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Be a better boss: turn your office into a cash cow

Be a better boss: turn your office into a cash cow

If you're a boss read this. If you're not, make sure your boss reads this. Michael Burchell why investing in people is good business.

October 31, 2011 3:11 by

There are many benefits that come to great workplaces. One of the most immediately obvious being financial success. Great workplaces are financially more successful. We’ve known this for years and have collected empirical information, anecdotal stories, academic research and case studies that confirm this.

Great workplaces have lower voluntary turnover than their peers; are able to recruit the best employees to fit their culture and needs;

provide top quality customer service; and create innovative products and services–all activities that contribute to their overall financial success.

Our most compelling evidence of the financial success of great workplaces comes from an annual analysis completed by the Russell Investment Group that documents the financial performance of a hypothetical portfolio of publicly traded US 100 Best companies compared with the S&P 500, and the Russell 3000. Since the first “Fortune 100 Best Companies” list was published in 1998, the US 100 Best Companies have enjoyed annualized returns at least three per cent higher than the other companies in the portfolio.

Data from the United States Bureau of Labor Statistics (2010) also reveals that voluntary turnover in the 100 Best companies is much lower in comparison with the industry average in different business sectors.

Not convinced yet? In a May 2007 paper by Alex Edman from MIT’s Sloan School of Management, the relationship between employee satisfaction and long-run stock performance is analysed. Edman notes that “a portfolio of stocks selected by Fortune magazine as the ‘Best Companies to Work For in America’ in January 1998 earned average annual returns of 14 percent by the end of 2005. That’s more than double the market return. The portfolio also “outperformed industry- and characteristics-matched benchmarks.”

Edman noted that these findings have two main implications. First, they suggest that employee satisfaction improves corporate performance rather than representing inefficiently excessive non-financial performance. Second, they imply that the stock market does not fully value intangibles, even when they are made visible by a publicly available survey.

Fulmer, Gerhart and Scott writing in Psychology Today argue that “positive employee relations effectively serves as an intangible and enduring asset and may, therefore, be a source of sustained competitive advantage at the firm level.” They used a number of measures on firm-level performance and conceptualised how each measure would likely be affected by highly positive firm-level employee relations.

They then empirically investigated whether positive employee relations is related to firm performance, focusing on publicly traded firms included in the “100 Best Companies to Work for in America.” The relative performance of these “Best Companies” was examined via comparisons to both companies in the broad market and a group of matched firms. Their analyses suggest that companies on the 100 Best list enjoy not only stable and highly positive workforce attitudes, but also performance advantages over the broad market, and in some cases, over the matched group.

Numerous other studies from academic researchers and management consulting firms, in addition to our own internal research, confirm the value of having a great workplace. The issue of whether having a high trust work environment and investing in creating a great workplace makes good business sense is really no longer debatable. The reality is that in today’s competitive landscape, organisations that do not carefully incorporate the goal of having a great workplace into their overall business strategy face the prospects of a much diminished return on their investment.

What is interesting in our research, however, is that senior leaders simply believe that having a great workplace, or high trust culture, is financially beneficial to the organisation. They may not have read all of the Harvard Business Review articles, seen the annually updated slides of “100 Best” financial performance, or be familiar with the latest research but they instinctively know that investing in people is good for business.

Take for example the following remarks by senior leaders:

“Culture is the key to the kingdom. People ask, ‘Is there a return on investment? Are you going to make more money because of it?’ I don’t know if you can tie that together scientifically, but I’m 100 per cent convinced that the company ultimately does better because we hire better people. It’s a people business. If people perform better, they make the company money. Then, clients want to hire us again and we have even more opportunity. The culture is absolutely the key.”

- Douglas Eckert from Hoar Construction

“To me [having a great workplace], is a pure revenue growth opportunity. This is bottom line implication because turnover is a cost to me, our efficiencies are gained through conversations, and the thinking and the service and the branded organisation is defined by our people.”

- Bob Moritz, the CEO from PriceWaterhouseCoopers

We find the same financial benefits and senior leader perspective in every country in which Great Place to Work operates, including the UAE. The focus on the US in this brief article is exemplary of the kind of results we see in our global research. For a country like the UAE, which is “on the move”, and for companies in the UAE that are trying to differentiate themselves in a global market, focusing on the creation of…

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1 Comment

  1. Jeeves on February 15, 2012 5:26 pm

    Nice article. There is a Chinese Proverb – If you want 1 year of prosperity, grow grain. If you want 10 years of prosperity, grow trees. If you want 100 years of prosperity, grow people.
    Problem with organizations is that they start from shareholder value and measure everything with ROI. They fail to see that if employees and customers are happy, shareholder value will follow.
    You rightly said about UAE – population on the move here and I see that as a reason organizations do not develop employees and care that much for their customers.
    It is funny, but most recruitment I see here is poaching from competitors. There is no concept to get people from other industry, get fresh perspective, hire for attitude and develop people.
    I hope organizations start to focus on employees as well as customers. It would be interesting to see the result of your survey though…


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