Corporate Research Forum Employee Engagement & Organisational Performance

1. Corporate Research Forum Employee Engagement & Organisational Performance Wednesday 3 February 2010

2. Agenda 09.30 Introduction and discussion at tables 10.00 Employee engagement - report summary 10.20 Ten years on – the corporate perspective (Lloyds Bank) 10.40 UK Government report – the next steps 11.00 Coffee & tea 11.20Q&A 11.40 Working in groups 12.20 Plenary discussion 13.00 Lunch 13.45 Case study – Financial Services Authority 14.15 Panel of case study companies and Q&A 15.00 The research perspective 15.30 Close

3. Report summary Andrew Lambert Andrew Lambert

4. Some questions to start After 10 (or 20) years…… • Is everyone clear about ‘engagement’? • In what ways does it impact performance? • Are employees becoming more engaged? • If not, why not? What might need to change? • Who should be responsible for what? • Do managers at every level connect engagement and performance? • What impact has recession made? Lessons?

5. Interpreting ‘engagement’ • 90 different definitions! • No shared measurement standard CRF clarification • Outcome – align with goals, discretionary effort, advocacy of company • Process – how employees become engaged Sophistication varies across organisations • some have been honing their approach for years • others have hardly started • and all stages in between

6. Proportions of engagement % Moderately engaged % Moderately disengaged % Highly engaged % Disengaged Objective – increase the proportion of engaged employees

7. Are people more engaged? • On average , NO – say multiple surveys • Eg only c. 23-29% ‘fully engaged’ in UK & US • 22 and 19% ‘disengaged’ • Yet large range of ‘scores’ • some employers claim over 80% engaged • Caveat – surveys vary in rigour • Why might low levels persist? • old habits die hard: ‘them & us’, low involvement, mushroom management, knee-jerk change mgt • deficits in addressing emotions, positive feedback • ‘care’ and ‘respect’ not first priorities – trust suffers

8. EE & organisational performance No direct relationship with increased sales and profit, lower costs, new product devt, H&S etc BUT creates a platform for • higher productivity, less waste, better service • better ideas, sharing of knowledge innovation PROVIDES ‘glue’ for delegated and networked structures AND enhances • management of change • talent and skills retention • organisational reputation AND reduces risks arising from disengagement

9. Performance culture • Engagement a core ingredient in HPWS, ‘lean’ • Focus on both the ‘macro’ and ‘micro’ context • Intrinsic to management agenda • action planning not an ‘extra’ • regular review, correlate with other performance data • ‘Everyday performance management’ • constant dialogue, feedback, recognition • behaviour and actions, not engagement scores • Involvement and ‘ownership’ • ‘Growth’, learning, development • Sustainable engagement, organisational resilience

10. Measurement & follow-up • Not about surveying, but about improvement • from data to insight • embedding action planning, prioritisation • maximising involvement, team responsibility • Beyond mere ‘satisfaction’ or ‘employer’s OK’ • Towards ‘understand, act, measure’ • from ‘measure, understand, act’ • Engagement metrics as part of risk mgmt • Multi-cultural context • fundamentals are the same, approaches differ • engagement norms vary : understand segments

11. Some essential factors • Job – interesting work, no hassles, ‘progress’ • Leadership • Macro: team leaders & role models, envisioners, culture shapers and org developers –not distant or autocratic • Micro: holistic performance managers, coaches, not task-drivers – ‘in touch’ with the top • Managing psychological contracts, emotions, confidence • EE part of good governance? - some boards interested • Integrity – personal and organisational • Communication • relationship mgt and involvement, not just info • watch your language

12. HR & Communications • Getting ‘the line’ to own engagement • so, what do wedo?! • HR & Communications • clarity about who does what • all parts of function have a role • other functions have impact too – do they know? • ‘Employee champion’ –why, who, how? • Capability, skills • influencing, top-level consulting, facilitation • measurement, supplier management, learning methods • social media – relevant and good value

13. Lessons from recession? • Better companies holding fairly steady • often more so than expected, some scores up • More sensitive management approach (some!) • concern to recover well, hold on to talent • more transparency in communication • bending over backwards to keep jobs • consult/involve employees in cost-trimming • more focus on non-financial rewards • “Just doing what they should have been doing” • “Will they remember when things improve?”

14. Tensions & balances • Control vs delegation & empowerment • Employee or ‘partner ‘ • Trust – a two-way street • Fiduciary vs social care (as employer) • Financial vs non-financial reward • Equity of rewards • Flexibility re personal circumstances • ‘Growth’ – what to do when times are tough • Managing risk and opportunity • Tolerable imperfections?

15. Andrew Lambert Ten years on - a corporate perspective June Boyle, David Littlechild Lloyds Banking Group 15

16. Lloyds Banking Group - context • 1994– measurement of satisfaction/work climate • 2003 onwards –greater focus on engagement • 2009 –creating one bank (Lloyds TSB/HBOS) • sustained criticism of both merger and banking • yet high rating internally for articulation of direction • What next? – from integration to transformation • Engagement approach – some features • Quarterly omnibus survey – follow-up on all teams’ agendas • Integral to business objectives at every level • Focus on behaviours not scores • Appreciative Inquiry embedded within process

17. “Engaging for success” report - what next? David MacLeod 17

18. Group discussions 18

19. Group discussion - process • 50 minutes discussion at tables • 5 questions shared out between tables • Choose a ‘rapporteur’ at each table • Record answers & contributions on sheets provided • Include - examples of good practice, things you’d do differently, what helps and hinders • 45 minutes plenary after lunch

20. Five issues to debate 1What are – and how do you ensure – the right leadership and managerial qualities? 2 What should HR do, and avoid doing, most? 3 Should EE be essential to good governance? How to establish the principle and practice 4 What are the principal barriers to EE? How do you best overcome them? 5 What should governments do or avoid doing to facilitate employee engagement?

21. Case study Financial Services Authority

22. The Financial Services Authority Market confidence: maintaining confidence in the financial system Public awareness: promoting public understanding of the financial system Consumer protection: securing the appropriate degree of protection for consumers Reduction of financial crime: reducing the is possibility for a business to be used for this purpose • Independent non-governmental body • Range of rule-making, investigatory and enforcement powers • Accountable to the HM Treasury ; held to account by the firms we regulate • Financed by the financial services industry • Currently employs c3000 staff • Regulates approx 27,000 firms FSA Statutory Objectives under Financial Services and Markets Act:

23. Change at the FSA – 4 phases • 2006 -2007: the need for culture change • 2007 - 2008: the financial crisis • 2008 - 2009 : move to ‘intensive supervision’ • 2010 onwards: into an uncertain future

24. Panel of case study contributors

25. Océ • 23k staff worldwide, 1100 in Océ UK • Recessionary pressures, now Canon to acquire The plan – overhaul and energise people mgt • Implant joined-up people plan – 10 key areas • “Engagement tracks across all 10 areas” • Involve managers & employees in design • Using principles of HPWS to guide debate • Minimise redundancies, consult on cost reductions • Use coaching as best value re leadership/mgr devt • Survey will be used to highlight mgr accountability Promising feedback so far

26. Firmdale Hotels • 7 hotels, 1000 employees, founded 1985 • Multiple winner of awards – eg service, training Project to retain customers in recession • Empower staff to spot opportunities & develop ideas to delight customers – implement fast • Communications and incentivised ideas scheme • Senior managers tasked to facilitate • Used multiple methods to inspire, exchange ideas Results • Repeat business up 5% to 55% • 89% of staff rate Firmdale as ‘great place to work’

27. BAE Systems (MAS) • Major uncertainty, changes, expansion beyond UK • ‘Traditional’ engineering culture, TU relationships Need to strengthen managers role in ‘change’ • Inappropriate to rely on TUs as conduit • Leadership/corporate communication issues • messages need translation for site audiences • managers need to be seen to be ‘in the know’ • Balance ‘task focus’ with more listening & involving • Biennial survey not giving timely view of engagement • Learn to operate in different cultural contexts Move to ‘total performance’ and learn from positive change management examples

28. Ericsson • 1994 – started surveying, but no follow-up • 2000 – created ‘Dialogue’; but follow-up sporadic and questions changed each year • 2006 – outsourced to a survey company • action plan required from every manager • choose 2-3 priorities to focus on • ‘human capital index’ as proxy for engagement 2009 – ‘Inspiring place to work’ strategy • part of mgrs job to improve culture, HR to be more ‘expert’ • ‘future capital index’, better communication of strategy Challenges • tough operating conditions, need to build confidence • old managerial and HR habits,

29. Standard Chartered Bank • 70,000 staff, c. 100 nationalities • 10 year journey • building human capital model, introducing strengths-based mgt, focusing on engagement • Q12 used as base for improvement & peer learning • managers and HR both accountable • devt support eg ‘great manager programme’ • role modelling at the top • Simple principles everyone can remember • Multi-cultural context • Celebrate diversity • Flexibility in how engagement is achieved

30. Merck Serono • Moving into post-merger period, blending 2 cultures • How to maintain positive momentum of integration 1st survey - promising start, but work to do • Communicate clear vision, strategy and values • Improve performance mgt and internal comms 2nd survey – engagement up, above pharma average • Streamline decision-making, more empowerment • ‘Best pharma award’ to recognise achievement Learnings include.... • Survey follow-up is crucial – top teams to show the way • Managers: see engagement as core to job, be accountable • Constant communication • Don’t declare ‘victory’ – no ‘right level’ of engagement

31. The research and measurement perspective Dr. Stephen Harding 31

32. Phases in engagement research 1. Service-Profit Chain: impact of Engagement on Performance Focus on Engagement-Customer Sat-Performance (Sears ,HBR, 1998) Example: across 5 UK retail banks, 10% increase in engagement predicted a 4% increase in branch financial performance (ISR 2002) 2. Demonstrating causality and widening the scope: Example: attitudes are a more significant driver of financial performance by a factor of 5 than vice versa (ISR 2004) 3. Current research: What specific behaviours predict specific performance outcomes? Example: engagement more predictive of sales, but line management more predictive of absenteeism (TP-ISR 2009) Engagement consistently appears as an important ‘moderator’ variable but is not the only show in town

33. Impact on performance 117% Sales (% of target) 101% BranchEngagementScore (% favourable) 37% 77% (Bottom branches) (Top branches) Each 10% increase in Engagement Additional 4% Sales vs. Target Additional £120 million revenue Source: Towers Perrin-ISR

34. Demonstrating causality Attitudes are a more significant driver of financial performance, than vice versa – by a factor of 5 Employee Attitudes Customer Satisfaction Sales & Growth Period 1 Significant relationships (9-11% variance, p<.001) Non-significant Relationships (1-3% variance) Employee Attitudes Customer Satisfaction Sales & Growth Period 2 Source: Towers Watson: Gelade & Young, presented at British Psychological Society, Division of Occupational Psychology Annual Conference 2004. Data = 187 branches of a UK retail bank (n=3,835 and then 5,680).

35. Specific causal relationships - retail example Employee Turnover % YTD 0.13 Store Operating Expenses Gross Profit -0.37 Employee Engagement Store Deployment % Sales to Budget YTD 0.15 0.11 0.16 Shrinkage Cost % to Sales -0.12 Performance Management InventoryAccuracy 0.19 -0.11 Customer Sat 0.15 Line Manager Effectiveness Absence % Rolling Total Accidents -0.14 0.12

36. Benchmarking - different ‘lenses’ Job Function Norms Personal Demographics • Research and Development • Manufacturing Departments • Human Resources • Information Technology • Finance • Sales • Marketing • Race/Ethnicity • Gender • Age Country / Region Performance Norms Industry Norms Argentina Austria Australia Belgium Brazil Bulgaria Canada Croatia Czech Republic Denmark Finland France Germany Greece Hong Kong Hungary India Indonesia Ireland Italy Japan Kazakhstan Korea Latvia Lithuania Malaysia Mexico Netherlands New Zealand Norway Philippines Poland Portugal P.R. China Romania Russia Singapore Slovakia South Africa Spain Sweden Switzerland Taiwan Thailand Turkey Ukraine United Kingdom United States • Transitioning Companies • High Performing Companies • Call Centers • Financial Services • FMCG • Government • High Technology • Logistics • Manufacturing • Pharmaceutical • Professional Services • Retail • Telecommunications Job Level Norms • Senior Management • Management • Hourly (Union & Non-Union) All norms are updated annually

37. Cultural differences compared Engagement (% Favourable) Engagement (% Favourable) Brazil Hungary Turkey Norway India Russia Philippines Argentina Mexico Australia Austria Ireland Canada Netherlands Portugal Belgium Switzerland Czech Republic US Finland Greece Singapore Indonesia Spain Taiwan UK China Italy East Africa Sweden South Africa France West Africa Poland Malaysia Hong Kong Slovakia South Korea Thailand Japan Germany

38. Prioritising improvement Perceived issues Real issues % Favourable Difference vs. Country National Norm Customer Focus Diversity Strategy & Goals Teamwork Commitment Engagement Company Image Supervision Management Efficiency Training Performance Mgmt Risk Taking Communication Work / Family Compensation Diversity Company Image Commitment Communication Performance Mgmt Strategy & Goals Work / Family Supervision Engagement Compensation Training Efficiency Customer Focus Management Risk Taking Teamwork

39. Impact of economic downturn • Although many of the major economic events unfolded during 2009, its impact on companies’ economic development and employees’ engagement began earlier – in 2008. • Current Towers Watson research revealed the challenges companies were faced with across the year. Conversely, companies also showed some adaptive strategies making positive changes in response to the economic crisis. Major Challenges Increasing stress & workload demands: A stressful environment can collectively erode employee morale, well-being and engagement over the long-term. 1 Increasing issues with fairness: The employees’ perception of fairness suffers when job pressures increase and objectives are less clear. 2 Adaptive Strategies Positive signs of increased efficiency: Findings suggest that organisations facing economic uncertainty are taking immediate steps to increase productivity and profitability. 1 Innovation encouraged to improve current state: Organisations appear to encourage innovation as a means of improving current processes. 2 39

40. Impact of economic downturn While engagement declines in times of transformation and downturn, or at best remains stable, it is important to understand not only the level of engagement but also factors which drive engagement change What still holds true… … and is even more important than before What is specific to transformation…. • Primacy of Leadership – a driver for every company examined • Importance of Learning & Development, especially providing career paths and learning opportunities • Empowerment drives engagement, especially sufficient authority and involvement • Job Security with some frequency, symptomatic of companies in which employment certainty is in question • Compensation and Benefits as a frequent top driver, suggesting that changes to pay scales and benefit programs are a key issue for employees – this topic is rarely a top engagement driver in other organizations • Drivers specific to Strategy and Direction, implying employees seek clear messaging regarding the company’s next steps • Organizational Change as a driver, suggesting employees are evaluating their own future against the company’s ability to adapt to change

41. High performing companies Global High Performing Companies 2009 vs. 2008 Competitiveness How company compares with competitors on: product quality Competitiveness How company compares with competitors on: technological innovation Collaboration Good cooperation between work groups in my department Supervision Supervisor encourages people to learn from their mistakes Performance Evaluation The goals against which I am evaluated are clearly defined Leadership Top management adequately communicates long-range goals and strategic direction Career Development This company offers long-term opportunities for me Competitiveness How company compares with competitors on: responding to market changes Results were stable or actually improved Shaded bars denote a statistically significant difference

42. Dimensions of work attitudes Organisational Functioning shows stronger relationships with Engagement; Work Experiences are often mediated by Line Management Performance Appraisal Communication Role Clarity Culture & Values Working Relationships Work Experiences Organisational Functioning Pay & Benefits Employee Involvement Leadership Training Career Advancement Working Conditions Company Image Employee Engagement 42

43. Addressing manager capability Context – more complex work and environment • Lots of investment in leaders –what about managers? What we want them to do • Execute tasks – but in an enabling way • Develop people’s performance and potential • Energising people for change Implications • More coaching style • Some OD understanding, skills – ‘change managers’ • Confidence in the ‘partnership’ with top management

44. Summary

45. CRF’s forthcoming events