Many HR professionals and business advisors maintain that high employee satisfaction is core to business success. They live by the mantra that happy employees drive business success, and tell owners and managers to make employees happier and the business will succeed.
We struggled with this for years. The simple view seemed inconsistent with both international research and our own Australasian data, so we focused our research on the question directly: how much does employee satisfaction actually matter to performance and profit?
Satisfaction isn't engagement
Employee engagement is the emotional commitment an employee has to their work and organisation. An engaged employee cares about their work and their role, and will go above and beyond to meet business objectives. An engaged employee wants the organisation to succeed.
Happiness or satisfaction at work is not the same thing. Employees can be happy and satisfied in their role but not productive. An engaged and aligned employee aligns their behaviour and actions with their role, their team's goals and the business strategy.
AHRI research found that 23% of the Australian workforce is engaged. The inference is that the other 77% are either disengaged or actively disengaged, which means many businesses are paying most of their workforce to be present and, at worst, to work against the business's interests. Those are labour costs no business can sustain.
What our data shows
Our own research of Australasian businesses over the decade to 2020 shows employee satisfaction results are skewed more positively than business performance or employer satisfaction results. In low and average performing businesses, employee satisfaction sits above both the owner's satisfaction with strategy and their satisfaction with company performance, so it's a poor guide to how the business is actually doing.
That suggests owners may not be communicating effectively with employees when the business is low or average performing. The risk is that employees enjoy working with their workmates, potentially at the expense of focusing on what would deliver the best results for the business.
When businesses become high performing, the three measures converge, with employee satisfaction marginally lagging company alignment and performance.
What international research shows
Research released by Harvard Business School identified the importance of employee engagement, while also finding that fewer than half of companies actually measured engagement against business performance.
- 71%understood the importance of employee engagement
- 76%said most of their employees are not highly engaged
- <50%measure employee engagement against business performance
The same research identified the engagement drivers with the most impact on business performance:
Satisfaction is a quarter of the picture
Research by MIT Sloan Management Review identified five dimensions that count towards high levels of engagement and alignment. Employee satisfaction contributed only 25% of the results. The other 75% relate to alignment and performance measures that businesses often overlook or don't measure at all.
- Employee alignment 35%
- Employee satisfaction 25%
- Employee commitment 15%
- Employee loyalty 15%
- Employee performance 10%
How alignment ties to performance
Repeated studies have shown that organisations in the highest quartile of employee engagement outperform their competitors. High engagement correlates with higher average revenue growth, net profit margin, customer satisfaction and earnings per share.
HR Coach has researched the significance of alignment for business performance since 2003. Its Strategic Action Model underpins the STAR methodology and focuses on making sure a business's activity and energy are aligned to its strategy.
That means half the businesses in Australasia may be spending a third of their labour budget for a nil or negative return. Improve engagement and alignment, and the gain flows straight to the bottom line.
Measure the right things
If you want to stay or become a high-performing business, you need to measure the right things. Satisfaction alone isn't enough, and if it's your only focus it's unlikely to maximise profit. Many businesses don't even measure satisfaction, which means a real opportunity to start measuring what will make a difference.
Start by measuring where you are. Make the process anonymous (otherwise employees may not answer honestly, which makes the results meaningless), and measure employee alignment, commitment and loyalty, satisfaction and performance. The tool should be valid, reliable and benchmarked against other businesses in your country, because you're all competing for the same people.
It's brave for employees to say how they feel and propose improvements, and brave for an owner to accept that feedback and lead change. Share the results with everyone and work with them to build an annual HR plan that addresses the key items.
If you're not prepared to share the results and work with employees on them, we'd encourage you not to start. Owners who keep results to themselves, plan in isolation or ignore results they disagree with get less effective actions and, usually, much poorer results next time.