The Towers Perrin 2007-2008 Global Workforce Study: Insights to Drive Growth

HCI White Paper

October 30, 2007 By Tom Durgin

INTRODUCTION In the face of significant business challenges such as global competition, emerging skill shortages, and the need for both product and process innovation, companies are looking for ways to enhance workforce effectiveness. Business leaders are exploring how to deploy people more creatively to meet business priorities, as well as how to develop the workforce to maximize discretionary effort and potential. Best practice companies are forming comprehensive workforce strategies involving new sources of talent, improved approaches to building skills and managing knowledge, and clear lines of sight from daily tasks to business strategy. Achieving sustainable growth in your workforce and your business comes with tremendous pressures and challenges, not the least of which is the competition for talent. Winning top talent demands insights into workforce planning, engagement drivers, and how best to develop leadership performance. Towers Perrin explored these and many other issues of talent management in its 2007-2008 Global Workforce Study. ABOUT THE STUDY The 2007-2008 Global Workforce Study is the largest polling study to date on the views of the global workforce, compiled of nearly 90,000 individual responses from 18 countries* around the world. The majority of survey respondents work full time for midsize and large organizations, and the survey focuses primarily on employee views of their organizations and the factors that influence employee attraction, retention and engagement -what attracts employees to an organization, what helps the organization keep them, and what moti-

vates employees to "go the extra mile" for their employer. The findings were supplemented by normative data from Towers Perrin-ISR, which assembles the most extensive normative database of employee attitudes and opinions in the world and annually surveys some two million workers from over two dozen countries. EMPLOYEE ENGAGEMENT ENGAGEMENT GAP AND THE

At the heart of our study were nine statements posed to survey respondents. These nine statements were correlated to how respondents think, feel, and act with regard to their company - the rational, emotional, and motivational connection to their employers. A statement that correlates to a rational affiliation might be: "I understand how my unit contributes to the success of my organization." Emotional connection speaks to a sense of pride, commitment, and affiliation, for example: "My organization inspires me to do my best work." A motivational statement probes the extent to which an employee is personally motivated, such as: "I am willing to put in a great deal of effort beyond what is normally expected to help my organization succeed." It is the combination of these three components rational, emotional, and motivational - that defines "engagement." Engagement is not about knowledge. It's not about satisfaction. It's not about commitment. It's about something deeper that, according to our research, is a much better predictor of individual behavior and the link to performance. Engagement is not about agreeing with statements but about exhibiting behaviors and positive actions.

Based on the degree to which they agreed with those nine statements, Towers Perrin's study placed respondents into four engagement groups: engaged, enrolled, disenchanted, and disengaged. Essentially, these categories represent the extent to which employees believe they can make a difference in their company. Engaged employees are far more likely to believe they play an important role in their company with regard to quality, customer satisfaction, and innovation. And this belief dictates the real win discretionary effort, or what it takes for people to contribute more of their energy, creativity, and passion on the job. Engagement means harnessing the full power of your workforce. The study demonstrated that the "engagement gap" (Figure 1) the difference between employees' discretionary effort and the company's effectiveness in tapping into that effort to drive performance can have an enormous impact on an organization's bottom line. "Engagement represents something far

more potent than satisfaction or happiness," says Patrick Kulesa, Global Research Director of Towers Perrin-ISR. "We've found a definitive link between engagement and business performance." THE BUSINESS CASE Towers Perrin has compared the financial performance of organizations with higher versus lower employee engagement, and the difference is striking (Figure 2). For example, over a three-year period, companies with high engagement levels significantly outperformed companies with low engagement levels by almost six percentage points of operating margin. A similar pattern holds for net profit margin as well as other financial measures like revenue growth and earnings per share growth. The business case for engagement is persuasive. Simply stated, more engaged people deliver better performance and produce better financial results. ENGAGEMENT AND RETENTION RISK

Figure 1: The Engagement Gap

Given engagement's positive impact on business performance, it's imperative for companies to retain strong, engaged talent. The Global Workforce Study also surveyed employees about their views of the future, specifically, if they planned to stay with their current company, if they were actively looking for another job or if they were not actively looking but would entertain an offer (Figure 3).

Figure 2: Financial performance of organizations with higher versus lower employee engagement

Figure 3: Impact of engagement on retention

By a significant margin, engaged workers had no plans to leave and were least likely to be actively looking for another job. At the same time, over a quarter of disengaged workers were actively looking for another job, and another 15% had already made plans to leave their current job. Unfortunately, there's a downside. Enrolled employees - those who are competent but unenthusiastic - are at the greatest risk of being lured to another company. These are employees who, while not fully engaged, represent tremendous potential and are workers that most companies cannot afford to lose. Although conventional wisdom indicates that losing the least productive workers may benefit a company, our data suggests that many disenchanted or disengaged employees are so unmotivated that they're not looking for other opportunities. Most are simply passive job seekers who would consider another offer but have no active plans to leave. Many of these employees are likely to remain with their current company, dragging down performance and/or undermining morale. THE DRIVERS OF ENGAGEMENT

ment drivers is dominated by factors like company reputation for social responsibility, openness to employee input, responsiveness to customers, opportunities for career advancement, and an environment that encourages innovation. And while these drivers vary by country and employee segment, senior management interest in employee well-being rates as the number one engagement driver globally, as well as in the U.S. Reputation for corporate social responsibility is the number three driver, which shows up in the top 10 for the U.S. and many other countries. Customer focus and employee development are also key factors. Indeed, five out of the top 10 drivers of employee engagement (below, in bold) operate at the organizational level rather than at the local team or individual levels. TOP 10 DRIVERS GLOBALLY o o o o OF ENGAGEMENT

What drives engagement and what can a company do to close the engagement gap? o Our study used rigorous statistical analysis of respondents' answers to a series of questions to identify the key drivers of engagement. Findings suggest that organizational factors have by far the greatest impact on workforce engagement. Though highly personal variables like individual skill development, personal standards, and enjoyment of new challenges clearly play a role, the list of top engageo o o o o

Senior management's interest in employee well-being Improved my skills and capabilities over the last year Organization's reputation for social responsibility Input into decision making in my department Organization quickly resolves customer concerns Set high personal standard Have excellent career advancement opportunities Enjoy challenging work assignments that broaden skills Good relationship with supervisor Organization encourages innovative thinking

In other words, people want to work for an organization that is regarded as a leader in business and in the community, and they look for the organization's senior executives to set the overall tone and live the values. Moreover, people are engaged when senior leadership gets it right by creating a sound strategy and the sense that the company will be a winner in the marketplace; by insisting on fairness and building the kind of organization in which individual contributions and ideas are valued and personal growth is encouraged; and by fostering a spirit that promotes teamwork and makes employees feel that the people at the top are looking out for everyone's interests.

encouraging. It means that organizations can make a huge difference in creating a more engaged workforce, if they focus on the right things. CONVERTING THE ENROLLED The segment of the workforce that represents the greatest potential for boosting engagement is the enrolled - those employees who are not currently engaged, but are not disenchanted either. These are people who, while not fully embracing their employer's mission and vision, in many cases probably do their jobs well and meet the organization's requirements. But they rarely give the added "breakthrough" effort that distinguishes the engaged worker.

These findings provide new insights into how organizations can differentiate their value propositions to attract and retain the most talented indi- The good news is that their views on the nine stateviduals and future leaders. In the end, learning that ments that define engagement aren't far behind the "the organization matters" is profound and very engaged group (Figure 4). Overall, it is their emoFigure 4: A closer look at the components of engagement, by engagement level

tional engagement score that is significantly lower; their senior leaders are sincerely interested in what the enrolled seem to lack is passion. That's employee well-being. As we've seen, this belief is where organizational vision, inspiration and the number one driver of engagement worldwide. encouragement come in. Despite companies' efforts and significant investCREATE ENGAGING LEADERS ments in leadership development, engaging employees to contribute more continues to elude Countless times, you've heard senior leadership say many senior executives. In some respects, today's that "people are our most important asset." Our complex organizations require a new set of abilities research suggests that this mantra may be little that leaders need to master and that are just as more than lip service in many organizations. Our important as operations, finance, and other discistudy found that only 10% of all respondents glob- plines. These include coaching, sponsoring, develally felt they were treated as the company's most oping, role modeling, communication, and important asset. Figure 5 highlights the dim views rewards. Senior leaders' involvement has an enormost employees have of leadership across multiple mous impact on getting and keeping employees dimensions. Perhaps most telling is that over a engaged. third of the survey respondents (38%) agree that

Figure 5: Employee perceptions of senior management

HOW DRIVERS OF ENGAGEMENT VARY In focusing more attention on workforce management, organizations need to recognize that not all employees respond to initiatives in the same way and to the same degree. The factors that drive attraction, retention, and engagement vary significantly by age, level, and job function as well as by region and industry. Take the top three drivers of engagement by age, for example. As Figure 6 shows, while there are common threads - including senior leadership interest in employee well-being, personal development, and corporate social responsibility - the importance of these factors shifts significantly over the course of employees' careers. Younger employees focus on career development and the opportunity to move up in the organization. As employees age, the role the organization plays in the community increases in importance. The oldest workers, on the other hand, look for stronger connections to leadership. Figure 6: Top engagement drivers by age group

USE INSIGHTS TO ALIGN AND SEGMENT As a company learns more about what drives workforce behavior, it can more accurately align its human capital with its business strategy. This means creating an engaging, high-performance culture that supports strategic priorities. Towers Perrin's research on high-performing companies shows there's no one right definition of a winning culture in the abstract. The right culture is the one that helps execute business strategy and engage the workforce. For example, Towers Perrin-ISR research has found that high-performing organizations with a focus on efficiency excel at training, task coordination, resource allocation, and performance management (Figure 7). On the other hand, high-performing organizations that focus on innovation excel at diversity, information sharing, collaboration, and anticipating customer needs. The key is creating a

workplace that best supports the execution of your organization's unique business strategies. This has major implications for the design of workforce strategies and for the allocation of a finite supply of time, management attention, and financial resources. CONCLUSION

Just as companies invest an enormous amount of time and effort into understanding their customers, they must also begin investing more effort to understand their employees. And just as customer insights aren't solely of interest to marketing, Based on the Human Capital Institute Webcast, The employee insights aren't solely owned by HR. Towers Perrin 2007-2008 Global Workforce Study: Senior line leaders need to be actively involved and Insights to Drive Growth, October 30, 2007 sensitive to the nuances in employee views and

motivations across the various workforce segments. Focusing on what drives engagement can help companies build competitive advantage in the market, retain their best talent, and increase performance levels throughout the organization. The Towers Perrin 2007-2008 Global Workforce Study offers insights into how to close the engagement gap and maximize the potential of your workforce and your organization. For more information about the study, visit www.towersperrin.com.

Figure 7: Cultural differentiators in high-performing companies by strategic priority

EXPERT PANELISTS Max Caldwell Managing Principal of the Workforce Effectiveness Practice Towers Perrin Max Caldwell is a Managing Principal of Towers Perrin and a leader of the firm's Workforce Effectiveness practice. In this role, he helps companies develop and implement strategies to improve workforce attraction, retention, engagement and performance. Max joined Towers Perrin in 1994 and is based in the firm's New York office. Julie Gebauer Managing Director Towers Perrin-ISR Julie Gebauer is the global leader of Towers Perrin's Workforce Effectiveness practice and a member of its Human Capital Group Operations Council. She consults on a broad range of HR issues, including workforce analytics, HR strategy, talent management and total rewards. She assists organizations in evaluating workforce needs and gaps, and developing and implementing total reward strategies to support business goals. She also advises organizations on all aspects of financing, design and administration of their benefit programs. Ms. Gebauer is a frequent speaker on global workforce management and total rewards for such organizations as The Conference Board. She is also frequently quoted regarding the latest trends and developments in HR, talent management and rewards.

Patrick Kulesa Global Research Director Towers Perrin-ISR Patrick Kulesa is the Global Research Director of Towers Perrin-ISR and has supported the firm's clients through research services since 1999. He holds a Ph.D. in social psychology from Northwestern University and specializes in advanced data analysis of employee surveys and related measures of organizational performance. Specifically, he has studied the drivers of employee engagement and turnover as well as the links among employee opinion, customer satisfaction and business performance, including measures of sales, profits and occupational safety. Mr. Kulesa's research has been published in a wide range of industry trade publications and premier academic journals. MODERATOR Joy Kosta HCI As Director of Talent Development and Leadership Communities at The Human Capital Institute, Joy brings 25 years of experience in multiple facets of organizational development, human resources and business management with an emphasis in customer satisfaction, service quality, process improvement and applying the Malcolm Baldrige Criteria for Performance Excellence. As founder and President of Performance Partners in Health Care, a company dedicated to building better

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patient experiences, she has authored several curriculums in leadership and staff development, and coauthored Building a Treatment Alliance with Patients and Families with Harold Bursztajn, M.D., Senior Clinical Faculty member, Harvard Medical School. ACKNOWLEDGEMENTS This White Paper is made possible by Towers Perrin, sponsors of HCI's Workforce Effectiveness Track. ABOUT TOWERS PERRIN

agement. Those ideas are then transformed into measurable, real-world strategies that help our members attract and retain the best talent, build a diverse, inclusive workplace, and leverage individual and team performance throughout the enterprise.

Towers Perrin is a global professional services firm that helps organizations around the world optimize performance through effective people, risk and financial management. The firm provides innovative solutions to client issues in the areas of human resource strategy, design and management; actuarial and management consulting to the financial services industry; and reinsurance intermediary services. The firm has served large organizations in both the private and public sectors for over 70 years. Our clients include three-quarters of the world's 500 largest companies and three-quarters of the Fortune 1000 U.S. companies. ABOUT THE HUMAN CAPITAL INSTITUTE The Human Capital Institute is a catalyst for innovative new thinking in talent acquisition, development and deployment. Through research and collaboration, our programs collect original, creative ideas from a field of top executives and the brightest thought leaders in strategic HR and talent man-

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