Last night at PubCamp I led a small unconference session around Enterprise 2.0, employees and profits, overall it was Ok but not as good as I would have liked. A part of the issue was a couple of vocal participants in the front row who kept heckling the group the robust debate going, Duncan Riley and Tom Reynolds you know who you are. Actually the main issue was as I suspected wrong audience but it did force me to prepare some content so the I am very pleased with that as an outcome.
I had created some slides just in case but did not use them, maybe I should of to focus the group further rather than just talk. Next time. The plan was to introduce my thoughts with the slides and then open the floor up for discussion.
The slides are on SlideShare but like most of my presentations without the commentary they are fairly meaningless.
Here are some of my notes for the slides.
My basic premise is that businesses exist to create shareholder value, this is generally through revenue and profits. Therefore increasing revenue and profits must be the primary driver for all activities, even corporate social responsibility activities fundamentally exist to enhance shareholder value.
Slides 2 & 3
The first couple of slides are to highlight some of the documented reasons and benefits for organisations to undertake enterprise 2.0 activities. The last 3 benefits increased productivity, reduced turnover and improved communication are the focus areas for the remaining slides.
While it is generally accepted that happy and loyal employees are good for business, it is only recently that hard dollar evidence has been produced to support the idea.
In Australia we have a major employee engagement issue. A Gallup poll in 2005 of 1,500 employees found that 20% are actively disengaged (disruptive, unproductive or disloyal), with another 62% not committed to their role or employer. Gallup estimated this was costing the Australian economy A$30 billion annually. This research is backed up by recent studies in the US that found only 27% of workers were actively engaged.
Research from Alex Edmans, a business professor from Whartons School, has shown that happy employees do in fact drive company performance. He looked at Fortune magazine’s list of “100 Best Companies to Work for in America”and found that an annually rebalanced portfolio returned 14% between 1998 – 2005 compared to the market in general of only 6%.
A 2007/2008 Watson & Wyatt research report looked at employee engagement on a global basis and showed a strong linkage between engagement and financial performance. In summary organisations in the top 25% of engagement had a 20% total return to shareholders, a 22% market premium and $276K productivity per employee when compared to the bottom 25%.
This same survey found communication, compensation & benefits, customer focus and strategic leadership as the 4 key drivers for engaged employees. Communication & customer focus are areas that Enterprise 2.0 can help, well also strategic leadership but mainly from a communication point of view.
A further 2007/2008 Watson & Wyatt research report on communication best practices found that organisations with a “most effective” communication programs provided a 91% total return to shareholders from 2002-2006 compared to 62% for least effective. Improved communication effectiveness is associated with a 15.7% increase in market value. While finally organisations with “most effective” communication had an employee engagement level 4 times that of “least effective”.
The same communication survey found that there are 4 key emerging trends from organisations who communicate effectively:
- Give managers the information, tools & training to navigate change
- Give employees the opportunity to provide input into decisions that affect them
- Promoting a culture that supports information sharing
- Sharing the voice of the customer
Items 2 and 3 are the exact benefits organisation are seeing from Enterprise 2.0 deployments! Items 1 and 4 are also supported by Enterprise 2.0 but from my point of view they are secondary.
Another hard dollar area for Enterprise 2.0 is around retention of employees. If your employees are more engaged they are more likely to remain as employees, hence reducing the need to replace them. The cost to replace an employee ranges from 15% – 150% of their salary depending on the level and industry. For every employee who you retain you are contributing to the bottom line via cost avoidance.
A recent case study from Gartner on the use of Social Software by Dow (the chemical company) supported the previous slides. Over the next 5 years 40% of Dow’s 46,000 employees will be retiring, requiring a massive recruitment cost to replace. Dow have used social software to connect retired, long term leave of absence and current employee in an alumni style site. In the first 3 months of usage they had 25,000 referrals, 24 full time jobs and 40 contract roles filled. Based on the average cost per hire this tool could be saving them anywhere from US$50k-$200K per month already!
Over time I plan to enhance this presentation and my thoughts as they are directly related to where I want to take my new business.