Every year various consulting groups and publications announce “Best Companies to Work For” or “Best Corporate Culture” awards. Like a kind of People’s Choice Awards they usually involve an assessment of the various financial and nonfinancial features, benefits, perks, and creature comforts offered to employees. Employee satisfaction is an important factor, but more important is the source of that satisfaction and the extent that those sources are highly aligned to the fundamental profit drivers of the business.
For example, Firm A might achieve a high employee satisfaction score based on having free snacks or subsidized meals, dry cleaning services, or fitness facilities. Some legitimate justification is often made for these benefits as having a bottom-line impact: offering services that save employees time might translate to more productive time doing things that go to the bottom-line; gyms or subsidized healthy eating options might reduce sick leaves and health care costs as well as produce employees with more energy.
On the other hand Firm B might or might not have some of the perks as Firm A but much of its high employee satisfaction score is due to a very different set of drivers: the ability to have ideas heard and, if sound, implemented expeditiously and without bureaucratic red-tape; having bosses who are good on-the-job coaches; a merit-based system where performance, not favoritism, is the primary driver of advancement and, conversely, is also an engine of winnowing-out laggards who drag down everyone else’s contributions; aggressive investment in the frontline tools, training, software and equipment that makes work more effective and efficient for both the employee and for the customer.
The basis of employee satisfaction is quite different for Firm A and Firm B and, I would argue, often has potentially quite different economic consequences. One key difference is the degree that a firm’s employee satisfaction benefits the customer in the form of better products and better service. For example, it is one thing for the employees for a car company to feel satisfaction because of a gym, it is quite another case if their satisfaction comes from the ability to change their work and processes to make better cars with less waste, an outcome with significantly more direct benefits to customers and potentially to investors.
Therefore, addressing employee satisfaction without also referencing “investor satisfaction,” that is, the extent and sustainability of strong economic performance, misses out on the critical synergy that should exist between “employee satisfaction” and “investor satisfaction:” that the best scenario is where the things that a firm does to drive employee job satisfaction also serves to directly affect customer satisfaction (product and service) and consequently long-term investor satisfaction in the form of growth in profitability.
In the 2 x 2 matrix below is a simplified view of Employee and Investor Satisfaction. The left side, with poor economic performance, is mainly a study in timing. In “The Party’s Over” quadrant employee are still enjoying the perks but the writing is on the wall. What is most crucial is how management decides to address the economic situation and also whether the basis of the high employee satisfaction was a result of the nature and context of their work (e.g. their ability to improve work processes) or due to non work process and engagement factors (e.g. a gym). In the former case, one hopes leadership does not stifle employee engagement in improvement since that is often essential in a turnaround, as compared to a decision to cease funding a gym.
The bottom left quadrant, “Titanic” often features poor morale because, for a number of reasons both long-term and recent, the entire organizational environment is often toxic and in a downward spiral.; the best have or are leaving making the task of turnaround much more difficult.
Interestingly, the two right quadrants are not necessarily rosy. It is possible to have strong financial results but with a poor level of employee engagement and satisfaction. Sometimes this situation is masked by the salaries and bonuses strong financial returns afford. One crucial question is whether or not the financial performance is the result of the firm’s ingenuity and efforts or due to timing and luck, such as unusually favourable commodity prices, government regulations, currency shifts, or monopoly status. But profits derived from this type of advantage, while real, are possibly much less sustainable as a competitive advantage as those based on human capital and capabilities, and the poor working environment also risks turnover in talent. “Selling Now” both as an Investor and Employee is something one should urgently consider.
One would normally think the top right quadrant is ideal, but as the title, “Too Good to be True?” suggests it is important to understand, as with “Sell Now” the basis for the bottom-line success (luck/timing or capability) as well as whether or not the strong employee satisfaction is due to factors that also more directly benefit the 3rd dimension of this matrix, Customer Satisfaction.