Employee Engagement: Business Buzz or Serious Business?

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Employee Engagement Business Buzz or Serious
Business?

• IABC International Conference
• June 28, 2005
• Susan M. Suver
• VP, Global Human Resources
• Arrow Electronics, Inc.

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Employee Engagement Defined

• Two components
• Rational Engagement the involvement,
  understanding and motivation an employee has in
  his/her job
• Emotional Engagement the attitudinal attachment
  an employee has to his/her company source of
  pride
• Excelling at only one is not sufficient to drive
  engagement
• Must measure and understand both aspects to
  produce most actionable performance indicators

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Why Is Employee Engagement Important?

• Emotional Engagement
• I am proud to tell others I work for my company
• The work I have to do is reasonable
• I am unlikely to look for a job in another
  company in the next 12 months
• I would recommend my company to a close friend as
  a good place to work
• My company inspires me to do my best work

• Rational Engagement
• I am willing to put in a great deal of effort
  beyond what is normally expected to help my
  company be successful
• I understand how my work group contributes to the
  success of my company
• I understand how my role is related to my
  companys overall goals, objectives, and
  direction
• My job provides me with a sense of personal
  accomplishment

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Does Engagement Matter? Yes. Just Look At
Motivation...

• Highly engaged 45 more motivated than those
  disengaged

Individual Motivation ScoreOverall U.S. sample
Source Towers Perrin 2003 Talent Report New
Realities in Todays Workforce.
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Engagement And Retention Risk Are Linked
Highly Engaged
Disengaged
Moderately Engaged
Moving from moderate to high engagement makes
employees almost twice as likely to stay (and
invest their discretionary effort)!
80 of disengaged would actively (29) or
passively (51) leave company
I have no plans to leave I have made plans to
leavemy current job
I am actively looking for another job
I am not looking for another job,but would
consider another job I plan to retire in the next
few years
Source Towers Perrin 2003 Talent Report New
Realities in Todays Workforce.
6
Strong Correlation Between High Engagement And
Financial Performance
Revenue Growth
Operating Margin With 5, 10, 15 Change in
Engagement
14.5
13.7
12.9
12.1
Engagement Index Score
For a 10B company, thats 80,000,000
SGA
Current
5
10
15
Change in Employee Engagement
Intent to Stay
NOTE Employee engagement strongly correlated to
intention to stay
Source Towers Perrin 2003 Talent Report New
Realities in Todays Workforce.
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Takeaway 1 The real business impact of employee
engagement
The Business Case for EngagementEmployee
engagement drives employee performance and
workforce retention

• The Corporate Leadership Councils research has
  found that organizations are (rightly) turning
  their attention to their employees level of
  engagement.
• A Council survey of more than 50,000 employees
  at 59 member organizations in 27 countries and 10
  industries demonstrates the real bottom-line
  impact of employee engagement. Highly committed
  employees perform up to 20 percentile points
  better and are 87 less likely to leave the
  organization than employees with low levels of
  commitment.
• The Councils analysis has yielded the two
  rules appearing at the bottom of this slide,
  which further convey the significant impact of
  employee engagement on the business.

• The 1062 Rule
• Every 10 improvement in commitment can increase
  an employees effort level by 6.
• Every 6 improvement in commitment can improve
  an employees performance by 2 percentile points.

The 109 Rule Every 10 improvement in
commitment can decrease an employees probability
of departure by 9.
Source Corporate Leadership Council 2004
Employee Engagement Survey.
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Takeaway 2 Most employees are not highly
committed to their organizations
The Risk of Workforce DisengagementThe majority
of employees are up for grabsneither fully
committed nor uncommitted

• Of concern, given this potential impact of
  engagement, the Councils 2004 Employee
  Engagement Survey identified significant employee
  ambivalence about their organizations.
• The Councils research found that only 11 of
  employees demonstrate very strong commitment to
  their organizations, while 13 are actively
  disengaged.
• This examination further revealed, however, a
  real opportunity 76 of employees are only
  moderately committed to their organizations.
  Organizations seeking to reap the benefits of a
  highly engaged workforce should therefore seek to
  sway these agnostic employees towards the true
  believer level of engagement.

The State of Workforce Engagement
Source Corporate Leadership Council 2004
Employee Engagement Survey.
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Takeaway 3 There is a significant range in
employee commitment between organizations
The True Difference Engagement Can MakeThe
example of two organizations participating in the
2004 Employee Engagement Survey

• Also worthy of attention, the Council has
  identified a significant variation in engagement
  levels between surveyed organizations.
• On this slide, you will observe a meaningful
  distinction in the engagement levels (and the
  related impact on discretionary effort and intent
  to stay) of employees at two participating
  organizations at either end of the workforce
  commitment scale.
• The Councils research indicates, in fact, that
  organizational differences are the only major
  demographic category accounting for variation in
  workforce commitment, suggesting that
  organizations cannot simply write off certain
  employee segments (such as Generation X) as being
  likely to be disengaged.

The True Believers
Discretionary Effort
The Disaffected
Intent to Stay
Source Corporate Leadership Council 2004
Employee Engagement Survey.
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Takeaway 4 A list of top commitment drivers
promoting discretionary effort and retention
Checklist for Driving Workforce Performance and
Retention Through Engagement
Select Levers of Employee Commitment, Listed with
Maximum Potential Percentage Impact on Employee
Discretionary Effort and Intent to Stay

• The chart at right provides a checklist of
  levers that organizations seeking to improve
  workforce commitmentand thereby to increase
  employee discretionary effort and intent to
  staymight seek to employ.
• You will observe the importance of clarity about
  how to do ones job, and a belief in the
  importance to it, to employee discretionary
  effort and intent to stay.
• Further, prominent among these top levers of
  engagement are managerial attributes, including
  excellence in people and process management.

Lever Percentage ImpactDiscretionary Effort Percentage ImpactIntent to Stay Percentage ImpactIntent to Stay
Employees understand connection between work and organizational strategy 32.8 36.4 36.4
Employees understand importance of their jobs to organizational success 30.3 34.1 34.1
Internal communication 29.2 37.5 37.5
Manager demonstrates strong commitment to diversity 28.5 36.5 36.5
Manager demonstrates honesty and integrity 27.9 35.1 35.1
Manager adapts to changing circumstances 27.6 36.1 36.1
Manager clearly articulates organizational goals 27.6 35.7 35.7
Manager possesses needed job skills 27.2 35.8



Source Corporate Leadership Council 2004
Employee Engagement Survey.
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Takeaway 4 A list of top commitment drivers
promoting discretionary effort and retention
Checklist for Driving Workforce Performance and
Retention Through Engagement
Select Levers of Employee Commitment, Listed with
Maximum Potential Percentage Impact on Employee
Discretionary Effort and Intent to Stay

• The chart at right provides a checklist of
  levers that organizations seeking to improve
  workforce commitmentand thereby to increase
  employee discretionary effort and intent to
  staymight seek to employ.
• You will observe the importance of clarity about
  how to do ones job, and a belief in the
  importance to it, to employee discretionary
  effort and intent to stay.
• Further, prominent among these top levers of
  engagement are managerial attributes, including
  excellence in people and process management.

Lever Percentage ImpactDiscretionary Effort Percentage ImpactIntent to Stay

Manager sets realistic performance expectations 27.1 35.6
Manager puts the right people in the right roles at the right time 26.9 36.8
Manager helps find solutions to problems on the job 26.8 35.4
Manager breaks down projects into manageable components 26.7 35.6
Source Corporate Leadership Council 2004
Employee Engagement Survey.
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The Journey to High-Performance Through
Leadership Involvement and Employee Engagement

• Arrow Electronics, Inc.

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Key Factors in Decision to Drive Engagement

• 2000 bust in the dot com, high tech and telecom
  sectors left electronics manufacturers and
  distributors overbuilt
• New CEO Bill Mitchell arrives 1Q03 with 3 areas
  of focus grow the business, return to
  profitability, build a winning team
• Shift from 20 years of MA to organic growth a
  fundamental strategic and operating shift
• Legacy leaders were entrepreneurial, patriarchal,
  autocratic. Businesses operate in silos
• Unwritten lifetime employment contract with
  employees created high company loyalty, high
  entitlement, high pay vs high-performance, high
  accountability
• Success in high-performing, organic growth
  strategy would require substantial re-orientation
  of the leaders and workforce. A top-down, high
  involvement strategy in order.
• Employee involvement would be required to
  execute, and to resume prior high levels of
  employee morale and confidence in management.
• Alignment of business acumen, processes and
  performance standards required to rebuild DNA
  of gene pool

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Arrows Culture Change Strategy Convert to
high-performance, accountability using Shared
Leadership and Employee Engagement

• Define the competencies, skills, behaviors and
  practices necessary to create a common, unified
  culture capable of driving global strategy
  execution and supporting Arrows values.
• Design and deploy change management methods and
  new internal communication processes that will
  power the new Arrow culture.

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The Architecture Of Culture
Culture The Exhibition And Aggregation Of
Employee Behavioral Norms And Values
Employee Behaviors Conduct And Actions Of Company
Employees Beliefs Turned Into Action
Company Practices, Policies, Programs,
Structures, Systems, Processes, Ceremonies, And
Routines Framework For Driving Desired Employee
Behaviors Hardware For Building Culture
Values Deeply Held Beliefs Of Company Principals
That Guide The Way The Company Operates Software
For Building Culture
Vision Vivid Description About Desired Future
State Of Company
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2003 What was our Operating Culture? Could it
get us to new strategy successfully?

• Culture Assessment
• 2003 Towers-Perrin quantitative web-based culture
  assessment survey (4,000 employees, 77 response,
  8 languages, all regions)
• 20 focus groups (300 employees), 16 executive
  interviews
• External Benchmarking
• 7 leading companies
• Extensive secondary research
• Evaluate Communication Capabilities
• Management capability
• Vehicle inventory
• Culture survey inputs

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High-Performance Cultural Attributes

• Communicating/Involving
• Employee Engagement
• Cost Focused
• Collaborative
• Customer Focused
• Innovative
• Empowering/Decision-Making Authority
• Performance/Results Oriented
• Trusting
• Change Readiness/Action Oriented/Process
  Discipline
• Accountable

High-performing companies typically score better
on these attributes Arrow survey also indicates
these as critical gaps Source Towers
Perrin 2003 Talent Management study
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From Today to Tomorrow
Tomorrow
Today
Engaged Workforce

• Strengths
• Cost-focus
• Customer service mentality
• Loyalty

• Strengths
• Cost-focus
• Customer service execution
• Loyalty
• Shared leadership
• Performance-based team
• Empowered employees
• Sustained performance
• Continuous improvement

• Areas for Improvement
• Separate
• Family
• Hierarchy
• Crisis-focused

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Change Drivers that Produce Business Results

• Leadership Alignment with Strategy, Financial and
  Operating Models
• Employee Engagement
• Communication Environment, Tools, and Processes
• Continuous Improvement Mindset and Processes
  

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Aligning Leadership with Vision, Values, Strategy

• Our Vision
• To be the Clear 1 worldwide provider of
  products, services and solutions that connects
  technology with customers, powers the supply
  chain and delivers premium investment results.
• Our Values
• Ethical
• Open and Courageous
• High-Performing, Accountable Teams
• Working Effectively with No Barriers
• Innovate and Execute
• Passion for Service Excellence

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The Arrow Strategy
Clear 1
Financial Stability
Shared Leadership
Operational Excellence
Growth
Strategy for the future - Strengthen Arrow
Build the team
Leadership
Strategy
Execution
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The Road to High-Performance
EnablersGetting started
EmbeddersMaking it stick
Desired Culture and Engaged Workforce that
Executes Intended Strategy Effectively
Leadership Communication Involvement
Communicating/Involving Change/Action/Process Perf
ormance/Results Oriented/ Customer Focused
IntendedStrategy
Measurement
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The Tools, Process and Discipline

• Upgraded Employee Communications
• New talent and vehicles
• The value creators
• Managers as dialogue leaders
• On-boarding, Benefits, Development, Performance
  Differentiation
• Continuous Process Improvement Lean Sigma
• Voice of the Customer
• Shared Leadership Model
• Top 375 Performance Leadership Executive
  teams build new strategy
• All managers Leadership Inspires Full
  Engagement (LIFE) learn new strategy, plan and
  manage execution in regional/local markets
• Leader Performance Criteria (financial,
  operating, individual and team leadership,
  talent-related, change agility, org savvy,
  strategic thinking)
• Rewards
• Pay for Performance, Introduction of
  Non-financial goals, Discretionary bonuses
• Recognition
• High profile assignments access to senior
  leaders
• Mentoring, executive education, public and
  private kudos on performance, invest time to know
  whats on the mind of your key employees

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Measuring Monitoring Progress

• What we have
• Financial metrics
• Operating metrics
• What we are (re)building
• Key Performance Metrics
• Annual Employee Engagement Culture Assessment
• Understanding Strategy Aligned Goal-Setting
• Seeking implementing ideas from all levels
• Leadership Success Model
• Redefining High Performers and High Potentials
• Retention
• Readiness for new roles
• Assimilation success
• Productivity
• Customer Satisfaction

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Year 1 Progress

• Nov 2004 survey 11,200 employees, 84
  participation rate, hundreds of focus groups
• Two clear strengths Ethics and Passion for
  Service Excellence
• Company-wide efforts (e.g., Shared Leadership)
  are beginning to have a positive impact
• Higher scores on involvement, confidence in
  senior leadership
• More employees understand the business strategy
• Percent of highly engaged Executives increased in
  2004
• Engagement of recent hires up
• Asia showed significant overall improvement
• Degree of engagement impacted by many changes
  (e.g., restructuring, downsizing, leadership
  changes)

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Early Results and Some Lessons Learned

1. Focus on targeted, manageable results
2. Accept that you cannot change everything at once
   without creating chaos
3. Dont underestimate the impact of organizational
   change to undercut your progress
4. Engagement is a continuous process managements
   credibility requires constant discipline and
   determination over time

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Summary

• Driving to Higher Levels of Engagement is a
  Journey
• Engagement begins with the end in mind and
  requires a road map to get there
• Alignment of practices, intent, process and
  discipline are must haves.
• Communication is a fundamental driver of
  understanding the work and its relationship to
  strategy
• Leaders using high degrees of involvement,
  coaching, recognition drive higher levels of
  engagement
• When understanding and involvement are high,
  discretionary effort increases and retention risk
  decreases

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QUESTIONS?