Posted by: Prinny Anderson, Executive Coaching & Education | Management Development and Enclude Consultant
In the first edition of our “Human Capital Management” blog series, we talked about strategic human capital management and how a growing body of data shows that deployment of high quality human capital management behaviors and systems in an organization contribute to stronger business results. A deeper look reveals that the “X factor” is employee engagement and satisfaction. High quality human capital management generates higher levels of employee engagement and satisfaction, and engagement and satisfaction turn out to be significant drivers of successful business performance.
Taking this line of thinking a little further, we find in the research eight drivers of employee engagement that explicitly create the connections among employee satisfaction / engagement, customer satisfaction and loyalty, and business performance. These eight drivers are the leverage points for catalyzing those interconnections. Regardless of your role in or relationship to MSME banking and no matter your primary expertise, being aware of these leverage points and the relationship between engagement and results gives you an additional tool for building your own business or helping a partner or an investee to build theirs.
Here is a sampling of what research over the past ten years has increasingly shown regarding the causal relationship between employee satisfaction and engagement and business outcomes.
- In a 3-year study of retail bank employees, Winkler, Konig and Kleinmann (Journal of Occupational and Organization Psychology) found that employees’ job attitudes and engagement directly improved business unit performance. Furthermore, their work demonstrated that there is not just a correlation between employee satisfaction and business performance, there is a causal relationship. It’s not just that employees are happier when their bank is growing and doing well, their engagement with their work is one of the causes of the bank’s good results.
- A sample study of the satisfaction–results connection, done in a large retail chain, showed that every five-point gain in positive employee attitudes led to a 1.3 point rise in customer satisfaction scores and a 0.5 point increase in revenue. (From a collection of studies done in many businesses. Bulgarella. GuideStar Research. 2005)
- In a metananalytic study looking across 36 companies, the relationship between employee satisfaction-engagement and business unit outcomes, including customer satisfaction, productivity, and profit, was found to be “large enough to have substantial practical value.” (Study by Harter, Schmidet, and Hayes. Cited in Employee Satisfaction & Customer Satisfaction, Bulgarella, GuideStar Research, Feb 2005).
The findings from this sample of studies and many others are depicted in the diagram below of the satisfaction/engagement – results relationship, as applied to MSME institutions. When we think in terms of financial inclusion, we need to add that extra factor at the end of the “equation,” because we know that a major component of business success for MSME institutions is satisfying investors.
The engagement–results equation might get your attention, but to get full value from it, you also need to understand how that equation can be put to work. The eight drivers of employee engagement and satisfaction are what galvanizes the equation. These are:
- Leadership behaviors around ethical expectations and connection with employees
- Competent management of people by managers at all levels
- An organizational culture that focuses on values and mission, and emphasizes flexibility, collegiality and employee empowerment
- Career opportunities within the organisation
- Communication and information sharing
- Accountability for everyone, recognition of good performance
- Training and development
- Fair compensation
Each of these factors is readily observable in the daily operations of a financial institution, and many of them are specifically referenced by funders of technical assistance and or the due diligence conducted by investors. They are also easily noticeable in conversations within an institution about the status of leadership ethics, management of people, accountability, and compensation.
To the extent that you want to see a financial institution thrive, having and applying the concept that strengthening one or more of the eight factors will improve employee engagement, and ultimately will contribute to the bottom line, is enough to open the door to insightful questions and useful suggestions, the foundation of institutional capacity-building.
There are several specific ways to apply your awareness of the engagement => business performance “equation.”
- Informed observation and follow up conversation: As you interact with or within a financial institution, pay attention to how the drivers of engagement do or do not show up in the environment. When there are opportunities to discuss improving business results, you can suggest that colleagues consider one or more of the “softer,” people-related engagement factors you’ve noticed.
- Operational troubleshooting and problem-solving: If your role with a financial institution includes opportunities to troubleshoot and address problems, and you notice that one of the engagement factors, for example, business-wide communications or opportunities for training and career advancement, is seriously inadequate, a component of your problem-solving plan might point out that improvements in that area are not just “nice to do,” but important because of their potential for improving business results.
- Reviewing business performance and setting expectations for improvement: If the business results of a financial institution that you lead, advise, or fund do not meet targets, and you are involved in the discussions of how to improve performance, you might recommend examining the eight drivers of engagement for opportunities to catalyse that engagement => business results chain.
- Institutional capacity-building: When you are involved in identifying areas for organizational development, consider whether greater capacity in one or more of the engagement factors would strengthen the institution and recommend that it be addressed.
All the stakeholders in a financial institution have an interest in seeing it start strongly, reach a strong “steady state,” grow, satisfy customers, become profitable, and make a return. All stakeholders have an interest in building the business of the bank. The more tools we have in our business-building toolkits, the more we can do in your respective roles to help financial institutions grow and prosper.