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October 30, 2018 | Report
Considering the resources organizations spend on engagement programs and the powerful impact engagement can have on an organization, many leaders and HR decision makers want to ensure that their current offerings are making an impact. But crafting a compelling business case for engagement is a complex task. This report focuses on how organizations calculate the business impact, or even return on investment (ROI), of their employee engagement initiatives. We conducted a comprehensive literature review and interviewed human capital executives at three highly engaging organizations that are measuring the impact of their engagement initiatives: General Motors, Royal Bank of Scotland, and Teleperformance.
Companies spend over $720 million USD on employee engagement initiatives each year.1 Despite ongoing efforts, many organizations struggle to measure the impact of these investments. This report focuses on how organizations are tying engagement results to business outcomes and priorities. The organizations we highlight have a track record of improving performance and driving business results based on engagement data and employee feedback. They demonstrate the impact of their engagement efforts in terms of reduced turnover, customer satisfaction scores, safety improvements, and other measures.
Considering the resources that organizations are spending on engagement programs and the powerful impact that engagement can have on an organization, many leaders and HR decision makers want to ensure that their current offerings are having an impact. But crafting a compelling business case for engagement is a complex task for a variety of reasons. In fact, one study found that less than half of companies are effectively making these connections.2 Companies have been successful in linking the following metrics to engagement:
Turnover and retention Organizations that link engagement scores with employee turnover often find that less engaged employees are more likely to leave. Since turnover can cost an organization 90–200 percent of an employee’s annual salary,3 organizations have a strong incentive to engage employees to keep them. Retention leads to direct cost savings in finding, hiring, and training a new employee, but it also leads to indirect benefits such as retention of knowledge and strengthening of brand and reputation. For example, Hyatt makes this connection and maintains higher retention rates than the industry average by engaging employees in training and development.4
Customer satisfaction Some organizations directly link engagement of customers to engagement of the employees that serve them. Such correlations can use a similar net promoter score to measure both customer and employee engagement, and changes in one score may be linked to changes in the other. For example, Quicken Loans experience has shown that engaged team members lead to improved customer satisfaction, and unhappy customers are a reflection on team engagement.5 For many organizations, customer-centricity and employee focus go hand in hand.
Other measures Higher engagement often leads to greater productivity, improved safety, and greater profitability, among other results. Companies link engagement to these business outcomes to show the impact of their initiatives, to make a case for building and changing their engagement programs in the future. These kinds of analyses ensure that every dollar spent on engagement is a good investment and contributes to organizational success.
According to one study, only about nine percent of organizations strive to measure the return on investment (ROI) of their engagement programs.6 Calculating ROI takes correlations and linkages a step further—it is about improving engagement to improve the business. Companies that calculate an ROI are able to articulate the economic value of their engagement spend and tailor programs to targeted business needs. For example, one regional bank was able to successfully calculate an ROI of 119 percent for its engagement programs, enabling engagement to become a key focus area for future initiatives.
This report concludes with case studies that detail how three organizations are linking employee engagement to business outcomes:
GM recognizes that engagement is correlated with quality, safety, and overall business success, so the company focuses on setting corporate priorities aligned with engagement results. GM also found a relationship between engagement and voluntary quits.
RBS relies on data analytics to support its evidence-based people strategy. Connecting insight from culture and engagement surveys, 360 assessments, and internal customer service data has enabled the people strategy & insight team to deliver sophisticated linkage analysis. RBS has found that business units with higher engagement and leadership scores have lower turnover, higher customer satisfaction, and higher sales.
Teleperformance found a direct correlation between employee satisfaction and client satisfaction. While this correlation does not imply causation, the Teleperformance team is able to link engaged employees to better performance, which in turn creates better customer interactions and stronger loyalty. For this reason, the company creates programs and policies that drive greater employee engagement.
[1] John Hollon, Weekly Wrap: $720 Million Spent on Engagement and This Is All We Get? TLNT, August 24, 2012.
[2] The Impact of Employee Engagement on Performance, Harvard Business School Publishing, 2013.
[3] Brian Nesse, The Hidden Cost of Employee Turnover, Alvernia University, October 2016.
[4] Yash Chitre, Employee Engagement Case Studies: A Look at Hyatt's Wildly Successful Strategy, hubEngage, February 2018.
[5] Rebecca Ray, Patrick Hyland, and David Dye, DNA of Engagement:How Organizations Create and Sustain Highly Engaging Cultures, The Conference Board, Research Report R-1564-14-RR, October 2014.
[6] Seth Ollerton, Infographic: The ROI of Employee Engagement, Decisionwise, June 2016.
