Leading HR delivering competitive advantage_6 pptx

CHAPTER 9 Understanding the Value of Engagement: Building Belief in Performance SHASHI BALAIN AND PAUL SPARROW 9.1. Introduction: Why is employee engagement seen as important by organizations? C hapter 1 argued that the complexities of business model change often involve a change in “mindset” or an employee’s “mental model” of exactly what the organization’s business model is. There is an essential process of communication and involvement of the workforce in which the human resource (HR) Director plays a leading role, attempting to create this mental mobility in the attitudes held by the workforce. This becomes especially true when, as argued in Chapter 4, there are likely to be relatively few people – especially at the outset of a change – who have really grasped the nature of the change and have made the “mental” shift to a new model. The challenge for chief executive officers (CEOs) and HR Directors in periods of rapid change is to ask whether they can take their people with them. The aim of this chapter is to help us understand – and test – the assumptions that HR engagement strategies are based on. Understanding the value of engagement Headline issue: Is engagement a future-proof HR strategy? Strategic imperative: Construct and develop much better insight into how it influences organizational performance – reverse engineer the performance recipes that managers have in mind. Investigate the “performance recipes” in the organization with transformation, capability, and operational directorates. Help line managers understand the complex business performance benchmarks that they report to, and how these performance 162 Shashi Balain and Paul Sparrow 163 outcomes are best engineered through people management. Help employees understand the benefits of engaging with that particular view of performance. Design engagement surveys using the analogy of a medical diagnosis, including the complaint, history, examination of the condition, ancillary tests if needed, diagnosis, treatment, and prognosis with and without treatment in a single examination. Deal with the issue of employee identification with the organization – why should employees live the organization’s values if it does not live theirs? Research how customer satisfaction affects the relationship between employee experiences and financial performance, and how employee satisfaction is associated with specific components of the service model. Step into the void that currently exists in the prediction of organizational performance on the back of strategic change management projects. Work side-by-side with corporate communications, internal and external marketing, and operations experts and share respective models and insights into how employees truly impact operational and strategic performance Must-win battle: The HR Director “reverse engineer” the type of performance that the organization is trying to create, and to understand the depth to which – and the ways in which – the organization needs to foster links and bonds with its employees. In examining the issues raised by this challenge, we argue that The key messages that emerge from this chapter 1) Engagement is used in practice inside organizations in three different ways: as internal marketing, as process improvement, and as being predictive of corporate performance. Each makes very different assumptions about what needs to be measured under the label “engagement,” what the consequence of positive or negative scores on such measurement will be, and what remedial action by the organization needs to be made dependent on that measurement. 2) Work from Harvard introduced the concept of the Service-profit chain and Balanced Scorecard and proved influential for HR Directors in assuming that business performance has direct and less direct causes and these can be put in a cause-effect order. Employee factors act as important antecedents. 3) Psychologists begged to differ in some of the conclusions that might get drawn. They had been working on the topic of engagement for many years, under the guise of specific employee constructs, such as employee job satisfaction, commitment, or burnout and only saw intermediate performance effects, not a link to organizational performance. 4) Practitioner approaches, rather than being driven by theory, have been more empirical. Items in the questionnaire are a measure of attitudinal outcomes 164 Understanding the Value of Engagement The key messages that emerge from this chapter: (Continued) (principally satisfaction, loyalty, pride, customer service intent, and intent to stay with the company). It lumps items that are significantly related to performance together to form the core of what is then called engagement. 5) Engagement is brought down to: belief in the organization, a desire to work to make things better, understanding of business context and the “bigger picture,” being respectful of, and helpful to, colleagues, a willingness to “go the extra mile,” and keeping up-to-date with developments in the field. HR practitioners make different assumptions as to how this type of engagement is best created. 6) There is a risk that organizations are “asking” too much when they expect significant proportions of their people to be so “engaged.” What is being measured at the moment may lead to misdirected effort. 7) Psychological approaches either view engagement as an attitude (having the three components of cognition, affect, and behavior) and is therefore similar to the concept of job satisfaction, or is more akin to motivation (i.e., is a heightened state of goal-directed behavior as in vigor). 8) The idea that employees are either engaged or not, and that once engaged, the impact on performance is linear (a bit more engagement equals just that bit more performance) is of course absurd (yet much of the practitioner literature presents this picture). 9) Many definitions confuse the condition of engagement with the outcome that it is supposed to create. Some of these desired outcomes can be seen to exist at the individual or employee level, whilst others really exist (and are best managed) at a group or collective level. 10) Empirical evidence suggests that the service-profit chain is generally supported at the business unit level. But there have been few tests of the whole chain, and those carried out provide a more sober conclusion on the size of effect between individual-level engagement and organizational performance outcomes. Credit crunches and recessions have a habit of breaking acts of faith. Is engagement a future-proof HR strategy? We argue that it is, but we must be far more critical about the construct and develop much better insight into how it influences organizational performance. We have taken far too much on trust. There are three streams of management thinking that have all led to the importance of employee engagement as both an idea, and as a basis for HR strategy: 1. Engagement as internal marketing; 2. Engagement as process improvement; and 3. Engagement as predictive of service and corporate performance. In practice, organizations, or the people made responsible for managing engagement strategies, often see a little of each of these three purposes within their HR strategy. This is understandable, yet we argue also dangerous. The danger is Shashi Balain and Paul Sparrow 165 that each of the three purposes makes very different assumptions about what needs to be measured under the label “engagement,” what the consequence of positive or negative scores on such measurement will be, and what remedial action by the organization needs to be made dependent on that measurement. Given the general lack of development in employee communication mechanisms, the first type of engagement strategy used by many organizations, sees it as a process to help articulate and sell complex change and strategy to the workforce, with the intention of creating a sense of emotional attachment and identification to the goals of the change. Engagement as internal marketing 1. Goal is to develop a shared mental model of the change or strategy; 2. Employees asked to “engage with” something – a brand, a particular strategy, a value proposition; 3. Employee engagement process must be preceded by an important prior period of business engagement (education of the line and of employees about the strategy); 4. Organization uses customer relationship management (CRM) principles, to see how employees (as internal customers) feel about the proposition; 5. Organization assesses whether both sides deliver the “deal” that is seen as necessary, that is, behaviors and emotions desired by the organization and the employee need for internal support; 6. Internal marketing is used to target and shape communications in ways that resonate with key employee communities; 7. The engagement survey represents an employee feedback mechanism, and a management control device; 8. Periodic assessment is used as a barometer to show how well the organization seems to be doing against the strategy. The second strategy carries a performance expectation, but engagement is still seen as having an indirect contribution to performance. The assumption made by the organization is that motivated employees, when also encouraged to act as good citizens, will self-manage, thereby taking initiative to improve on processes. Engagement as process improvement 1. Engagement is seen as part of a quid pro exchange relationship. The organization has to create a “blanket of trust” before motivated employees will pay back the investments made by the organization to motivate them by taking care of the organization and its customers. 166 Understanding the Value of Engagement Engagement as process improvement: (Continued) 2. Seen as a necessary ingredient for – or precursor of – subsequent performance but no claims are made by managers that engagement necessarily improves bottom-line organizational performance. 3. Rather, senior managers believe that indirectly it makes the execution of a strategic change smoother and easier, and that they are capable of putting in place more complex and testing changes once engagement scores are high. A third view comes from the customer services literature and draws upon models of what is called “emotional contagion” and “service climate.” This suggests that there is a direct and causal “service-profit chain.” HR practitioners have picked up on this and assumed that the message must be that more employee engagement means more business unit performance. Engagement predictive of service and corporate performance 1. Asserts that there is an association between employee perceptions of the organization climate (especially its focus on service) and subsequent levels of employee satisfaction, and then between employee satisfaction and customer satisfaction levels. 2. Asserts that there is then an association between customer satisfaction and customer behaviors, such as intention to purchase, which in turn has an impact on financial performance. 3. HR practitioners assume the whole chain is triggered, such that more employee engagement means more business unit performance. 4. Certain HRM practices that create engagement must also have the power to influence employee behavior in a desired manner, so that good HR equals good engagement. This view developed out of the simple proposition by James Heskett and colleagues 1 from Harvard University that organizational profitability can be influenced by chain of events starting with internal service quality proved to be a landmark paper for HRM. T hey argued that this chain involved strong and direct relationships between: profit; growth; customer loyalty; customer satisfaction; the value of goods and services delivered to customers; and employee capability, satisfaction, loyalty and productivity. Within this hypothesized causal sequence lie important employee variables such as employee satisfaction. These are considered vital to achieve important customer outcomes, which in turn directly influence profitability and revenue growth of a Shashi Balain and Paul Sparrow 167 company. The original work by Heskett and colleagues provided persuasive case-study-based evidence to support their proposed model and created a new research agenda, which is now popularly referred to as “the service-profit chain.” It proved very influential for HR Directors and many refer to it when describing their engagement strategy. Soon after, following similar research methodolog y, Robert Kaplan and David Norton, 2 also from Harvard, introduced the concept of Balanced Scorecard. The basic idea was the same: business performance has direct and less direct causes and these can be put in a cause-effect order. In their model too, employees figured prominently under the learning and growth perspec tive. Their ideas proved very influential on HR thinking and were developed by Brian B ecker, Mark Huselid, and David Ulrich 3 with the publication of their book the HR Scorecard, which again inferred a chain of cause-effect constructs that final ly lead to organizational performance. All of these authors argue that certain HRM practices have the power to influence employee behavior in a desired manner, such that it finally leads to improved organizational performance. At the same time as this work on service-profit chain and HR str ategy, psychologists began to raise their sights beyond the individual. They begged to differ in some of the conclusions that might get drawn. They had been working on the topic of engagement for many years, under the guise of specific employee constructs, such as employee job satisfaction, commitment, or burnout. However, this was a critical difference. Psychologists had been reporting some tenuous links between employee attitudes toward their work with a range of what were called employee-level (intermediate) performance outcomes – such as organizational commitment, job satisfaction, and low intention to leave. However, the idea that employee attitudes could also influence organizational-level performance was still seen as an untested proposition. As new work was carried out, ambitious claims were made about the “effect sizes” that attitudes such as satisfaction and commitment had on organizational-level outcomes (effect size is a measure of the strength of the relationship between two variables showing not only whether this relationship has a statistically significant effect, but also the size of any observed effect when replicated across samples). This generated a huge research and consultancy interest. Research was then initiated to find the mechanisms through which individual-level attitudes could possibly translate into organizational-level performance outcomes. A plethora of new constructs came into existence to fill this void. Employee engagement was one of them. 9.2. Engagement in the practitioner perspective In this chapter we analyze how the concept of engagement has been understood, defined and used from the perspective of, practitioners, researchers, and organizations. This is not to say that one perspective is better than the other, but it is important to highlight that the approaches might not reflect the same thing and 168 Understanding the Value of Engagement may be based on different assumptions about how engagement works as a process. Even within the practitioner or academic field, different approaches are often taken. Organizations should benchmark their scores on engagement with caution. The term “employee engagement” initially caught the eye of practitioners. A stream of consultancy reports seemed to find out how important it was for organizational performance and how a lack of it could lead to disastrous consequences. For example, a study conducted by Sirota Consultancy reported that organizations that have highly engaged employees exhibited a 16 per cent rise in their share prices as compared to an industry average of 6 per cent. Similar outstanding results were claimed by other consultancy and research organizations. It seemed that HR functions had found a tool that could guarantee them a voice at the highest echelons of management. Now they had in their power something that could influence shareholder value! Every progressive organization with a responsible HR function started significant exercises to measure, and yearly benchmark, the level of engagement of their employees. The strategic use of engagement benchmarking As employee engagement was being shown to influence shareholder value, many organizations chose to make it an important benchmark in their annual Human Capital Reports (HCR). Engagement became a “must improve” agenda on every HR function’s performance dashboard. It has been used by organizations as their employer brand endorsement – being seen as one of the best companies to work for. It became an essential indicator for any organization aspiring to achieve various employer brand recognitions. Consultancies offered internal HCRs using engagement as predictive and diagnostic data, as a risk mitigation strategy, intended to identify parts of the organization, or key pools of talent, who might be suspected of under-performing in future, or of leaving, given engagement survey data trends. One might assume they were all measuring the same thing . We take it for granted that there is a universally accepted operational and empirical definition. Leaving aside the question of whether it is empir ically useful or not, there is not. So what is engagement? We begin with the practitioner v iew. An organization that many practitioners’ draw upon is that of Gallup Inc. The questionnaire to measure employee engagement developed by Gallup – known as Gallup Workplace Audit (GWA, also popularly known as the Q12) – comprises of 12 questions plus an overall satisfaction question. The items were found to have a highly significant relation to unitlevelmeasuresofacompany’sperformance. 4 Rather than being driven by theory, Gallup’s approach has been more empirical. The items measure attitudinal outcomes (principally satisfaction, loyalty, pride, customer service intent, and intent to stay with the company), chosen in part because they measure issues that are within the remit of a supervisor in charge of a given business unit. Gallup had a Shashi Balain and Paul Sparrow 169 rich database of employee surveys built up over 30 years. Based on their understanding of those employee behaviors that had maximal impact on a firm’s performance, they defined engagement as the individual’s involvement and satisfaction with as well as enthusiasm for work. 5 Three different types of employee Based on their national survey of US workers using their engagement questionnaire, Gallup argues there are three types of employees: 1. Engaged: employees work with passion and feel profound connection to their company. They drive innovation and move the company forward. 2. Not-engaged: employees are essentially “checked out.” They are sleepwalking through their workday, putting time – but not energy or passion – into t heir work. 3. Actively disengaged: employees aren’t just unhappy at work; they are busy acting out their unhappiness. Every day, these workers undermine what their engaged coworkers accomplish. Towers Perrin 6 adopted a similar approach and define employee engagement in terms of the preferred characteristics that engaged employees exhibit, as different from the non-engaged employees. They note three key features of such engagement. Three key features of an engaged workforce: Towers Perrin 1. Rational/cognitive understanding of the organization’s strategic goals, values, and their “fit” within it (also known as the “Think” sector); 2. Emotional/affective attachment to the organization’s strategic goals, values, and their “fit” within it (also known as the “Feel” sector); and 3. The motivation/willingness to do more than the minimum effort in their role (i.e., to be willing to invest discretionary effort, to “go the extra mile”) for the organization (also known as the “Act” sector). The Institute of Employment Studies 7 argues that three important requirements must be met before engagement can exist: 1. A healthy “psychological contract,” that is, an unwritten, fragile relationship between the employee and employer that is underpinned by a two-way and trustful relationship; 170 Understanding the Value of Engagement 2. A need for employees to identify with their organization and its values, believe in its products and services, that is, to embrace what the organization stands for; 3. A need for employees to understand the context in which the organization operates: that is, not just show a commitment to the organization, but a desire for business appreciation. The IES view of engagement 1. Belief in the organization 2. Desire to work to make things better 3. Understanding of business context and the “bigger picture” 4. Respectful of, and helpful to, colleagues 5. Willingness to “go the extra mile” 6. Keeping up-to-date with developments in the field IES pointed out, however, that HR pract itioners make different assumptions as to how this type of engagement is best created, subscribing to one of two contrasting views: 1. A “Bottom-up” philosophy, which contends that levels of engagement are primarily a function of employees’ experiences in their jobs. In which case engagement is therefore largely a result of factors controlled by first-level supervisors. 2. A “Top-down” philosophy, which contends that engagement is created by behavior of an organization and its top-level leaders. In which case engagement primarily flows out of the organization’s values and the quality of its strategic leadership. Making your mind up as to which view you subscribe to is important. If it is the first one, then the reaction to a set of low engagement scores tends to focus on the (re-)education of first line management, and the skilling of the line to enable them to both sell the strategy down and manage the employee needs upward. If it is the second one, then the reaction is to create an attractive and compelling vision that employees will find desirable and meaningful. The practitioner view has progressively expanded the range of constructs measured under the umbrella term of engagement – in many instances stressing not just a sense of “cognitive attachment” and “identification” to the organization and its mission – but also a strong emotional element as well. The Conference Board offers a synthesized definition – derived from those scale items, amongst all those used by its various clients to measure the engagement level of their employees that could be seen as common – that sees employee engagement as Shashi Balain and Paul Sparrow 171 a heightened emotional connection that an employee feels for his or her organization, that influences him or her to exert greater discretionary effort to his or her work. To summarize, practitioner and consultancy views on engagement are largely driven from their respective survey databases, designed for problem description, tracking, and benchmarking, and are based on non-theoretical but empirical models. Problems with the practitioner approach to engagement Practitioner work looks for key differences in employee surveys between high- and low-performing business units, then lumps the items that are significantly related to performance together to form the core of what is then called engagement. There are three major problems with this: 1. Most survey-based research tends to infer causality in a way that suggests that it is the answers to the engagement items that can be presumed to “cause” performance, not merely correlated with it. However, there is very little support from their research designs that in reality enables them to make such a strong assertion. 2. There is little “construct validity” behind the items being clubbed under a single name of engagement. The scale items are not embedded in any validated theory, so it is unclear exactly how they enable and deliver performance. Performance cannot always be predicted. If you don’t know how a measure delivers its assumed outcome, you can’t manage the use of it. 3. Perhaps reflecting this, although all the major consultancies use different items in their measures, they all label it as engagement. This creates a problem for Leading HR. Much good work has been done by the consultancies on behalf of HR in bringing the issue of engagement to the attention of line managers. But here is the problem. In difficult economic times, imagine that you were asked to bet your organization’s money that an increase in a collection of attitude survey items answered by individuals, and then averaged together, automatically, and in all future circumstances, leads to higher business performance. Would you do it? Then imagine you had to bet your own dwindling personal financial resources, your future pension, on the same proposition. Would you still do it, or would you want to know a bit more about how this engagement game really works? We believe the wise person would want to do the latter. More proactive strategies that ultimately revolve around engagement are covered in Chapters 10, 11, and 12. However, for many organizations, measuring top-sliced scales of engagement, based on a smal l subset of empirically useful data, their HR functions may get dragged into managing the symptoms and side effects as expressed by each and every patient, rather than the disease and its curative treatments! There is no point in measuring engagement if its management [...]... are created through very different types of HRM intervention Is engagement best seen as an employee or group-level intermediate performance outcome? Which of these outcomes do HR Directors try and create through an engagement strategy? How does each intermediate outcome impact actual organizational performance metrics? Employee-level variables with intermediate performance effects Whereby HR practices... assumed to predict organization-level performance outcomes? 4 And does good HRM impact this particular view of engaged performance and organizational performance? 5 If so, do the HR practices themselves impact engagement, or do they have an impact through the conditions they create (such as a good employer brand)? The role of HR practices and policies in influencing organizational performance has been... in managing engagement as part of a HR strategy should consider it to operate according to the model shown in Figure 9.1 Important questions remain to be addressed: 1 How does this model fit in with the existing understanding of the link between HRM practices and organizational performance? 2 How must this link be moderated and mediated by employee reactions to these HR practices? 3 How is employee engagement... influences beyond the traditional range of HR practices and policies (rewards, talent management, performance management, etc.) that the HR function designs and implements – for example, if engagement is primarily created by factors such as corporate reputation, the quality of strategic leadership, or simply be existing good performance of the organization – then HR functions should only claim an indirect... service delivered) Once made this judgment then explains three quarters of measured customer satisfaction (a more emotional response to overall service) Service quality and customer satisfaction are different ways in which employee performance may be evaluated by customers, and employee satisfaction is assumed to be linked to both these outcomes through three main processes: helping behaviours, the display... change management projects, new alliances are being forged between HR professionals and other professional groups They now work side-by-side with corporate communications, internal and external marketing, and operations experts, all sharing their models and insights into how employees truly impact operational and strategic performance Leading HR can shape this thinking, but from a more realistic perspective... extremely insightful HR professionals need to help line managers understand the complex business performance benchmarks that they report to, and how these performance outcomes are best engineered through people management And employees need to understand the benefits of engaging with that particular view of performance If engagement is to continue to be a strategic priority for HR Directors, it has... individual uncertainty HR Directors have to make difficult judgments on timing about (a) which stage of the change process demands what type of intervention and (b) the degree to which the agenda needs pushing at any given stage If HR pushes too much, the organization may react by rejecting the people agenda If it pushes too little, it abdicates its power and responsibility The HR strategy needs to alternate... has been called “training for the long march” – the long-term strategic plans, the bomb-proof testing of contentious HR processes, and the problem-solving and education processes necessary to show people the path through complex organizational changes 7) The confidence and authority of HR Directors – embedded in a collective responsibility – come to the fore Planning for people issues proves to be an... research does show is a robust statistical and theoretical link between various HR practices and intermediate-level performance outcomes, such as job satisfaction, organizational commitment, motivation, absenteeism, and employee turnover Most of these intermediate outcomes are at the level of the employee and not the organization Good HR practices may lead to high employee commitment and low employee turnover, . each of these three purposes within their HR strategy. This is understandable, yet we argue also dangerous. The danger is Shashi Balain and Paul Sparrow 165 that each of the three purposes makes. performance benchmarks that they report to, and how these performance 162 Shashi Balain and Paul Sparrow 163 outcomes are best engineered through people management. Help employees understand the benefits. they all label it as engagement. This creates a problem for Leading HR. Much good work has been done by the consultancies on behalf of HR in bringing the issue of engagement to the attention of