Better Organizations Through Better Science

San Diego I/O Professionals May 8, 2006

Competitive Advantage Through Employee Engagement

Benjamin Schneider

2008 Valtera Corporation. All Rights Reserved.

Agenda
What is engagement? What is the business case for engagement?

How do you foster and sustain engagement?

2008 Valtera Corporation. All Rights Reserved.

Why Employee Engagement?

Everybody wants to have an engaged workforce because it can forge a path to competitive advantage. Engagement is a human capital approach to competitive advantage
Yet ask five different people to define engagement and youll likely get five different answers

2008 Valtera Corporation. All Rights Reserved.

Some Definitions of Engagement

Engagement is
The individuals involvement and satisfaction with as well as enthusiasm for work

A result that is achieved by stimulating employees enthusiasm for their work and directing it toward organizational success
Finding personal meaning and motivation in work and receiving positive interpersonal support

The capability and willingness to help the company succeed, i.e., discretionary performance
A heightened emotional and intellectual connection that an employee has for his/her job, organization, manager, or co-workers that in turn influences him/her to apply additional discretionary effort to his/her work

2008 Valtera Corporation. All Rights Reserved.

Our Working Definition

Engagement is
Feelings Feeling energized, absorbed, and involved in ones role in the company Behaviors Persistent, proactive, and adaptive behavior aligned with organizational goals and values

2008 Valtera Corporation. All Rights Reserved.

Measures of Engagement
Most engagement measures are re-labeled job satisfaction or employee opinion surveys that get at such issues as:
Overall job satisfaction

Satisfaction with pay and benefits

Organizational commitment Role conflict and ambiguity

Pride in working fort he company

Intentions to stay

The measures lack a focus on engagement attitudes: feelings of energy and passion The measures lack a focus on engagement behaviors: taking initiative, being helpful, going beyond the norm and persistence
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The Business Case for

Employee Engagement

2008 Valtera Corporation. All Rights Reserved.

Understanding Customer Satisfaction

Assess the relationship between engagement and the ACSI
American Customer Satisfaction Index (ACSI) - based on customer satisfaction ratings for hundreds of companies, published by the University of Michigan (see TheACSI.org) Assess Engagement across 32 U.S. companies and correlate those data with the ACSI

Look at relationships between a measure of customer-focused engagement behavior within specific service industries Examine the relationship between customer-focused behavioral engagement and Fortune reputational ratings of the quality of a firms products and services

2008 Valtera Corporation. All Rights Reserved.

The ACSI and Market Value Added

2008 Valtera Corporation. All Rights Reserved.

How Engagement is Measured Matters

Engagement Behavior Conscientiousness

Engagement Behavior Customer-Focused

60

65

70

75

80

85

ACSI Index
Top 25% Bottom 25%

2008 Valtera Corporation. All Rights Reserved.

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Within Industry Analyses for ACSI Engagement Behavior and Customer Satisfaction
Airlines
High

Telecommunications
High

ACSI Score

ACSI Score

Low
3.80

4.00 4.20 4.40 4.60

Low

3.80 3.90 4.00 4.10 4.20 4.30

Customer-Focuse d Engage ment Be hav ior

Customer-Focuse d Engage ment Be hav ior

2008 Valtera Corporation. All Rights Reserved.

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Engagement Behavior and Reputation

Customer - Focused Engagement Behavior

5.0

5.5

6.0

6.5

7.0

7.5

Fortune Reputational Ratings of Quality of Products and Services

Top 25% Bottom 25%

2008 Valtera Corporation. All Rights Reserved.

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Predicting Company Financial Performance

Test the relationship between engagement and financial performance in 65 U.S. companies, using the following financial measures:
Return on assets
Profits as a percentage of revenues Tobins Q

It represents the ratio of a firms market value to the replacement cost of its assets
Because it includes market value, it is a forward looking measure in that it incorporates the markets bet on its future performance

Unlike many other financial measures, it is equally applicable to all industries

2008 Valtera Corporation. All Rights Reserved.

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Engagement & Financial Performance

15%

Return on Assets

Profitability

Shareholder Value
2.31

7%

8% Q* 3% 1.16

2%
0
Engagement Attitudes in the Firm Top 25%** Bottom 25%**
**of 65+ firms across diverse industries

0
*Q = the ratio of a firms market value to the replacement cost of its assets

2008 Valtera Corporation. All Rights Reserved.

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Engagement & Financial Performance cont.

15%

Return on Assets

Profitability

Shareholder Value
2.56

10%

8%
Q* 1.14

1%

1% 0

0
Composite of Engagement Attitudes and Behavior Top 25% ** Bottom 25%**
**of 65+ firms across diverse industries

*Q = the ratio of a firms market value to the replacement cost of its assets

2008 Valtera Corporation. All Rights Reserved.

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A Closer Look at Engagement.

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Satisfaction Drivers
Driver analyses conducted on Valteras Best Companies Benchmark data
Reveals which attitudes are the strongest drivers of satisfaction on the one hand and attitudinal and behavioral engagement on the other hand Useful for taking action

Top 3 drivers of satisfaction* are:

Satisfaction with job security Satisfaction with benefits

Opportunities for promotion

*Measured by satisfaction with company, intent to stay, and willingness to recommend ones company

2008 Valtera Corporation. All Rights Reserved.

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Drivers of Feelings of Engagement

Top 3 drivers of feelings of engagement* are:
Feeling that there is full utilization of my skills and abilities Feeling there is a link between my work and the objectives of the company Feeling of being encouraged to innovate

* Measured by items like I feel it is easy to maintain my focus on work, and The work I do makes me feel good about myself.

2008 Valtera Corporation. All Rights Reserved.

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Behavioral Engagement Drivers

The unique drivers of behavioral engagement* include:
Cooperation/teamwork Quality of relationships with coworkers Trust and respect Credibility of supervisor

* Measured by items like: The people I work with do more than they have to when the need arises and The people I work with show flexibility in adapting to new ways of doing things

2008 Valtera Corporation. All Rights Reserved.

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Fostering and Sustaining Engagement

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Jobs Designed to Promote Engagement

Demand full use of skills and abilities Allow for autonomy

Are a challenge
Provide for meaningfulness Present specific difficult goals with feedback Have rewards associated with accomplishment Provide for personal growth and development

2008 Valtera Corporation. All Rights Reserved.

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Managers Promote Engagement

Managers create the climate for engagement
Treat people fairly and justly Rewardspay, promotions, bonuses Interpersonallyrespect, warmth Procedurallykeep promises, involve people in decision-making Pay attention to the seeming mundane Training Technology Internal Support

These conditions lead to the feelings of trust and psychological safety that are the foundations for attitudinal and behavioral engagement
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Summary and Conclusions

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Does Engagement Guarantee Success?

Engagement does not fully compensate for poor strategic decision making or downturns in the economy Engagement may be more important when:
Products or services are highly customized There is autonomy in designing ways to accomplish goals Innovation is critical Role boundaries are fluid A new strategic direction is being introduced

But even in assembly line jobs, relative engagement can pay off in suggestions for quality and productivity

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Why Employee Engagement?

There is corporate competitive advantage to employee engagement Customer satisfaction Financial rewards Engagement is more actionable than satisfaction: Job design: Skill utilization Supervisory training: Fairness and trust May be useful to assess strategic engagement Customer focus Innovation focus Data from employees via surveys is more than just opinion; it is valid

2008 Valtera Corporation. All Rights Reserved.

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