From PROFIT magazine, April 2010 (by Chris Atchison)
Four simple strategies that turned good employers into great ones with financial results to match.
Jean-François Warlop had no idea he had an employee-engagement problem. The staff at Quadra Chemicals Ltd. seemed happy, and Warlop considered his firm’s corporate culture one of its top two priorities, along with cash-flow management. But when Quadra’s president had a third party measure how engaged his staff were in their jobs, the results came as a shock.
The Vaudreuil-Dorion, Que.-based chemical distributor used the Best Small & Medium Employers in Canada (BSME) program as its measuring stick. A joint venture of Queen’s University’s Centre for Business Venturing and global HR consulting and outsourcing firm Hewitt Associates LLP, the BSME uses a confidential employee survey to calculate an employee-engagement score for each firm entered in the program. This score measures the percentage of staff who agree strongly with statements such as "It would take a lot to get me to leave this organization," "Given the opportunity, I tell others great things about working here" and "This organization inspires me to do my best work every day."
Warlop had expected Quadra’s dedication to its employees to translate into high engagement. Instead, its score was merely average — too low to make the 2006 BSME list. Warlop found this deeply worrying, because in Quadra’s relationship-driven industry, it’s crucial to have strong partnerships with clients and suppliers. "If you don’t have highly engaged people in a distribution business, you’re going to be in trouble very soon," he says. "It’s the biggest driver of profitability."
Warlop had recently learned from a survey by Quadra’s industry association that its profits lagged by almost 40% behind competitors of a similar size. He also knew that a long-standing gap between senior and mid-level employees was widening, which he now saw as a key factor in its so-so employee-engagement score and weak profitability. Warlop decided to make a big push to get Quadra’s staff more fired up about working there, and to enter the BSME ranking again to track his progress.
If you were to have a third party measure employee engagement at your own company, you might be as shocked as Warlop was by Quadra’s initial ranking. Even among the firms that choose to enter the BSME — often to obtain independent proof that they’re doing well in what they consider an important metric — a substantial share score poorly. Neil Crawford, a Vancouver-based principal at Hewitt, says about 15% of entrants score below 45%, meaning the majority of their workforce is effectively disengaged.
Still, how much does it matter how keen your people are about working for you? Data from the BSME ranking suggests it matters a great deal. On several business indicators, firms with more than 65% of their staff highly engaged far outperform those reporting moderate engagement of 45% to 65%. Of the 55 publicly traded companies surveyed by Hewitt over the past five years, employers in the top engagement tier boasted annual growth averaging 16.4%, versus 6.1% for the moderate-engagement firms. Engagement leaders had 54% lower turnover and almost twice as many job applicants per advertised position as the middling group. And staff at high-engagement companies averaged only six sick days each year, compared with 12 at moderate-engagement firms.
These numbers might convince you that entering the high-engagement elite would do wonders for your business, yet leave you wondering how to achieve that. Employee-engagement specialists say one thing it’s not about is simply paying your staff more. "I very rarely see compensation as an engagement driver," says Daphne Woolf, managing partner of The Collin Baer Group Ltd., a Toronto-based HR consultancy specializing in employee engagement. "The only time I’ve hit compensation as an engagement driver is when it’s absolutely out of sync with competitors."
If not pay, what then? There are, in fact, many ways to get your people more enthusiastic about their jobs. The BSME rankings include many repeat entrants, several of which — including Quadra — have achieved increases in employee engagement ranging from sizable to massive. Here, four of these big movers share the strategies they have adopted and the business results they have attained.
Garo Keresteci and Stephen Brown operate in marketing communications, a sector they say has notoriously low engagement levels. It’s one in which staff tend to be overworked and underappreciated, leading to annual turnover that’s often 20% to 30%. The partners at FUSE Marketing Group Inc., a Toronto-based marketing agency, saw an opportunity to, as FUSE’s president Keresteci says, "create an agency where people want to put down roots and can get really engaged."
The partners figured that a highly engaged team would be a key competitive advantage. They reasoned that a stable and productive workforce fuels growth by reassuring clients and leading to better and more consistent work and, eventually, bigger and more complex projects. That’s why FUSE hired a full-time HR person in 2006, when it had just 25 to 30 staff, to craft a long-term strategy to become an employer of choice in its industry.
FUSE made the 2009 BSME ranking with a solid if unspectacular engagement score. This year, its score has vaulted ahead by 14% — an impressive feat, given the state of the economy — taking FUSE into the top tier.
Fears among its staff about the recession peaked in early 2009, when the agency lost a major client. That’s when the partners’ recent move to share details of the firm’s strategies and finances at regular meetings with employees started to pay off. "In a really tough year, we told people flat out: ‘This is the reality, this is what we’re collectively having to work towards,’" says Brown, FUSE’s general manager. "‘If we can get there, we can retain clients, retain jobs and keep going.’"
The partners say they spent twice as much time as they used to on internal communications, but in return succeeded in reassuring their employees during the worst of the downturn. Going transparent had one unforeseen consequence: being grilled by employees. "Our open dialogue meant that when you ask for questions, you have to be prepared for some zingers," says Brown.
FUSE also made another change that the partners say boosted engagement and staff retention. They realized that their employee ownership and RRSP programs were an appealing incentive to stay on board for the half of their staff over 30 years of age, but not so much for those staffers just out of university. FUSE therefore introduced an à la carte benefits program, which included health-spending accounts so that massage-loving 20-somethings could allocate more of their benefits entitlement to therapeutic rubdowns while the over-30s could tailor their benefits program to longer-term needs.
Turnover at FUSE has shrunk from 26% in 2006 to less than 10% in 2009, which the partners say has boosted productivity and helped retain clients. While revenue dipped slightly in 2009, Keresteci and Brown were delighted to survive such a tough year with no layoffs. They predict FUSE will resume its previous growth rate of 12% to 15% in 2011.
Quadra started its push to boost employee-engagement levels by taking a hard, top-down look at how the firm’s structure was holding it back. Warlop ousted three senior executives whom, he concluded, were the wrong people to transform its culture, engage employees and kick-start bottom-line growth. He also set up a series of employee focus groups to identify the most crucial areas to address.
One key finding: "We were pretty bad at recognizing employees, and the focus groups told us so," says Warlop. "Our No. 1 priority was to progressively insert recognition as part of our culture."
That, in turn, required addressing a deep disconnect between senior and middle managers. "Previously, middle managers identified more with all the other employees than with senior leaders," says Joanne Modafferi, Quadra’s human-resources director. The company worked to bridge this gap by including middle managers in quarterly planning meetings so they’d understand the firm’s strategic direction. As well, Quadra stressed the importance of recognizing staff, which middle managers were responsible for, and doing so while the achievements were fresh.
Warlop reinforced this by sending personalized e-mails to staff who exceeded performance expectations, such as by winning new business or improving efficiencies. He also extended a hand to support staff, who had felt that kudos were reserved for those in sales and marketing. And Quadra revived annual reviews of each employee’s goals and compensation, which it had allowed to lapse as it grew.
"At first, there was some cynicism," Warlop admits. Some workers were skeptical after seeing poor-performing colleagues remain in their jobs, while others openly mused that management was more concerned with appearing on a corporate ranking than with tangible workplace improvements. But the HR department kept hammering home the message that the new culture-first approach was good for business, not a flavour-of-the-month initiative. And, after giving poor performers a chance to improve, Quadra soon replaced those who did not.
Warlop says the improved productivity, better communication and renewed employee vigour has boosted profitability by 40%. And the 2010 BSME ranking reveals that employee engagement has soared by 52% since 2006, putting Quadra well into the top tier.
As word spread about the changes at the company, qualified job seekers began to approach it, saving the firm tens of thousands of dollars in recruitment costs. And its voluntary staff turnover rate fell from 15% in 2005 to a comfortable 5% in 2009.
Cameron Hay says he wouldn’t have been surprised to find low employee-engagement levels after his company put itself through a major upheaval. Unitron Hearing Ltd., a Kitchener, Ont.-based hearing-aid developer, had laid off half its workforce of 200 in 2007 as it offshored its manufacturing.
"People felt like they’d just been through a storm, and it was emotionally exhausting," recalls Hay, the firm’s CEO. "We had manufactured in Canada for 40 years. And when people saw their colleagues and friends go, that was an issue."
Hay had wondered how staff felt working for a company that had made sweeping layoffs even as sales grew by 20% per year. He was pleasantly surprised when the surveys his staff completed in 2008 for the following year’s BSME ranking showed a quite high engagement score. He attributes this to the clear communications his HR team had made with staff about the need to move manufacturing overseas.
Still, Hay was keen to take the score to the next level. Central to this effort was to articulate six new core company values, expressed as communal declarations: we challenge, we care, we are united, we are agile, we act with integrity, we pursue the wow. "People want reasons to be proud of their company, team and work," says Hay. "And by articulating those values and culture, that was a big foundation."
Of course, talking to employees about your company’s values can come off as empty sloganeering. So, Unitron had to convince its staff of how seriously it took the six principles. "We spent a lot of time making people understand that it was authentic, it was inspiring and it was something they could aspire to — and that we would put it into performance appraisals," says Hay.
The company also launched a plethora of new products, celebrated staff accomplishments and reinforced the message that each achievement was the result of the team’s collective hard work. "When we do great things and release world-leading products, people can feel that they really contributed to the company," says Hay. "That’s what fulfills them."
Unitron challenged its employees to "pursue the wow" by innovating or meeting performance goals. Recognition came fast and furious as the firm handed out internal rewards to staff at all levels, often for suggesting ideas on everything from cost savings to product development.
"The only way we generate new innovations is to have lots of ideas on the front end," says Hay. "If people are feeling engaged in what they’re doing and applying their creative muscles to the problems we have, that’s when we get breakthroughs."
But with great accomplishments came long hours. Hay figured Unitron would get bumped off the 2010 ranking by his stressed-out and exhausted employees. In fact, the firm’s engagement score has risen by 6% — a substantial increase in just one year, especially from a high starting point.
With annual employee turnover at just 6% and growth topping 20%, Hay is proud that his staff has cleared a major restructuring and recession without much pain. He credits this success to the pride his employees take in living up to Unitron’s values: "If your employees are really engaged in what they’re doing, they’ll go through a wall for you and your company when you ask them to."
Don Quist’s company had been through a few downturns in the Alberta oil patch since its founding in 1992, but none came close to the beating it took after oil prices tumbled by 75% in the second half of 2008. Quist, managing director of Sherwood Park, Alta.-based Hood Group, which provides engineering and other services to the oil-and-gas industry, saw its revenue plummet by 40% as multimillion-dollar projects dried up in a matter of months.
Yet, amid this devastation to the firm’s top line, its BSME employee-engagement score jumped. Then it jumped even more the following year, for a total increase of 25% from 2008 to 2010. That takes Hood’s engagement level from decent to one of the highest on the BSME list.
In part, this jump reflects a series of measures the firm took after its initial 2008 ranking. Hood’s managers had made a concerted effort to communicate more effectively and transparently about such key business indicators as revenue and its efforts to land new clients. They also formed management/staff committees to examine where engagement was lagging, which identified employee benefits as the top priority. Quist sought staff feedback via e-mail, then approached Hood’s insurer to tweak its plan to include more flexibility for staff at different stages of life.
But what really has engaged Hood’s staff is the entrepreneurial mindset that Quist had cultivated among them since Day One, which really came into its own in hard times. The company’s employees didn’t wait to be told what to do. Instead, they came forward with an array of solutions and worked flat out to save the company. Their enthusiastic response to the gravest crisis in the firm’s history got Hood through it without a single job loss or pay cut.
"Everyone here has the freedom to be who they want to be," Quist says of his hands-off philosophy. "We encourage everyone to step up and speak."
The company makes the Hoodlums, as its staff members call themselves, aware of performance expectations when they’re hired, but then gives them pretty much free rein regarding their jobs. Although management provides one-on-one or group-coaching sessions to employees who aren’t meeting personal or company goals, it avoids ranking or scoring their performance.
"Who am I to tell somebody they’re a three out of five?" asks Quist. "We actually had badges with an ’X’ through the words ’Employee Evaluation.’"
Instead of assessing whether employees measure up to a numerical standard, Hood encourages them to think like owners, such as by looking for potential efficiencies in their departments. Employees embraced the idea during the recession, meeting together informally and then with their department managers to devise cost-cutting plans. They volunteered to job-share where necessary, and found ways to shuffle staff from divisions whose business was shrinking to those that were still running strong.
Hood has always had low employee turnover, averaging less than 5% per year since 1992. This proved a tremendous recessionary asset, as plenty of staff had the experience needed to keep a close eye on cash and project flow. Once both started to dry up, employees were quick to pounce. Managers did revenue forecasts every week and reacted accordingly, while experienced sales staff began knocking on the doors of long-term clients — oil-and-gas giants such as Suncor and Shell — as well as prospects.
"Because of that, our 2010 workload isn’t much better than 2009," says Quist. "But our 2011-12 workload is already stacking up very strongly."
Beyond simply surviving the steepest economic downturn in decades, how does Quist gauge the success of his engagement efforts and Hood’s strong entrepreneurial culture? The unconventional boss uses staff attendance at Hood’s four annual company parties and retreats as his chief metric. The minute it slips below 75% and staff show signs they no longer want to socialize outside work hours, Quist will start to worry.
So far, he hasn’t had any concerns. And the momentum that Hood’s highly engaged work¬force built up during the recession augurs well for the future, says Quist: "Increasing employee engagement is going to be the long-term foundation of the company’s stability, regardless of the economy."
