Engaging for Success

1 Engaging for Success : enhancing performance through employee engagementPrinted in the UK on recycled paper containing a minimum of 75% post consumer for Business, Innovation and Skills First published July 2009. Crown Copyright. BIS/Pub 8859/07/09NP. URN09/1075 Engaging for Success : enhancing performance through employee engagement A report to Government by David MacLeod and Nita Clarke Engaging for Success : enhancing performance through employee engagement A report to Government David MacLeod Nita Clarke The text in this document may be reproduced free of charge in any format or medium providing it is reproduced accurately and not used in a misleading context. The material must be acknowledged as Crown copyright and the title of the document specified. Where we have identified any third party material you will need to obtain permission from the parties concerned. For any other use of this material please write to Office of Public Sector Information, Information Policy Team, Kew, Richmond, Surrey TW9 4DU or e-mail: The views expressed in this report are the authors and do not necessarily reflect those of the Department or the Government.

2 The authors are not responsible for any third party material. Original material for the case studies has been supplied by the organisations themselves and were chosen to reflect a range of sectors of the UK economy, but do not constitute a representative sample. ii Contents Foreword by Secretary of State 1 Introduction 3 Chapter 1: employee engagement What, why and how 7 Chapter 2: The Case for employee engagement The Evidence 34 Chapter 3: The Barriers to engagement 66 Chapter 4: Enablers of engagement What has to happen to make engagement work 74 Chapter 5: Recommendations 117 Annexes 124 iii Foreword by Secretary of State This timely Report sets out for the first time the evidence that underpins what we all know intuitively, which is that only organisations that truly engage and inspire their employees produce world class levels of innovation, productivity and performance.

3 The lessons that flow from that evidence can and should shape the way leaders and managers in both the private and public sectors think about the people who work for them. They should also shape the way employees approach their jobs and careers. A recession might seem an unusual time for such reflection in fact, the opposite is the case. Because Britain s economic recovery and its competitive strengths in a global economy will be built on strong, innovative companies and confident employees, there has never been a more important time to think about employee engagement in Britain. This report helps take forward that debate. It sets out what government can do to help promote an understanding of just how much greater employee engagement can help improve innovation, performance and productivity across the economy. It launches a challenge that my department will take forward in the months ahead. Rt Hon Lord Mandelson Secretary of State for Business, Innovation and Skills 1 Introduction 1 We were asked by the then Secretary of State for Business in the autumn of 2008 to take an in-depth look at employee engagement and to report on its potential benefits for companies, organisations and individual employees.

4 When the new Secretary of State, Lord Mandelson, met us in the spring, as the recession was biting, he encouraged us to examine in particular whether a wider take up of engagement approaches could impact positively on UK competitiveness and performance, as part of the country s efforts to come through the current economic difficulties, take maximum advantage of the upturn when it comes, and meet the challenges of increased global competition. 2 Our answer is an unequivocal yes. In the course of the past eight months we have seen many examples of companies and organisations where performance and profitability have been transformed by employee engagement ; we have met many employees who are only too keen to explain how their working lives have been transformed; and we have read many studies which show a clear correlation between engagement and performance and most importantly between improving engagement and improving performance.

5 3 We believe that if employee engagement and the principles that lie behind it were more widely understood, if good practice was more widely shared, if the potential that resides in the country s workforce was more fully unleashed, we could see a step change in workplace performance and in employee well-being, for the considerable benefit of UK plc. 4 engagement , going to the heart of the workplace relationship between employee and employer, can be a key to unlocking productivity and to transforming the working lives of many people for whom Monday morning is an especially low point of the week. 5 We deal with the different definitions of engagement in the report. But at its core is a blindingly obvious but nevertheless often overlooked truth. If it is how the workforce performs that determines to a large extent whether companies or organisations succeed, then whether or not the workforce is positively encouraged to perform at its best should be a prime consideration for every leader and manager, and be placed at the heart of business strategy.

6 6 Where this happens, in places like John Lewis Partnership, Tesco, the London Ambulance Service, Sainsbury s, Standard Chartered Bank, BAE Systems, Toyota, Babcock Marine Clyde, Google, Telef nica O2 UK and many more, the results can be transformational because employee engagement enables an adult, two-way relationship between leaders and managers, and employees, where challenges can 3 Engaging for Success : Enhancing performance through employee engagement be met, and goals achieved, whether it be improved patient care, higher quality production, or more satisfied customers. 7 Of course a sustainable business strategy and access to cash are vital, just as good policy and planning are for successful public services. But in a world where most factors of production are increasingly standardised, where a production line or the goods on a supermarket shelf are much the same the world over, employee engagement is the difference that makes the difference and could make all the difference as we face the realities of globalised competition and of the millions of graduates and even more skilled and committed workers that China, India and other economies are producing each year.

7 8 As our public services face the reality of an end to the years of rapid growth in investment, it is hard to see how the quality of service we all aspire to see employees and citizens alike can be achieved without putting the enthusiasm, commitment and knowledge of public service employees at the forefront of delivery strategies. 9 Nor is employee engagement only relevant in retail, where customers expect a cheerful face on the till, rather than a languid hand waving them to a far-off aisle in response to a query about the availability of marmalade, and where employees attitudes demonstrably and immediately impact on customer satisfaction. As Sir Alan Jones, Chairman Emeritus of Toyota UK told us: Wherever you work, your job as a manager is to make your people be the best they can be and usually they don t know just how good they could be. It s individuals that make the difference . For Toyota, this approach is not based on altruism though it is based on a profound respect for its members.

8 It is predicated on the firm belief that the most valuable asset the company has is its people, and that enabling them to have an intellectual and emotional relationship with their work, as well as a financial stake in the Success of the company, is the key to continuous product and productivity improvement from the shop floor to the boardroom. Toyota s people are their competitive advantage. 10 The way employee engagement operates can take many forms that is one of the most fascinating aspects of the topic and the best models are those which have been custom-developed for the institution. As everyone knows, John Lewis Partnership is a company owned by its employees but the company is clear that its model of shop-floor voice and engagement , which is such a critical factor in its continued Success , is not simply a function of its ownership structure, but stems from a profound belief, first articulated by its founder, that people working in the business are central to its Success .

9 11 Many company leaders described to us the light-bulb moment when an understanding of the full potential significance of employee engagement dawned. Tesco Chief Executive Terry Leahy has recorded his reaction when he realised that the company knew more about its customers than it did about its employees, and 4 Introduction how the company then set about understanding what the workforce wanted, what motivated them at work and what workplace approaches would best build on those understandings, working in partnership with the retail workers union USDAW. As Tim Besley, leading economist and member of the Monetary Policy Committee put it, there is an increasing understanding that people are the source of productive gain, which can give you competitive advantage. 12 Individual employees in companies with strong engagement strategies described to us how their working lives have been transformed for the better.

10 Mandy Symonds of United Welsh said: Being involved not only gives me real opportunities to influence the decisions which affect me and my future, it also means I am more aware of the wider picture. As a result I can be confident United Welsh are going places, so for me it s the place to be. 13 Company accounts that show the workforce as a cost on the balance sheet, alongside capital depreciation, encourage a boardroom mindset which ignores the people factors. Many people we spoke to also pointed to the limitations of an approach which regards the workforce en masse as human resources leading to a monolithic and one-dimensional view of people. As Will Hutton, Executive Vice Chair of the Work Foundation told us: We think of organisations as a network of transactions. They are of course also a social network. Ignoring the people dimension, treating people as simply cogs in the machine, results in the full contribution they can make being lost.