Engaged companies outperform their competition, a Gallup study shows
It's great when companies try to improve employee engagement and even better when they measure it. Measurement is the first step companies must take before they can implement meaningful actions to improve engagement. But if they don't measure the right things in the right way, those actions won't matter -- and they won't have a measurable impact on business outcomes or the bottom line.
Concentrating on employee engagement can help companies withstand, and possibly even thrive, in tough economic times.
"Measurement is one thing, what you measure is another," says Jim Harter, Ph.D., Gallup's chief scientist of employee engagement and wellbeing. "You can measure a lot of things that have nothing to do with performance and that don't help a company implement a system that allows managers to create change."
Gallup's Q12 employee engagement assessment is designed to uncover the things that really matter to employee engagement and business performance. It's backed by rigorous science linking it to nine integral performance outcomes. And Gallup researchers continually study findings from research on the Q12 to learn more about employee engagement and its impact on organizational and team performance.
Predicting key performance outcomes
Every two to four years, Gallup completes meta-analysis research -- a statistical technique that pools multiple studies -- on the Q12. By conducting this research regularly over time and increasing the number of work units analyzed, Gallup stays on the cutting edge of how well employee engagement predicts key performance outcomes.
In 2012, Gallup conducted its eighth meta-analysis on the Q12 using 263 research studies across 192 organizations in 49 industries and 34 countries. Within each study, Gallup researchers statistically calculated the work-unit-level relationship between employee engagement and performance outcomes that the organization supplied. Researchers studied 49,928 work units, including nearly 1.4 million employees. This eighth iteration of the meta-analysis further confirmed the well-established connection between employee engagement and nine performance outcomes:
- customer ratings
- turnover (for high-turnover and low-turnover organizations)
- safety incidents
- shrinkage (theft)
- patient safety incidents
- quality (defects)
Given the timing of the eighth iteration of this study, it also confirmed that employee engagement continues to be an important predictor of company performance even in a tough economy. "When you ask people about their intentions during a recession, it's pretty clear that disengaged workers are just waiting around to see what happens," says Harter. "Engaged workers, though, have bought into what the organization is about and are trying to make a difference. This is why they're usually the most productive workers."
Gallup researchers studied the differences in performance between engaged and actively disengaged work units and found that those scoring in the top half on employee engagement nearly doubled their odds of success compared with those in the bottom half. Those at the 99th percentile had four times the success rate of those at the first percentile. These kind of performance differences are always important to businesses, but they are especially crucial during a recession.
Work units in the top quartile in employee engagement outperformed bottom-quartile units by 10% on customer ratings, 22% in profitability, and 21% in productivity. Work units in the top quartile also saw significantly lower turnover (25% in high-turnover organizations, 65% in low-turnover organizations), shrinkage (28%), and absenteeism (37%) and fewer safety incidents (48%), patient safety incidents (41%), and quality defects (41%).
The 2012 meta-analysis verified once again that employee engagement relates to each of the nine performance outcomes studied. Gallup also finds that the strong correlations between engagement and performance are highly consistent across different organizations from diverse industries and regions of the world.
Increased engagement leads to higher earnings per share
Gallup's research also shows that companies with engaged workforces have higher earnings per share (EPS), and they seem to have recovered from the recession at a faster rate. In a recent study, Gallup examined 49 publicly traded companies with EPS data available from 2008-2012 and Q12 data available from 2010 and/or 2011 in its database. This study found that businesses with a critical mass of engaged employees outperformed their competition:
- Companies with an average of 9.3 engaged employees for every actively disengaged employee in 2010-2011 experienced 147% higher EPS compared with their competition in 2011-2012.
- Companies with an average of 2.6 engaged employees for every actively disengaged employee, in contrast, experienced 2% lower EPS compared with their competition during that same time period.
Researchers discovered that as the economy began to rebound after 2009, having an engaged workforce became a strong differentiator in EPS. Companies with engaged workforces seemed to have an advantage in regaining and growing EPS at a faster rate than their industry equivalents. Conversely, companies with average engagement levels saw no increased advantage over their competitors in the economic recovery.
Measuring what matters
Joseph Juran, noted management expert, said, "Without a standard, there is no logical basis for making a decision or taking action." Most companies understand this to some degree, but many persist in measuring performance by the wrong standard -- using unsubstantiated or ineffective metrics that ultimately lead nowhere. When leaders work with Gallup to measure and manage employee engagement at their companies, they can be confident that the Q12 is backed by years of empirical research.
Factors such as EPS, profitability, productivity, and customer ratings are all key indicators in determining a company's health and its potential for growth. The research shows that the Q12 is a business' best measurement tool for initiating companywide transformation to create sustainable growth.
"Companies constantly evolve, and they need new ideas all the time. Engaged employees are a lot closer to the best ideas," says Harter. "They're thinking about the whole company and how they fit into it, and their ideas lead to better decisions."
By intentionally focusing on measuring and managing employee engagement using Gallup's Q12 metric, companies can gain a competitive advantage that will keep them moving forward. Research shows that concentrating on employee engagement can help companies withstand -- and possibly even thrive -- in tough economic times.