The level of employee engagement affects how profitable a company is as well as its growth. As part of our series on how employee relations affect a company’s financial performance, we have analysed the link between engagement and profitability and growth*. As the graphs show, the differences are too big to ignore. Companies with engaged employees have 8,6 percentage points higher profit margins than companies with a larger share of bored employees. The interesting part is that the difference is almost as big between satisfied and engaged employees – 8,1 percentage points.
That makes it clear that a great difference in profitability occurs when employees go from satisfied to fully engaged. That’s a good argument to use not only for focusing on groups with big problems, but also to help satisfied groups develop to next level. In the second graph, it’s evident that engagement also affects a company’s ability to grow.
It’s well known that committed and engaged employees are the ones who make the difference – but most of us find it difficult to achieve a transformation of satisfied employees and make them truly engaged. Common challenges faced by our customers are that they are struggling to get the entire organization to take the engagement issue seriously and work to improve in a focused and consistent manner.
Here are our tips on how to overcome this challenge:
- Identify what engagement is: People tend to believe that engagement is all about happiness and satisfaction and some tend to reject it as nonsense. Our definition of engagement – that it is made up of both energy and clarity – makes it easier to understand how engagement actually affects how a company performs. An engaged employee knows how to contribute to the company’s goals (clarity) and has the energy, motivation and desire to do it (energy). That’s not nonsense, it’s about meaningfulness. Read more about this in our guide Energy+Clarity=Engagement.
- Increase engagement by making it concrete and clear: No one can tell someone else to get motivated, but you can remove obstacles for engagement. The most important work of creating conditions for engagement to grow occurs in each working group. E.g by actively and systematically working with the results of an employee survey. A well organized follow-up process gives each team a unique priority list of the most important issues to tackle (which are not always the issues with the lowest result). That also helps groups to translate issues into clear behaviours they can work with each day to achieve the desired change. It’s often a good idea to frequently make smaller pulse measurements in order to create momentum in the work and ensure that the activities provide the desired effect.
- Dress engagement in statistics: When the general relationship between engagement and profitability is not enough one could benefit from being more specific. Many of our customers have used a linkage analysis where the relation between engagement and profitability is analysed for the specific company. The analysis shows how much more profitable engaged groups are and what areas that affects engagement and profitability the most, for that specific company. Dressing up engagement in business metrics and showing its impact on the bottom line could help you raise awareness to the subject in the board, but also to each and every individual manager.
We have shown in previous analyses how good leadership usually is the single most important factor driving employee engagement. Therefore, the next blog in the series will focus more on leadership – how it affects profitability and growth, and what the most profitable managers are doing right.
*The categorization of employees is based on Brilliant’s engagement index and the division of our engagement matrix. You can read more about it here: Energy+Clarity=Engagement. The analysis of engagement and growth includes 41 companies in the service sector and is based on data from 2015. The analysis of engagement and profitability includes 78 companies and is based on data from 2014 and 2015. Companies in our database is analyzed together with economic data from Bisnode taken from the companies’ annual reports and Swedish Growth Index (in this analysis, the highest growth is 5 and the lowest growth is 1). Profitability is measured as profit margin.
This is the third blog in a series analysing how leadership and employee engagement affects, and are linked to, profitability and what you need to focus on to achieve your goals. You can find part 1 here: How to make Human Relations your highest priority. Part two: What differ high performing companies from others? Stay tuned for more!