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Posted by Sarah Brown on 17 Jul '15

How treating staff well could solve the UK’s productivity crisis and what staff want

UK productivity is low and there is good reason to believe it is because only 27% of the UK workforce feels highly engaged at work. This blog explains the financial reasons to engage staff and gives examples of how to do it.

Over the last couple of weeks there has been much talk about the UK’s productivity crisis. Why do we perform so badly against other countries? Is it lack of investment, lack of trained staff or just laziness? I have heard all of them discussed yet not once have I heard anyone talking about the fact that how you treat your staff is fundamental to your success and levels of productivity. It is impossible to have a successful business in the long term if you treat your staff badly.

Estimates are that up to 80% of people who are employed are doing jobs that don’t inspire them which means that they are not working to their full capacity, nor are they working in their passion. Think of the impact on the economy and wider society, as well as on the people, if people were fulfilled and inspired at work. They would be more productive and creative, they would inspire their families and the wider community and the businesses they worked for would be happier, more successful with happier customers who would know they could trust what they received.

A 2013 Gallup study[i] showed a direct link between employee engagement and shareholder return; companies where 90% of employees felt engaged had earnings per share 147% higher than their competitors in 2010 and 2011.

We’re in the business of building an organization, an institution that we hope will be here fifty years from now. And paying good wages and keeping people working with you is very good business

Jim Sinegal, Cost Co

Even in recent times when jobs have been hard to come by, the only way to provide exceptional service is to have motivated and exceptional staff and that means that they need to be treated well. The cost of hiring badly or treating staff badly so that they leave and you have to recruit again is estimated at up 2.5 times the annual salary cost.

In 2010 a survey by PricewaterhouseCoopers (PwC), estimated the cost of staff turnover in the UK to be £42bn a year.

In terms of treating staff well and involving them Gallup[ii] have found that businesses with a highly engaged workforce have 3.9 times the earnings per share growth rate compared with those in the same industry with disaffected staff. AON Hewitt[iii] research indicates:

“a disengaged employee costs an organisation an average of $10,000 in profit annually; as a result organisations with high engagement are 78% more productive and 40% more profitable”

They also found companies with high engagement scores were more resilient to economic problems in the 2008 crash. Marks and Spencer tracked sales in stores with staff who were becoming more engaged compared to declining engagement and found that they delivered £62 million more in sales each year. Similarly Sainsbury’s found high engagement contributed up to 15% of a store’s year on year growth.

Research[iv] however indicates that only 27% of employees in the UK are “highly engaged”. It is likely that this is one of the reasons that UK productivity continues to lag behind other countries.

Creating an engaged workforce

In the 2012 UK Engage for Success Task Force report four enablers of employee engagement were identified:

Supporting these enablers and turning them into reality are likely to be a range of policies and procedures and training programmes such as:

  • Vision and values induction and awareness sessions
  • Management and leadership development and training
  • Clear performance and promotion criteria
  • Staff development training
  • Volunteering opportunities
  • Time to develop own projects and ideas

However more important than these is a culture that empowers.

The person who sweeps the floor should choose the broom…We need to get rid of rules – real and imagined – and encourage independent thinking

Howard Behar, former president of Starbucks[v]

The bottom line

Getting the treatment of staff right at every stage has a radical effect on financial results[vi]:

Releasing the potential of an engaged workforce holds the prospect of reducing costs associated with sickness, absence, employee turnover, production errors, accidents and inefficient processes. It also holds the prospect of improving productivity, customer satisfaction, customer retention and innovation. Any one of these mechanisms is capable of delivering substantial benefits to the bottom-line performance of organisations.

UK Engage for Success Task Force Report

So what are employees looking for?

The base line rewards must be sufficient. That is, the … basic compensation should be adequate and fair – particularly compared with people doing similar work for similar organisations. Your (organisation) must be a congenial place to work. And the people …must have autonomy, they must have the opportunity to pursue mastery (get better at something that matters), and their daily duties must relate to a larger purpose. If these elements are in place, the best strategy is to provide a sense of urgency and significance – and then get out of the way.

Daniel Pink - Author of Drive: The Surprising Truth about What motivates Us

To attract and retain the staff we want we need to inspire them with a story of where the business is going and how they can be part of it. Without meaning, work is just a series of tasks, and the time at work, a period to be endured while you wait for the day to end and the weekend to arrive.

Staff want to be as committed to the business they work for as a volunteer is to the charity they support. Like a volunteer staff can leave, particularly in sectors where demand exceeds supply like health care, engineering or technology but if they stay under sufferance they are a threat to the business.

Job satisfaction ranks high on many surveys of what people want from work as do things such as:

  • Personal freedom and autonomy in determining how they will do their job
  • Respect of colleagues and being part of a team which is passionate to achieve results, and is unified around a common goal and set of values
  • Learning something new and building skills in something worthwhile
  • Challenging opportunities including chances to try and fail
  • Helping other people and purpose which may be within the business or by activities such as volunteering
  • Completing a project/producing a clear output
  • Feeling involved and valued and consulted
  • Appreciation and recognition – sometimes all it takes is a thank you

Money ranks pretty low down the list – it is necessary but not necessarily motivational, however the lack of it can be demotivating causing resentment, low morale, poor customer service and a lack of effort and productivity.

Treating staff well does not equate to high salaries – money is not enough if the environment for staff is poor. Many lower salary firms can be good places to work if they treat their staff well and many high salary places are not good employers. However money can be an issue. In 2014 the average raise equated to about 1% in additional spending power for an employee but if an employee leaves a company generally they can look forward to a 10%-20% increase in salary and sometimes as much as 50%. Are you punishing loyalty to your firm and rewarding people who move regularly?

The absurdity of this is clear when you think about the costs of employee turnover including interviewing, hiring, training, reduced productivity while people learn the job, lost opportunity costs, team disruption. Estimates have been made that the costs of replacing employees are:

For entry - between 30% and 50% of their annual salary
For mid-level employees - upwards of 150% of their annual salary
For high-level or highly specialised employees, about 400% of their annual salary

It matters what a company does

Employees also care that their employer is ethical.

The 2013 Global CSR Study by Cone Communications shows that more than 80% of corporate employees would strongly consider leaving an employer if they discovered that the business was using child labour in their supply chain; 65% might leave if their employer was harming the environment and almost a third would consider leaving if their employer didn’t donate to charity.

The Millenials[vii], the workforce going forward, are values- driven idealists with research by Global finding 61% of the Millennial generation only want to work for organisations that do social good. According to PWC 48% of people deliberately seek out employers whose corporate responsibility behaviour reflects their own values.

A motivational environment

There are all sorts of ways of providing an environment that motivates staff. For example, Charles Handy in his book “Inside Organizations” describes one company which gets the people in the factory who make a machine tool to deliver it in person to the customer. While this disrupts the workflow in the factory the motivational effect on the staff more than compensates and it provides a better service for the customer who gets an expert at the installation. In addition, the staff are always going to ensure the equipment is perfect since they will be there at installation.

MTV recently surveyed Millennials on their work habits, and found that 78% believe it’s important to have a side project that could become a different career. And companies of all types, from investment banks to ad firms, are now known to be explicitly tolerant of side-entrepreneurship.

Staff can be motivated by their working environment and the facilities such as an on site gym, great rest areas etc. Staff events such as parties and trips can build a feeling of being part of a team. Others go further with employee ownership schemes that actually mean everyone ‘owns’ part of the company – a real team.

Gripple, a manufacturing company in Sheffield, exemplifies all these elements with a great manufacturing works where the shop floor is as pleasant as the offices – in one area there is a huge suspended cow with staff hand prints from the agricultural section all over it. There are great staff rest areas with games, computers, papers, food and drink facilities and every member of staff has to be a shareholder after a year of employment. Needless to say their staff turnover is very low and their success is very high. Interestingly they do not have defined job descriptions and when an order needs to get out everyone will lend a hand if it is needed.

Some benefits can cost little or nothing. Ben and Jerry’s ice cream, for example, allowed each employee three free pints of ice cream a day and free massages. The impact was high showing a company that cared but the cost to the company was relatively low.

The physical space where people work can alter how they interact and feel. For example, treating staff well means making them feel that they are heard and appreciated, yet if a manager generally meets their staff from behind their desk with a computer monitor which takes their attention and is in the way preventing eye contact , this can give out a message that the manager is not really listening or caring. Simply moving the monitor or meeting in another way can improve how much people feel heard.

Many businesses provide volunteering opportunities for staff to help with recruitment and retention.

All in all this all equates to being a company fit to run in the 21st century. If we can't get companies to engage their staff then I believe however much is spent on equipment we will fail to be competitive.

[i] Source: http://www.forbes.com

[ii] Source: The Values-Driven Organization by Richard Barrett p 22

[iii] Ibid p23

[iv] Ibid p23

[v] Source: Conscious Capitalism by John Mackey and Raj Sisodia p240

[vi] Ibid p25

[vii]Source: IPA President Tom Knox’s Inaugural Address, Wednesday 29th April 2015, The Rosewood Hotel