Employee Engagement Business Case

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1 Emplyee Engagement Business Case A Peple & Culture White Paper

2 Emplyee Engagement Business Case Purpse This dcument is a mdule frm the Peple & Culture training curse n Strategic Emplyee Engagement. The purpse f this mdule is t prvide a structure fr the preparatin f an utline business case (OBC) t supprt the intrductin f an emplyee engagement prgramme. The intentin f the OBC is t begin the quantificatin f the impact f an engagement strategy as a whle. The business case is a quantificatin f the prmise f emplyee engagement. Cpyright 2009

3 Emplyee Engagement Business Case Intrductin Engagement is defined in varius ways by varius firms hwever in these definitins there is sme underlying cmmnality: A belief in the rganisatin A desire t wrk and make things better An understanding f the business cntext and the bigger picture Respectful f, and helpful twards, clleagues Willingness t g the extra mile All f these have a psitive impact n business perfrmance but are nt achieved easily. It requires the rganisatin t put sme key building blcks in place: Gd quality line management and management practices Tw way cmmunicatin Effective internal cllabratin A fcus n persnal grwth and develpment A cmmitment t emplyee well-being It is likely that investment will need t be made t achieve these. The business benefits that accrue frm these investments fall int the fllwing areas:- Emplyee perfrmance (prductivity) Wrkfrce retentin and attendance Imprved custmer relatinships The key elements f the business case include: 1) Impact n current cst base 2) Prgramme implementatin csts 3) Cashable benefits 4) Qualitative r sft benefits 5) Statement f underlying assumptins In preparing the business case it is unlikely that all f the metrics f infrmatin required will be available. It will therefre be necessary t use assumptins and in assessing the quality f the business case it is necessary t understand the sensitivity f the business case t these assumptins. We have therefre added varius assumptins frm widely published research studies t aid in develping the assumptins. Cpyright 2009

4 Emplyee Engagement Business Case Emplyee Engagement Facts and Figures Engaged emplyees have a psitive effect n their rganisatins. The fllwing findings prvide a cmpelling case fr adpting an emplyee engagement apprach: Analysis f research acrss 200 rganisatins shws that mving a wrkfrce f 10,000 emplyees frm lw t high engagement can have a 21millin impact n the bttm line. (DDI The key t realising cmpetitive advantage, 2007 ) A study f 664,000 emplyees frm arund the wrld when cmpared t key business ratis shwed a 52% gap in ne year perfrmance imprvement in perating incme between cmpanies with highly engaged emplyees versus cmpanies with lw engagement scres. (ISR : Engaged Emplyees Help Bst the Bttm Line 2006) Research by Gallup (1999 / 2005) Custmer lyalty increases by 56% abve the average Emplyee retentin is 44% abve the average Safety recrd imprves by 50% Prductivity increases by 50% Overall prfitability increases by 33% Watsn Wyatt 2001 research acrss 750 cmpanies shwed that ttal return t share hlders ver a 5 year perid: Cmpanies with strng engagement + 64% Cmpanies with weak engagement + 21% Prductivity - engaged emplyees generate 43% mre revenue than disengaged nes (Hay Grup: Engage emplyees and bst perfrmance 2001) Attendance Engaged emplyees take an average f 2.69 sick days per year; the disengaged take 6.19 (Gallup2003) Custmer fcus 70% f engaged emplyees indicate they have a gd understanding f hw t meet custmer needs, while nly 17% f nn-engaged emplyees say the same. (Right Management : Measuring Emplyee Engagement 2006) Emplyee satisfactin 86% f engaged emplyees say they very ften feel happy at wrk, versus 11% f the disengaged. (Gallup Feeling Gd Matters in the Wrkplace 2006) Retentin engaged emplyees are 87% less likely t leave the rganisatin than the disengaged (Crprate Leadership Cuncil : Driving perfrmance and retentin thrugh emplyee engagement 2004) Cpyright 2009

5 Emplyee Engagement Business Case Sectin 1 Impact n current cst base Whilst strng crrelatins have been shwn between high engagement firms and higher levels f prfitability it is likely that at the prfit level there are a number f ther variables at play. We therefre recmmend building the business case frm the cst base up. The fllwing chart may be helpful in assessing the degree f prductivity imprvement that might be achieved Surce: Jurnal f Applied Human Capital Management 2007 Cpyright 2009

6 Emplyee Engagement Business Case Imprved prductivity thrugh greater applicatin f discretinary effrt: Increased unit prductin Increased sales Imprved quality thrugh greater cnscientiusness: Reduced rewrk (errr reductin) Reduced maintenance Reductin in accidents Reduced cst f emplyer insurances Reduced waste Reduced sickness and absenteeism: Reductin in average sick days per emplyee Reductin in unspecified absenteeism Cpyright 2009

7 Emplyee Engagement Business Case Calculating the cst f vluntary emplyee turnver Varius research prjects have calculated the cst f emplyee turnver as being between 50% (Srensn 1995) and 100% (Ettrre 1997) f the leaver s salary package. As a wrking assumptin 75% (Price Waterhuse) is a well substantiated figure. The equatin becmes Ttal leavers x 0.75 x (average salary + 30% Taxes/ benefits) Shuld the actual data be available then the turnver cst can be calculated using the fllwing: Selectin prcess direct csts (Internal HR / management time interviews medicals etc.) Separatin csts (exit interviews, admin, reduced prductivity) Agency csts (Advertising etc.) Wrklad cver Inductin / rientatin / training csts Learning curve t full prductivity Impact n management attentin Effects n custmers Lwer staff mrale Cpyright 2009

8 Emplyee Engagement Business Case Sectin 2 Csts f implementatin The csts and benefits assciated with imprving emplyee engagement will depend n the rganisatins bjectives and business fcus. It is nt always pssible at the utset t determine what the csts f ptential prgrammes might be. There are sme engagement strategies such as cmmunicating the visin, develping a cmpelling emplyer prpsitin and listening t emplyees that need nt invlve significant csts. Hwever the first element f cst is t understand the current psitin and degree f engagement f staff acrss the rganisatin. What des ur chart lk like? Engaged Nt engaged Disengaged Hw many highly engaged emplyees d we have? Hw many f ur highly engaged peple are in cre psitins? Gallup 2000 A typical business perates at 1/3 f its peple ptential: Cpyright 2009

9 Emplyee Engagement Business Case Sectin 3 Cashable Benefits This is a statement f the realistic quantifiable benefits that are likely t accrue frm an emplyee engagement ver a five year perid Benefit Value Year 1 (k) Year 2 (k) Year 3 (k) Cpyright 2009

10 Emplyee Engagement Business Case Sectin 4 Qualitative r Sft Benefits The fllwing benefits accrue frm an engagement prgramme but they are less easy t quantify: Greater flexibility t meet rganisatinal needs Mre inclined t share knwledge Less likely t suffer stress Less likely t cmmit fraud r sabtage New frms f dialgue with emplyees leading t new ideas and innvatin Strnger training and develpment prgrammes Reduced lss f cre skill sets In additin there are a range f custmer related benefits frm lnger emplyee tenure and higher mtivatin leading t imprved perceptins by custmers and stakehlders Imprved custmer experience Increased custmer satisfactin with service which in turn give rise t Increased custmer lyalty and repurchase behaviur Emplyee Ability Envirnment Systems Prcesses Prcedures Prducts Objective Achieved Hygiene factrs Emplyee Satisfactin Jb Cntent Career Absenteeism Sickness Turnver Interactin Quality Custmer Satisfactin Emplyee Engagement Mtivatin Mrale Attitude Behaviur Tne Hw it Feels Custmer Retentin Cpyright 2009

11 Emplyee Engagement Business Case Business Case Summary Data Surce % + / - Value Prductivity: Increased sales Increased unit prductin Increased prfit Imprved safety Sft Factrs: Imprved teamwrk Time savings Efficiency Quality Innvatin Creativity Waste reductin Cst Reductin: Reduced absenteeism Reduced turnver Reduced recruitment csts Reduced training csts Custmer: Custmer satisfactin Increased satisfactin Increased lyalty and repurchase Ttal Benefit Cpyright 2009

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