An Independent Melcrum Research Report

Employee Engagement

Based on a major global survey

How to build a high-performance workforce

Executive Summary

Table of Contents
This is the table of contents of the full 268-page report, Employee Engagement
1. What is employee engagement?
1.1 1.2 1.3 1.4 1.5 The vagaries of employee engagement Defining employee engagement Two approaches to employee engagement The rise of the employee engagement program Which functions manage employee engagement

5. Senior leaderships role in employee engagement

5.1 5.2 5.3 The role of senior leaders in building engagement How leadership is viewed around the world HR professionals focus on trust

6. The line managers role in employee engagement

6.1 6.2 6.3 How to make managers better communicators The role of line managers in building engagement How the managers engagement role varies

2. The business case for engagement

2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 Why is engagement important to the organization The Gallup benchmarks The Towers Perrin talent studies Engagement and the talent retention equation The value of being a great workplace Engagements effect on total shareholder return ISRs engagement benchmarks Accenture the views of senior executives Resources

7. Creating a culture of engagement

7.1 7.2 7.3 What do we mean by a culture of engagement? What creates a people-centric culture? Giving employees development opportunities

8. Involving and empowering employees

8.1 8.2 8.3 What is employee involvement? How formal involvement programs work The benefits of employee involvement

3. Key drivers of engagement

3.1 3.2 3.3 3.4 3.5 What do we mean by key drivers of engagement? The problems with key driver analysis The drivers of engagement, attraction and retention What people have identified as key drivers Where energy is directed at the wrong drivers

9. Measuring engagement
9.1 9.2 9.3 9.4 How organizations measure engagement levels What levels of engagement people see Are engagement levels on the rise? The climate survey vs. the outcome survey

4. Building an engagement strategy

4.1 4.2 4.3 4.4 4.5 Building a strategy back to first principles Where building an engagement strategy is going wrong A process for eliminating the problems The problematic role of measurement in the process The key challenges in actioning the strategy

10. The results engagement is delivering to business

10.1 10.2 10.3 10.4 10.5 10.6 What results people are aiming to see from engagement How the impact of engagement is being measured Who is more likely to measure How people link engagement to business metrics The business benefits of employee engagement Profitability of companies with an engagement focus

Case Study Companies

Agilent Technologies Inc British Broadcasting Corporation BASF BBC BMW Bombardier Aerospace BT Cargill Chrysler Group Coors Brewing Company General Motors HP National Australia Bank Southwest Airlines Stryker Tesco Union Bank Wanadoo

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Executive Summary
In this executive summary, youll find highlights of Melcrums comprehensive research report, Employee Engagement. To find out how to purchase the full report with an exclusive 33% discount, see the order form at the back, alternatively call +44 (0) 20 8600 4670, or e-mail customerservice@melcrum.com
Introduction Employee Engagement: fact or fad? If youre reading this executive summary youre no doubt already aware of employee engagement becoming an ever more important priority for business. Melcrums extensive research provides a compelling case for the benefits of well-constructed employee engagement programs. The research is a quanitative and qualitative study, with findings from a global survey of over 1,000 communication and HR practitioners and 30 indepth interviews with IC & HR professionals at large multi-national organizations. The vital lessons learned by some of the worlds leading businesses in creating, implementing and measuring their employee engagement programs provide benchmark data to ensure that the reader is well-informed about this critical topic. So whether you see employee engagement as fact or fad, are convinced or need convincing, this report makes for essential reading. This summary gives you an overview of what youll find in the reports 10 chapters: 1. What is employee engagement? 2. The business case for engagement 3. Key drivers of engagement 4. Building an engagement strategy 5. Senior leaderships role in employee engagement Employee Engagement brings you: Benchmark data from best-in-class companies. Hear from the experiences of HP, Union Bank, Southwest Airlines, Cargill Inc, National Australia Bank, Agilent Technologies, BBC, BMW,Wanadoo and Bombardier Aerospace Statistics and the results from real-life case studies to prove the business case for employee engagement build your case on data from over 1,000 communication, HR and OD practitioners Engagement definitions and models to determine what engagement is and what it means for your organization Expert analysis and process strategy maps for building an effective engagement strategy Tried-and-tested techniques for boosting your engagement survey scores discover where to go next and the pitfalls to avoid Templates, tools and models to help you embed engagement throughout your organization and measure the results Advisory articles, best-practice methods and top tips for improving senior and line manager communication Practical ways to define key drivers within your organization that influence engagement
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6. The line managers role in employee engagement 7. Creating a culture of engagement 8. Involving and empowering employees 9. Measuring engagement 10. The results engagement is delivering to business

1. What is employee engagement?

There can be little doubt that employee engagement is the issue of the moment for those in HR and communication functions. Everyone, it seems, has heard about it. Most want a piece of whatever it is. And increasing only numbers every year are rolling out programs and campaigns dedicated to it. of organizations have The first step is to determine exactly what were talking about when we a dedicated use the term employee engagement. Its widely used, but remarkably ill engagement program defined. In this chapter, we clarify where, when and how employee engagement is being defined - and the pitfalls to avoid along the way. For some, as at BBC, it was the need to find a language that works (see case study, below). Our survey also revealed two different approaches to engagement; programmatic and philosophical and uncovered the rise of engagement since 2000 (74% began formally focusing on the issue between 2000 and 2004).

36%

CASE STUDY

BBC: Finding a language that works (extract)

For the BBC, the terminology around employee engagement is something of a barrier. As a media organization, it openly gives employees the imprimatur to be creative and challenging both of the world and of the organization itself. In such a climate of valued, constructive criticism from its people more akin to an academic institution than a corporate one there is a natural need to avoid terminology and concepts that would kill off acceptance of a project before it began. The word engagement is too corporate for the BBC, a bit like the words stakeholder or strategic, explains Russell Grossman, its head of internal communications. Its not a word you would use in other contexts to describe your emotions. Its just technical communications jargon which we should insulate others from if were doing our job properly. If you were a customer or part of the audience, you wouldnt talk about yourself as being engaged. You might describe yourself as excited, motivated or enthused, or more likely youd just feel good, but you wouldnt use the word engaged. So its important that internal communication language should match that. Nevertheless, the BBC has moved very strongly and sincerely towards an engagement culture and is doing a lot to encourage behavior that might, elsewhere, fit under this banner. But instead, we talk more about words like involve, participate and respond rather than engage. That means creating shared meaning and understanding in such a way that our people actively want to participate. Employee Engagement presents case studies from your peers around the globe and provides expert advice from Jim Shaffer, Jim Shaffer Group, John Smythe, Engage for Change and Christopher Hannegan, Edelman PR on how to develop, implement and measure engagement programs. In addition to quantitative data, this report gives you a collation of findings from 30 in-depth interviews to show you how to apply effective employee engagement strategies across your organization in order to reap bottom-line benefits. We take a special look at two approaches to engagement, who should oversee it and three models of employee engagement. This chapter is the definitive guide on what engagement is, and what it means to your organization.

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2. The business case for engagement

Disengaged workers cost US business between $270bn and $343bn a year
The reasoning behind a move for higher employee engagement is obvious -it takes little persuasion on a theoretical level to convince a business leader that employees who are more committed, work harder and smarter will be better for the company than those who turn up, do merely what they are obliged to do, and leave. But what kind of difference does it make? Where is the biggest value added? Is it, financially, worth the effort? In this chapter we look at a variety of studies and highlight current global levels of engagement and research into the impact of raising engagement and the cost of disengagement. Gallups research in the UK (see figure 1, below), calculated that actively disengaged workers are 10 times more likely to say they will leave their organizations within a year (48%) than engaged staff (4%). Their 2003 survey in the US and Canada of 1,000 workers found that only a quarter were actively engaged in their work with a huge group of between 56% and 60% not engaged and 17% actively disengaged. Gallup estimates that actively disengaged workers cost US business between $270 and $343 billion a year due to low productivity.

KEY FINDING

Accentures 2004 The High-Performance Workforce Study studied the views of 244 senior executives (40% C-level) in the US, UK, Spain, France, Germany and Australia on a variety of factors relating to the workplace. The results highlighted a critical perceived shortfall between the importance of engagement and businesss current performance on its key aspects. Among other findings, the study showed that engagement ranks third among the factors executives considered critical to performance. The top three organizational capabilities executives view as most important to competing in the marketplace are: 1. Developing effective leadership capabilities (65%). 2. Creating an organization that adapts to change (49%). 3. Engaging and aligning multiple stakeholders (43%).

Fig 1 The impact of engagement (The Gallup Organization, UK, 2003)

3% 67%
Disengaged Engaged

Would advocate the company as a place to work

Would recommend the companys products and services

13% 78% 48% 4%

Percentage of employees

Intend to leave the company in the year

We collect the evidence and build the case for investment, with a special look at how to make a compelling case to those who hold the corporate purse. Whats the business rationale? And what should you focus on? Youll get top tips and lessons learned on how to demonstrate the ROI of engagement to your executive team and the effect of high engagement on shareholder return.

Copyright 2003 The Gallup Organization, Princeton, NJ. All rights reserved.

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3. Key drivers of engagement

A core part of investing in employee engagement is assessing what is actually influencing employees behavior and commitment. Key driver analysis is a quest most go on when they first roll out an engagement program, yet its principal factors are still often hotly debated. Considering the complex web of factors that affect engagement in each organization the reported senior leadership was a question becomes: which big levers can I focus on at a corporate level in key driver in order to have the most impact? We looked at the key drivers to try to get some kind of high-level achieving unanimity on the four or five principal factors.We asked over 1,000 survey engagement participants what their research into identifying the key drivers had told them.We found that 48% of organizations who administer an employee engagement survey also conduct a key driver analysis. The survey results from that group, i.e. from those respondents who do conduct a key driver analysis can be found in the full report. Here we focus on the results from the group who do not conduct a key driver analysis to get a sense of what they thought was driving engagement and how that compares with those organizations that do. The results appear below in figure 2. To some extent, the broad focus of these people is not too dissimilar to the results from those who do conduct a key driver analysis. Nearly one-third of respondents who havent done this kind of statistical modeling say they believe the actions of senior leadership is the top driver of employee engagement and 50% say its in the top three. Respondents who dont conduct formal analysis also rank direct supervisors as highly critical. But interestingly, in comparison to those that do conduct a formal analysis, they seem to overemphasize the importance of direct supervisors. Perhaps all the rhetoric about the vital role of the line manager has slightly skewed reality. Fig 2 Top 10 drivers of employee engagement (All data; companies that do not conduct a key driver analysis)
Senior leadership Direct supervisors Belief in company direction Involvement/consultation on company decisions People-centric culture Formal internal communication

48%

31% 26% 7% 4% 6% 4% 7% 6% 9% 10% 9% 9% 6% 5% 6%

Percentage of respondents

14% 9% 15% 5%

5%

10% 12% 9%

Influence over how their job is done 3%

Most important Second most important Third most important

Understanding of key business issues 3% 5% Opportunities for career advancement 3%

6%

Company values reflect personal values 3% 5%

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4. Building an engagement strategy

To embed employee engagement as a real business change requires commitment to building an integrated, multi-faceted strategy by scoping out problem areas, measuring the current culture and aligning solutions with the business priorities. In this chapter we present the research on how to build an effective engagement strategy that works for both management and employees. We identify a number of potential pitfalls for organizations in developing engagement strategies. For example we found that there is often a poor articulation of what engagement means because the process is being driven back-to-front. An engagement survey is driving the process rather than being the back-end tool to measure the process. Some organizations also try to achieve every positive goal through engagement or fail to rationalize the hundreds of potential drivers that they identify.

CASE STUDY

WANADOO: Stakeholder engagement (extract)

In April 2004, the UKs number one Internet service provider (ISP) Freeserve became Wanadoo, falling into line with the brand of the French company that had acquired it in 2001. But beyond the name and graphics side of the change, says head of internal communications Anne Thornton, there was a much more urgent need to bring along employees to a new commitment as to where the company was going.

TOP TIP: Spreading the load

The project began in December 2003 with face-to-face sessions with the people whod be running the rebranding project (the executive team, their direct reports and several others involved a total of about 75 people). The executive team themselves comes to 51 here, so among that 75 there were obviously a few other key business people who would be leading parts of the project, says Thornton. Much of the reason for this was a determination, in the planning and implementation of the rebrand, to spread the load. A key factor for making sure the project ran well, but also that the buy-in and engagement was there, was to structure the project around business-as-usual processes, she explains. So that meant the guys in marketing would handle the marketing of it, the guys in HR would handle the HR aspects, and so on. Eschewing the need for project teams or external consultancy involvement, the principle was simple: These people would know how things needed to work. They would know how to interact with other departments, what the usual constraints might be, or what interdependencies might be critical. And in terms of engaging people around the project, that was a key element of success. It meant that this was not a project run from a central department, in which everyone had to be inculcated and fall into line. It was being owned, in different ways, by everyone.

Find out how to customize your engagement strategy to your business units, managers and individual employees in order to effectively move from satisfaction to the ultimate goal of engagement. Read the full case study from Wanadoo UK and Agilent with top tips and benchmarking survey data on the 10 most common challenges to implementing engagement strategies.

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5. Senior leaderships role in employee engagement

The CEO and senior executives set the tone for engagement in any organization, large or small. As a result, their actions are critical in inspiring employees to go the extra mile. According to seven out of 10 survey respondents, communicating a clear vision of the future is the most important task of senior leaders in driving employee engagement. Surprisingly only 2% of respondents believe its important for senior believe senior leaders to show charisma. A winning personality is, for most, a far less important factor than that senior leaders simply act with integrity building a sense of trust in the leaders most important action is organization (46%), and a commitment to the companys values alongside that (39%). communicating a So how do you get senior leadership involved in the engagement process? In this clear vision of the chapter we look at case studies that show how some leading global organizations have gone about it. Here are just a few of the key lessons that they have picked up in the future process: First, get the message across to the key people that their input in the process is essential and ensure that they are, and remain, an integral part of the engagement process. Employee participation in the decision-making process facilitates engagement but once that participation has been achieved it is equally important that the leadership take employees contributions seriously. Make the leadership visible and accessible to employees. Ensure that the agreed messages in the boardroom are the ones that are presented outside the boardroom; i.e., that there is no disparity or misunderstanding amongst senior leadership as to the correct message. Ensure, as far as possible, that the communication channels used are in line with the gravity of the message, for example, when the decisions are likely to have a high-level impact on staff, the most credible source for that message would be from high-level leadership.

70%

Fig 3 The top six most important actions for senior leaders to build employee engagement (All data; respondents chose three options)

Communicating a clear vision of the future Building trust in the organization Involving employees in decision making that will affect them Demonstrating commitment to the companys values Being seen to respond to feedback Demonstrating genuine commitment to employees well being

70%

This chapter focuses on senior leaderships role in driving employee engagement, with quantitative data by region on how their actions are critical in inspiring employees to go the extra mile. It also looks at the most crucial behaviors senior leaders need to display. Includes in-depth case studies from: National Australia Bank Building senior leaders interest Bombardier Aerospace Research on the role of leaders Cargill Inc The power of senior leaders in

46%

40%

39%

33%

28%
Percentage of respondents

engagement Agilent Counseling leaders on their engagement role

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6. The line managers role in employee engagement

The line manager can be a powerful tool for mobilizing employees at every level, as the direct link between employees and the upper echelons of the organization. They interact daily with front-line employees and can make a real difference to the companys bottom line if they are able to motivate their teams to align with company strategy and achieve say creating a company goals. Therefore, its not surprising that communicators rate the actions of line climate of open managers as the second most influential driver of employee engagement, topped only by communication the actions of senior leadership. But how do line managers really affect engagement? And what are the critical elements is the most for line managers to build employee engagement? Figure 4, below, shows the regional important element for line breakdown for the top six factors that help line managers to build engagement. An outcome of our research, which was agreed across the board, was that creating a climate managers to build of open communication is the most important duty of a line manager (as was evidenced employee by over 50% of respondents in each region). This was followed closely by helping engagement employees understand their role in the organizations success and building trust. Another outcome highlighted was that there was a need for greater leadership skills from front-line managers for them to be inspirational, credible, visionary and participative role models.

59%

In this chapter we identify critial leadership traits for line managers and examine some tried-and-tested methods, innovations and lessons learned from in-depth interviews. Find out how your line managers can drive engagement within your organization and the pitfalls to avoid.
Fig 2 Critical elements for line managers to build employee engagement (All data, by region)

UK

60%

48%

38%

28% 20% 21%

Creating a climate of open communication

North America

58%

48%

40%

24% 22%16%

Helping employees understand their role in the organizations success Building trust

Europe

60%

39%

39%

29% 27% 18%

Involving employees in decision making Empowering employees to solve problems themselves Following through on promises and commitments

Asia-Pacific

57%

34%

48%

32% 20% 21%

ROW

65%

26%

52%

32% 28% 7

Percentage of respondents

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7. Creating a culture of engagement

A large part of building higher levels of employee engagement is creating an environment in which employees feel valued and respected. Many of those we interviewed spoke of the environment, culture and mood of the organization as being critical factors in driving engagement. Its the way things are done around here that really sets the engagement tone. What creates a people-centric culture? As with the key drivers of engagement we found that it was the actions of senior leadership and front-line management that were regarded as the most influential factors. Companies capable of building strong relationships between their leadership and employees will be able to create a supportive people culture. The excerpted case study below, identifies why its important for employees to take pride in their organization and outlines how Agilent develop a culture of engagement.

CASE STUDY

AGILENT TECHNOLOGIES: Influencing pride in the company (extract)

The most relevant question in considering internal communications role in engagement is What can you do to influence it? Ron Fuchs, senior director employee and executive communications at Agilent believes engagement is strongly linked to employee retention and that there are two main reasons why people stay and thrive at companies: A compelling value proposition. This Fuchs typifies as a very high, enterprise-wide factor that is most affected by the companys senior leadership. So employees like what the company does, that it makes the world better or it helps cure cancer whatever it is, theres something that people respond to. It makes them want to contribute and makes them feel good about contributing. Its about feeling proud of the company you work for, and your belief that that business will win. Basic environmental factors. By that we mean: They like who they work with, and they like who they work for, and how interesting and fulfilling the work is at the individual level. These are the factors most affected by middle and front-line management. As well as feeling good about the company, you want to feel good about your colleagues, you want to have people you relate to. And you also want to feel good about your boss that youre valued and that youre being recognized and rewarded appropriately for your hard work.

TOP TIP: Build a Dream list of your companys impact

A comprehensive Agilent Dream List has been introduced by the communication team, which summarizes in list form the many products created by Agilents customers from automobiles to perfume that are made real through the companys technologies, products and services. The list is on the Agilent Sparks website and is updated regularly. We collect together some of the best examples from our interviews tips and tools used at global organizations, and advice from those with experience in creating an environment where employees feel valued and respected. We bring to the forefront the benefits and challenges with a special look at the role of personal and professional development with tools and methodologies that organizations like HP and Cargill Inc. are using to create a culture of engagement.
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8. Involving and empowering employees

One of the most crucial factors in building a successful strategy of engagement is actually getting employees to participate in the process it is impossible to make people committed, driven and motivated by something they play no part in at all. Involvement might simply be said running a matter of consultation through skip-level meetings or focus groups; random focus it might extend to more formal structures in the form of permanent groups on key employee committees; it may be a question of putting in place processes that empower staff to solve key barriers to efficiency in the business issues was workplace; and, at the very highest end, it would mean involving the most effective employees in co-creating the forward strategy of their part of the for involving business in some way. The most common involvement initiative is employees running random focus groups on key business issues (see figure 5). A notable percentage of respondents (39%) also involve employees by giving them greater input into team strategy decisions. In addition, over one-third of respondents say they give employees greater control over how they do their jobs and implement programs to encourage employees to fix problems in the business. This chapter reveals our research findings as to what communication professionals thought were the key benefits of employee involvement.

44%

Without employee involvement, engagement strategies arent worth the paper theyre written on. This chapter outlines the eight key types of programs to increase employee involvement and consultation; how leading organizations have seen huge savings by getting employees to fix inefficiencies in the workplace and presents evidence of the benefits that constant and systematic consultation with staff can bring to engagement levels. Youll get culture modeling tools, process flow charts and examples of culture programs, with top tips and lessons learned from HP, BMW, National Australia Bank and the BBC so you can unlock the benefits of employee involvement. Fig 5 Types of programs administered to increase employee involvement and consultation (All data; respondents chose all that were applicable)
Running random focus groups of employees on key business issues Giving employees greater input into team strategy decisions Giving employees greater control over how they do their jobs Implementing programs to encourage employees to fix problems in the business Creating a standing employee committee who are regularly consulted on key business issues Implementing programs to allow employees to experience jobs in other areas of the business Implementing programs allowing employees to shadow other members of staff None of the above

44% 39% 34% 34% 27% 24% 13% 17%

Percentage of respondents

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9. Measuring engagement
Over a quarter of organizations that are concerned with employee engagement do not actually have a formal method for measuring it within their organizations. Of the 72% who do measure, 44% assess engagement levels through their standard employee opinion or satisfaction survey, while 23% administer a specific employee engagement survey. Five percent of participants use other means to measure such as focus groups, team meetings or performance appraisals. Stryker, the excerpted case study below shows how they have refined their survey methodology to overcome corruptibility in its survey scores.

CASE STUDY

STRYKER: Ensuring action is taken on the survey (extract)

Many of our interviewees cited the corruptibility of survey scores as a core problem identified in the early years of their engagement processes where, because the numbers for each manager are being tracked by the organization, shifting the score becomes a priority for them at the possible expense of doing something real about their behavior (e.g., a poor score for My manager keeps me informed about the company strategy is met not with more regular communication; the manager simply makes sure to schedule a two-hour run down of the strategy a week before the next survey).

TOP TIP: Confronting the corruptibility of survey items

Stryker, which uses the Gallup Q12, has seen the same effect and as a result purposely focuses on stressing the actioning of survey items, rather than the numbers themselves. But it does have a separate and innovative remedial measure for this problem. Q12 organizations are permitted to add a few additional questions of their own to the survey. Stryker uses the statement (to agree/disagree with on a five-point likert scale): My work group used last years survey in a meaningful way If you just picked the score and tried to shift that, youd be shown up here, says Mike Rude, vice-president of HR. And this is something we look at very closely when assessing a managers performance. If their personal action item scores arent moving, but this one is, we know theyre at least putting things in place to deal with the issues. A compelling argument Using this question, Gallup have even managed to provide Stryker with data from their Q12 results that shows a direct link between taking meaningful action on the survey results and the overall engagement of different workgroups. Where employees rate very highly that action is taken (With a 5/Strongly agree), those teams score in the 99th percentile in overall engagement, measured against Gallups global norms. Compare this with where they strongly disagree that meaningful action has been taken the overall engagement scores for these workgroups are only in the 8th percentile.
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10. The results engagement is delivering to business

of companies have seen a positive result in their employee retention due to engagement efforts

73%

One of the key reasons companies choose to focus on engagement is an expectation that it will positively impact the bottom line. But if you cant link the results to the business, how can you prove your initiatives are having an impact? In this chapter, we look at the actual business results seen by our survey respondents and interviewees. We asked communicators to identify the factors that most significantly prompted their decisions to focus on employee engagement in their organization. Key amongst the factors were employee retention, customer satisfaction, productivity and profitability. Here we focus on the profitability of companies with an engagement focus. The trend from 2001 to 2004 for companies focused on employee engagement shows a growing percentage of companies reporting increased operating profit.

In 2004, there was the greatest rise in engagement-focused companies reporting increased operating profit, with the overall trend suggesting this will continue to grow. The higher percentages in the last two years are likely a reflection of the increasing number of companies choosing to focus on this issue and the results that they are seeing from their efforts. In addition, the number of companies reporting decreases in operating profit mirrors the trend for those reporting increases, with fewer companies over the last two years seeing decreases. In this chapter we give you an insight into whats working and the actual business results seen by companies around the world. Well show you: The top 10 reasons why companies focus on employee engagement How to link engagement results to business metrics The results organizations are seeing with case studies from Styker, Molson Coors Brewing Company and Cargill Inc Fig 6 Trends in operating profit from 2001-2004 (Companies with an engagement focus vs. companies without an engagement focus)
Companies focused on employee engagement
80% 80 Percentage of respondents 70 60 50 40 30 20 10 0 6% 2001 7% 2002 7% 2003 23% 26% 23% 16% 4% 2004 70% 67% 71% Percentage of respondents 80 70 60 50 40 30 20 10 0 2001 16% 14% 8% 10% 2002 13% 2003 2004 21% 23% 68%

Companies not focused on employee engagement

76% 66% 69%

Increased operating profit No change in operating profit Decreased operating profit

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Employee Engagement
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