Do HR initiatives pay?

03 August 2005

Global human resources outsourcing and consulting firm, Hewitt Associates, has just released new data showing the strongest link yet between engaged employees and business success. Their analysis of 1,500 companies over a four-year period showed that companies with higher engagement levels had markedly higher total shareholder return. Companies with between 60 per cent and 100 per cent engagement achieved an average return of 24.2 per cent, whereas those with lower engagement (49 per cent to 60 per cent) had lower return at 9.1 per cent. When engagement is below 25 per cent, those companies suffer a negative total shareholder return.

What is an engaged employee? One simple way to show the difference is an employee who shifts from the personal ("I") to a sense of team and organisation ("We"). Hewitt says the engaged employee says the right things about the organisation, stays with it and strives to do a better job.

The data shows engagement creates more sales, more market value, higher return on capital. On the other side, it shows reduced absenteeism, fewer accidents, greater customer loyalty and retention. These are all direct drivers of profit and success.

But the Gallup Organisation over at least two decades has found in the USA that as many as 69 per cent of employees are "not engaged", that only 16 per cent are engaged. This engaged group drive organisational success. The vast majority is not engaged; they drag performance down. What would a similar survey find in India?

Northrop Grumman, a Los Angeles-based provider of defence electronics and systems integration, is a $15-billion business with 79,000 employees, and it faced a problem in its 'internal information services' organisation. As chief information officer, Tom Shelman, puts it, "We were losing people with 20 years invested in the company. Our attrition rate was in the mid-teens and rising. And the corporation was demanding a higher level of IT expertise."

Communication at management level was found to be the major problem. Shelman says, "Our mission, our vision – all those things we assumed the managers understood – we learned we weren't communicating."