Employee engagement is not the responsibility of HR – it is the responsibility of the Corporation

Most companies intuitively know that satisfied employees, create satisfied customers and the result is a positive impact on financial performance. In management theory this is known as the service profit chain and starts with how the corporation treats its employees. This also used to be a key competitive differentiator – but not anymore. As all companies now have satisfaction ratings above 80%, satisfaction has become a qualifier for being able to compete – not an order winner.

Some companies have found out that engaged employees outperform non engaged employees significantly and have started to measure employee engagement.  That Employee Engagement matters was demonstrated in recent McKinsey study. It revealed that engaged white collar workers had: 16% better overall performance, 125% less burnout, 32% more commitment to their organisation and had 46% more satisfaction. Interestingly engagement also had a significant impact on blue collar workers: 27% overall better performance and 53% higher likelihood of positive career progression.

“More than 25% of US workforce is actively disengaged”

Often the results of measuring Employee Engagement are quit depressing as Gallup has found: In the US less than one third of employees are engaged and more than one quarter is actively disengaged. Senior management teams can choose to ignore the results or they can make it the responsibility of the HR function to go fix.

“31% of companies do not see Employee Engagement as an issue”

That management sees engagement as the role of HR was seen in the McKinsey study: 69% of companies surveyed identified Employee Engagement as a top priority for HR although only 43% had activities to measure and impact Employee Engagement. 31% of the companies did not see Employee Engagement as an issue.

 “Only 50% of HR’s activity is seen as value add by leaders”

Unfortunately employee engagement is not only the responsibility of an HR department, often designed to deal with operational and transactional issues rather than strategic. In the McKinsey study leaders only found half of HR’s activity to create value for the business. It is easy for the senior managers to blame HR forgetting that they themselves have created the boundaries and the rules for HR to operate under.

38% of HR professionals believe that their current Engagement actions will succeed

The view of management is shared by HR professionals themselves. Only 38% believed that their current actions in Employee Engagement would be successful.

A lot of HR activities have been designed to ensure a flow of people through the organisation with a focus on Analysis, Recruitment, Compensation, Training and Organisational Design. People seen as uniform objects responding to the same kind of motivational or demotivational activity is not something that creates engagement. Engagement is a very individual state for each employee. Engagement is also a state that connects to the corporation’s or department’s purpose and finally engagement is not only about what you do, but also how and why you do it.

The single most important driver of employee engagement has been identified as the behaviour and leadership skills of the Line Manager – not something that is fully within HR’s area of responsibility.

"Employee Engagement cannot be fixed with the current HR toolbox"

To significantly impact Employee Engagement it is necessary to either elevate it to top management level or to enable HR to participate at a strategic level. Employee Engagement cannot be fixed with the current HR toolbox.

The 4 Pillars of Employee Engagement

The world of management is still obsessed with the mechanistic view of employees as resources, something that can be acquired and exploited in the quests for profit. This has been covered up by improvement in working conditions, benefits and skill training programs and it has even made the executive wall: People are our greatest strength. Despite this apparent progress most corporations still treats people as a commodity. HR departments are tasked with getting the best resource, shaping the resource with skills training, keeping the resource with competitive compensation packages and finally getting rid of the resource if it does not live up to expectations.

The employee is seen as something that has certain characteristics that can be changed (skills) and something that cannot (personality and motivation). When something goes wrong the problem is assigned to the employee rather than the corporation and the personal improvement process starts often resulting in a termination and a search for more appropriate resource.

Assuming that employees can be “good” or “bad” and corporations are always “right” makes the life of management a lot easier but not necessarily more profitable. The task will become to locate engaged employees and attract them with appropriate reward.

Research has shown that although engagement is clearly a state of the employee, the creation of engagement is an activity that both depend of the employee and the corporation. Progressive and innovative corporations know that employee engagement is not the responsibility of the employee. This gives them an opportunity to create long term sustainable competitiveness even in mature industries interlocked in the Race to Zero (margin).

Employee engagement can be viewed as being founded on 4 different pillars:

Fairness: The concept of fairness as being important for employee engagement is not new. What is often forgotten is that fairness is completely subjective and changes over time. People don’t see their parents work contract as fair. For younger generations, the concept of fairness goes well beyond the psychological contract between the corporation and the employee – it involves the fairness towards all stakeholder groups.

Identity: Through the development of social psychology it has become apparent that people’s decisions are heavily influenced by social settings and what group people belong to. As work represents a significant part of most people’s lives they derive a lot of their identity from work. Great corporations understand this and create jobs and an organisation that individual are proud of being associated with.

Growth: Being appropriately challenged and given the opportunity to learn and grow is a key element in employee engagement. Is the corporation a place where mistakes are seen as learning opportunities or where they are punished? Is HR and their policies and procedures seen as enabling people or limiting them? Do employees have the opportunity to be promoted at appropriate points in their career or are they locked in their current position. Great corporations know that this is the responsibility of the corporation.

Purpose: The days of pure focus on shareholders are over. Money, profits and growth is not a purpose – it is an outcome of successfully pursuing a purpose. Being the very best “x” in the “x” industry is a very common vision, but not a powerful purpose. A powerful purpose is in its essence something that benefits many if not all stakeholders of the corporation – a purpose that benefits society and humanity. This might sound soft to hardnosed finance people but customers and employees do not get engaged by cost cutting and headcount reductions in a race to zero margin as most mature companies are engaged in.

Purpose is connected with creation of prosperity – the solution to human problems

Companies that believe in people and in their ability to create value for customers and society have the potential to rally all stakeholder groups around a strong purpose and will prosper as they will create engagement in all groups.

The essential role of capitalism is not allocation – it is value creation.

Research from Gallup has proven that companies with engaged employees creates engagement in the corporations stakeholders and as a result creates better financial results. Corporations with engaged employees outperform companies with lack of engagement:

-          22% better profitability

-          21% Higher Productivity

-          147% better earnings pr share

-          10% better customer ratings

-          41% reduction in quality defects

-          65% reduction in turnover

-          50% reduction in accidents

-          37% reduction in absenteeism

All companies have the phrase “People are our greatest strength” hanging at the walls unfortunately most miss the opportunity to create sustainable competitive advantage through employee engagement. It starts with believing the sign.

“One great employee equals three good employees”  Kip Tindall, CEO Container Store

Capitalism 1.0 is dead - Long live capitalism 2.0. How to compete in the new economy

Many mature industries are being disrupted by new agile companies that lack respect for the old and well established rules. The incumbent players have a very difficult time to analyse and respond with effective countermeasures against these disruptors. The disruptors often use new technology to their advantage: The cloud, mobile devices, social networking, sensors and big data are some of the tools. None of these technologies are really based on proprietary technology and could be deployed by the incumbents – this is not the real threat against them. The real threat to the established businesses from the new players is that they think differently about business and leadership.

To understand the difference it is necessary to review the current narrative that exists about the business world and capitalism. According to Edward Freeman, Professor at Darden Business School, the old business paradigm is based on a number of assumptions:

• Business is primarily about making money
• The only constituency that really matters is the shareholder
• There does not need to be a concern for the environment, because we live in a world of limitless resources
• Capitalism works because people are self-interested
• Given the opportunity, business people will cheat or cut corners.
• Business works because people are competitive and greedy.

These assumptions show themselves in a lot of both internal and external communication from large corporations – focus is on the shareholder. The assumptions are also confirmed when legislators make new laws –business and banks in particular has seen tighter regulations based on distrust from the regulators. This is not without merit – Quartz.com shows the top 9 banks have used more than 15B$ in litigation charges in just one quarter.  Dissatisfied customers are faced with endless pages of legal T&C’s, rules and inflexibility all designed to protect the shareholders. Employees are faced with HR departments not designed to enable people but to limit them with endless conduct manuals written by legal department. Also NGO’s has been battling with business based on a basic distrust in their intentions. 

Many new companies do not follow this logic – largely because it is based on the business logic of Generation X and the Baby Boomers. The new business logic is the logic of generation Y – Capitalism 2.0.

It might not be obvious to everybody but some visionary business leaders have identified the shift:

“On the face of it, shareholder value is the dumbest idea in the world”

Jack Welsh, exCEO GE

“Pure focus on shareholders alienates the employee, 

the customer the supplier and everybody else”

Kip Tindell, CEO The Container Store

“We’re not going into the three-month rat-races. We’re not working for our shareholders. We’re working for the consumer, 

we are focused and the shareholder gets rewarded.” 

Paul Polman, CEO Unilever

“We prefer to forgo revenue, rather than bring a product to market that does not delight customers. Doing so negatively affects the short term, but positively affects the long term. There are many other companies that do not follow this philosophy that may be a more attractive home for investor capital. 

Tesla is not going to change.”

Elon Musk, CEO Tesla

Driven by Generation Y, the paradigm of Capitalism 2.0 is based on value creation for all stakeholders (defined as groups that are affected by the actions of the corporation or that can affect it). In Edward Freeman’s definition:

• Business is primarily about purpose – revenue and profit follows
• Any business creates and destroys value for stakeholders – Leading a business involves getting these interests going in the same direction
• Capitalism works because we are complex creatures with many needs and wants. People can act in multiple ways: selfish, cooperative and altruistic. Incentives are important but so are values
• Most people tell the truth, keep their promises and act responsibly most of the time and we expect that.
• Business and capitalism is the greatest system of Social Corporation ever invented. Competition is important in free society as it ensures options but value creation is the engine of capitalism

No doubt capitalism 2.0 will require leaders to deal with much more complex and conflict interests but there is a lot to be gained. In leadership circles it is understood that satisfied employees and customers does not lead to financial results as it used to – satisfaction is not sufficient anymore. To create great results you need engaged employees creating engaged customers and that needs more than a good product and a service. 

“Customers will never love a company until the employees love it first”

Simon Sinek

What is needed is a high level purpose that engages, followed by actions that demonstrate commitment to that purpose even when in trouble.

Ed Freeman outlines three main principles that need to be followed when creating business strategies according to the new paradigm:

• Interconnection – Because stakeholder interests go together over time, we need solutions that satisfy multiple stakeholders simultaneously.
• No Trade-offs – We try never to trade off the interests of one versus the other continuously over time
• The principle of friction: It is not just who agree with you - sometime your opponents are helping you create value. We want friction to go away but understanding friction can be a source of value. Critics are telling you something about your business. How can we use this critique to become better at what we do? Meet with critics ahead of time - you can improve before implementations.

Not trying to give the impression that this will be easy, Ed Freeman suggests that business leaders should utilise the only free resource available to them – creativity of their people. Involve many stakeholders and allow them to think and explore freely about value creation according to the principles and wonders might happen.

One of the fastest growing companies of the new economy is Facebook. Their commitment to Capitalism 2.0 is very visible in Mark Zuckerberg’s letter to the shareholders prior to their IPO:

"Facebook was not originally created to be a company. 

It was built to accomplish a social mission — to make the world more open and connected. We think it’s important that everyone who invests in Facebook understands what this mission means to us, how we make decisions and 

why we do the things we do” 

Mark Zuckerberg, CEO Facebook

If your company is struggling with flat or declining revenue in mature markets that are being attacked by innovative disruptive start-ups, maybe it is time to rethink your purpose.

“When is now a good time”