Why is employee engagement so important (and what are its benefits)?

Interested in engaging your workforce? Learn why employee engagement matters for the long-term success of your organization and which metrics you should measure.

You embarked on a career in HR because you care about people, and you think they’re a business’s most valuable asset.

So when you hear criticisms about HR, it’s hard not to take them personally.

And what’s frustrating is that oftentimes, you agree with these criticisms. They’re just so hardwired into the HR function, they become hard to change.

You may have heard that HR is:

It’s no surprise then that the concept of employee engagement has attracted so much attention from employers.

87% of organizations say that employee engagement is one of their top challenges, and it’s because there are tangible benefits of employee engagement.

While employee engagement focuses on employee happiness, satisfaction, and well-being, employee engagement programs are also closely tied to tangible metrics like retention, turnover, absenteeism, profit, and productivity.

An overarching focus on employee engagement helps human resources accomplish several goals.

Overall, employee engagement helps HR leaders shake off many of the stereotypes about HR.

Are you interested in focusing on employee engagement in 2020? Need some help articulating the benefits of employee engagement and why employee engagement is important?

Here are a few points to get you started.

Employee engagement improves organizational performance

Organizational performance is how well a company does compared to its intended goal in a specific timeframe.

Simply speaking, if your company intends to produce 1,000 widgets by the end of year one and you produce 1,001, you’ve overperformed.

More broadly speaking, organizational performance focuses on three key areas:

Companies that have implemented employee engagement initiatives typically see improvements in all three areas.

After the financial crisis, DTE Energy needed a way to motivate its employees.

Its president at the time was not a huge believer in concepts like organizational purpose and employee engagement.

But in dire times, even non-believers are willing to give unfamiliar concepts a try.

Hoping to encourage employees to go the extra mile with fewer resources in a challenging market, he embarked on an employee engagement exercise that focused on articulating the company’s purpose.

Specifically, DTE Energy:

Both the company’s engagement scores and its stock price went up. In fact, between 2008 and 2017 the stock price more than tripled in value.

This is one of the main reasons employee engagement is important.

The benefits of employee engagement are felt both when the market is doing well and poorly, allowing companies to effectively marshall their resources towards meeting goals.

Employee engagement fosters innovation

What’s something that the most innovative companies have in common?

They have a positive company culture that engages their employees and allows them to thrive.

Let’s dive a little deeper.

When you gather a company’s values and behaviors together, you get its company culture. At a high-level, you can describe different cultures in a single world.

That word may be “competitive”, “high-performance”, “customer-centric”, “sales-driven”. The list goes on.

In any case, an organization’s culture is indicative of a few key factors:

When there’s a positive company culture that gives a microphone to different voices, encourages innovative projects (even when success isn’t guaranteed), and gives employees the tools they need to succeed, employees are more engaged.

Two things that boost both employee engagement and company culture are:

Unsurprisingly, these exact activities lead to greater innovation within organizations.

In the early days of the company, Google encouraged employees to spend 20 percent of their time on projects outside of their core responsibilities.

Its encouragement led to successful Google products like Gmail, Adsense, and Google News.

Google is known for a culture that follows well-known employee engagement best practices such as:

In this way, Google wound up with an engaged workforce with enough investment in their workplace to share their innovative ideas.

Employee engagement boosts productivity

Productivity refers to how well inputs are converted into outputs. There are several possible inputs including time, equipment, materials, and of course, people.

Since productivity is such an important part of a healthy economy, experts are always monitoring factors like government regulations that may have an impact on it.

Now, business leaders are interested in the impact of employee engagement on productivity.

Engaged employees are happy, invested in the success of the company, and motivated by the company’s work and mission.

How does this lead to greater productivity?

Well, recall our earlier definition of productivity: how well inputs are converted into outputs. In the knowledge economy, the most significant inputs are people (aka their skills) and time.

Recent research shows that the majority of salaried employees only do about 3 hours of work each day, no matter how long they’re working.

What do they spend the most time doing? According to this research, they’re:

On the other hand, an engaged worker wants to discuss projects with colleagues, make connections with others in the company, and spend time solving interesting problems.

When you’re interested in the work that you’re doing, it’s easier to stay on task.

As a result, the time that the company invested in is spent on work-related tasks rather than non-work tasks.

In addition, engaged employees are healthier and happier.

This means they have lower rates of absenteeism or presenteeism (being physically present at work but not mentally productive due to illness, exhaustion, or low morale).

Notably, health care costs at companies with a lot of pressure and stress (which is not conducive to employee engagement) are almost 50% greater than health care costs at other companies.

So employers take two hits. They take a hit on health insurance costs (which may not even cover employee’s needs to begin with) and they take another hit in terms of reduced productivity.

Employee engagement reduces turnover

Employee turnover costs organizations a lot of time and money. It can cost up to 33% of a worker’s annual salary to replace them.

Turnover also affects the productivity of the other people on your staff.

While you’re looking for a replacement, other employees have to compensate for the missing employee by adding their tasks to their workload.

And if it’s a small team, that work may disproportionately fall on the shoulders of one employee.

If this isn’t handled properly, it can impact the employee satisfaction and engagement of your other employees creating a dangerous domino effect.

Why is employee engagement important for reducing turnover and improving retention rates?

First, consider what makes people want to leave an organization:

It’s interesting considering that the best drivers of employee engagement are:

In other words, the benefit of employee engagement is its ability to address the factors that make employees want to leave.

And by addressing these factors, employers reduce their turnover rate.

Employee engagement increases referrals for open positions

Referrals are the best source of new employees. Your employees have the skills you already need, and chances are the people in their network have similar skills and experience.

This gives employers access to an indirect talent pool of passive candidates (candidates who are already employed and not actively looking for a new job).

When a position opens up at your company, you want these individuals to consider your company.

If your current employees aren’t engaged, they won’t recommend your company or worse, they’ll actively discourage people in their network from applying.

A formal or informal referral program is one of the benefits of employee engagement. With incoming referrals:

One of the best ways for companies to measure this is through their employee net promoter score.

This measures how willing employees are to recommend their company to others as a great place to work.

There’s a tangible benefit of employee engagement here since engaged employers recommend your company to their friends, which effectively reduces your recruiting costs and minimizes the impact of turnover.

Employee engagement increases customer service and customer loyalty

You know what they say: Happy employees equal happy customers.

In today’s hyper-fragmented market, this is more important than ever.

Companies have a lot working against them like fickle customers, countless competitors offering similar products and services, and a generation of consumers accustomed to customization and personalization.

As a result, the best way to compete is by offering outstanding customer service.

Companies today need to make customers feel special by cultivating a company-customer relationship that doesn’t feel transactional.

Of course, companies are complex organizations and it’s difficult to have one-on-one interactions with every customer.

To solve this problem, companies have invested in technology to seamlessly interact with customers across multiple digital platforms.

That said, while these help facilitate interactions, they can’t replace quality human interactions.

And no amount of technology can simulate an engaging and compassionate customer service representatives.

There are studies that back up the notion that happy employees create happy customers.

A Glassdoor study found that a one star improvement in a company’s employee ranking on the site corresponded to a 1.3 (out of 100) improvement in customer satisfaction levels.

The study found that the impact was even greater in companies with frequent interactions with customers.

An engaged workforce that feels respected, appreciated, and recognized feels the need to go the extra mile for customers. They aren’t simply going through the motions.

They show empathy, actively listen to customer problems, and proactively seek solutions. As a result, they turn even the most contentious customer interactions into positive experiences.

Employee engagement creates a culture of continuous improvement

Throughout this article, we’ve discussed many of the ways companies engage employees.

They provide upskilling opportunities, so employees keep up with the changes in the market and avoid stagnation.

They give employees clear metrics and goals tied to business strategy and then promote and compensate them accordingly.

They encourage managers and employees to have open and honest dialogues and regular touchpoints.

This alerts managers to issues early on and gives employees the feedback and coaching they need.

Notice a pattern? All of these traits focus on improvement.

When workers feel like their organization is investing in them, they match that investment by looking for ways to improve the organization, too.

This is a big reason why employee engagement is important. It creates a culture of continuous improvement.

When employees believe that their opinions are welcome and their efforts will be recognized, they’re eager to look for areas where they can improve processes and add value.

These improvements could be related to processes or customer service interactions.

Building a continuous improvement culture gives companies a competitive edge since they make changes both big and small on a frequent basis.

Employee engagement reduces presenteeism

While companies worry about absenteeism, a more pernicious phenomenon is affecting their productivity levels.

Presenteeism.

Presenteeism originally referred to employees working while sick (and therefore performing at a lower productivity level).

But the definition’s been extended to include employees who don’t perform at 100% either because they’re exhausted, stressed, or disengaged.

A crucial component of any employee engagement program is a focus on health and wellness.

This includes:

Research shows that presenteeism can cost companies just as much if not more than healthcare costs.

One study found that reduced performance from presenteeism cost companies more than $60 billion per year.

Companies focused on engagement offer robust wellness solutions that they can utilize both inside and outside the workplace to proactively manage their mental health.

These wellness tools and interventions can include cognitive behavior therapy sessions via email, group stress management classes, muscle relaxation lessons, health coaching and screening, health risk appraisals, and more.

In fact, companies that implement specific programs and interventions enjoy a significant return on investment. According to Deloitte, these interventions provide the following maximum ROI:

Engaging employees through comprehensive health insurance and tailored wellness programs gives them the support they need to thrive in their jobs.

Employee engagement helps your HR department become a data-driven function

How exactly does employee engagement make HR a more data-driven function?

Because it’s next to impossible to implement an employee engagement program at scale without using data.

For starters, embarking on an effective employee engagement initiative takes more than an internal email blast or video speeches.

It’s a consistent, determined effort to find out what motivates your employees, understand obstacles to employee success, and provide employees with the support they need to thrive.

To do this, you need to talk to your employees. Specifically, you need to ask them questions.

Remember that you can take a number of approaches to improving employee engagement.

You could focus on improving the relationship between managers and employees.

You could focus on better communication between senior leaders and middle managers when it comes to company goals and objectives.

You could focus on professional development opportunities.

Or you could focus on revamping your company’s entire health and benefits plan.

It’s tempting to want to tackle them all.

But the quickest way to undermine your employee engagement efforts is to take a blanket approach to solving all these problems.

You want an employee engagement program with depth, not just breadth.

The smarter strategy is to pick one or two of these projects and demonstrate your commitment to employee engagement by making real, impactful change.

But in order to do this, you need answers to two big questions:

One option is to go on a grand listening tour of your organization.

But while it’s important to give offer facetime, this is not the most efficient way to gather as many answers as possible, especially if you have hundreds or even thousands of employees.

This is where employee engagement technologies come in.

With the right tools, you can create better, more user-friendly annual surveys without spending a fortune on an external firm.

You can use your face-to-face conversations or your listening tour to develop a high-level understanding of employees’ pains and sources of dissatisfaction.

Once you have this high-level data, it’s possible to write specific questions that drill down on these pain points and distribute them through an annual survey.

Even after you’ve collected the results of your employee satisfaction survey, you can continue to collect useful data.

Rather than considering this your main source of data until the following year, you can think of the results of the annual survey as a benchmark.

As you roll out your employee engagement programs, consider sending shorter pulse surveys that allow you to quickly gauge how well your programs are performing.

Focusing on employee engagement provides companies with ample benefits

When companies focus on employee engagement, they tend to get back more than they give.

Employee engagement is important. And the biggest benefit of employee engagement is that employees feel supported and the work gets done in a more impactful way.

Engaged employees deliver better customer service, commit energy to improving processes, go the extra mile rather than doing the bare minimum, and proactively work to improve the entire organization.

Interested in learning how technology can get employee engagement to the next level? Learn more about our people analytics and employee engagement software.

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