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Linking employee engagement to crucial business metrics shows leaders how to improve the bottom line. 

Starwood Hotels and Resorts Worldwide Inc., a hotel and leisure company with 145,000 employees at its globally owned and managed properties, has been regularly measuring the impact of employee engagement for five years, says Matthew Valenti, director of global market research. "Our earliest efforts focused on: 'Does the relationship exist and where does it manifest itself?' We looked at property performance, customer satisfaction and market share across our divisions and brands at the property level."

Unlike many companies that use employee engagement surveys simply to "take the company's temperature," Starwood's executives have taken the next step to link those metrics with customer satisfaction and financial outcomes. The data revealed the impact of employee engagement "on the guest experience so we could give context to where priorities lie," says Valenti.

Linking engagement to business performance "elevates the importance of the people side of the business," says Patrick Kulesa, global research director for the organizational survey practice at Towers Watson. It shows "a real impact of people engagement on what happens to bottom-line measures." Statistics bear that out: A 2008-09 survey of 13,000 respondents by WorkUSA and Watson Wyatt Worldwide, Driving Business Results through Continuous Engagement, showed companies with highly-engaged employees have 26 percent higher revenue per employee.

However, for HR professionals to leverage employee engagement for financial gain, they must fit together several puzzle pieces:

  • Choosing the metrics to link to employee engagement.
  • Determining the logistics of the research.
  • Sharing results of the research with employees to create an action plan to achieve improvements.

Impact Metrics

In linkage research, analysts statistically link engagement scores with business measures, says Kulesa. To the extent employees are more engaged, the company performs better. That result might mean customers are more satisfied, sales are higher, operations are more efficient, staff turnover is lower, employee absence is less and so forth. And the converse can occur: When employees are less engaged, the business suffers. "The results of linkage research then allow us to say a change of x amount in engagement is associated with a change of y amount in performance," Kulesa explains.

There are four types of metrics used in linkage research, he explains. These include:

  • HR metrics, such as turnover and absenteeism.
  • Market-related metrics, such as customer satisfaction.
  • Operational measures, such as safety.
  • Financial measures, such as sales and profit.

For example: Like many companies, Fair Trade USA, a nonprofit certification organization headquartered in Oakland, Calif., with 65 employees, tracks turnover as it relates to employee engagement. "From 2007 to 2009, we saw about a 10 percent decrease in turnover," says John Keathley, director of recruiting and special projects at Fair Trade USA. He attributed the decrease to changes the company made in its technology aimed at making the work process easier, an issue raised in engagement surveys.

Turnover is a common metric used to measure engagement, but there are many. The metrics "depend on the industry and how the company is trying to compete," says Kulesa. "Strong customer-facing companies, like Nordstrom, would have prominent customer satisfaction metrics. For manufacturing corporations, like oil and gas companies, safety is critical. The most common metric is financial, though. Companies are often tracking something around that issue such as sales or revenue change."

Strong on Satisfaction
Benjamin Schneider, senior research fellow at Valtera Corp, a human resource consultancy headquartered in Chicago, and co-author of Employee Engagement: Tools for Analysis, Practice, and Competitive Edge (Wiley-Blackwell, 2009), says customer satisfaction metrics are the best indicators of strong employee engagement "because there is a lot of research between customer satisfaction and financial returns." Also, Schneider says, "the effects of employee engagement are seen most quickly in interactions with outsiders. The impact is quicker on customer satisfaction than on longer-term consequences like profits and market share."

Kristin Baird, president and chief executive officer of Baird Group, an organizational consultant specializing in health care based in Fort Atkinson, Wis., concurs. "The highest correlation is patient satisfaction. There's a lot of pressure in health care because, unlike other industries, those patient satisfaction measures are in the public domain," she says. "You aren't going to deliver excellent service if you don't have engaged people."

Whatever metrics HR professionals choose, Kulesa urges, "Be sure the measures are tracked in a standard way, over a meaningful group of units, at regular intervals."

Look at Logistics
For impact results to be meaningful, HR professionals must conduct surveys scientifically. Give forethought to the study's scope, questions, timing and researchers.

Determine scope. Companies can measure at the "unit" or companywide levels, explains Schneider. For instance, if a bank officer wants to improve customer satisfaction through employee engagement, look at the impact of engagement at the branch level. Do it at the branch unit level to find branches with best practices. In another example, Starwood managers decided to measure at the property level across all brands.

Develop questions with linkage in mind. How employee engagement is measured plays a role in measuring its impact. Schneider explains: "Depending on the type of questions you ask, you'll be able to demonstrate more or less impact of your engagement measure." To connect employee engagement to customer satisfaction, for example, he recommends asking, "Are you and your co-workers enthusiastic about satisfying customers? Do you go out of your way to do what customers desire?" as opposed to asking about job or salary satisfaction.

Jack W. Wiley, author of Strategic Employee Surveys (Jossey-Bass, 2010) and founder and executive director of Kenexa Research Institute in Wayne, Pa., agrees. "If my purpose were to use the survey as a leading indicator of customer satisfaction, the single question I would ask is: 'Where I work, customer problems get corrected quickly.' You're asking about the value system around serving the customer, service recovery when customers are disappointed in products and services."

The timing. The smaller the company, the more often executives can measure the impact of employee engagement, says Schneider. "The actions they take to improve things have an effect sooner. In larger companies, it takes longer." An annual engagement survey is a common model, says Kulesa.

Starwood's HR executives spend a lot of time "getting grounded on time expectations," says Valenti. "Our employee engagement survey is done annually in August and September. We get guest scores within that same calendar year and determine where to draw the lines and where to overlap. Do we look at the guest ratings for six months before? Since the last survey?" The company clarifies how soon it will expect to see results after an intervention or training, as well as what amount of change is a significant statistical difference vs. normal fluctuations.

The researcher. Should surveys be conducted in-house or by a third party? Most companies will require a third party that specializes in survey design and linkage research. However, "There are benefits both ways," Schneider says. Internally, you'll have more information about the subtleties of your own company. But, it's important for the surveys to be written and analyzed by people who know about survey development and statistical analysis. "It looks so easy," he adds. "Anybody can write a question. But, it's not so easy to write good questions that get at the things you hope to get at."

Choose a provider. HR professionals must first decide what roles need to be filled. Do you need consulting help in designing the survey and interpreting the results? Do you only need a data-tabulation company? Do you need help in project management to conduct a large-scale global survey? How you answer these questions will determine the type of providers you need, says Wiley. Then, look at each prospective provider's reputation, advises Schneider.

The Results
The process of measuring the impact of employee engagement does not end once the data have been tabulated. HR professionals must analyze the data to determine where links exist between employee engagement and impact metrics. Then, they need to decide how to improve the impact metrics. Sadly, many leaders run out of steam before they have even begun, so that measuring the impact of employee engagement becomes one more superfluous survey.

For companies where "there has never been any feedback, you have to overcome 'appropriate cynicism:' 'Why should I fill out another one of these? We never hear anything about it,' " says Schneider. Some leaders "give feedback and make changes, but quit after two months because they didn't see the effect they hoped for. Two months is nothing. If you're going to make a change, design it in a way that you're going to persist. Otherwise, employees will think, 'This is the flavor of the month.' "

Avoiding Pitfalls

Mark Twain said, "Facts are stubborn things, but statistics are more pliable." This is doubly true when dealing with linking two statistical studies together: employee engagement and customer service, or any other metric. The tendency to play with statistics means surveys are fraught with potential pitfalls.

Experts say a few pitfalls to avoid are:

Choosing the wrong metrics. At times, business leaders want to link engagement to measures they care deeply about, but that may not be tracked in ways that support linkage research. "For example, a performance metric may not be measured in the same way in all parts of the business, or at the same time during the year, or may not be standardized in ways that makes comparing across units feasible. Often, determining the impact of engagement leads to a broader conversation about how an organization is tracking metrics in general, says Patrick Kulesa, global research director for the organizational survey practice at Towers Watson.

Oiling the squeaky wheel. Management teams tend to focus on the lowest-scoring results. They should "build action plans around those results that have the most impact on business strategy or financial success," advises Jack W. Wiley, founder and executive director of Kenexa Research Institute.

Comparing apples to pineapples. "Country-level results should be interpreted in the context of country norms. For example, as a rule, we know that employees from India respond to employee engagement questions differently than employees from Japan. When making external comparisons, it is best to evaluate the results from a Japanese organization in comparison to Japanese benchmarks, not Indian benchmarks," says Wiley.

Making a long list of priorities. "A short list worked well will advance the organization farther than a long list worked poorly," says Wiley.

Kelly Heard, vice president of HR direct and HR business partner consulting for Symantec, an information management company with 17,500 employees headquartered in Mountain View, Calif., agrees. "If you aren't going to use the data to effect change, don't take employees' time to do surveys. Be realistic about how long it takes to effect change. How can you possibly have an engaged workforce if you ask for feedback and then don't acknowledge it or don't do anything about it?"

Communicate the link results quickly and thoroughly, and then ask for employees' help in developing and executing an action plan based on the results. First, HR professionals need "to gather what they have learned, tell the employees transparently what their scores were, and begin working with the leaders in each department, holding the managers accountable based on the data," advises Baird. For example, Starwood's Valenti looks at the connection between engagement measures and guest measures by team, by department and within departments.

Wiley says dialogue with employees produces the best action plans. "Use employee input to help clarify the results, to get to the root cause of why employees feel the way they do and to solicit employee recommendations for improvements." Finally, tell employees about the action plans. Leaders may "do a terrific job at following up and using survey results to bring about desired results, but may not connect the dots for employees by telling them the actions that have been taken," says Wiley.

The Point
The results of linkage research can be used to identify best practices and target specific units for improvement, says

Kulesa. "Pilot programs can even be designed to test ways to improve engagement and then study the results over time," he adds.

Above all, HR professionals must remember why they are measuring the impact of employee engagement. "I like to use the analogy of someone bleeding profusely coming into the ER, and you continue to take the patient's pulse and blood pressure without taking action. The patient bleeds out while you diagnose," says Baird. "Don't stop with measuring. Without action, you have nothing."

The author is a freelance writer and former HR generalist and trainer in Wixom, Mich.