Does engagement really matter? Arm yourself with the evidence to convince the sceptics!

Emma Bridger

Minutes
11 Mar 2023
Employee Engagement
Measurement
Hands up if you’ve come across one of the c-suite cynics, a senior leader who dismisses employee engagement as something ‘soft and fluffy’ and refuses to believe it. These individuals can directly and positively impact key organisational outcomes. Not every top team is enlightened and there remain many sceptics at large who urgently need our guidance! This article provides a brief summary of the evidence which will help you make the case for investment and win over even the most hardened cynics.
Let’s start with the basics. It seems reasonable to suggest that organisational performance will, in some way, be dependent upon the people who work in the organisation. The way employees feel about working for a company, and the way they subsequently behave will of course have an impact on the performance of their organisation.

In their recent discussion report (Employee engagement: definitions, measures and outcomes 2021), Gifford and Young claim that “the field, and practice, of employee engagement has made a positive contribution to progressive people management practice”. Their findings are based on a rapid evidence assessment of employee engagement, and a scientific summary of the evidence review can be found at cipd.co.uk/evidence-engagement.

One of the earliest pieces of research to demonstrate a link between engagement and organisational performance was the Sears ‘employee-customer-profit chain’. This research was published in the Harvard Business Review way back in 1998, and was the first time a definitive link between how employees feel and how customers then feel, and a subsequent impact on the bottom line had been proven via research (Rucci et al, 1998).

The hypothesis that positive changes in employee attitudes leads to posi­tive changes in employee behaviours is at the heart of substantial amounts of current academic research into organisational behaviour, organisational psychology, human resource management and change management. Academic research continues to provide an evidence base that moves beyond simple cross-sectional correlations and demonstrates longitudinal relationships between engagement and business performance.

Which comes first: engagement or high performance?

It’s a fair question: does engagement predict subsequent organisational performance or does working for a high performing organisation result in a more engaged workforce?

Young and Gifford’s evidence review concluded that there is a is a positive relationship between employee, and work engagement, and performance. However while they found evidence to suggest that engagement predicts performance, some of the studies analysed simply suggested a correlation. In addition, throughout the review, studies consistently reported that the relationship between engagement and performance is weak to moderate.

While the review uncovered longitudinal evidence to show that employee engagement predicts performance, the authors highlight that the relationship could work in either direction. Therefore engaged employees are more likely to see increases in performance, but also those employees who perform well at work are more likely to become engaged. This finding is not a surprise when we consider engagement can lead to improved performance and, under the right conditions, improved performance can lead to engagement.

In addition, findings published within the Engage for Success report “The Evidence” showed that increases in the average level of employee engagement resulted in increases in customer satisfaction, that then resulted in improvements in sales achievement within retail branch networks of one Irish and three UK banking organisations. Specifically one standard deviation increase in engagement was linked to a 6% improvement in branch sales relative to target. An impressive result indeed!

Research on service profit chains in other sectors has also demonstrated a longitudinal linkage between engagement and performance. For example, three years of data gathered from thousands of employees and hundreds of thousands of customers of a large European franchise retail chain in the do-it-yourself market has shown that improvements in engagement at the beginning of the three-year period worked through to improvements in customer satisfaction, which then delivered significantly improved operating profit by the end of the period. Surely this along would convince the most hard-nosed financial director to invest in employee engagement?

CASE STUDY - Marks and Spencer

Marks and Spencer completed a longitudinal study, which found that long term employee engagement trends are directly linked to long term sales performance. Using data from a study group of 137 high street stores over four years, the research found that those stores with an improving engagement trend over the four years significantly outperformed the stores where engagement scores were declining (compared to respective sales targets).

Once store size was taken into account, both engagement itself and the changes in engagement from one year to the next were found to correlate to sales performance. Stores with improving engagement had on average delivered £62 million more sales to the business every year than stores with declining engagement.

Engagement and business performance

Engagement can be linked to a variety of performance and business metrics. Many studies have demonstrated robust links between employee engagement and increases in profits, productivity, innovation, beneficial discretionary effort, and customer satisfaction and retention. These studies have also demonstrated that employee engagement reduces absence, voluntary turnover, sabotage, and a range of other negative behaviours.

For example:

Engagement and revenue

The Institute for Employment Studies demonstrated in a study of 100 retail outlets, 25,000 customers and 65,000 employees that increased employee engagement improved companies’ potential to increase sales through three routes: directly on sales; mediated through customer satisfaction; and through reduction in staff absence. They concluded that a 1% increase in their measure of engagement could lead to a monthly increase of 9% in sales.

Engagement and the customer experience

Evidence from the NHS reveals important relationships between engagement, patient satisfaction and patient mortality. Professor Mike West of the Centre for Performance-led HR at Lancaster University concludes, “Employee engagement emerges as the best predictor of NHS trust outcomes. No combination of key scores or single scale is as effective in predicting trust performance on a range of outcome measures as is the scale measure of employee engagement.” In other words, stronger engagement scores help save more lives!

Engagement is also linked to customer service in The Royal Bank of Scotland, with a 7 percentage point difference in customer service scores between the top 10% of business units and the bottom 10%, ranked by employee engagement.

CASE STUDY - NHS

The customer in the NHS is the patient, and NHS sector research completed by Aston University showed that patient satisfaction is significantly higher in trusts with higher levels of employee engagement, as well as revealing some of the key drivers of this relationship. The percentage of staff receiving job-relevant or health and safety training, the prevalence of well-structured appraisal meetings and reports of good support from immediate line managers were all linked to improvements in levels of patient satisfaction.

The research also showed that NHS trusts with high engagement had lower standardised patient mortality rates, even when controlling for prior patient mortality, and these effects were of meaningful size. Patient mortality rates were approximately 2.5% lower in those trusts with high engagement levels than in those with medium engagement levels.

Engagement and productivity

Gallup data from 23,910 business units demonstrated that those units with engagement scores in the top quartile averaged 18% higher productivity than those units in the bottom quartile.

Productivity is not just about the amount of output: it is also about quality. Development Dimension International (DDI) reported that in a Fortune 100 manufacturing company, quality errors were significantly higher for poorly engaged teams.


CASE STUDY - RSA

RSA was a multinational insurance group employing 23,000 people. Research in their call centres demonstrated that engaged people have 35% lower average wrap times (time between calls) than disengaged people. Engaged staff are able to talk to, on average, an additional 800 customers per year (based on an average call handling time of 365 seconds). Put another way, for every eight engaged people they employ they get the equivalent of an additional member of staff without any increase in the wage bill.

Engagement and innovation

Analysis of Gallup data indicates that higher levels of engagement were strongly related to higher levels of innovation: 59% of engaged employees said that their job brings out their most creative ideas against only 3% of disengaged employees.


Engagement and employee turnover

Gallup has also shown a strong link between lower engagement scores and higher employee turnover: both for organisations with historically high turnover and those with much lower turnover. In looking at those firms with 60% or higher annualised employee turnover, those in the bottom quartile ranked by employee engagement had 31% higher employee turnover than those in the top quartile of engagement scores. For firms with annualised turnover of 40% or lower the results indicated that those in the bottom quartile had 51% higher annualised turnover than top quartile firms.


Engagement and well-being

Over half of disengaged employees (54%) say that work has a negative effect on their physical health as opposed to only 12% of engaged employees. Analysis carried out within PwC and reported a similar correlation between engagement and well-being in their business: the less engaged PwC’s people, the lower their well-being levels.

Towers Watson reported that the highly engaged missed 43% fewer days of work due to illness, and evidence from a Fortune 100 manufacturing company demonstrated that absenteeism in low engagement teams hovered around 8%, as compared with only 4.1% in high engagement teams.

CASE STUDY - Nampak

Following the introduction of a new employee engagement programme, Nampak recorded a 5% increase in the number of strongly engaged employees. During the same period they recorded a 26% reduction in absence levels which they attributed to their employee engagement.


Engagement and Health and Safety

Analysis of the Gallup Q12 engagement measure found that organisations with engagement in the bottom quartile averaged a staggering 62% more accidents than those in the top quartile.
In summary the evidence is clear; engagement matters. The evidence shows clearly that engaged employees work better, smarter, are less absent, go the extra mile, overcome barriers and are more resilient. Engaged employees create competitive advantages which are difficult to replicate, which places engagement as a key component of a successful business strategy.

Related Resources

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