The Costs of Lost Employee Productivity

In today’s economic environment, employers are struggling to find every advantage possible in order to thrive, grow or simply to stay in business. And one place to look for that advantage is internally, at one’s own workforce.

For most U.S. based organizations, the reality is that payroll represents the largest expense. So it stands to reason that advantages, therefore, should come first and foremost through better talent management.

Talent management describes a wide range of activities, and not all are necessarily positive. Most employers have already frozen or restrained hiring and many have downsized their workforce. While both are necessary at times, it is our contention that the largest opportunity for corporate performance improvement lies in engaging the workforce to drive better customer engagement, improve revenue and achieve higher profits. And, it is our belief that, employers who can improve employee engagement during this downturn will reap immediate and long-term benefits.

Engaged versus Disengaged Workers

Make no mistake about it—the cost of employee disengagement is profound. In the aggregate, employee disengagement is estimated to cost the U.S. economy as much as $350 billion dollars per year in lost productivity, accidents, theft and turnover. For organizations, the difference between an engaged and disengaged workforce can ultimately mean success or failure.

Most leaders and organizations know the difference between a fully engaged worker and one that is marginally engaged or disengaged. The former brim with enthusiasm, contribute ideas, are optimistic about the company and its future, are seldom absent from work, typically stay with the organization longer, and are among the company’s most valuable ambassadors.

Disengaged workers, on the other hand, are often absent (even when they are at work). They are also disconnected and often pessimistic about change and new ideas, have high rates of absenteeism, and tend to negatively influence those around them, including potential customers and new hires.

Perhaps the most important difference between engaged and disengaged workers is productivity. Engaged and disengaged workers of equal skills, knowledge and abilities do not contribute equally. Engaged workers are significantly more productive.

The Numbers Tell the Story

According to a 2008 study by Gallup, about 54% of U.S. employees are not engaged, 17% are disengaged, and only 29% are engaged. Similarly, in December 2008, Towers Perrin’s Global Workforce Study of almost 100,000 employees in 20 countries found that only 22% of the U.S. workforce is engaged, 66% not engaged and 11% disengaged.

Over the years, highly credible research based on millions of employees and hundreds of organizations have demonstrated the direct link between employee engagement, customer engagement, revenues and profit. Gallup, a leader in engagement research says the following:

“Research has shown that engaged employees are more productive employees. The research also proves that engaged employees are more profitable, more customer-focused, safer, and more likely to withstand temptations to leave. Many have long suspected the connection between an employees’ level of engagement and the level and quality of his or her performance. Our research has laid the matter to rest.”

The Culture of Engagement

So, the questions is, with the research so compelling and the consequences so clear, why don’t more organizations do something about employee engagement, particularly now when every dollar counts more than ever before?

Employee engagement is driven by the fundamentals in an organization. For it to be high and stay high, an organization needs a solid culture and value system that supports the ingredients necessary for engagement. Senior leaders have to drive the process and “walk the halls” to demonstrate their commitment to employee engagement. Managers must be selected and developed with employee (and customer) engagement in mind and they must be held accountable, through a total rewards and performance management strategy that aligns their desired behaviors, goals and outcomes with those of the organization overall. Employees must also be made partners in the effort.

In most organizations, both the challenges of engagement and the remedies to improve it are daunting. But the payoff is enormous. Beyond the bottom line, it is arguable that in the near future, post-recession, beyond the baby-boomer retirements and after the number of companies investing in engagement reaches a tipping point—an engaged workforce will be a matter of survival. After all, who would continue to drag themselves into work every day for a paycheck when they have options and can have the paycheck and be highly engaged in their work at the same time?

Editor’s Note: This article is excerpted from a research report by the Human Capital Institute entitled “The Return on Engagement”. The paper is available at www.hci.org.

Allan Schweyer is the executive director of Human Capital Institute and founder of the Enterprise Engagement Alliance, a newly formed coalition of organizations committed to promoting engagement in business. He can be reached at [email protected].