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Employee Engagement and the Bottom-Line

Does employee engagement make a difference in the performance of companies?  The evidence from a Under_pressure number of studies that correlate findings from employee surveys with financial indicators of company performance suggests that the answer is “yes”.  And everything I know about high performing employees tells me that engagement and performance are related. But a high correlation doesn’t mean that this is true in every case.  I want to know why some low-engagement companies are highly profitable and produce high shareholder return and why some high-engagement companies are not profitable and do not achieve an increase in share value. What is it about the work environment in some companies that even when employees experience what Towers Watson defines as  “…a combination of effective and caring leadership, appealing development opportunities, and a feeling of empowerment that comes with the ability to control one’s work situation”, they are still not successful? And why is it that in other companies, where leaders are uncaring and distant, development opportunities are absent, and employees have little control over their work situations, financial success is achieved?

Living close to their corporate offices, I hear about the fate of Borders Group Inc almost on a daily basis. This once successful giant in the retail book business, with still very loyal employees and customers, is now on the brink of bankruptcy. Employee engagement has been high in that company since it was founded by Tom and Louis Borders 40 years ago, but that has not been enough to save the company.

It’s possible that for companies like Borders evidence of employee engagement was collected at a time when the company was riding a wave of success generated by past practices and it would be just a matter of time before low employee engagement would begin to affect productivity. It’s also very likely that the link between employee engagement and financial performance of a company is not causal. I have addressed the fallacy of the correlation-causation assumption, previously. The relationship of employee engagement to performance is explained by considering other intervening variables. For example, a company that has several niche products and no competition, will, for a limited period of time, be successful in spite of itself. Conversely, a company that has strong employee engagement, but no market for its product and services, will not be successful over time.

Clearly, employee engagement is a key factor in bottom-line success. However, we make a mistake when we assume that employee engagement increases profitability and share value. Many factors contribute to organization performance (e.g., leadership, product/service quality, sales and marketing, financing, economic environment). All of these factors should be considered when attempting to explain or predict long-term success. 



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More Examples of Correlation Without Causation

In a previous blog post, I wrote about the common misconception that a statistically significant correlation Correlation between variables means that one of those variables is causing the other. For example, having a best friend at work correlates highly with an overall measure of employee engagement (according to Gallup Inc.), but that doesn’t mean that if you have a best friend at work, you will feel engaged in your work. "Level 5 Leadership" correlates highly with successful companies (according to Jim Collins), but that doesn’t mean that if you have a "Level 5" leader, you will have a successful company. This doesn’t take away from the value of these studies, it just cautions against making a causal leap in logic.

I am reminded of another correlation that has serious repercussions for many college-bound teenagers. This is the finding that students who attend elite colleges are more likely to have highly successful careers than students who attend other colleges. Parents make the mental leap from this finding to the belief that their children must attend one of these prestigious institutions (e.g. Ivy League) in order to be successful. This is absurd. Many other factors could explain success (graduate school enrollment, income, job satisfaction, etc.) of a high percentage of students who attend these so-called “elite” schools. Maybe they are successful because they are highly motivated with a great deal of family support. Maybe they would be successful no matter where they went to school. And many students who attend these elite institutions do not achieve success, as defined by the investigators, while many others attend less prestigious institutions and become very successful in their fields. So, what might be true statistically for a large group might not be true for an individual. Some individuals will do well and be quite successful at less prestigious colleges and universities…and at a small fraction of the cost. (Full disclosure: I serve on the Board of a community college.)

Are you bothered by other correlations without causation? What are they?


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Correlation Without Causation

Organizational leaders often misinterpret social science data. That might be okay on a quiz show like “Whad'Ya Know?”, but not when making important organizational decisions. The problem is that executives, like all human beings, are wired to see causal relationships between behaviors and events Invisiblegorilla that happen at approximately the same time. Christopher Chabris and Daniel Simons talk about this problem in their new book, The Invisible Gorilla: And Other Ways Our Intuitions Deceive Us.

Everyone is susceptible to what these authors call the” illusion of cause.”  Even David Brooks, a highly respected journalist and editorial columnist for the New York Times, demonstrates this bias toward causation in his December 7, 2010 column. He summarizes behavioral research that was reported to him by Kevin Lewis, a social science writer. In these brief summaries Brooks implies causal relationships between behaviors and events. These are the causal relationships Brooks describes in his column:

  • Periods of peak fertility in females makes them avoid male relatives
  • People who strongly doubt their own beliefs will strongly argue in favor of those beliefs
  • Touching among team members improves the team’s performance
  • Daylight savings time lowers SAT scores
  • Gun shows have no effect on crime
  • Low glucose levels result in a loss of self-control and increase the likelihood someone will commit murder
  • Extroverted leaders do best when their employees are passive and don’t take the initiative
  • Men increase risk-taking in the presence of attractive women
  • Men are not attracted to women who dumped their last boyfriends, whereas women are attracted to men who dumped their last girlfriends

Each of these findings from social science research is an excellent example of how even very smart people make the mistake of attributing a causal relationship to two variables that, although correlated statistically, might each be caused by a third variable or the interaction of four, five, six, or more other variables. Maybe when sports teams are winning, players are more likely to touch each other in the excitement of the moment. Maybe when things are going well in a company led by someone who is extroverted, employees don’t see a need to initiate new programs. Many alternative theories can explain why each of those findings summarized by Brooks could be untrue. The problem Brooks, Lewis, and the social scientists have is the "illusion of cause".

Within companies the “illusion of cause” occurs, for example, when executives attribute business success or failure to their leadership, or to a new marketing program, or to a reorganized sales department, or to innovative products, or to a change in the economy. These events might be highly correlated but they are not necessarily the cause of business success or failure. Another area where leaders suffer from the "illusion of cause" is in judgments about the value of employee training and development programs. If there is no significant improvement in the performance of employees who go through training, the training is considered ineffective when, in fact, it could be a host of other behaviors and events that are barriers to learning and to learners applying what they learned. Conversely, if leaders observe an improvement in individual or team performance, they attribute it to the training. That might also not be true for the same reasons. What are examples of the “illusion of cause” that you see played out in your organization?