Switched-on companies are cottoning on to the simple notion that employee engagement is source of competitive advantage. With their strong bond of attachment to their organisation, an engaged employee will support its strategy and ways of doing business (cognitive engagement), be proud to work for it (affective engagement), and work hard to help the company succeed (behavioural engagement).
Australian research consultancy ISR research shows that high levels of employee engagement are frequently linked to superior levels of company performance measured by customer satisfaction, sales growth, productivity, return on capital employed and company profitability.
The organisation recently completed three-year linkage study of 41 global companies collectively comprising 363,000 employees across 60 countries. The results reveal strong relationship between levels of employee engagement and changes in operating margins. On average, those organisations with high levels of employee engagement boosted their operating margins by 3.7 percent over the three-year period while organisations with low levels of engagement saw margins fall by an average two percent.
ISR backed its findings with an additional examination of employee attitudes in high performance organisations – companies whose return on invested capital and/or net profit margin consistently exceeds the worldwide average for their industry. In all areas, employee views in high performance organisations proved more favourable than for the global average.
Most significantly, those people working for high performance companies ranked leadership as the top differentiator, placing it above other considerations such as immediate management, organisational ethics or even rewards (see Fig 1). These leaders clearly distinguish the best companies from the rest.
A framework
ISR has developed an organisational leadership effectiveness framework made up of six behaviours, each one necessary to create and sustain high engagement/high performance workplace.
Direction: Develop short, medium and long-term goals; develop action plans; formally establish ideal state/mission/vision.
Values: Codify company values; ensure decision-making processes reflect values; senior management behaviour consistent with values.
Inform: Articulate the mission and vision and supporting values; build support network/coalition for direction and values; regularly inform employees about performance, plans and goals; establish communication vehicles to all levels.
Energy: Focus on growing and developing the business; make prompt decisions; execute with excellence.
Role model: Set examples; earn respect; encourage.
Respect: Demonstrate respect for employees at all levels; leverage diverse opinions; use constructive conflict; solicit input at all levels.
Many New Zealand leaders fail to demonstrate these critical leadership behaviours as effectively as their overseas counterparts. While this is true for all six criteria, it is especially notable when it comes to how effectively leaders manage values and direction (see Fig 2).
While local leaders perform relatively well on clarifying their company values, for example, they are long way behind the world’s best when it comes to making decisions consistent with those values. Other areas of weakness include an inability to state objectives clearly; managers not providing leadership; leaders not providing clear sense of direction or failing to encourage others to give their best; and organisations not keeping employees informed.
Lead or manage?
Companies – and countries – whose leaders are poorly regarded face the issue that leadership has become synonymous with management when they are not the same at all.
The differences between leaders and managers can be clearly demonstrated by looking at the drivers of employee engagement, not in high performing organisations but among high performing individuals.
There are two competing philosophies as to how employee engagement is best achieved. The first, the ‘bottom-up’ philo-sophy, contends that levels of engagement are primarily function of employees’ experiences in their jobs. Do they enjoy their work? Do they receive adequate training? Is their performance evaluated fairly? Are they involved in decisions which affect their work? Engagement, in other words, is largely the result of factors controlled by first level supervision and by lower levels of management.
The second philosophy of engagement, the ‘top-down’ philosophy, contends that engagement is not primarily promoted by the efforts of supervisors and managers but by the behaviours of top-level leaders. Do they communicate compelling vision? Do they provide clear sense of direction? Do they set firm priorities? Do they make timely decisions? Do they operate with integrity?
The drivers of employee engagement vary from company to company, and are usually mix of ‘top-down’ and ‘bottom-up’ elements. However, recent research by ISR shows that the engagement levels of top performing staff are primarily driven by the behaviours of effective leaders, rather than by the activities of effective managers.
This finding holds true across variety of different industry sectors, and at all hierarchical levels within the organisations studied. Depending upon the circumstances, effective leaders have between one and half to nine times more influence on the cognitive, affective and behavioural engagement of high performers than effective managers.
The manager can be an important and influential filter of an organisation’s worth in the eyes of its employees. good manager can make poorly-led business look little healthier than it merits. And bad manager can make well-led business look little less healthy than it deserves. However, the best team of managers in the world can’t imbue value-less organisation with principles. Can’t instil drifting organisation with sense of purpose. Can’t make an unethical organisation ethical. Can’t conjure viable, credible strategy out of hat.
These tasks are the responsibility of leaders and if the leaders of business absolve, or try to delegate, this responsibility they run the risk of losing the very talent they need in order for their business to succeed.
Leadership is key driver of employee engagement and business performance. It is the critical differentiator of high performance organisations. Leadership behaviours necessary for the creation of high engagement/high performance workplace can be identified and developed. Leaders in New Zealand are often less effective than those in global high performing companies and leadership is particularly important in motivating high performance/high potential employees.
Ultimately, as many senior managers learn to their cost, leadership is not about getting ahead of their people but about ensuring everyone gets swept along for the ride.
WHAT’S IT ALL ABOUT, ALFIE?
Leadership is about producing and sustaining non-incremental change.
Management is about keeping the current system functioning.
Leadership works through people and culture. It is ‘soft’ and ‘hot’.
Management works through hierarchy and systems. It is ‘hard’ and ‘cold’.
Leaders develop visions and strategies, and inspire commitment.
Managers develop plans and budgets, and ensure compliance.
Hamish Deery is director Australasia at International Survey Research (ISR).
