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12 Oct 2018

Does Engagement Drive Performance? The Chicken and Egg Question

Dr Thomas Rasmussen

If you have ever linked employee engagement scores to business outcomes (sales volume, customer satisfaction, financial & operational performance, etc.), you have likely been part of a “chicken or egg” discussion: does engagement really drive performance? Or is it the other way around, so being part of a winning team and having high performance (and getting the rewards) drives engagement?

This debate often turns very philosophical and with more opinions than fact, and you know what they say about opinions (everybody has one..). But it’s actually a question that can easily be answered by data – and here is what I have seen people analytics teams find across three large organizations in different industries, using 5-7 years of data, and published in 2015 and 2017 in open access (free) papers I co-authored:

1.Over time (2-3 years), engagement really does drive business and individual performance

The potential uplift in sales or customer satisfaction (NPS) is typically in the 15-25% range. That’s a massive opportunity. Building employee engagement is a bit like buying shares: you are investing in the future, and both employers, customers, shareholders and employees can collectively reap the dividends ongoing. This is also aligned with the meta-analyses on high-performing work systems, showing the impact of motivation on business performance (e.g. ‘How does Human Resource Management influence organizational outcomes? A meta-analytic investigation of mediating mechanisms. AMJ, 2012’).

2. Within shorter time frames (less than a year), engagement and business/individual performance impact each other mutually

Uplifts (or drops) in engagement have about the same effects on business/individual performance outcomes, as uplifts (or drops) in business/individual performance have on engagement. That means they are dynamic, and impact each other – that is really not that surprising, given our knowledge about how human beings work: our inner life (e.g. engagement/motivation) is in constant feedback loops with the real world, so we can effectively adjust our behavior.

How do we know that? Simply put, you establish whether one thing drives another, or the other way around, by studying things over time (i.e. a ‘longitudinal research design’ with several years of data). This allows you to compare the relative strength of your “chicken” explanation, with the relative strength of your “egg” explanation (technically, this is what academics call “checking for reverse causality”, and you also test for other things that impact the relationship – i.e. what academia calls “mediators and moderators” or “confounders”). That is what people analytics professionals do for a living.

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For many things – like engagement and performance – there are normally some dynamic effects (i.e. effects go both ways), and it’s also normal to find, that over time, one direction becomes (statistically) stronger than the other, and thus becomes the main effect. An analogy is exercise and weight-loss: as you build muscle, you can initially gain weight, but over time, more muscle mass will help you burn more calories and lose weight. In sum, if you want to lose weight over time, exercising is a good idea.

So what does that mean for employee engagement?

It means engagement really is a lever to pull to increase performance over time – if you increase engagement (which is really just motivation), there will be positive performance outcomes over time (especially if you reward performance well). You want to get into a positive spiral or virtuous cycle, where engagement and performance mutually and positively reinforce each other (and avoid or get out of a negative spiral or vicious cycle, where they pull each other down). You do that by strengthening the things that drive motivation (promote good leadership, provide interesting work, pay people for performance, etc.) and eliminate those things that don’t (get leaders that are not good at leadership to improve or get them out of leadership positions, remove roadblocks, etc.). Learn from those parts in your organization that do it really well, and apply to those parts with room for improvement.

People analytics teams answer questions with data, but storytelling is also an important part of people analytics, and for this topic, Aristotle did it best: He was attributed the phrase “The Morale of The Troops is Important for Winning the Battle” – when discussing with the Generals (while drinking considerable amounts of wine), why a group of ill equipped farmers could sometimes win over a group of trained mercenaries, they concluded it was because they had “The Morale”: they were fighting for their homes, their loved ones – they had skin in the game and a clear purpose. Engagement in a commercial context is the same: those with skin in the game will fight harder and better, and strive to improve – and that leads to better performance outcomes (and better and more fulfilling working lives for employees – make sure you do something you are good at, and that you love doing). So driving engagement will build resilience in your workforce and improve performance.

About the Author

Dr Thomas Rasmussen is GM People Analytics at National Australia Bank. He is a global thought leader on Analytics and data driven HR, has published several papers on the topic, and believes data and evidence should supplement business understanding, experience and intuition in decision making on people and organisational issues – and that this will enable businesses to deliver more value to customers, shareholders and employees.

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