Employee Engagement to the Power of Three

Exponential engagement is the latest development in research into how employee behavior and attitudes affect business performance. Senior consultants from Towers Watsons Organizational Surveys & Insights practice recently discussed how a focus on exponential engagement can help employers take performance to the next level.
Measuring employee engagement has risen in importance over the course of the last few decades. How do we define employee engagement, and what are its main components?

Patrick Kulesa Research Leader

Jennifer Meder Senior Consultant

Adam Zuckerman Senior Consultant

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Why has employee engagement become more important in recent years?

Zuckerman: Employee engagement is both the rational and the emotional connection an employee has to the organization, combined with his or her willingness to exert discretionary effort. Research has consistently found that more engaged employees produce better financial returns for their businesses. Kulesa: Looking at three-year and five-year changes in operating margins and net profit margins, weve seen that companies with higher engagement scores do better financially. For example, our three-year study of 41 multinational organizations found those with high engagement levels had 2% to 4% improvement in operating margin and net profit margin, whereas those with low engagement showed a decline of about 1.5% to 2%.

Zuckerman: Engaged employees working in a high-performance culture give companies a real competitive edge one thats difficult for competitors to replicate. Its one of the few things that can provide a sustained advantage, and business leaders recognize that. Kulesa: Also, HR leaders now realize the concept of engagement allows them to measure an important people-related component of business success. Those metrics are no longer just nice to have; theyre necessary if a company expects to maximize employee and company performance. Advances in the science of measuring and influencing engagement have given HR leaders an additional tool and an even stronger voice within the organization in terms of how to drive corporate performance.

How does exponential engagement build on the traditional concept of engagement? And how does it relate to business performance?

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Meder: Over the past 40 years, employee research has been a critical component of organizational strategy. At first, we looked at employee satisfaction, then moved on to commitment and then to engagement. Thats where weve held steady over the past decade. According to our more recent research, engagement takes a company only so far. Weve learned that certain factors related to the work environment affect employee performance and therefore the entire organization whether or not employees are engaged. We think about exponential engagement as engagement to the power of three. In addition to engagement, the other two elements are enablement and energy. Theyre crucial supplements to engagement in boosting performance. Zuckerman: Enablement operates primarily at the work-group level. Its about having in place the equipment, supplies, processes and training that enable employees to actually get the job done without barriers or obstacles. To realize the full benefits of employee engagement, a company needs that enablement factor. Workers can be excited about the companys mission and values, but if they arent enabled to do the job, that excitement will lead to frustration rather than translating into high performance. In addition to being engaged and enabled, employees need to work in an environment that promotes and supports their well-being. When that energy is in place, engagement is more readily sustained over time. When that kind of environment doesnt exist, the energy isnt there, and engagement can be short-lived. Employers are paying more attention to energy with wellness programs to help employees manage their health. But wellness isnt related only to benefit programs. You also need to support employee wellbeing through the environment, the workload, goal clarity and other things.

Kulesa: The energy factor the third element of our exponential engagement model is firmly connected to employee well-being. Weve studied several aspects of well-being: social, psychological and physical. The social aspect is employees sense of belonging and connection to the workplace. The psychological is related to workers stress and emotional outlook. And physical health is about the vitality that people carry around with them on the job. The day-to-day sense of enablement and energy is crucial. Unlike traditional models of engagement, exponential engagement deals primarily with the local unit level, rather than with the bond of the employee to the organization as a whole. Enablement and energy have more to do with the employees day-to-day work environment. Are supports in place to foster productivity? Is frustration putting workers engagement at risk? In our studies across organizations, weve found that exponential engagement gives companies a financial performance advantage. Specifically, weve seen triple the operating margin in companies that are high on all three of the exponential engagement measures, compared with those with low engagement levels and even double the operating margin compared with companies that get engagement right but lack the other two elements: enablement and energy.

Employers are paying more attention to energy with wellness programs to help employees manage their health. But wellness isnt related only to benefit programs. You also need to support employee well-being through the environment, the workload, goal clarity and other things.
Zuckerman: Employees who arent just engaged but are also energized and enabled produce far greater financial benefits than employees who are simply engaged. Meder: Thats why we call this concept our exponential engagement model. The combination of those three pieces engagement, enablement and energy can boost financial performance to far greater heights than can engagement alone.

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Employee Engagement to the Power of Three 2

In general, employees who have favorable views of their career development opportunities tend to be more engaged than other workers.
To examine the connections between employee engagement and business performance, what specific measures can companies use?

How do employers begin the process of measuring exponential engagement, especially if theyre already measuring engagement through regular employee surveys?

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Zuckerman: Employee opinion surveys are still the best way to gather employees views and measure their engagement. To measure exponential engagement, we add a group of nine questions to the regular survey that delve into not only core engagement but also whether employees feel enabled and energized. Those questions are grouped so we can create an exponential engagement index. That index allows us to see the level of employee engagement and how it compares to benchmarks. We also can identify the top predictors or drivers of that index. This helps companies prioritize their efforts around the factors most likely to enhance exponential engagement. Kulesa: This concept sits within traditional employee engagement approaches quite well. It doesnt require a company to discard its process and build something entirely new. Its just a smarter way of doing something companies are already doing: taking the pulse of their employees via the employee survey process.

Zuckerman: Weve statistically linked employee engagement with nearly every organizational outcome or metric there is. By almost any measure, more engaged employees produce better outcomes, ranging from more satisfied or more loyal customers to higher revenue, more profit and greater efficiency. Kulesa: There are four general metrics that have strong links to engagement. When we work with clients, we often start by asking if theyre measuring those things. One is the marketplace measures, which include customer satisfaction and broader issues such as the organizations reputation among its current and potential customers. The second group includes the more traditional HR measures: turnover, absenteeism and presenteeism the elements many HR departments routinely track. In the third bucket are the financial areas that Adam just touched on: sales, profitability, and other measures specific to the top and bottom lines. The fourth area includes operational measures: efficiency, just-in-time delivery, quality and safety incidents in the workplace. We look at whats being tracked consistently at the unit level across the organization. Is there an important measure the business believes in, and measures frequently, that we can tie to engagement? It needs to be one that will cause everyone to stand up and take notice when you say, Engagement is connected to this measure.

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Which drivers of engagement are the most critical for organizations to address right now?

Zuckerman: Its important for each organization to understand its employees well enough to be able to identify the unique drivers for each workforce group, and even for subgroups. The important drivers of engagement vary by industry sector and by country. And they certainly change over time. But there are general trends. One common driver is career development. In general, employees who have favorable views of their career development opportunities tend to be more engaged than other workers. Another powerful driver of engagement is the confidence employees have in their leaders. Theyre more engaged when leaders are clear about the organizations strategic goals and show an interest in and concern for employees. A third common driver is empowerment the ability of employees to make decisions and take actions in order to successfully perform their work.

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Employee Engagement to the Power of Three 3

Kulesa: Also, throughout the recession, weve been tracking additional issues that have moved on and off the list as the economy has changed. Weve seen employees perception of their companys image or reputation come into play. When a company is struggling or receiving government assistance, those difficulties can negatively affect engagement. At the same time, other companies find their reputation maintained or even enhanced by competitors problems, and they experience a boost in engagement. The organizations image becomes a more powerful driver when leaders look at their employees and ask, Are we healthy as a company? Are we going to make it through this difficult period? That brings the companys good image to the forefront for employees, enhancing engagement. Another driver we saw at the back end of the recession was clarity in the companys goals and objectives. As the economy began to show signs of a turnaround, employees collectively seemed to be exhaling and asking, Now what? Leaders who responded immediately and clearly about the organizations goals and objectives improved employee engagement levels. Meder: Thats particularly relevant in organizations that have made significant workforce cuts but havent done the needed goal setting. Where you have individual employees now doing several jobs, clarifying goals is going to be crucial to keeping those workers engaged.

Our three-year study of 41 multinational organizations found those with high engagement levels had 2% to 4% improvement in operating margin and net profit margin, whereas those with low engagement showed a decline of about 1.5% to 2%.

About Towers Watson

Towers Watson is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. With 14,000 associates around the world, we offer solutions in the areas of employee benefits, talent management, rewards, and risk and capital management.

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