Leadership Opportunities—Leadership Opportunities—Increased Bottom Line ResultsIncreased Bottom Line ResultsThrough Improved Staff Through Improved Staff EngagementEngagement

Slide 2

Theme

‘Kiss Goodbye to Commodity

• Engineering?’

• Kiss goodbye to Commodity

• Staffing!

Slide 3

Improving Staff Engagement is a Business and Leadership …

• Opportunity:— To attract, motivate and retain talented staff— To build and sustain business performance through people

• Challenge:— To understand how to measure and build Engagement — To provide the leadership and perseverance required to engage

staff

• Imperative:— Because of the changing dynamics of the labour markets— Because people are increasingly the source of competitive

advantage (especially in knowledge worker sectors)

Slide 4

Defining Employee Engagement

• Engagement is the energy, passion, or ‘fire in the belly’ employees have for their employer

‘Stay’—Desire to be a member of the organisation

‘Say’—Speak positively about the organisation

‘Strive’—Go beyond what is minimally required

Defining Defining EngagementEngagement

Defining Defining EngagementEngagement

Slide 5

The 21st Century Workforce

• The New Dynamics:

— Globalisation

— Movement of workers across national boundaries

— Working virtually (place and time less relevant)

— Different attitudes; generation X/Y verses baby boomers

— Strong desire for autonomy and empowerment

— Shift to knowledge economy/workplace

Slide 6

The 21st Century Workforce

• The New Demographics:

— The workforce is aging.

— The number of younger workers overall is declining

— The overall size of the workforce is shrinking

— The workforce is more educated

— The workforce is more diverse:» More ethnic groups» More migrant workers» More females

—

Slide 7

The 21st Century Workforce

• The New Demographics in New Zealand

The workforce is aging. The median age will rise from 36 in 1991 to 42 by 2020

- Workers aged 65+ expected to increase from 25k in 1991

100k by 2021

The growth of the workforce slows after 2011 and declines after

2020.

An increasing proportion of Maori, Pacific Islanders and

Asians

- 25% of workforce currently born outside NZ

Slide 8

21st Century Workforce

• Some Implications:— More jobs than workers available. Especially in knowledge

worker sector

— Power in the employment relationship shifting to workers

— Challenges of managing a diverse workforce greater and more complex than previously

• 20th Century strategies for managing people increasingly redundant:— Think differently and strategically about long–term worker

requirements

— ‘One size fits all’ approach less and less relevant

— Employment branding increasingly important

— Greater and better use of people metrics and data

Slide 9

And Yet…..

• We follow the old patterns….• - CEO’s ranked engaging ee’s 6th and leveraging diversity 17th as• top management concerns for the future. (Conference Board Survey)

• - 60% of organisations don’t account for workforce aging (SHRM)

• - HR spends less than 25% of its time thinking about and• preparing for the 21st Century workforce. (Hewitt)

• And, employees are giving us signals…• - Only 1 out of 2 workers in NZ are engaged

• - 28% of workers say they are actively in the job market

• - 40% would like to work elsewhere within 1 year

Slide 10

“They’re Just Employees…”

VeteransBaby

boomers Gen X Gen Y

Core Values:• Diversity• Thinking globally• Balance• Techno literacy• Fun• Informality• Self Reliance• Pragmatism

Core Values:• Optimism• Civic duty• Confidence• Achievement• Sociability• Morality• Street smarts• Diversity

Core Values:• Hard work• Duty before pleasure• Honour• Delayed reward• Patience• Law and order

Core Values:• Optimism• Team orientation• Health & wellness• Personal gratification• Involvement• Work• Youth

Job security

Rewards

Recognition

Autonomy

Meaningful work

Slide 11

21st Century Workforce

• The Imperative:— The competition for talent will intensify

— The competition for talent will be a constant for years to come

— We will need to be very good at attracting, motivating and retaining talent to sustain and grow our businesses, especially in the knowledge sector.

• In the context of the 21st Century Workforce understanding how engaged our staff are in our business and how to build Engagement becomes a key business and leadership strategy.

Slide 12

Human Capital

• Human Capital— Our workforce is our human capital;

» 70% of organisational spending is human capital related » Use it well—we generate value and gain competitive advantage» Use it poorly—we undermine value and lose competitive advantage» Human capital is a company’s biggest asset and its largest liability

• Human Capital is the experience, knowledge, relationships and energy people bring to work:

— An increasing imperative to measure and report on human capital

— Measuring Engagement is one of the new human capital metrics on the block

Slide 13

Human Capital Measurement

• How:— Efficiency measures —traditional, most prevalent, operational,

lag indicators, cost focussed, e.g: » Employee headcounts, turnover rates, training costs by employee,

etc.

— Effectiveness Measures —new, less prevalent, focussed on HR’s impact on staff, shift to value creation (not just costs), e.g:» Percentage of new staff performing well after 6 months, revenue

per employee; retention of high performers, percentage of engaged employees, etc.

— Impact Measures —the ‘Holy Grail’, strategic—how people directly impact financial and other business results, e.g:» Measures that show relationship and causation between human

capital and profitability

Slide 14

Human Capital Link to Building Engagement

• Engagement is a fundamental Human Capital value added metric

But its more than that….

Engagement methodology also provides a roadmap for how to build Engagement amongst your employees….

If you want to take the journey.

Those that do will gain competitive advantage through their people

““The best companies now know, without a doubt, The best companies now know, without a doubt, where productivity—real and limitless productivity—where productivity—real and limitless productivity—comes from. It comes from challenged, empowered, comes from. It comes from challenged, empowered, excited, rewarded teams of people. It comes from excited, rewarded teams of people. It comes from engaging every single mind in the organization, engaging every single mind in the organization, making everyone part of the action, and allowing making everyone part of the action, and allowing everyone to have a voice—a role—in the success of everyone to have a voice—a role—in the success of the enterprise. Doing so raises productivity not the enterprise. Doing so raises productivity not incrementally, but by multiplesincrementally, but by multiples .” .”

Jack WelchFormer Chairman and CEO of General ElectricHuman Resources, 10 September 2003

Slide 16

Defining Employee Engagement

• Engagement is the energy, passion, or ‘fire in the belly’ employees have for their employer

‘Stay’—Desire to be a member of the organisation

‘Say’—Speak positively about the organisation

‘Strive’—Go beyond what is minimally required

Defining Defining EngagementEngagement

Defining Defining EngagementEngagement

Slide 17

STRIVESTRIVESTRIVESTRIVE

33

STAYSTAYSTAYSTAY

22

SAYSAYSAYSAY

11

Engaged

or

Not Engaged

Respondent 1

Measuring Current Levels of Engagement

• Engagement is measured at the individual level—by taking the average rank (on a six–point scale) of an individual’s responses to the Engagement items around ‘Say’, ‘Stay’ and ‘Strive’ we can determine whether they are engaged or not engaged

Slide 18

Distribution of Engagement

• It is possible to categorise employees by the ‘extent’ of their Engagement which helps us to understand how large the task is of engaging more employees

12%

32%25%

32%

0%

20%

40%

60%

80%

100%

Disengaged Not Engaged Nearly Engaged Engaged

There is strong opportunity to move employees from

‘Nearly Engaged’ to ‘Engaged’

Slide 19

Defining Employee Engagement—The Drivers

Company Practices People Practices Policies Diversity Performance Assessment Company Reputation

Total Rewards Pay Benefits Recognition

People Senior Leadership Immediate Manager Co–workers Customers

Engagement

Opportunities Career Opportunities Learning/Development

Quality of Life Work/Life Balance Physical Work Environment

Work Work Activities Resources Processes

Slide 20

Satisfaction

Commitment

Engagement

Employee Research Over Time

Po

siti

ve

Co

rrel

atio

n W

ith

Bu

sin

ess

Per

form

ance

Lower

Higher

How much peoplelike it here

How much people want to improve business results

How much people want—and actually do—improve business results

Engagement – The Evolutionary Journey

Slide 21

Engagement Research

• Hewitt Proprietary Research:— Hewitt’s Engagement and Best Employer studies around the

world covers more than 2,000 companies and over four million employees

— Comparison of Engagement Scores with actual business results (Total Shareholder Return [TSR] and sales growth) over the last decade

• Double–Digit Growth (DDG) Research:— Hewitt examines the characteristics that contribute to the

consistent success of DDG companies

• Academic Research:— Australian Graduate School of Management works with Hewitt

to analyse and understand Hewitt Best Employer results

Slide 22

Source: Best Employers to Work for in Australia 2001 and 2003 studies

1998–2000

18%

62%

25%

48%

0%

10%

20%

30%

40%

50%

60%

70%

OtherOrganisations

OtherOrganisations

Best

Employers

Best

Employers

Average Revenue GrowthAverage Profit

Growth

2000–2002

13%

7%

21%

-12%

-20%

-10%

0%

10%

20%

30%

Best

Employers

Best

Employers

Average Revenue GrowthAverage Profit

Growth

Other Organisations

Other Organisations

Engagement and the Link to Business Performance

• Hewitt Best Employers have stronger three and five–year growth in revenues and profits than Other Organisations in the study and typically out–perform Other Organisations in their industry sector

Slide 23

Hewitt Best Employers and Financial Performance

Country/Region Financial Measure The Best The Rest

Asia Average annual growth rate, 1999–2001 14.9% 10.1%

Australia Average revenue growth rate, 2000–2002

13% 7%

Australia Average profit growth rate, 2000–2002 21% -12%

Canada Five–year annualised TSR, 1997–2001 4.6% 1.5%

Canada Five–year annualised TSR in excess of industry sub–index

11.2% 9.3%

Slide 24

Double–Digit Growth Companies

• Employee Engagement at DDG companies exceeds employee Engagement at single–digit growth companies by over 20%

• Commitment to Engagement by DDG companies is reflected in:— Analysing metrics such as Engagement data to understand

markets, business and talent— Focusing on a multi–faceted set of elements that contribute to

growth, including employee Engagement— Fostering a collective will, a passion, determination and

emotional energy to overcome obstacles and meet goals— Building the Engagement of key employees, especially ‘high

potentials’

Engagement does drive results—data suggests that Engagement levels need to be at 60% or higher to drive results

Slide 25

Benchmarking Employee Engagement

• Employees are indifferent to their employers and more apt to switch for slightly better offers. Employees may stay but not contribute

• Characterised by higher levels of uncertainty, often due to reorganisation or mergers

• Most employees are engaged and contribute to the achievement of the company goals

• Three quarters of employees are not engaged

DestructiveZone

SeriousZone

Indifferent Zone

High Performance/

Hewitt Best Employer

Zone

25%

100%0%

60%40%

Average TSR = 20.2%

Average TSR = 5.6%

Average TSR = –9.6%

Slide 26

A Few Examples of Other Insights From the Engagement Data

• Average Engagement Scores across Other Organisations is 52%

• Average Engagement Scores of Hewitt Best Employers is 77%

Around the world, one out of every two employees is engaged at work

Slide 27

Common Engagement Drivers Across Companies

• Percentages of Companies with driver as one of top three in potential positive impact

83%

64% 61%60% 59%

47%30%

Career Opportunities

Company Practices

Senior Leadership

Work Resources

Recognition Business Unit Leadership

Pay

Slide 28

Engagement by Age

61%

55%

51%

48%

51%

0% 20% 40% 60%

55 years and over

45 to 54 years

35 to 44 years

25 to 34 years

20 to 24 years

Based on data from 25,459 Australia and NZ employees

8

Slide 29

Less Engaged

Resistant to Change

Increased Absenteeism

Less Enthusiasmfor Technology

Cynical

Less Energy

Prejudices Against Older Workers?

Shorter Paybackfrom Training

7

Slide 30

Engagement by Level

52%

50%

70%

0% 20% 40% 60% 80% 100%

Team Member

Manager/Professional/SeniorSpecialist

Senior Management

Slide 31

Engagement by Organisational Change (Case

Study)

59%

50%

0% 20% 40% 60% 80% 100%

After

Before

Slide 32

Leadershipcommitment

Leadershipcommitment

Compelling promise to employees

Compelling promise to employees

Aligned people

practices

Aligned people

practices

Connection to

the companyand strategy

Connection to

the companyand strategy

Engagedemployees

Engagedemployees

Differentiatedhigh–

performance culture

Differentiatedhigh–

performance culture Measure the

impact on strategy

Measure the impact on strategy

What the Best Have in Common

Slide 33

Conclusion

• The competition for talent means that we have to be very good at attracting, motivating and retaining talent

• Our talented human capital is our biggest asset and liability and we need to measure how well its adding value

• Engagement is an increasingly important human capital metric because:— Engagement levels correlate with business performance

— Measuring Engagement tells us how well we are doing in the competition for talent

— Driving Engagement levels higher improves our ability to attract, motivate and retain talent and so generate value from our human capital investment.

Slide 34

Conclusion

• Final Point

• Building an Engaged Workforce means• ‘kissing goodbye’ to Commodity Staff