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ginal employer branding article published in South Africa's HR Future and New Zealand's Human Resources Magazine
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The Profit v Engagement Paradox
Optimising employee engagement has been a common objective of companies over the past five years. This shift in focus has been driven by a more informed view on the relationship between employee/customer engagement and profit.
Studies by global consulting firms such as Gallup, ISR and Hewitt have shown higher levels of employee engagement lead to higher sales revenues and profits. One of the most well know examples that demonstrated this relationship is Sears who used an ‘employee-customer-profit chain’ to analyse aggregated data from 800 stores, finding that employee attitudes towards their company and their jobs lead to positive employee behaviours toward customers. Sears found that a five percent increase in employee satisfaction drives a 1.3 percent in customer satisfaction, which results in 0.5 percent increase in revenue growth.
Studies also show higher levels of customer engagement lead to stronger financial performance. A 2009 study by Wetpaint and Altimeter Group found companies that are both deeply and widely engaged in social media surpass their peers in terms of both revenue and profit performance by a significant difference. The study found Mavens (defined as brands that are engaged in seven or more channels and have an above-average engagement score) had significantly higher revenue growth, gross margin growth and net margin growth over the previous 12 month period compared to their peers that engaged in fewer channels and had below-average engagement scores.
The Profit & Engagement Matrix
The main objective of a company is to maximise profit whether this is measured in financial outcomes (e.g. private and publicly listed sector) or social good (e.g. not-for-profit and Non-Government Organisation (NGO) sector) or a combination of both (e.g. Government sector)
To encourage companies to define their strategic focus and develop strategy that achieves a better balance between profit and engagement objectives I developed The Profit & Engagement Matrix.
The framework will assist leaders to develop strategies that consider the needs of all stakeholders and do not favour one (e.g. shareholders) at the expense of others (e.g. employees). The framework can also be used as part of the strategic review process to assist leaders to better understand when and where profit, and employee/customer engagement trade-offs will need to be made based on the strategic priorities of the company at the time.
Figure 1 details the four quadrants of the matrix and their profit and engagement focus.
Figure 1: The Profit & Engagement Matrix (click on image to enlarge)
Shareholder Q
50% to 100% Profit - 0% to 50% Employee/Customer Engagement Focus
The aim of companies in this quadrant is to maximise profits in the interests of shareholders. Strategies such as mergers and acquisitions, downsizing, restructuring and cost-cutting all have an impact on a company’s ability to optimise employee engagement during these transitions. The result can lead to above average employee turnover and higher labour costs as companies rely on functional benefits such as salary as a key driver of talent attraction and retention.
Whilst this type of environment is not for everyone, many employees are willing to trade off working in this environment against the functional benefits provided in the employment package such as above average salary, bonuses and career development opportunities. Examples of industry sectors typically displaying this focus include banking, insurance, oil & gas and pharmaceutical.
People Q
50% to 100% Profit - 50% to 100% Employee/Customer Engagement Focus
The aim of companies in this quadrant is to optimise employee and customer engagement which is supported by a shared belief amongst leaders that engaged employees lead to higher revenues and profits. Employees who are attracted to companies in this sector are seeking ‘emotional benefits (e.g. respect, collegiate and friendly working environment) as well as standard functional benefits (e.g. fair pay, career development, etc). Companies in this quadrant invest in long term engagement initiatives such as coaching, mentoring and ongoing career development. Typical industry sectors favouring this focus include consulting, theme parks and children’s services.
Society Q
0% to 50% Profit - 50% to 100% Employee/Customer Engagement Focus
Whilst there is ongoing debate (and probably always will be!) about the contribution of business to climate change, the discussion has resulted in a conscious effort by companies over the past few years to minimise their environmental footprint. Governments have also played a leading role by allocating vast sums in GFC bailout package funding to environmentally friendly projects in construction, renewable energy projects and automotive production. Typical industry sectors favouring this focus includes education, renewable energy sector and community services.
Products Q
0% to 50% Profit - 0% to 50% Employee/Customer Engagement Focus
The aim of companies in this quadrant is to decrease manufacturing costs and scale production to optimise profits. Companies will generally use low-cost labour sourced from countries such as India, China and Indonesia to offset high marketing and advertising costs required to build brand equity. The retail, auto assembly and telecommunications industry sectors are typical of companies favouring this approach.
The root of the problem
For the first time in a decade, research from the Hewitt Global Engagement database shows the percentage of organisations with decreasing engagement now exceeds the percentage with increasing engagement. So where does the root of the problem lie?
As part of their employer branding efforts many companies promise what they cannot realistically deliver resulting in a misalignment of employer needs versus employee needs. Candidates apply and join companies based on what they perceive the place ‘will be like to work for.’ Soon after joining they realise it’s not the place for them. Some then stay on until they can find suitable employment and engagement and productivity declines from then on, whilst more talented colleagues exit soon after confident of finding more engaging employment.
Addressing the issue
So how do companies find the right balance between the needs of shareholders, employees, customers and society? Below are 5 key areas companies should focus their employer branding efforts on to avoid being caught in a no-win situation in their attempt to find the right balance between company profits and employee/customer engagement.
- Shift your talent attraction strategy from a re-active to pro-active focus and recruiter focus from time-to-fill to quality-of-hire.
- Allocate sufficient resources to develop and implement the employer brand strategy. Adding it onto an already overloaded HR manager and expecting miracles won’t suffice!
- Communicate and seek feedback from new-hires regularly in the first 90 days of hire to clarify any issues relating to the promise versus actual employment experience and act fast when appropriate.
- Consider the full lifecycle stages of an employee’s tenure and develop engagement strategies which are most appropriate for the stage. An accelerated career development strategy might be effective for a young new hire but not appropriate for a person 12 months out from retirement!
- Avoid a one-size fits all engagement strategy. Customise and personalise the employment experience by building capabilities amongst leaders outside the HR department to assist leaders to deliver an engaging and memorable employment experience for all team members.
Next steps
So where does your company fit on the matrix? How does this positioning align with your personal and professional goals? What are the top 3 areas your company needs to address in the short-medium term to find a better balance between profit and employee/customer engagement objectives?
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Great overview of the employee engagement issue.