“Touchy-Feely Stuff” Makes Money

Many of today’s more enlightened decision-makers are generally aware that happy employees and fair management practices lead to a healthy bottom line.

But before they shell out resources to create a psychologically healthy work environment, they often struggle to find evidence of that link. They may ask themselves, “Does this touchy-feely stuff (satisfied and engaged employees, good honest communication, a workplace where people respect one another, staff who feel supported by management, etc) really work?’ They may further wonder, “but does going this route bring in money?”

Fortunately for these leaders, credible sources of evidence do exist that offer them a way to examine the impact of a happy workplace on the bottom-line – and whether they should spend the money to make sure they achieve such a work environment.

For example, peer-reviewed scholarly journals are key tools to let companies make sound assessments about investing in leaders and staff.

A peer-reviewed journal publishes scientific results that are reviewed by several different experts in a particular field of research. Fellow scientists make critical comments about the authors’ work that must be dealt with adequately by the writer before the research paper can be published in the scholarly journal.

Unlike magazines like Psychology Today or The Harvard Business Review, or consultant newsletters, brochures and the Internet, peer-reviewed journals provide critically appraised research results.

So, according to a peer-reviewed journal in the field of applied psychology, a branch of psychology interested in understanding individual, group and organizational behaviour and its practical implications, what do we know so far about effective management practices and their impact on the bottom line?

Quite a bit, it turns out. In a sweeping study published in the Journal of Applied Psychology, researchers James Harter of The Gallup Organization, Frank Schmidt at the University of Iowa and Theodore Hayes with the U.S. Immigration and Naturalization Service reported management changes that increase employee satisfaction may boost customer satisfaction, productivity, profit, staff turnover, and reduce workplace accidents.

Employee engagement and satisfaction refers to an individual’s involvement and enthusiasm for work. Staff are engaged when they feel connected to others, know what is expected of them, have the resources to do their job, and feel they are part of something significant.

And the facet of satisfaction most highly related to performance is happiness with the supervisor, according to Harter, Schmidt and Hayes.

The researchers analysed data from almost 8000 business units in 36 U.S. companies gleaned from close to 200,000 respondents.

They wanted to answer an important question: Is overall employee satisfaction and engagement at a particular level of an organization, such as a bank branch, department, car dealership or a store, related to increased profitability and productivity? And do these positive business outcomes exist across different organizations in different sectors?

The researchers theorized that when engaged and satisfied staff apply themselves at work, they should have a positive effect on business performance, and this effect should be present across many different organizations and sectors.

The business outcomes to which the authors refer are increased customer satisfaction and loyalty, productivity, profit, employee retention and safety.

– Customer satisfaction and loyalty was determined through customer satisfaction scores, patient satisfaction ratings in the health care sector, student’s ratings of teachers in education and quality ratings by “mystery shoppers” at the retail level. “Mystery shoppers” are people posing as customers to evaluate the service they received in a store.

– Profitability was a measure of profit as a percentage of revenue or a difference score from the previous year or from a previously budgeted amount.

– Productivity was measured through revenue figures, revenue-per-person figures, revenue per patient and the like.

– Turnover was measured as an annualized percentage of employee turnover for each business unit. It included voluntary and involuntary turnover.

– Safety outcomes were measured through lost workday/time incident rates or the percentage of workdays lost because of accidents.

Their 2002 study looked at organizations in the financial, manufacturing, retail, service, transportation and public utilities industries.

Employee satisfaction and engagement was measured using the Gallup Workplace Audit, a tool that taps employee perceptions of manager interpersonal effectiveness. The questionnaire asked staff to rate themselves on statements like: “I know what is expected of me at work”; “In the last six months, someone at work has talked to me about my progress”; “There is someone at work who encourages my development.” And, “I have a best friend at work”.

The study concluded that employee satisfaction and engagement has a positive effect on customer satisfaction, profitability, productivity, turnover and safety.

For example, business units with high levels of employee engagement had “on average from $80,000 to $120,000 US higher monthly revenue or sales (for one organization the difference was more than $300,000 US).

So, even companies with an $80,000 US difference per month per business unit, generate $960,000 US per year per business unit inside the company.

It appears, then, that millions of dollars in profit can be correlated to something as simple as staff engagement and satisfaction. Being content with the supervisor, receiving recent recognition, having opportunities to learn and feeling one’s opinion matters all contribute to the bottom line too.

We know from a reputable source, a peer reviewed journal, that there is an excellent chance that investing in sound management practices should boost the bottom line.

This is a chance worth taking – and one you can probably take to the bank.

Dr. Jennifer Newman and Dr. Darryl Grigg are registered psychologists and directors of Newman & Grigg Psychological and Consulting Services Ltd., a Vancouver-based corporate training and development partnership. They can be contacted at sunmail@newmangrigg.com

Identifying information in cases cited has been changed to protect confidentiality.

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