Employee Engagement: Putting the Cart Before the Horse?

There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.
—Sam Walton

In the wake of Yahoo! CEO Marissa Mayer's directive to terminate work-from-home privileges, there's been heated debate about the wisdom of her decision. Will reduced flexibility cause top-performing employees to leave, and hurt the firm's chances to hire new talent? Or, is it a shrewd move that will help the company rally together to collaborate more effectively as "one Yahoo!"—according to the leaked internal memo?

The simple truth is that technology is still a poor substitute for human interaction.

Mayer's decision is controversial especially in tech circles because the hot thing is using technology to collaborate. Enterprise social networks, web conferencing and knowledge sharing applications are now ubiquitous in companies big and small. If these technologies are so great and flexibility is what employees want, then why not just let everyone work at home?

The simple truth is that technology is still a poor substitute for human interaction. An employee of a company that Google bought told me that work-at-home arrangements were terminated shortly after the acquisition. The acquired company had more flexible working arrangements but was struggling nonetheless. Google—the company where Mayer grew up—believes that people needs to be together for maximum productivity. Although the change brought some grumbles, it seems the majority of employees are happy with the acquisition and are adapting to the "Google Way" of doing business.

Has Google's performance suffered? Hardly. Google business results have been very impressive indeed, a sharp contrast to Yahoo's woes in recent years. What about morale? Google shines here, too. Based on Glassdoor reviews, employees are "Very Satisfied" overall (4.1 on a scale of 1 to 5) and CEO Larry Page earns a 95% approval rating.

Should we conclude, then, that being less flexible with employees is the key to boost business performance. Of course not. It's also a fallacy that giving employees everything they want automatically translates into improved business performance. (Incidentally, that doesn't work with customers, either.)

The Employee Engagement "Leap of Faith"

Work flexibility is part of the larger issue of "employee engagement," the subject of enormous academic and business research. While there is no one agreed-upon definition, employee engagement is usually thought of as a measure of an employee's job satisfaction and commitment to the organization and its goals.

In the business world, "ground zero" for this topic is Gallup, a research firm which attempts to measure employee engagement with just 12 questions. Review the list and you'll find that nearly all relate to how the employee is treated as an individual. In my view, this survey does a good job of quantifying WIIFM ("What's In It For Me"). That's important, but is it really the key to business performance?

The selling of employee engagement to the business world is essentially a leap of faith.

Over the years (decades, really) Gallup has pumped out an astounding amount of research, including a meta-analysis of "The Relationship Between Engagement at Work and Organizational Outcomes." Read that report and you'll be impressed with how well employee engagement correlates with business performance.

I emphasized "correlates" because Gallup is careful not to directly state that employee engagement causes or drives business performance. In fact, buried in the report on page 15 you'll find this statement: "This paper does not directly address issues of causality, which are best addressed with meta-analytic longitudinal data, consideration of multiple variables, and path analysis." Hmm, wonder what that means. Let's come back to that in a moment.

The selling of employee engagement to the business world is essentially a leap of faith. Using charts like the one on the right, the process goes like this: 1) measure employee engagement; 2) segment companies (or business units) into degrees of engagement; then 3) compare business outcomes by segments. And what do you know, you can clearly see that companies with more engaged employees also have better business outcomes—like increased revenue and profit, lower employee turnover, better customer service, and so on. Really, it's an impressive list of benefits. Who wouldn't want more of this?

The temptation, of course, is to draw a causation arrow from employee engagement to performance. The correlation is impressive, and it makes intuitive sense. Improve employee engagement and you'll improve business performance. End of story.

Oops. What if Business Performance Drives Employee Engagement?

Except for one small problem. Assuming correlation means causation is one of the most common mistakes in analytics. While Gallup doesn't claim this causation directly, I've seen countless references to Gallup research using the correlation to sell training, collaboration tools and other technologies. The pitch: "Our solution will improve employee engagement and your business will prosper."

A stronger "causal directionality flows from financial and market performance to overall job satisfaction."

The problem, of course, is that a correlation between A and B can result from: A causing B; B causing A; or A and B are both caused by C. More advanced statistical techniques are needed to figure out whether the chicken or the egg comes first.

A literature review supports the A (employee engagement) causes B (business performance) argument. But wait, there's more. It also notes a contrary finding from a 2003 report by Schneider, Hanges, Smith and Salvaggio—researchers who conducted a longitudinal study with 35 organizations over eight years. The surprising finding: A stronger "causal directionality flows from financial and market performance to overall job satisfaction."

In other words, B causes A. And A causes B. It's a reciprocal relationship.

I can attest to this personally during my 15-year tenure at IBM. During that period, the company always treated me well, making good on a core principle of "Respect for the Individual." But it was a whole lot more fun to work at IBM when it was performing well.

The Risks of "Employees First" Thinking

Still, there may be situations where putting employees ahead of customers makes sense, at least for a time. In this camp is Vineet Nayar, CEO of I.T. outsourcer HCL Technologies, and author of Employees First, Customers Second. Nayar explains in a 2012 interview:

"I am saying is by employees first you can actually deliver your promise of customers first. If you do not put the employee first – if the business of management and managers is not to put employee first – there is no way you can get the customer first.

While this has a whiff of circular logic, if you dig deeper you'll find that Nayer is saying that employees create value for customers, so managers must focus on employees first. In the case of HCL needing to boost morale and trust as part of a transformation, this makes good sense.

But I think it's dangerous to take "employees first" literally and extrapolate to all businesses. Consider the fate of "dot bombs" in the late 1990s. Internet visionaries built businesses on the promise of monetizing eyeballs. Until the VC money ran out, employees were no doubt engaged in fun-filled offices equipped with Aeron chairs, games, free food and parties.

More recently, Groupon is another cautionary tale. Founder/CEO Andrew Mason was fired for a plummeting stock price and poor business performance, just 15 months after the second largest IPO in US history. Judging by office photos and YouTube videos, employees seem to be having a great time. Obviously, that wasn't enough. In Mason's resignation email, he acknowledged that a lack of customer focus was his downfall: "I let a lack of data override my intuition on what’s best for our customers."

Customers or Employees First? Yes

Let me be clear about a couple of things. Employee engagement is important. Employees who are really committed to their jobs, like their bosses and feel appreciated will work harder and be more productive. There's no real debate about any of that.

But the question still remains: productive at what? If employees are not directed towards creating customer value that also helps the organization succeed, it's just wasted energy. And customers, not employees, have the final say as to whether a company is delivering something of value.

If employees are not directed towards creating customer value that also helps the organization succeed, it's just wasted energy.

Michael Lowenstein, an expert in customer and employee loyalty argues that companies should move beyond engagement to create "employee ambassadorship," which he finds is "more closely correlated with business results and value-building because its emphasis is building customer bonds through direct and indirect employee interaction." Three elements are:

• Commitment to company: Commitment to, and being positive about, the company (through personal satisfaction, fulfillment, and an expression of pride), and to being a contributing, loyal, and fully aligned, member of the culture
• Commitment to value proposition Commitment to, and alignment with, the mission and goals of the company, as expressed through perceived excellence (benefits and solutions) provided by products and/or services
• Commitment to customers: Commitment to understanding customer needs, and to performing in a manner which provides customers with optimal experiences and relationships, as well as delivering the highest level of product and/or service value

Instead of a linear relationship of employee engagement driving business results, or vice versa, think yin and yang. According to Chinese philosophy, the concept refers to interdependent forces that interact to form a whole greater than the sum of the parts.

I suggest viewing customer and employee engagement as an example of yin-yang in business. Stop debating which one comes first or is more important. Realize that employees and the customers both have to be engaged, at the same time, to move your business forward for sustainable success.

Further Reading and References:

• Employee Satisfaction and Organizational Performance: A Summary of Key Findings from Applied Psychology
• Schneider, B., Hanges, P. J., Smith, D. B., & Salvaggio, A. N. (2003). Which comes first:
  Employee attitudes or organizational financial and market performance? Journal of Applied Psychology, 88, 836-851.
• Does telecommuting really reduce employee performance?