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We tend to measure organizational health through numbers . We look at P&L, at margins, at productivity rates, at growth, at NPS, at projections, at engagement scores, at performance ratings . All of this is important.
But as important as these numbers are in their own right—they are also outcomes . They tell us what has happened or predict data trends, but they do not identify the root causes of our successes or failures.
And those causes, mostly come down to people.
To really understand what makes our organizations tick, we need to look at and understand what makes the people within the organization tick. The answers we seek are all around us, every day . We just need to ask the right questions.
This summary will offer you a window into the science and business case for deeper understanding—alerting you to the forces of disengagement impacting employees everywhere and suggesting ways to set your organization up for success and productivity . We hope to provide you with a deeper understanding of the science, but we also aim to help enlighten the rest of your organization on the business imperatives for talent optimization .
The Case for Understanding People
Let’s start with the elephant in the room.
From time to time you may encounter people who will dismiss industrial and organizational psychology as irrelevant or a “soft skill .” The reality is that thoughts and behaviors directly impact “hard” business results like productivity and profitability.
Behavioral psychology—understanding the drives and abilities of your employees—is not “soft” science . It is people science . And people science can make or break your bottom line.
We invest millions of dollars and hours into sharpening our understanding of the tools of our businesses . If you were a manufacturing company, you’d gain a crystal clear understanding of how your assembly machines work, so you can maximize productivity and uptime . If you’re a SaaS company, you have optimized your software down to each line of code .
We can do the same with people .
Science helps us predict how machines behave . But are you equally able to predict how your employees will behave? Have you leveraged that science? Salaries constitute 43% total company on an average of total company operating expenses—so we also must account for the investment we make in employees themselves .
Common Challenges
There are four main forces of disengagement that plague modern organizations:
Misalignment with Role
Misalignment with Manager
Misalignment with Team
Misalignment with Culture
The Impact of Disengagement
To be clear, engagement isn’t about fun, or even satisfaction . Some of the least engaged employees in your company may be having a blast . They just aren’t getting work done .
There are various definitions of disengagement, scholars have defined it variously as “a negative, unfulfilling, work-related state of mind that is characterized by... infidelity and disloyalty,” and also “the withdrawing or defending of oneself physically, cognitively or emotionally during work role performance.” The most widespread definition involves the “withholding of discretionary effort”—or in other words— doing the bare minimum .
However you choose to break it down, disengagement is a wall standing directly in the path
of productivity . You can offer the top salaries, the coolest brand, and the best beer keg in the kitchen— but if you don’t have engaged employees, you’ll never win the discretionary effort and resulting productivity to build your business and leave mediocrity behind .
The havoc disengagement can wreak at all levels of your organization.
On individuals:
According to HBR, studies have shown that disengaged workers have “37% higher absenteeism, 49% more accidents, and 60% more errors and defects .” Actively disengaged employees also report more health problems, including stress, high blood pressure, depression, and pain .
On teams:
Scholars have found that disengaged workers exhibit a “toxic” ripple effect on peers and teams . According to an HBR study, 78% of employees said their commitment to the organization declined in the face of toxic behavior, and 66 percent said their own performance declined .
On culture:
According to an Axial study, companies with high disengagement were 40x less likely to identify their culture as a great place to work, compared to fully engaged employees . Scholars have associated disengagement with lack of trust, increases in bullying, lack of creativity, poor interpersonal relations, conflict, and loss of cultural values—among many other effects.
On business:
According to Gallup and other studies: “In organizations with low employee engagement scores, they experienced 18% lower productivity, 16% lower profitability, 37% lower job growth, and 65% lower share price over time .” Low engagement businesses also receive 100% fewer job applications and disengaged employees generate 40 percent less revenue than their engaged coworkers . In 2017, The Conference Board estimated that disengaged employees cost global companies between $450 and $550 billion a year .
So, what is this costing your bottom line? One way to measure the cost of disengagement is through the most common end result: turnover (whether voluntary or involuntary).
We tend to think of the cost of turnover as cost-to-replace . But recruitment costs are just the starting bid . Although these costs are staggering—roughly 40% of an annual salary—they don’t begin to take into account all the lost productivity on the path taken to get there . We must also consider the tremendous impact from the employee’s lack of productivity, the spill-over effect on peers who need to pick up the slack, and the time spent on onboarding and bringing the replacement employee up to speed .
The Way Things Work Now
So how did we get to this place, where disengagement in the US, is hovering around an astonishing 77%, according to Gallup—and we are losing hundreds of billions of dollars in productivity?
A lot of it has to do with how most companies still hire and manage employees today, which isn’t terribly different from how we always have . How we manage talent tends to fall into four main categories: hire, inspire and coach, engage, and drive performance
A Better Model for Cultural Design
Another way to frame this is to think about our success in two synchronized, always-on stages: Purposeful Design and Purposeful Action . Though design must precede action, it should not stop there, but be a constant cycle where you reevaluate as your business goals and needs change.
Purposeful design
Purposeful Design is where we begin, with a business strategy at an organizational and team level, inclusive of our business vision, values and objectives . The implementation of this strategy will begin at the top, within our executive culture . This buy-in is important because executives will be the first messengers and the arbitrators of this purposeful design through their words and actions. A Purposeful Design sets goals—KPIs, benchmarks, and baselines that will help us to diagnose where our companies are today.
Purposeful action
Purposeful action is the more dynamic stage . This is where we take a business strategy
and connect it to a people strategy that runs from the organizational to the individual level— encompassing business units, functions, departments, locations, workgroups, project teams and each individual employee . This can begin with hiring an employee or inspiring existing employees—creating those feelings of belonging, and engagement we mentioned earlier . After six to twelve months of Purposeful Action, you should be able to revisit those KPIs to see improvements that have been made against your baseline.
Four Paths to Higher Engagement
Ultimately the exact roadmap for how an organization builds engagement is unique to that business, but there are certain commonalities. Let’s unpack four key building blocks for driving engagement. Here are the four most critical components of employee engagement:
1. Job fit: As discussed above, one critical component of engagement is flow, or ensuring job- person fit. Offering challenging meaningful and achievable work, and then acknowledging and recognizing success drives engagement.
2. Manager alignment: Routinely cited as the most important factor in employee engagement, managers need tools and training to understand, support and challenge employees as individuals.
3. Team dynamics: Even the best manager cannot always correct for team misalignment . Feeling valued, involved, and respected on a team is critical . Pizza parties and team building exercises won’t cut it . Fostering relationships starts with a deeper understanding of each person’s drivers, needs and communication styles, and a sensitivity on the part of leaders to team composition and dynamics.
4. Culture alignment: The culture of a company is curated by its leaders—through values, through mission, through policies, and also through hiring . Each time we bring the wrong people into our culture we shift that culture further from where we want to be . Bad hires—no matter how skilled—will never belong and thrive, and will usually cause toxic ripples around them. Starting with the C-Suite and filtering down to each line manager, leaders must take the time to cooperatively craft and communicate your purpose and mission, establish and live your values, and bring your people into alignment around it .