It’s not JUST about engagement

4. It’s not JUST about engagement

6. Agenda • Who is RWE npower? • What is the problem? • The missing link - the people agenda • Our challenge • Our response • Measurement and analysis - defining the model • The people agenda - putting the model to work • The case for measuring and managing engagement • Conclusions

7. Who is RWE npower? • CEGB  National Power: Privatisation • National Power  National Shower: Internationalisation • National Power  Innogy: Focus on Transformation and Integration • Innogy  RWE npower - Focus on Growth through Excellence… • … in two very different fields

8. What is the problem? • Technology is key vs customer is king • We work to keep the lights on vs we work to keep our customers • Employees are committed vs employees have transferable skills • Engagement with job content vs engagement with job context • Knowledge workers vs production workers

9. The missing link - the people agenda • Q: How do you develop a people strategy which meets the demands of two very different bedfellows? • A: Not by trying to create a single strategy…

10. Drivers of Engagement Values Values Values Manager Manager (#2) (#2) (#2) Values Senior EMPLOYEE EMPLOYEE Values Values EMPLOYEE EMPLOYEE (#2) Leadership ENGAGEMENT ENGAGEMENT (#2) (#2) ENGAGEMENT ENGAGEMENT Overall Satisfaction • Job Satisfaction • Advocacy • Retention • Overall Satisfaction Overall Satisfaction • • Advocacy • Advocacy Advocacy • • Senior Senior Senior Values Leadership Values Leadership Leadership (#3) (#3) (#3) * Based on PeopleMetrics’ proprietary research on employee engagement among knowledge workers and production workers at 40+ global 2000 companies Direct Manager Direct Manager Direct Manager Work Life (#4) (#4) (#4)

11. The missing link - the people agenda • Q: How do you develop a people strategy which meets the demands of two very different bedfellows? • A?: By really understanding the key drivers of value creation in each part of the business, and focusing on the things you can do something about

12. Internal Service Quality Employee Satisfaction Employee Retention External Service Quality Customer Satisfaction Customer Retention Profit From “Achieving Breakthrough Service”. Sept/Oct 1997 Harvard Business Review The Employee Engagement and Customer Satisfaction Cycle The Profit Chain • Profit and growth are stimulated primarily by customer loyalty • Loyalty is a direct result of customer satisfaction. • Satisfaction is largely influenced by the value of services provided to customers. • Value is created by satisfied, loyal and productive employees. • Employee satisfaction, in turn, results primarily from high-quality support services and policies that enable employees to deliver results to customers.

13. Q. For which of these do you think that you will change provider in the next 12 months 27/3-23/4/06 Car insurance Gas supplier Electricity supplier Home insurance Mobile phone network provider Home telephone Credit card account Mortgage Bank account Base: (223) Our Challenge

14. Our Response • npower Retail vision: Turning Customers into Fans • npower ‘wheel’: integrated performance measures

15. Our Response - a worked example • Switching is now less supplier event driven (door-knocking), and more customer event driven (moving house). • Many triggers for customers to switch: poor service experience - we can do something about. • ‘Right first time’ rate is an obvious metric to watch as an indicator of service performance.

16. Building the model for registering a new address Internal Service Quality Employee Satisfaction Employee Retention External Service Quality Customer Satisfaction Customer Retention Profit • Direct impact of rework costs on cost to serve reduces profitability

17. Building the model for registering a new address Internal Service Quality Employee Satisfaction Employee Retention External Service Quality Customer Satisfaction Customer Retention Profit • Poor service experience reduces satisfaction and increases risk of customer defection, and hence reduces profitability

18. Building the model for registering a new address Internal Service Quality Employee Satisfaction Employee Retention External Service Quality Customer Satisfaction Customer Retention Profit • Frustrated customers are often unpleasant to deal with, reducing employee satisfaction and retention ….. • ….. which in turn erodes competence and hence service quality

19. Building the model for registering a new address - ‘straw man’ Systems Capability Management Capability Employee Engagement Cost to serve % right first time Training Investment Employee Tenure Employee Competence Customer Satisfaction Customer Retention Profit

20. Building the model for registering a new address - ‘straw man’ Employee Engagement Fully engaged Engaged % right first time Disengaged Employee Competence Expert Competent Not yet competent

21. Putting the model to work • Linkages are articulated empirically. • By measuring competence and engagement, we can develop a monetized value for each shift in a particular metric (e.g. ‘not yet competent’ to ‘competent’) and hence an ROI curve. This sits at the core of our people strategy • Provides us with a very clear definition of what constitutes good managerial performance, e.g, outcomes rather than processes

22. Performance = Competence X Engagement Expert Competent Not yet competent Knowledge workers Competence Terrible twos Newly promoted New starts Not engaged Somewhat engaged Engaged Engagement

23. Why do we believe in this approach? • General case for link between engagement and productivity is now well established. • The model provides predictions, which can be tested and the size of effects can be determined with high levels of confidence due to large data set. • There are precious few other levers we can access directly to impact performance.

24. Top 100 listed firms v FTSE 100

25. Business Results Tier 1 Economic Value Added Revenue Growth Market Share Stock Performance Key Performance Drivers Tier 2 Productivity Quality Innovation Customers Human Capital Capabilities Tier 3 Leadership Workforce Proficiency Workforce Performance Employee Engagement Workforce Adaptability Human Capital Efficiency Human Capital Processes Tier 4 Career Development Performance Appraisal Succession Planning/ Leadership Development Recruiting Workforce Planning Workplace Design Competency Management Rewards and Recognition Employee Relations Human Capital Strategy Learning Management Knowledge Management Human Capital Infrastructure Linking Human Capital to Business Results Source: Accenture Institute for Strategic Studies

26. Engagement Logic • An engaged employee is someone who cares and will “go the extra mile”. • Strong leadership, opportunities for personal development, good management, decent pay and benefits, a reasonable work-life balance, fun activities which help build close-knit teams, and staff believing the firm to be ethical= levels of engagement will tend to be high.

27. Engaged/Disengaged Analysis: Example * Increase in odds of an employee moving from a lower segment to higher segment (e.g., On the Fence to Engaged) if his/her rating on that item is increased by one unit (e.g., from 4 to 5) On the Fence  Engaged Key factors are: • I have a sense of accomplishment in my job (1.67*) • My manager provides the information I need to do my job (1.54*) • Senior leaders’ actions are consistent with their words (1.48*) • ABC cultivates an environment where each of us can excel (1.48*) • ABC values outstanding people (1.33*) Fully Engaged (24%) Engaged(38%) Engaged  Fully Engaged Key factors are: • ABC cultivates an environment where each of us can excel (1.75*) • ABC is a socially and ethically responsible organization (1.50*) On the Fence(26%) Disengaged(12%) Disengaged Engaged • No significant drivers were found

28. Impact of employee engagement Employee engagement has been empirically linked to business outcomes through its impact on workforce productivity

29. Conclusions • A focus on engagement enables us to drive up the motivational aspects of our performance. • It is the combination of engagement and competence which drives performance. • Demonstrating not only that the links exist, but the size of the effects enables the creation of an effective ROI model for investment in competence and engagement. This defines the people strategy.

30. Challenges • Getting clarity of vision has been essential to gaining buy-in of HR community and senior management. • Establishment of Retail Survey Action Group provided the mechanism for educating the business and HR function. • Not all that common to find HR people (or senior managers) with good experience of employee research … … hence we work with Getfeedback