement initiatives; rarely do they make clear measurable correlations between any specific investment, and any resulting improvements in organizational performance.  Given the current economic climate it will become increasingly important for organisations to consciously monitor and manage any investments in talent.  A practical method of measuring the ROI from engagement initiatives is to target specific constraints or issues developing within the organisation, and closely measure the impact of the initiatives on the issue requiring resolution, for e.g.:

• Problem: New hire staff turnover running at 21% after one year of service, with exit interviews indicating a broad range of issues. Potential Solution: Run a carefully constructed and transparently communicated staff survey, including the inputs of key stakeholders in the business, with firm actions identified, to address staff issues. Measure the return on investment in scoping, running and managing the business response to the outcomes of the survey against % improvements in staff retention

Summary

Aligning HR strategy with business strategy is critical; however, it is insufficient to make this strategic linkage at concept level and then embark on staff engagement initiatives without a conscious intention to measure the return on investment of these initiatives.  This is particularly relevant in the current economic climate, where those who wish to sustain a competitive advantage and weather the bear market storm, will be those who can draw upon the support, commitment and drive of their workforce – a workforce that must be engaged to succeed. 

At HDA we believe that releasing the power of your people should be a key business focus of the coming year.  Maintaining conscious control of staff engagement will provide both short-term and lasting benefits for organizational performance and the bottom line.

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