The Chicken and Egg of Employee Engagement

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Are happy, engaged employees a driver of business success, or merely a consequence of it?

Lots of studies have identified a link between employee engagement and company performance. Happy, engaged employees appear to drive better business financial results. But the one vexing question that’s rarely addressed by these studies is which comes first: engaged employees or business success?

Take Google, for example. They’re a perennial leader in employee engagement, this year earning the #1 spot on Fortune magazine’s list of the “100 Best Companies To Work For.”

But is the exceptional engagement of Google’s employees a consequence of the company’s success? Or was it the engagement itself that helped create that success in the first place?

It’s not an academic question. If engagement is more a consequence of business success than a driver behind it, that would have some interesting implications for companies’ employee engagement programs. It would suggest that managers should focus more directly on improving company financials, rather than on enhancing the quality of the work environment.

Wait… before you start throwing away all of your employee engagement tomes and resigning yourself to a disengaged workforce (until profits improve), listen up. This is one Chicken and Egg problem that might just have a credible answer.

In 2010, researchers from Gallup and the University of Iowa completed a study to determine if the link between employee engagement and company performance was really causal.

They looked at the volumes of employee engagement and company financial data that Gallup had amassed in its many years as a leading research organization – data that covered over 2,000 business units in 10 large organizations across a variety of industries.

Instead of just looking at the association between employee engagement and financial performance, these researchers were able to analyze the data over a time series, within specific business units.

That enabled them to determine the relative influence, over time, between employee engagement and financial performance, and financial performance and employee engagement.

Their conclusion was clear and eye-opening: While a business’ financial success did help improve employee engagement, the relationship was stronger in the other direction. Employee engagement drove financial success more materially than the reverse relationship.

In short, these researchers found that happy and engaged employees are a precursor to business success, not a byproduct of it.

It’s a compelling finding that gets far too little attention, offering the best evidence yet that when managers focus on improving engagement in the workplace, it really does pay dividends — to your employees, to your customers, and to your bottom line.

2 COMMENTS

  1. Jon, can you share a link for details of how the 2010 Gallup research was done?

    My view is that employee engagement and business performance are interrelated.

    In research for my article on this topic (see Employee Engagement: Putting the Cart Before the Horse?), I found most studies showed a correlation, not cause and effect. Except one. In 2003, Schneider, Hanges, Smith and Salvaggio conducted a longitudinal study with 35 organizations over eight years. They found a stronger “causal directionality flows from financial and market performance to overall job satisfaction.”

    In other words, business performance drives employee engagement, more than the other way around.

    For more details, see http://www.teammax.net/files/LiteratureReview.pdf.

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