The real value of engaged employees

The real value of engaged employees New thinking on employee engagement strategies kpmg.co.uk

2 Section or Brochure name Employee Engagement: Measures an employee s attachment and relationship with the organisation, working culture, their role and relationship with colleagues. The level of engagement will positively or negatively influence their willingness to go the extra mile at work, innovate and assist a company in reaching the corporate or unit strategy.

Why bother with employee engagement? Today, organisations and their staff are under extreme pressure. The current recessionary environment means employees are being asked to do more with less, and in some cases there are fears about job security which, in turn, can further erode company loyalty. As a consequence, employee engagement suffers, and this has a negative impact on the bottom line. There is a wealth of research from recent years that shows an actively engaged workforce has a positive impact on an organisation s bottom line as highlighted in Engaging for Success: enhancing performance through employee engagement; by David MacLeod/Nita Clark; A report to the government: Tower Perrins 2006 global survey 1 found that companies with highly-engaged employees had a near 52% gap in performance improvement in operating income, compared with companies whose employees had low engagement scores Companies with high levels of employee engagement improved 19.2% in operating income while companies with low levels of employee engagement declined 32.7% over the study period Engaged employees in the UK take an average of 2.69 sick days per year; the disengaged take 6.19 2. The CBI reported that sickness absence costs the UK economy 13.4bn a year 3 70% of engaged employees indicate they have a good understanding of how to meet customer needs; only 17% of non-engaged employees say the same 4 Engaged employees are 87% less likely to leave the organisation than the disengaged 5. 78% of engaged employees would recommend their company s products or services, against 13% of the disengaged 6 Companies with both highly aligned cultures and highly aligned innovation strategies have 17% higher profit growth than companies with low degrees of alignment 7. Moreover, further research suggests that engagement levels in the UK are relatively low, providing massive opportunity for improvement. 1 Towers Perrin-ISR (2006) The ISR Employee Engagement Report 2 gallup, 2003, cited in Melcrum (2005), Employee Engagement: How to Build A High Performance Workforce 3 CBI-AXA (2007), Annual Absence and Labour Turnover Survey 4 right Management (2006), Measuring True Employee Engagement, A CIPD Report 5 corporate Leadership Council, Corporate Executive Board (2004) Driving Performance and Retention through Employee Engagement: a quantitative analysis of effective engagement strategies 6 Gallup 2003, Ibid. 7 Strategy + Business: The Global Innovation 1000: Why Culture Is Key, Oct 2011

The traditional approach to Employee Engagement The traditional method of gauging employee engagement is to perform a people survey, on a sample of the organisation. This quantitative analysis gives the company numbers and statistics to determine the extent of employee engagement, and put in place specific interventions to raise morale and commitment. Numbers don t tell the full story. They do tell us, for instance, that 33% of the workforce is unhappy, and give broad parameters for that unhappiness. Survey providers use quantitative analysis to pinpoint areas of concern, but do not elaborate on the root causes of disengagement. As a consequence, interventions are designed to address a surmised rather than an actual problem. In our experience, solutions are typically designed in the Boardroom and focus on a granular issue rather than considering the organisation as a whole, and subsequently they fail to re-engage employees. An example of this is that using our textual analysis methodology, one quotation from a recent survey alone provided a breakthrough in discussion with the client about why senior managers were perceived not to care about cutbacks and redundancies upon staff. So how do you achieve the level of employee engagement that companies like Apple, Google and John Lewis seem to display so effortlessly? How do you re-ignite the passion for the company that your employees had as new recruits? How do you free up your employees to grow your business, innovate, deliver the business strategy and to keep them feeling as though they are at the heart of your organisation? Simply throwing money at driving innovation doesn t work. A recent study by Booz & Co 8 reports that there is no statistically significant relationship between financial performance and innovation spending, in terms of total R&D dollars or R&D spend as a percentage of revenues. Indeed, some companies such as Apple continually spend less on innovation compared to their peers, while outperforming them in revenue and profit growth. If organisations don t need to invest a lot of money to drive innovation, how do they achieve a culture which does? And how do they know what to change to transform employee engagement? 8 Strategy + Business: The Global Innovation 1000: Why Culture Is Key, Oct 2011

KPMG s Approach - Investigating the stories behind the numbers KPMG brings a differentiated approach. Working in partnership with Professor Helen Francis and Dr Martin Reddington, leading researchers in the Employee Engagement field, we apply different analytical techniques and whole-systems thinking to identify the root causes of the problems. We then harness the minds of management and employees, working together to collaboratively identify and develop effective solutions. We believe it is critical to fully understand the tensions that exist within the business and identify the specific root causes. This allows us to design targeted and effective responses to resolve the issues, embedding a conversation for change in the corporate culture. We achieve this with in-depth analysis of the free text survey responses, to understand the issues that matter most to employees. We might find, for instance, that an employee s engagement with the company is compromised by a lack of access to leadership which, in turn, creates difficulties in understanding the corporate strategy. Many organisations in this situation will introduce specific tactical activities such as employee roadshows or communication events. But this overlooks other influencing factors which may be contributing to the problem, such as organisational structures, talent management strategies, people management approaches, or the complete communication system. KPMG believes that a holistic approach is required, considering all components of engagement together, rather than in isolation. By identifying the root cause of tension and pinpointing where the tension manifests itself, we gain a thorough understanding of the current state. We then bring management and employees together to identify ways to resolve specific hurdles and to re-engage employees in the whole experience of work. We look at the organisation holistically - as a complex, dynamic, human system of interdependencies and influences to identify blockages to engagement, and drill down into the factors that negatively and positively impact employee experiences. We look at the whole system, and help clients understand how the elements of the solution fit together to impact the entire organisation. We might ask, for instance: Do you have clear accountabilities? Is everyone clear about how they add value to the organisation? How do all the elements of your people processes and systems fit together? Do they support the deal that you need to make with your staff? Are you communicating clearly and consistently? Do you listen and respond to your staff? Do your communications fit together in a proposition to your staff, or do they confuse staff about what is really important? This is an evidence-based approach, using stories to capture the reality of your employee experience, their sense of belonging and relationship with the organisation. This approach works because it involves employees in fixing the problems. Collaboration using online tools and facilitated workshops identifies durable solutions that secure staff engagement and energise the business to move forward. This, in turn, helps to rebuild employees sense of ownership and ability to make a real difference to the business. We then work with our clients through facilitated workshops, development of online collaboration areas, working groups and external benchmarking from other organisations to develop an action plan with clear accountabilities for execution. Outputs from this process include : Identification of the positive culture and behaviours required within the organisation to enhance organisational success and innovative practices

KPMG s 4-stage approach Evaluating the experience of Engagement Results analysis, tension identification and leadership strategy development Forging the new engagement experience Building the action plan Leadership team analysis workshops covering current strategy and vision, defining the culture, ways of working, capabilities, goals and brand of the organisation Development of a targeted question database to test current employee engagement against these factors Survey hosted enterprise 2.0 portal, respondents feedback is evaluated statistically and using thematic analysis techniques. This gives us the organisation s current personality Facilitated workshops with stakeholder groups ( e.g. leadership team, TU, functions etc.) providing detailed feedback and analysis of the survey results, detailing current strengths, weaknesses and future trend patterns. Developing clear indications of the practices causing the survey results Identification of constructive and destructive tensions within the organisation and current engagement experience. Leadership team facilitation of the key results and areas of concern, communication plans to share the results, and areas to assist in developing the employee and corporate strategy Communication of the survey results to the wider organisation, including value statements, and the opportunity for staff to comment on a new engagement experience A gap analysis of feedback from staff highlights areas of the new engagement experience that resonate most well and least well with the wider organisation Root cause analysis allows the development of evidence based solutions for review by peers and leadership team Creation of an action plan to move to the new engagement experience. This involves considering the whole organisation, as a system, and targeting interventions which will have most impact Employees from all levels are encouraged to work with colleagues and external advisers using a systems thinking approach to confirm the action plan Employees develop evidence based solutions for review by peers and leadership team with targeted interventions and expected results Development of working groups, working practices and a culture of conversational change within the wider organisation A report showing the organisation personality in key engagement areas Working groups set up throughout the organisation to continue solution development and establish a culture of conversational change where innovating new approaches becomes a sustainable practice Employees and leadership teams viewing their organisation through different lenses to see challenges or tensions from a different perspective and use this to develop new working practices and approaches to employee engagement A list of engagement areas of focus developed by both the employees and management teams, linked with the company goals and objectives to ensure business success A range of proposals for transformational change for each area of focus which could be small targeted interventions or larger structural and organisational change recommendations. All solutions are grounded in clear evidence based cases for change Clear reporting strategies, feedback mechanisms and key performance measure identification ensuring progress and development can be monitored We draw upon our extensive experience of working with a range of other organisations, and offer a fresh pair of eyes. We challenge employees and leadership to think more broadly, to consider the whole system rather than focusing on one specific area which has often been the focus of many previous interventions with little sustainable change.our proven systems thinking approach to organisational change and employee engagement enables companies to develop innovative solutions and capture a new perspective on their strategy, employees and working practices.

Business benefits delivering tangible value Engaged employees care about the future of the company and are willing to invest discretionary effort. A stronger emotional bond supports in higher retention levels, higher productivity levels and lower absenteeism. Both our experience and research show that benefits can include: Increased operational performance Higher profit growth Reduced reliance on financial incentives for employee engagement Reduced sick days and absenteeism Stronger ambassadors who recommend the company s products and services Reduced recruitment costs due to higher retention rates A strong people brand, which attracts superior quality candidates and reduces recruitment costs More committed staff who willingly go beyond their job specification to deliver exceptional service to benefit the business Sustainable change due to better identification and alignment with the needs and motivations of employees Greater understanding of the job, the team, the organisation and how their role aligns to its strategy Realisation of business strategies by empowering people. Where has this approach worked? This innovative approach to employee engagement analysis has been successfully adopted in a FTSE 100 insurance firm, a global professional services company, UK local authorities, including a London borough council, as well as in the Scottish NHS. Client Client Background Client Requirements AEGON AEGON UK is one of the leading providers of life and pensions and investment products in the UK. It has consistently followed a strategy which has been concerned with a real focus on the customer and their need for financial solutions that fit their differing needs, whilst ensuring the business operated in markets with a strong return, thus helping to build a strong and reliable brand. The current financial turbulence has created a range of competing challenges and tensions which have brought into sharper focus the need, to attend to a range of commercial and social outcomes that shape its corporate reputation. To create new, innovative products and services, to contribute to building a strong, reliable brand in a turbulent market. To review AEGON s Employee Engagement strategy and enhance its ability to achieve its brand reputation aims. Quote from Martin Glover, Head of Corporate HR and Organisational effectiveness: in transforming the culture of the business through more innovative people management practices...we would considerably boost our potential to realise corporate aims

Client Approach AEGON Used existing research on employee engagement and its impact on corporate reputation Captured data through two channels: a series of workshops with members of AEGON s Senior Management Group an Enterprise 2.0 portal to enable the creation of a virtual walled garden and facilitate further online discussion This data was combined with Engagement Personality results which led to a quantitative and thematic analysis of free text responses. Existing company-wide survey data was re-analysed and re-mapped onto the new engagement lens. Revealed the nature of tensions, particularly in respect of the competing challenges surrounding compliance and innovation. Benefits Engagement personality provided a conversation primer for thinking about the traits that would most usefully serve a future, re-architected employee proposition for the organisation. Dr Martin Redington and Professor Helen Francis analytical tool facilitated a level of exposure that had not been possible to detect with AEGON s previous survey architecture, which was heavily statistic dependent on statistics. In using qualitative and quantitative data in conjunction, there was opportunity to reveal the inherent tensions underpinning the current level of employee engagement. The facilitation of discussion in the virtual walled garden allowed participants to contribute very powerful views. This informed the understanding of problems with its current state, as well as informing the plan going forward. Contact Us Robert Bolton Partner, People & Change KPMG LLP (UK) T: +44 20 7311 8347 E: robert.bolton@kpmg.co.uk Tom Laing-Baker Executive Advisor, People & Change KPMG LLP (UK) T: +44 7768 948 238 E: thomas.laing-baker@kpmg.co.uk Karena Gomez Executive Advisor, People & Change KPMG LLP (UK) T: +44 7767 417 544 E: karena.gomez@kpmg.co.uk www.kpmg.co.uk The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 2011 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the United Kingdom. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. RR Donnelley I RRD-262498 I November 2011 I Printed on recycled material.