Employee Engagement by wzw10454

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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.
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

Why Is Employee Engagement Important?

Emotional Engagement                               Rational Engagement
► I am proud to tell                               ► I am willing to put in a
  others I work for my                               great deal of effort beyond
  company                                            what is normally expected
                                      Engagement     to help my company be
► The work I have to do is
                                                   ► I understand how my work
► I am unlikely to look for
                               Emotional             group contributes to the
  a job in another            Engagement             success of my company
  company in the next 12
  months                                           ► I understand how my role
                                                     is related to my company’s
► I would recommend my
                                                     overall goals, objectives,
  company to a close
                                                     and direction
  friend as a good place
  to work                                          ► My job provides me with a
                                                     sense of personal
► My company inspires
  me to do my best work

Does Engagement Matter?
Yes. Just Look At Motivation...
 Highly engaged 45% more motivated than those disengaged
                                     Individual Motivation Score
                                         Overall U.S. sample*



Source: Towers Perrin 2003
                               Disengaged Moderately        Highly
Talent Report: New Realities
in Today’s Workforce.
                                           Engaged         Engaged

Engagement And Retention Risk Are Linked…

     Highly Engaged                Moderately Engaged                                    Disengaged
    4%                                    7%
 2%      6%                                                                                  8%      12%
  25%                                                                                23%
                    66%                                                                                 51%

 Moving from moderate to high engagement makes                               80% of disengaged would
 employees almost twice as likely to stay (and invest their                  actively (29%) or passively
 discretionary effort)!                                                      (51%) leave company

   I have no plans to leave      I am not looking for another job,                  I am actively looking for
                                 but would consider another job                     another job
   I have made plans to leave    I plan to retire in the next few years
   my current job
                                            Source: Towers Perrin 2003 Talent Report: New Realities in Today’s Workforce.

Strong Correlation Between High Engagement And
Financial Performance

                      Revenue Growth
   26%                                                                            Operating Margin With
   22%                                                                     5%, 10%, 15% Change in Engagement
   18%                                                                                                  14.5%
   14%                                                                               12.9%
             LOW                                          HIGH
               Engagement Index Score
                                                                                        For a $10B company,
                                                                                         that’s $80,000,000



                                                                           Current    5%             10%            15%
  19%                                                                      % Change in Employee Engagement
              LOW                                       HIGH
                          Intent to Stay
  NOTE: Employee engagement strongly correlated to intention to stay
                                                                                     Source: Towers Perrin 2003 Talent Report:
                                                                                     New Realities in Today’s Workforce.

Takeaway #1: The real
business impact of                       The Business Case for Engagement
employee engagement                      Employee engagement drives employee performance and workforce retention

• The Corporate Leadership                     Maximum Impact of Discretionary                            Maximum Impact of Engagement
Council’s research has found                   Effort on Performance Percentile                           on the Probability of Departure

that organizations are (rightly)
turning their attention to their                                                                                           9.2%

employees’ level of
                                   of                                                            Probability                                87%
• A Council survey of more         Employees                                                     of Departure
                                                                                                 in Next 12
than 50,000 employees at 59                                                                      Months

member organizations in 27                                                                                                                        1.2%
countries and 10 industries
demonstrates the real bottom-                                          50th         70th
                                                                                                                   Strong                   Strong
                                                                       Percentile   Percentile
                                                                                                                   Disengagement            Engagement
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                      The “10:6:2” Rule                                                    The “10:9” Rule
employees with low levels of
commitment.                            • Every 10% improvement in                                           Every 10% improvement in commitment
                                       commitment can increase an employee’s                                can decrease an employee’s probability
• The Council’s analysis has           effort level by 6%.                                                  of departure by 9%.
yielded the two “rules”                • Every 6% improvement in commitment
appearing at the bottom of this        can improve an employee’s performance
slide, which further convey the        by 2 percentile points.
significant impact of employee
engagement on the business.

                                                                                                                      Source: Corporate Leadership Council 2004 Employee
                                                                                                                             Engagement Survey.

Takeaway #2: Most
employees are not                      The Risk of Workforce Disengagement
highly committed to                    The majority of employees are “up for grabs”—neither fully committed nor
their organizations                    uncommitted

• Of concern, given this
potential impact of
engagement, the Council’s
                                                                         The State of Workforce Engagement
2004 Employee Engagement
Survey identified significant
employee ambivalence about
their organizations.                                                                  These employees exhibit
                                                                                      moderate commitment to their
                                                                                      work, teams, managers, and
• The Council’s research found                                                                                                          High performers with low retention
                                                                                                                                        risk, who exhibit very strong
                                  Poor performers putting in
that only 11% of employees        minimal effort and exhibiting
                                                                                                                                        emotional and rational commitment
                                                                                                                                        to their jobs, teams, managers, and
demonstrate very strong           strong noncommitment to their
                                  organizations, jobs, managers,
commitment to their               and teams
organizations, while 13% are
actively disengaged.
                                                                       20%                   29%                         27%
• This examination further                                         Leaning Toward                                    Leaning Toward
                                                            13%                             Neutral                                      11%
revealed, however, a real                                          Disengagement                                     Engagement
opportunity: 76% of                    The “Disaffected”                            The “Agnostics”                                     The “True Believers”
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.
                                                                                                                         Source: Corporate Leadership Council 2004 Employee
                                                                                                                                Engagement Survey.

Takeaway #3: There is a
significant range in                  The True Difference Engagement Can Make
employee commitment                   The example of two organizations participating in the 2004 Employee
between organizations                 Engagement Survey

• Also worthy of attention, the
Council has identified a
                                      The “True Believers”                                        Discretionary Effort
significant variation in
engagement levels between                                         24%
surveyed organizations.                                                                                                     15.8%
                                         The “True                                               Percentage of
                                         Believers”                                              Workforce in
• On this slide, you will observe a     Percentage of                                          Highest Category
meaningful distinction in the            Workforce                                              of Discretionary
engagement levels (and the                                                                           Effort
                                                                                                                         Organization   Organization
related impact on discretionary                                                                                               A              B
                                                               Organization   Organization
effort and intent to stay) of                                       A              B
employees at two participating
organizations at either end of the
workforce commitment scale.
                                           The “Disaffected”                                      Intent to Stay

• The Council’s research                                                          17%
indicates, in fact, that
organizational differences are          “Disaffected”                                          Percentage of
                                        Percentage of                                          Workforce in
the only major demographic               Workforce                                           Highest Category
category accounting for variation                                  5%                         of Intent to Stay                             15.3%
in workforce commitment,
suggesting that organizations
                                                               Organization   Organization
cannot simply “write off” certain                                   A              B                                     Organization   Organization
employee segments (such as                                                                                                    A              B
Generation X) as being likely to
be disengaged.

                                                                                                      Source: Corporate Leadership Council 2004 Employee
                                                                                                             Engagement Survey.

Takeaway #4: A list of             Checklist for Driving Workforce Performance and
top commitment drivers
promoting discretionary            Retention Through Engagement
effort and retention
                                   Select Levers of Employee Commitment, Listed with Maximum
                                   Potential Percentage Impact on Employee Discretionary Effort and
• The chart at right provides a    Intent to Stay
“checklist” of levers that
organizations seeking to                             Lever                            Percentage                  Percentage
improve workforce                                                                       Impact—                 Impact—Intent to
commitment—and thereby to                                                             Discretionary                  Stay
increase employee discretionary                                                           Effort
effort and intent to stay—might
seek to employ.                    Employees understand connection                          32.8                        36.4
                                   between work and organizational
• You will observe the             strategy
importance of clarity about how    Employees understand importance of                       30.3                        34.1
to do one’s job, and a belief in   their jobs to organizational success
the importance to it, to
employee discretionary effort      Internal communication                                   29.2                        37.5
and intent to stay.                Manager demonstrates strong                              28.5                        36.5
                                   commitment to diversity
• Further, prominent among
these top levers of engagement     Manager demonstrates honesty and                         27.9                        35.1
are managerial attributes,         integrity
including excellence in people     Manager adapts to changing                               27.6                        36.1
and process management.            circumstances
                                   Manager clearly articulates                              27.6                        35.7
                                   organizational goals
                                   Manager possesses needed job skills                      27.2                   35.8

                                                                  Source: Corporate Leadership Council 2004 Employee Engagement Survey.

Takeaway #4: A list of              Checklist for Driving Workforce Performance and
top commitment drivers
promoting discretionary             Retention Through Engagement
effort and retention               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                                   Lever                              Percentage                   Percentage
commitment—and thereby to                                                                Impact—                  Impact—Intent to
increase employee discretionary                                                        Discretionary                   Stay
effort and intent to stay—might                                                            Effort
seek to employ.

• You will observe the
importance of clarity about how    Manager sets realistic performance                        27.1                         35.6
to do one’s job, and a belief in   expectations
the importance to it, to
employee discretionary effort
                                   Manager puts the right people in the                      26.9                         36.8
and intent to stay.
                                   right roles at the right time
• Further, prominent among
these top levers of engagement     Manager helps find solutions to                           26.8                         35.4
are managerial attributes,         problems on the job
including excellence in people
and process management.            Manager breaks down projects into                         26.7                         35.6
                                   manageable components

                                                                 Source: Corporate Leadership Council 2004 Employee Engagement Survey.

The Journey to High-Performance
Through Leadership Involvement
and Employee Engagement

Arrow Electronics, Inc.
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 M&A 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
Arrow’s 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 Arrow’s values.

   Design and deploy change management methods and new internal
    communication processes that will power the new Arrow culture.

The Architecture Of Culture

      Element E   Culture
                  The Exhibition And Aggregation Of Employee Behavioral Norms
                  And Values

      Element D   Employee Behaviors
                  Conduct And Actions Of Company Employees; Beliefs Turned
                  Into Action

      Element C   Company Practices, Policies, Programs, Structures,
                  Systems, Processes, Ceremonies, And Routines
                  Framework For Driving Desired Employee Behaviors; Hardware For
                  Building Culture

      Element B   Values
                  Deeply Held Beliefs Of Company; Principals That Guide The Way
                  The Company Operates; Software For Building Culture

      Element A   Vision
                  Vivid Description About Desired Future State Of Company

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

High-Performance Cultural Attributes
► Communicating/Involving
► Employee Engagement                High-performing
                                     companies typically
► Cost Focused
                                     score better on these
► Collaborative
► Customer Focused
► Innovative                         Arrow survey also
► Empowering/Decision-               indicates these as
  Making Authority                   critical gaps
► Performance/Results
► Trusting
► Change Readiness/Action            Source: Towers Perrin 2003 Talent Management
  Oriented/Process Discipline        study

► Accountable
From Today to Tomorrow

          Today                  Workforce        Tomorrow

  Strengths                                  Strengths
  ► Cost-focus                               ► Cost-focus
  ► Customer service mentality               ► Customer service execution
  ► Loyalty                                  ► Loyalty
  Areas for Improvement                      ► Shared leadership
  ► Separate                                 ► Performance-based team
  ► Family                                   ► Empowered employees
  ► Hierarchy                                ► Sustained performance
  ► Crisis-focused                           ► Continuous improvement

 Change Drivers that Produce Business

► Leadership Alignment with Strategy, Financial and Operating

► Employee Engagement

► Communication Environment, Tools, and Processes

► Continuous Improvement Mindset and Processes

Aligning Leadership with Vision, Values,
                             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
►Open and Courageous
►High-Performing, Accountable Teams
►Working Effectively with No Barriers
►Innovate and Execute
►Passion for Service Excellence

The Arrow Strategy

                                 Clear #1

  Growth               Operational               Financial             Shared
                       Excellence                Stability           Leadership

           Strategy for the future - Strengthen Arrow – Build the team
   Strategy                          Execution                   Leadership

      The Road to High-Performance

               Enablers                           Embedders
               Getting started                    Making it stick
                                                                                       Desired Culture and
Intended         Leadership                                                            Engaged Workforce
Strategy         Communication                                                            that Executes
                                              Performance/Results Oriented/
                 Involvement                                                            Intended Strategy
                                              Customer Focused


 Recommendation #1            Recommendation #2            Recommendation #3           Recommendation #4
                                                                                       Establish continuous
 Embed Arrow values into      Create a communication       Improve business            improvement culture to
 daily behavior of all        infrastructure and           performance by increasing   drive operational
 leaders/employees to drive   environment that enables     high-performance,           effectiveness, customer
 successful execution of      job understanding,           employee engagement         satisfaction and
 business strategy            involvement, motivation                                  sustainable competitive

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 what’s on the mind of your key employees

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

   Year 1 Progress
► Nov 2004 survey: 11,200 employees, 84% participation rate, hundreds of focus

► Two clear strengths: Ethics and Passion for Service Excellence

► Company-wide efforts (e.g., Shared Leadership) are beginning to have a positive
   ► 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)

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) Don’t underestimate the impact of organizational
  change to undercut your progress
4) Engagement is a continuous process –
  management’s credibility requires constant
  discipline and determination over time

► 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
► 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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