By David Russo
Date: Jan 5, 2010
How long do you think good, talented people stick around at places that treat them like draftees? Not long. David Russo explains why employees are your most valuable asset -- by far.
Check the calendar. The epoch of indentured servitude is long gone (as much as some executives I know want to bring it back!). Today, even in the midst of a historic economic downturn, your employees are not conscripts or servants. They are most likely volunteers. As much as you think your employees need you, that they are dependent on you, let's face it; the reverse is true. You are highly dependent on them for your success, your life style, and your living—now and into the future.
Oh, sure you can replace them, one after another, over a period of time, but you'll go broke. Your organization will be in ruins. Why? Well, some studies have shown that the cost to replace, retrain, and reintegrate a worker is more than one and a half times that lost worker's salary. Even then, as new employees come onboard, there are the hidden costs and intangible losses to your company from the rupture in cultural continuity and the transfer of institutional knowledge. (I beg you to keep this in mind, even as the national unemployment figure flutters near or into double digits.)
Is the picture starting to come into focus?
Let me put it another way. Your organization has assets, correct? Computers, source codes, real estate, equipment, customer lists, a valuable brand, and maybe even some cash. But do you know what the cumulative value of all those items is? Around 10 percent of your company's value. Max. That's because every day, at closing time, 90 percent of your assets walk out the door. Every day. And with luck, every morning, they volunteer to come back to work. Oh sure, in a short-term analysis, a few of your employees may say they are bound to you. They live paycheck to paycheck. They have mortgage payments due; they need the medical insurance; and they know they'd have a hard time finding other work. But how long do you think good, talented people stick around at places that treat them like draftees? Not long.
How do you keep them coming back? How do you keep good people from leaving, costing you one and a half times their salaries, and volunteering for your competitor's team? Well, what I am about to say may sound too simple to be important, too common to be common sense: You engage them. You engage them with a culture that boldly, publicly recognizes their value and binds their spirit to your company. And you have to work just as hard in bad times as in good times.
Let me take that up a notch, at the risk of sounding high-minded or theoretical. A culture of engagement inculcates and socializes your employees with a sense of—and reason for—genuine commitment to the organization. A culture of engagement also inspires individuals with a bias for action on the organization's behalf and pride. Yes, pride. I hope it is not news to you that a culture of engagement is important to the bottom line (and top line) of your company, because it is increasingly obvious that this is true, and authoritative surveys and studies affirm this again and again. Frankly, the stumbling block is to not recognize the importance of a caring, committed workforce to current and future success and competitive advantage. And the challenge is to determine the best ways to put the leadership behaviors and corporate infrastructure in place that enable that people-focused culture to emerge.
Note that I use the word emerge, because a culture of engagement cannot be imposed or implemented by edict or force of executive will. It is not a policy you write down on company handouts, like a vacation policy or instructions on how to fill out an expense report. But when it is place, and properly supported by the organization's leadership, it can and will bring forth the elusive quality called employee discretionary effort. Employees will offer that discretionary effort only when the aspirations of the organization and those of the employee are so in sync, aligned, that the employee—of his or her own initiative—takes great pride in going the extra mile and adding that extra dash of creativity and professionalism to achieve a professional goal that, lo and behold, builds the organization's wealth or dramatically advances its goals, as the employee learns, grows, and prospers.
Later in this chapter, I cite an example that highlights the beneficial economics of a culture of engagement. But for now, let's look at some steps you can take to establish a culture of engagement. The first step is for the executive leadership in the managers and leaders to recognize why their employees come to work. (Hint: Contrary to popular belief, it's not just about the money.) If you don't understand why people show up, why they volunteer at your workplace day after day, you miss an opportunity to attract people for why they really show up. It's no mystery. Here, too, research and valid polling data give us the same answer over and over again. First, people have a natural and inherent desire to make a contribution; to be a part of something larger than themselves, something of significance. Second, they want to do something that is worthwhile and notable; something they can be proud of—attach their names to. Third, they want to be recognized for their efforts and for the results. And fourth, they want all this to happen in an environment worthy of their efforts—a place that is respected and respectable.
See money on that list? No, it's not there.
Well, money is on the full list, but it's slotted into a subordinate position a little farther down. Make no mistake, people want to be compensated fairly for their work. But money is by no means the leading motivator for most of the talented, good people in today's workforce.
So, what brings people to work and keeps them there? It is a chance to do what they have been educated and trained to do at the highest level of success possible. Where they can grow and achieve, produce exemplary results, be recognized as worthy and special, and do it with others with similar talent, spirit, and professionalism for an entity that respects them and is worthy of high regard.
From Indentured Servants to Labor Unions: A History of Employer-Employee Relations
I know what you may be asking at this point: If research shows that the benefits of a culture of engagement are so beneficial to the top line, the bottom line, and the employees' well-being, then why haven't most companies implemented these policies? And why is it that in difficult business environments, nefarious companies use the economic downturn as an excuse to treat their employees worse?
Good questions, but they can be asked more productively at the causal level in this way: How have employers' relationships with their employees drifted into adversarial, and at time distrustful, circumstances? And how have those poor relations and lack of trust been embedded into policies and organizational design counter to the proper way to run a business? To answer that, take a brief look at the history of employer-employee relations.
It wasn't that long ago that the labor force migrated from an agrarian setting, in which most people worked outside of the cities in smaller groups, to an industrial urban setting. In industrial settings, jobs were centralized in factories, which were often situated in cities. At the risk of over oversimplifying a movement that took decades, even centuries, to act out, the golden rule that dictated employer employee relations was this: He who had the gold made the rules. Typically in agrarian settings, people treated each other with a modicum of humanity, in which they shared risk, reward, responsibility and accountability. The industrial era disrupted that person-to-person dynamic. The main reasons were that employers had more than an ample supply of workers, and the tacit agreement to share between workers and employers wasn't actually very tacit after all, because employers dictated who worked, when they worked, and even if they worked. The employees had no power largely because they were interchangeable and could be summarily dismissed and replaced, at no actual cost to the employer.
Workers were not necessarily viewed or appreciated as persons and instead were valued largely for the capability of their production output. With replacement workers abundant, the workers needed, and deserved, no nurturing. They were de facto servants, bound by their need for work and by professional immobility. This historical context brings to mind Douglas McGregor's Theory X Management principle, which says people need to be controlled, pushed, and supervised by some management entity because unless that happens, workers won't produce. You need to threaten or entice workers to achieve production goals. As adversarial, counterproductive, and confrontational as the practice sounds today, it was a management style accepted as logical and brilliant for many years and still finds proponents in today's workplace.
Some cultural remnants of this type of employer-employee relationship were still in vogue as the way to succeed in business in the U.S. as late as the 1970s and 1980s. That's when organizations began to downsize, or "right size," as they reengineered themselves in response to activist shareholders' demands for higher levels of productivity, the push to maximize stakeholders' returns, and the scramble to conserve capital. Accompanying these changes in corporate structure was a change in the employer's perspective on people in the workplace. Until that time, organizational leadership often managed, pushed, and supervised the workers using Theory X Management. But as shortsighted as that was, it wasn't as harsh as it at first sounds, because along with the Theory X style came an implied social contract between employers and workers. It "promised" that if employees joined an organization, supported it with their labor, showed enduring loyalty, and parroted the company's mission as their own, the company promised virtual lifelong employment, a living wage with periodic increases, welfare benefits, time off for leisure, advancement opportunities, and a guaranteed post-retirement benefit. Baby boomers in the workplace bought wholesale into this arrangement. They were the children of the Depression and knew full well the value of long-term employment, supportive healthcare benefits, and guaranteed retirement income.
But in the 1970s and 1980s, organizations began to discover that this social contract was expensive. They realized that organizations could be consolidated, divested, and joined with others through acquisition that could deliver more bang for the buck and higher shareholder value. The ultimate result of this realization was that the social contract didn't just weaken, it disintegrated. Highly visible layoffs occurred. What looked like cold-hearted directors of mergers and acquisitions (M&A) activity swept in and—without regard for loyalty or employees' work records—wiped out thousands of jobs and a great deal of good will. If you can sympathize with the shock and humiliation suffered by many of these workers, you can imagine the effect this treatment had on the families and especially the children of these workers who saw their parents golden years turned to brass.
What were the children of these workers doing? Well, these children of the baby boomers (many of them baby boomers themselves if they were born before 1964) were in the process of entering the workforce. If they were paying any attention to what happened to their parents, these children were sorely affected by these corporate decisions, and they were disillusioned. Moreover, many of them were determined to engage their future employers with a different kind of social contract, one that would give the worker more freedom and mobility. The new social contract that came into being was much more circumspect, from both sides of the equation. Employers would never again offer the promise of lifelong work, nor incur the costs of that promise, but the "new breed" employees demanded access to resources, learning, and skills—acquired at the employer's expense—that were ultimately portable, in case the employees were even scuttled by the company or just decided to move on. This new breed of employees learned the lesson of the abandoned social contract very well.
Although the decreasing numbers of available skilled workers gave employers an incentive to train and keep employees (because they recognized the approaching struggle and costs to find and hire replacements), the employees' incentives to stay became more personal. Knowing that their employers were fully capable of cutting them loose at any time, in the interests of a few cents a share, these workers ran away from their part of the old social contract. They eschewed loyalty and dependence and readily replaced those with skills resting somewhere between feeling captured on one hand and blind loyalty on the other. They no longer felt captured because they were acquiring portable skills, and with a few job options in their back pockets, so to speak, they could take or leave a job. They were no longer capable of blind loyalty because they saw how their loyal parents had been treated poorly. Perhaps the most important employer-employee dynamic to emerge as a result of this tectonic shift in perspectives was that employees started examining exactly why they should stay anywhere, and employers started to examine what they could do to keep them.
Let's look at an analogy to understand this better because I recognize that it seems counter-intuitive. After all, I seem to be saying that employers should be training their employees for better jobs elsewhere. So, here goes. Do you know the difference between a defined-benefit pension and a defined-contribution pension? The defined-benefit pension promises what the pension will pay out, whereas the defined-contribution pension promises only what the employer will put in. A defined-contribution pension shifts the long-term onus from the employer to the employee because they are responsible for managing that pension for their own benefit.
Now, with that concept in mind, think of a new social contract between employers and their employees, one that has shifted the responsibility of lifelong employment from the employer to the employee, by simply defining what the organization is contributing to that employee in terms of training, tools, skills, and opportunity. The organization says that it is preparing the employee for lifelong employment but there are no guarantees—no defined payouts—for that employment. It's the employees' responsibility to nurture their own educational advancement and careers. Still, the employer has the onus of making the workplace a place where employees can make a contribution, do something worthwhile, work in an environment worthy of their efforts, and be recognized for what they do.
There is no doubt that this has shifted the power from the employer to the employee in many respects. but both sides of the equation have seen benefits. Employers have a heightened sense of how valuable employees are, and they see more clearly the benefit of investing in them, as they optimize the employee's productivity and create more profitable companies. Employees may have a little less trepidation about being laid off, because they have mobility with their skills and training, but—selfish as this may seem at first—they are always looking to the employer to help them get better at their jobs. If the employer can provide that training, and provide an engaged workforce that keeps employees happy, then everyone benefits, as the goals of the employer and employees are aligned. The employees' goals of wealth-building are in sync with the organization's, and with their goals in alignment, and the employees are naturally motivated to contribute their discretionary effort, creativity, and professionalism to advancement these shared goals.
A second piece of this employer-employee dynamic has to do with demographics. Baby boomers, the people born between 1946 and 1964, were the largest single group of people to enter into the workforce in American history. As they leave the workforce in the next 15 to 20 years, fewer people will replace them. In the harsh light of supply and demand—understanding that the situation won't last forever, and is actually just a blip—employers will have no choice but to engage employees, if they want to draw good people. Whereas baby boomers didn't have many choices, the children of baby boomers will.
They are less likely to "drink the Kool-Aid," so to speak, and they will be averse to working for a company that won't train them, give them tools to success, provide a great workplace, and recognize them for what they do.
Why People Work
Let's briefly revisit the reasons why people work. If you look at Maslow's hierarchy of human needs, one of the strongest needs is to be secure. But feeling secure isn't always just about money, because security can be expansively defined to include other things, such as safety and trust. So, first, accept the independence and culture of volunteerism that is the natural result of demographics and the changing nature of contemporary employer-employer relations. Note that security can be a residual effect, a natural consequence of today's employer-employer dynamic. With security assured, people naturally look to the next level of hierarchy of human needs, relationships. Employee want a place to work in which their contribution and workplace relationships are socially acceptable; a workplace in which employees are proud to talk about with their friends; a place that enables them to walk through life with their heads held high. With that assurance, the employee looks even farther down the list of Maslow's hierarchy: the need to be recognized. Security and the desire to be employed someplace that garners respect are two needs that are easy to understand. But just as universal and essential is the need to be recognized.
This is one reason why Bill Gates still works, why Warren Buffet and Steve Jobs come to work. There is just no denying the importance of ego and no shame in acknowledging that it is basic human need to want some strokes now and then. No matter how wealthy you are, you want to be recognized for what you have contributed, and if you can offer that in a workplace where you feel secure and are proud to work, then you are well on your way to engaging employees and eliciting from them that thing that they give only to people and organizations that treat them with respect and value their contribution: extraordinary effort.
Because we are working through Maslow's hierarchy of human needs, let's look farther down the list. We have covered security, and the need to be recognized. Next, you can't ignore the importance of relationships and the role that relationships play when building a sense of workplace camaraderie. Please don't dismiss workplace camaraderie are unimportant or frivolous, because camaraderie isn't about wasting time in the lunchroom or hanging around the water cooler talking about golf or sports. It is a major contributor to why people come to work. Fostering camaraderie is ultimately about productivity, and its importance has been heightened in the workplace only by the changing the nature of the family, especially since the end of World War II.
How has the changing dynamic of the American family affected workplace camaraderie? Believe me, it is less of a stretch than you think. Here's why. When I grew up, I was no more than a 5-iron shot from the homes of my nearest relatives, and we gathered often. Every Sunday, the entire family sat down and ate together. My grandparents, my aunts and my uncles, we all sat down on a weekly basis. In American today, other than the people who live under your roof, on average, Americans live more than 120 miles away from their closest relative. The nuclear family is no longer the central social unit of American life. Yet the breakdown of the nuclear family hasn't changed that humans are social beings. So, the family needs to be replaced with something, some social unit. And that social unit is the workplace. People come to work to be at their social club—it's not a party club but a social club, a place for quality human interaction among people they know and trust. If that social club is supportive, allows people to trust one another, and has high camaraderie, that's not only what draws people to come to work each day, it's what makes them stay. So, when designing corporate infrastructure whose aim is to create a culture of engagement, it's imperative that you recognize the core position played by the work social club. Ignore it at your own peril.
I hope by now you can see the interrelated nature of the core elements and core requirements for engaging a workforce. Employees want to make a contribution while doing something worthwhile. They want to do this in a place worthy of their efforts. They want to be recognized for what they do, they want to work in a place with high camaraderie, and they want to work in a place where there is a high level of trust and respect. We haven't covered trust and respect yet, so let's close this chapter by focusing on them. Although these are the last items covered in this chapter about why employees come to work and why they stay, trust and respect are no less important than the previously introduced concepts
A core element of what makes employees stay at a job—and remember that all your employees are volunteers—is their trust in the organization and the respect the organization expresses to the employees (or that the organization helps engender from coworkers). This social exchange isn't difficult to grasp; I am sure you have experienced it in other areas of your life. If the organization believes in the employees and trusts them to do good work—and expresses that trust through the investment in career development, training, advancement opportunity, and availability to resources—surprise! The employees take that seriously and return the favor by trusting the organization. The employees allow the organization to make the decisions to propel the business forward; they also trust that the organization has the best interests of the employees in mind with every decision. With that trust, there is less cynicism because the goals of the organization and the goals of the employees are in sync. The more the organization succeeds, the more the employees succeed. It's a self-feeding cycle that accelerates and becomes more effective when more people commit to it from both sides of the equation.