Why is Engagement Important?
You are not alone in wanting just the right people. We all want the Goldilocks team!
How do you select your team? Who is right for you?
As a leader, visionary, and builder, you know that a successful team isn’t just made up of people with impressive resumes, it’s so much more. Intuitively, we all agree we want the Goldilocks team, people that are just right.
Any expert will tell you how important hiring the right candi- date is. Jim Collins, in his classic management book Good to Great, emphasizes the crucial value of getting the right people on the bus. Likewise, Jack Ma, the founder of Alibaba, advises to find the right people, not the best people.
While these pieces of advice sound simple enough, putting them into practice can be anything but easy. The real challenge is tangibly figuring out what “right” means, who the right people are and how to identify them amid a sea of candidates.
Ask a hundred people, or even just five, “What does the ‘right’ employee mean to you?” Be ready to get bombarded with all kinds of unmeasurable adjectives. “I like self-starters.” “I look for people who have a positive attitude.” Or my favorite answer to date: “You know, the ‘right’ employees have that je ne sais quoi!” Nice.
In addition to what makes for a “right” employee being elu- sive, there’s an unrealistic expectation that “right” employees can adapt to any manager. Similarly, leaders are often expected to excel in managing team members under the assumption that the “right” leader can work effectively with anyone. These assumptions are not just unrealistic, they’re completely wrong and lead to significant frustration.
In fact, there are no absolute “right” or “wrong” people; there is no litmus test for these labels. The truth is that, much like beauty being in the eye of the beholder, who is right and who is wrong for a position is subjective. (Actually, beauty is objectively measurable as we humans prefer symmetry, but that’s off topic). One person’s supportive boss can be another’s micromanager and a colleague who seems eager to one person might come off as overzealous to another.
With no clear definition, much less measure, of “right,” it’s no wonder that despite your best efforts to assess if someone is right in an interview, some hires will not work well with you or with other team members. In fact, it’s common for leaders to find them- selves frustrated with the hiring process and struggling with team members who seemed right during the interview process and prove to be so wrong after onboarding. This inevitably leads to frustra- tion, costs, and setbacks for the boss, the business, as well as leads to employee dissatisfaction, disengagement, and high turnover, all signs of a deeper issue: a hiring process that is outdated and ineffective.
Unfortunately, most organizations, not knowing there’s a better way, continue to use unreliable hiring methods that haven’t changed much over the last hundred years. While technology has made the process of sending and receiving applications faster, the heavy reliance on guesswork, as opposed to data, when assessing applicants for team fit remains unchanged. And most of us have fallen into the trap of hiring people who seem like a “good team fit,” only to find out three weeks later that they have low standards, are consistently late, are sloppy, or are all around difficult to work with.
The old-school hiring approach often fails to address the core issue, finding the “right” fit for the manager, for the team, and for the environment. As a result, companies end up with employees leaving because they feel dissatisfied in their relationship with their boss and with their long-term prospects in the organization. And employers are left with the daunting task of repeating the costly hiring process, which can feel like playing the lottery with the odds just as long, hoping for better luck the next time around.
The Low Engagement Crisis
We all agree low engagement is not a fleeting issue to be taken lightly; unaddressed, the disruptions and costs pose significant long-term damage to a company’s growth, innovation, overall com- petitiveness and bottom-line. Still, truly grasping the scope of the problem requires a deeper look at how persistent disengagement affects different aspects of your organization.
Disruption of Organizational Stability
Frequent turnover severely affects an organization’s morale and degrades operational stability. Every departure and new hire creates a cycle of adjustment, disturbing team cooperation, productivity, and profitability. Like a line of dominos, when an employee departs, those who remain often face increased stress as they must take on the workload of their departed colleague and adjust to the new team dynamic. If you’re familiar with the forming–storming–norm- ing–performing model of group development, Bruce Tuckman’s description of the inevitable phases a team goes through, then you may wonder, like I do: when does a team with high employee turn- over ever start performing?
Even in the best case that knowledge isn’t lost, the turmoil of a constantly revolving door makes it challenging to maintain a positive and productive work environment, leading to even more employees choosing to leave. You might have witnessed this pre- dictable pattern: the more turnover you have, the more turnover you will have.
Innovation at a Standstill
When knowledge is lost, gone with unwanted leavers, innovation suffers. Innovation thrives on genuine commitment to delivering the best outcome, underpinned by deep organizational knowledge, seamlessly incorporating lessons learned and best practices from seasoned team members. High turnover undermines this, making it difficult for teams to focus on problem-solving and strategic initiatives.
No matter your industry, when employees are frequently chang- ing, remaining team members spend a significant portion of their time onboarding new ones and integrating them into ongoing projects and processes to the best of their ability. This hinders inno- vation, slows down the implementation of new ideas, and increases overall risk.
Financial Costs of Turnover to Your Business
While low engagement leads to disruption and stalls innovation, the financial impact to the bottom-line reveals most clearly what this means for a business on an annual basis.
There is a mountain of data on the sheer scale of this problem of low engagement for the employer and employee, with more pub- lished daily. It is unfortunately a very hot topic for click bait, as many prey on the desperation of employers.
Gallup has been conducting its annual employee engagement survey for decades, consistently publishing low engagement rates ranging from mid-twenties to even mid-teens globally. As a leader, you know what an uphill battle it is to deliver quality for internal and external clients with a disengaged team. Disengagement makes delivering flawlessly and maintaining your credibility a constant struggle.
If you’ve ever been disengaged at your job, you can understand what a sad state of the world it is that four out of five employees hate going to work. Consider how much this erodes our quality of life. And it isn’t just alarming; it’s extremely costly. On a global eco- nomic level, these low engagement rates result in 7 trillion dollars of loss in productivity annually!
It’s one thing to talk about the global economic impact of employee disengagement, but who can relate to a loss of trillions of dollars? So, closer to home, why is this important for you? What is the impact to your business?
One frequently measured consequence of low engagement is high employee turnover. Regardless of industry, the biggest cost for companies is its people. People-related costs can account for as much as 70% of total expenses. A significant portion of this is attributed to employee turnover costs, which are a substantial financial drain on organizations each year.
When we think of turnover costs, most of us immediately think of the direct costs associated with turnover, such as recruitment expenses, including job advertising, recruiter fees, and the time spent interviewing and onboarding new staff to replace the old.
However, in addition to direct costs, organizations also incur substantial indirect costs. The most obvious is the time required for new hires to reach productivity. Less obvious are the project costs due to valuable product or process knowledge lost with departing experts, as well as reputation costs that arise from disruptions in customer service when client-facing employees change frequently. Having been in client-facing positions throughout my career, I’m not sure there is anything more embarrassing, credibility-eroding, and ultimately customer-loyalty-destroying (and recurring-reve- nue-degrading) than clients sensing you have a toxic environment. It can cause them to worry about the impact your issues might have on them and drive them to mitigate their risk exposure by taking their business elsewhere. If you don’t relate to what I’m talking about, you’re lucky.
When considering the direct and indirect costs of employee turnover, Deloitte estimates that the total cost of losing a single employee can range from tens of thousands of dollars to 1.5 to 2 times their annual salary. The cost estimate encompasses the fol- lowing three buckets:
1. the average 6 months of disengagement prior to resignation while an employee is on your payroll, phoning it in as they search for a new position,
2. the 6 months it takes to fill an open position, and
3. the additional 6 months needed for a new hire to become fully trained and productive.
For a rough back-of-the-envelope estimate of how much turn- over is costing you, use this formula. Multiply your FTE, number of Full Time Employees, by your employee turnover rate. Then mul- tiply the product by 1.5 times your average salary, from Deloitte’s cost estimate range.
TURNOVER COST = FTE x Turnover Rate x Average Salary x 1.5
Or use the even simpler formula below, where 15,000 assumes a below average turnover of 10% (average is 13%) and average salary of $100,000 multiplied by 1.5, again from Deloitte’s cost estimate range.
TURNOVER COST = FTE x $15,000
For a 100-person organization this results in an estimated cost of $1.5 million annually... Add to that the stress of having more departures than Chicago O’Hare, the reputational harm, and the impact turnover has on your targets.
Thankfully there is a better way. You can avoid these costs of low engagement with smarter employee retention and hiring strategies.
Engagement Pays Off Literally
Implementing strategies to increase employee engagement is not just about avoiding costs. There is significant upside to getting it right! According to Gallup, companies with highly engaged employees see:
2x retention: Engaged employees stick around, which means you don’t have to keep throwing time and money into recruiting, rehiring and retraining.
2x customer loyalty: Engaged employees deliver more, so your clients get better service. This is how businesses get raving fans.
3x growth: Companies with loyal employees grow faster, innovate more, and perform better. It’s the magic of engagement!
30% higher productivity: When people are engaged, they just work harder and smarter, leading to higher revenue. Plain and simple.
20% higher profitability: Engaged employees innovate more, deliver better customer service, make more sales, and operate more efficiently, which means better margins and more profits for you and your business.
Nearly 150% higher earnings per share: Companies with high employee engagement deliver significantly higher earn- ings per share vs. their competition.
I can’t overstate the benefits of engagement and its ripple effects. Engaged employees lead to happy customers, which leads to a thriving business. It’s a win-win-win!
