Posted: September 17, 2013
The engaged employee
Here's your company's competitive edgeTracy E. Houston
Employee engagement is the next competitive advantage. To leverage human capital, directors need to ask management for leading indicators of the business. Continuous improvement processes and operational excellence helped companies achieve higher levels of performance, but they involve only a fraction of the business. People are the most expensive and valuable portion of the organization. Tapping human capital as a competitive advantage is the latest breakthrough strategy. Without innovative methods to measure and engage human capital, a company risks falling behind.
With this in mind, I sat down with Janet Jankura who was recruited by Green Earth Technologies to chair the Compensation Committee. Ms. Jankura is a Governance Fellow at the National Association of Corporate Directors.
What is a new focus for corporate directors?
In 2013, the National Association of Corporate Directors convened Directorship 2020 to engage hundreds of board members across the country to define what directors need to successfully govern companies beyond the next decade. One of the critical areas is risk management by reviewing key performance metrics.
What metrics do boards request from management?
Boards still need to review financial measures, but they are trailing indicators. Directors need to ask management for leading indicators of the business. Some measures that can help predict trends for future performance are customer satisfaction, talent management and employee engagement.
Why do these nontraditional measures matter now?
Continuous improvement processes and operational excellence helped companies achieve higher levels of performance, but they involve only a fraction of the business. People are the most expensive and valuable portion of the organization. Tapping human capital as a competitive advantage is the latest breakthrough strategy. Talent management includes having the right leadership and skill sets for organizational change agility.
So how do companies measure the impact of their people?
During NACD’s Directorship 2020, we posed this question and heard some standard responses of CEO/leadership succession planning and turnover/retention rates. Currently most directors and management do not use innovative methods to measure their human capital. Few companies assess employee engagement levels. Some conduct employee satisfaction or culture surveys, but even less do follow-up and action planning - where real gains are made. Rarely do results of these initiatives reach the boardroom.
How does employee engagement impact the business?
Recent case studies and polls show the more engaged employees are, the higher the corporate performance. “Behavioral economics” defined by Gallup CEO, Jim Clifton, “is an emerging management discipline that can help business leaders make sense of the economic behavior of people and serve as a platform for effective management solutions.” His organization’s broad research revealed a study group of 10 companies that applied these principles outperformed peers by 85 percent in sales growth and 25 percent-plus in gross margin during a recent one-year period.
What are engaged employees?
Gallup describes three types of employees: engaged, not engaged and actively disengaged. The engaged ones work with passion, feel a profound connection to their company, drive innovation and move the organization forward. Not-engaged employees are “checked out,” putting in time but not energy or passion into their work. Actively disengaged people are more than unhappy at work; they act it out and undermine what engaged coworkers accomplish.
So what improvements will the company see when workers are engaged?
Companies with engaged employees will see higher levels of productivity, customer retention, growth, profitability and safety. After reviewing data from 649 organizations with 5.8 million respondents, Gallup reported companies in the top decile of employee engagement exceeded their competition by 72 percent in earnings per share and top-quartile companies exceeded their competition by 28 percent.
How does a business measure and boost employee engagement?
It is a comprehensive approach that is tied to human capital strategy. The process begins with measuring engagement levels through brief surveys that ask employees to respond to statements about their work, such as knowing what is expected, having materials to do work right and supervisors caring about their people. The next step is conducting impact planning based on measurement results and implementing changes from management-employee suggestions for improvement.
What are examples of when it worked?
While leading a unit of a global diversified industrial company, I instituted a robust talent management process including employee engagement, organizational culture survey, 360-degree assessments, leadership/employee training, feedback sessions and action planning. We increased productivity by 83 percent in one year.
WholeFoods Co-CEO Walter Robb credits his company's 232nd position in the Fortune 500 from employee engagement and empowerment as the sustainable competitive advantage for the company. I believe their board of directors is working with management to measure human capital's impact on driving business performance. This is what effective directors will do to capture the people advantage in their corporations.
Janet Jankura was recruited to be a board director at Green Earth Technologies and is available to speak on this topic. She can be reached at email@example.com
Tracy E. Houston, M.A. president of Board Resource Services, is a board advisory consultant and executive coach headquartered in the Denver area. She conducts board evaluations and assists boards with a variety of issues that increase effectiveness. She can be reached at firstname.lastname@example.org or http://www.eboardmember.com
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