Ever since 1948, when SHRM’s 28 founding members held its first conference, HR has been hunting its missing link—proof that HR can drive bottom-line results.
Did you see Fast Company magazine’s August 2005 cover story, “Why We Hate HR?” Just another brick in HR’s wall of shame. HR is the Rodney Dangerfield of corporate life. No respect. Here’s why: There is a missing link between HR and bottom-line results—revenues, productivity, and profits. HR spends up to 2 percent of corporate revenues in big companies, and up to 7 percent in small companies. Yet nobody, not even high-paid HR academics such as Ed Lawler and Dave Ulrich, has with certainty proven what result that 2 or 7 percent buys.
HR’s hunt for the Holy Grail has spawned a massive workforce-related research industry. Everything with the word “employee” in it is being surveyed and sampled to death—online using Survey Monkey and Zoomerang, via phone using Iowa City call centers, and through snail mail with those nutty $5-bill bribes. (Personally, I pocket the $5 and toss the questionnaires in the can.)
Every week here at HRO Today, I receive at least five research studies, one a day. Last week, I got 14. About 8 of 9 are wastes of paper. The worst are companies’ own “independent” studies demonstrating the sponsoring company’s prowess. (These surveys are the research equivalent of incest, which, by the way, is illegal in every state.) Yet even the worthwhile studies come up short. HR still has not found its Holy Grail.
But wait. For several months, I have been skeptically following the groundswell of support for “employee engagement” as the link between cutting-edge HR and bottom-line results. I first heard it from Elliot Clark, Kenexa’s COO, who told me his firm was executing engagement surveys for its clients, including McCormick & Schmick’s restaurant chain. Next, several minor engagement studies crossed my desk (two of which equated “engagement” with “employee satisfaction”—which in my experience is one of the worst indicators of anything, ever). Then on September 27 at the National Association of Employee Recognition conference in Chicago, Rideau CEO Peter Hart and several HR leaders engaged me in a serious “engagement” discussion.
Then I read “The Things They Do For Love” in the December 2004 Harvard Business Review (hey, I get 50 magazines a month, I’m a little behind). The article recounted the results of the 2004 Corporate Leadership Council engagement survey of 50,000 employees. But it was only when I got an actual copy of the study from a good friend that I knew I hit pay dirt.
From this moment forward, all HR leaders must be clear about this point: employee engagement is to HR what double-entry bookkeeping is to CPAs. It is HR’s proof-of-results; it is the missing link. Here’s why: Organizations with above-average engagement—the extent of employees’ commitment to something or someone, and how hard they try to stay around—have above-average financial performance. For those of you who remember college statistics, there is a 0.52 bivariate correlation between engagement/commitment levels and financial results. That is a strong relationship—even stronger than the correlation between smoking and cancer or high sales to high profits or record profit announcements to an increasing stock price.
The CLC survey reminds us that engagement is not a cure-all for employee performance, since an underpaid, untrained, or ill-equipped workforce will suck no matter what. Nevertheless, it revealed that 43 percent of performance improvements in a workforce can be attributed to improved “engagement.”
The impact on HR from the link can hardly be understated, even though we are at the early stages of understanding how to exploit the link. While it is great news for HR, it is even better for HRO for one key reason. The CLC survey examined more than 300 potential levers of engagement, and it showed that the top 50 levers of discretionary effort are 40 times more powerful than the bottom 150. And these 50 fall neatly into eight types, five of which are services delivered best by HRO providers: benefit plans; recruiting and onboarding of new employees; day-to-day HR connection with employees via online, phone, or in person; learning and development; and keeping organizational promises such as on-time payroll checks and recognizing employee accomplishments.
Bottom line: For HR leaders and HRO providers who embrace “engagement” as your lever of choice, your ship just came in. Don’t miss the boat.