Happy Staff Mean Greater Profits

Happy Staff Mean Greater Profits

This article aims to share some of the current information that suggests that happy staff mean greater profits (and performance) and explore what it means to be ‘happy’.

Maybe you never doubted that happy staff mean greater profits. Maybe you just avoided thinking about it because happiness was difficult to define. But the evidence is growing.

The Evidence
The first evidence I have comes from David Maister in his book ‘Practice What You Preach’. He says ‘This is the first attempt to use hard data to prove the link between employee satisfaction and performance. I set out to test what I’ve been advocating for years. The bad news is I still believe it. The good news is that now I’ve got proof.’

In a study involving 139 professional service firms covering 5,500 people in 15 countries, he studied the correlation between employee attitudes and financial performance.

He found that financial performance – evaluated by margins, profit per employee and profit growth over a two year period – is directly linked to employee satisfaction.

’generalised investments’

Interestingly Charles Galunic and John Weeks at INSEAD (Financial Times Mastering People Management Series) have found similar results. Their evidence suggests that when companies undertake what they call ’generalised investments’ in developing people, for example leadership and personal development, then employee commitment and loyalty can be increased.

In a study with insurance agents they found that ‘generalised investments’ including management development and technology training produced greater satisfaction and profitability.

However, they also noted that ‘generalised investments’ are something of a two edged sword – they increase loyalty and commitment but also increase mobility.

This link between ‘generalised investment’ and commitment is strengthened by Linda Bilmes at Harvard and her book ‘The People Factor’. She identifies ‘people factor’ criteria and the ones most likely to increase satisfaction are: allowing people to influence decisions that affect their working lives; training; and performance linked pay.

She quotes a study of 2,000 US and German companies, the overall levels of satisfaction were 34% of US workers and 35% of German workers. However, among workers in companies that offered people-factor benefits, job satisfaction was much higher – 58% of US and 63% of German workers.

However, she found a huge gap between what companies thought they provided and what workers believed they received. For example, 71% of respondents listed ‘I am able to influence decisions that affect me’ as ‘very important’ but only 34% of employees agreed they could do it.

Empowered Employees Dinah Daniels from The CEO Refresher says: ‘The key to creating this type of stable, productive workplace is to put employees in charge of their own success. Employees who are empowered to manage their own growth and achievement on the job tend to be more self-satisfied, more cooperative, and more pro-active in trouble-shooting and solving problems. Ultimately, they are more invested in contributing to the organization’s efficiency and bottom line because they know they have the power to affect change within the organization and to promote and control their own career growth.’

According to further research, "experts" and news reports, production is directly related to how happy employees are. How do you measure happiness? How do you link happy people and profit? Several companies have attempted to do this.

Sears has proven that for every 5% increase in "employee motivation," the company profits pushed up by half a percentage point. Unfortunately, the article from the Customer Service Advantage newsletter did not explain how Sears defined "employee motivation." A study by Towers Perrin, a global management consulting firm, showed that a lower employee turnover rate helps a company keep customers. The study showed that increasing employee retention by 2% could increase business by as much as 6%.

So if employee happiness directly affects production and performance. How can you increase employee happiness, keep employees and increase productivity?

Mike W Bell has been a senior executive, leadership coach and organizational development consultant for over 30 years. For the last 15 or more of these I have been weaving an old wisdom tradition with the latest science and research to find more whole and balanced approaches to leadership and organization. 

My latest eBook, a modern fable entitled Leadership Intelligences in Action can be previewed at http://mutualinspiration.co.uk/leadershipintelligences/liaebook/