Employee Engagement->Innovation->Customer Loyalty: Case Study

Leverage Innovation

Organization transformation is a business full of: principles, tools, models, approaches, frameworks and perspectives.  It’s a mind-boggling and mind-numbing stew of overlapping and contradictory ideologies.  Just defining a word like “innovation” will call forth passionate debate.

When I get tossed in these storms of righteousness I struggle back to a few “truisms” that I’ve learned along the way, like:

… nothing happens in organization transformation unless the executive team is “open and trusting.”  If you can’t fix this problem then you can’t fix the organization!

I discovered another truism when I spent 26 months in Korea working the transformation of a 30,000-employee public company.  A decade ago I came to the understanding that organizational change had to be driven from the outside-in.  Successful change is customer driven change.

As I worked with this idea of “customer driven change” I found collateral benefits.  I found that when employees leverage customers, the employees become engaged in their organizations.  A short line of sight between employees and their customers not only generates effective change, but it does it by solving the biggest malaise in organization’s today – the disengagement of employees.

So it became clear to me that organizational transformation should be based in engaging employees to solve customer issues.  Trite, but true!

My practical problem was that HR programs aimed at solving employee engagement didn’t always solve customer issues; and marketing programs aimed at customer loyalty didn’t always engage employees.  A link was missing.

Then in mid-2010 we got a request from the CEO of Korea Telecom to help him engage his people to change the organization.  KT’s market was shifting, yet the employees tended to abide by traditional hierarchical and deferential rules.  How could we connect employees to their changing customer base?  The answer was “innovation.”

Innovation has some glorious characteristics that go beyond the customary Employee Engagement and Customer Loyalty programs.

1. Innovation needs to be framed within the context of a “customer value proposition,”
2. Innovation draws on the energy and passion derived from creativity which is innate in all humans, irrespective of culture, and
3. Innovation has a discipline that leads to commercialization.

Thus another truism: organization transformation is based on the virtuous value chain of:

Employee Engagement->Innovation->Customer Loyalty

This understanding was fundamental to our success in Korea – and that success has been documented in the public domain.  Here are two references.

The first reference is a case study at the London Business School.  The study was prepared about a year and a half into our 26-month engagement.  The connection to LBS was through Gary Hamel who led our project.  The case study has a strategic focus on the large issues of transformation.

 KT-Transforming to an Agile Organization

The second reference is written by my client and best friend in Korea, Misook Lim who now heads the Innovative Management Center at Korea Telecom.  Misook has just published this article.  It comes about a year after the first reference.  This article focuses on the practical working level and implementation of the strategic context provided in the first reference.

Pervasive Innovation at KT

I’m not a fan of the common wisdom that: “70% of change efforts fail.”  The virtuous value chain and the dedication of my Korean colleagues have proven it wrong.

Employee Engagement – Maybe The Job Is Bad

Employee Engagement - 60's Style

Employee engagement ain’t coming back.  Somehow we have this nostalgia that employees used to be highly engaged.  I have trouble with that hypothesis based on my experience and observations.

Sure, our surveys of employee engagement continue to show declines, but what’s the benchmark and what are we measuring.  I’d say that disgruntled and disengaged employees surrounded my whole career as a corporate employee and manager.  The majority of these people hung in because they had to, not because they wanted to. 

I will admit that today we face a “social media generation” with aspirations that we haven’t seen since the SIXTIES.  Sure, today’s group is more self-important and less altruistic than their colleagues of half a century ago; but both reject inherited authority and want to be included.

A major difference that I see today is that jobs are less engaging than they were fifty years ago.  I see that the vast majority of our for-profit corporations are transactional behemoths.  The purpose of most jobs is: efficiency, consistency, and low risk.  Exactly what recruits are not looking for.

At least when I entered the workplace there was enough looseness that I could constantly define my job to keep me interested.  Maybe that’s the point about employee engagement today.  Maybe the jobs don’t provide room.

Let’s think about Daniel Pink for a moment and his claim that people want three things in their work (beyond basic hygiene): Purpose, Mastery, Autonomy.  Take a look at the jobs in your company – at all levels.  You’ll often find that:

• Purpose: is set within the clear context of profit, which is engaging for shareholders, but not the people who work for them; and even if a transcending mission statement is elaborated it is rarely role modeled.
• Mastery: is often seen as digging deep into the rules that govern a silo; not understanding the much more engaging relationships and flows that are horizontal.
• Autonomy: is seen as working within tight controls, not offering the gifts of innovation and creativity that are housed within all of us as humans.

On the other hand, maybe there is room in even the most boring job but employees don’t have the skills to make the job interesting.  They don’t know how to inject: purpose, mastery, and autonomy into their work.  For help they should turn to Shawn Acor and The Happiness Advantage.  Shawn gives principles and rules on how to change our mindset from “success = happiness” to “happiness = success.”

One thing I have concluded is that neither management nor HR is going to solve the Employee Engagement riddle.  That will only come from inside employees.  The role of the organization in facilitating this is to make the shortest line of sight possible between employees and what they really care about at work – their customers.

Employee Engagement – For Change Managers

Employee Engagement continues to plummet.  It has hit an all time low at about 30%.  HR has been working hard at reversing this trend for almost a decade, but nothing seems to work.  Maybe it’s time that HR calls on Change Managers to design and implement a new paradigm for employee engagement?  

Let’s start at the beginning.  HR and managers have worked for years to destroy employee engagement.  This was not intentional or malicious; it was done in the name of eliminating “employee entitlement.”  Several decades ago the belief emerged that employers had provided such a strong economic safety net that employees were not hungry; they had lost their incentive to perform.  

Employees, it was believed, had become complacent because they could rely on: annual merit pay increases; employer paid benefits, particularly for health; and a defined benefit pension plan if they could just put in enough time to “meet the numbers.”  Comfort equaled sloth and that accumulated into a lack of business performance.

The simple answer to this initiating belief became the next belief.  According to the emerging paradigm: business needed to create a “performance culture” where those who performed to defined standards would be afforded commensurate rewards.  The employer was to give up vestiges of paternalism; it was time for employees to grow up and take responsibility for their careers.    

To implement these beliefs HR changed its role.  It took a lot of economic hygiene off the table and replaced it with: pay for performance topped up with metric driven bonuses; defined contribution pension plans where employees managed their investments for retirement; and paid-time-off plans along with cost sharing for health benefits.  The underlying philosophy, at the hygiene level, was clear: “we’re in this together, but you're on your own.”  This belief system was imbued into the depths of HR – as it transformed itself into a “strategic partner” with a seat at the executive table.

Unfortunately, what was perceived as “entitlement” had one major benefit.  It relieved employees of economic worry and let them focus on their work.  To the extent possible, “entitlement” let people bring themselves into their jobs.  It gave them the autonomy to find purpose in their work.  It let employees feel engaged.

Those days are gone.  Most businesses are not going to build the economic safety net back into their cost structures.  Employee disengagement is here to stay; we created it, now we have to manage it; and managing it means that HR will need to change its beliefs and build a new paradigm.

Here’s where Change Managers can help.

Reduce the Economic Worry:

Compensation is a big issue for HR to unlearn.  An industry has been built up around the performance pay experiment that hasn’t worked.  There are lessons in the past pointing to the value of solid base pay that is marked to the market and then topped up by sharing company profits. 

Performance appraisal is another sacred cow in HR’s performance belief system.  This monster was created by linking pay to performance.  Unfortunately we don’t have the social engineering skills to make it work.  Now the system is dreaded by all and serves no one.  Empirical evidence tells us that it’s time to unlink pay from performance – if we can get HR to go along.

We need to work with HR to create an abundance mindset that encourages employees to constantly look for and interview for new job opportunities.  One of two things will happen: employees will either learn how good they’ve got it, or the company will learn it’s under-valuing them.  Either way the employee moves to a new economic reality.

Finally, severance is a reality that many employees will face; they shouldn’t have to fear it.  We need to help HR enunciate and communicate severance policies that respects the employees’ contribution based on their job level, age, and time in the job.  Employees deserve that peace of mind.

Stratify Employee Engagement:

The 30% figure is an aggregate; we need to help HR focus where it matters.  

Veterans in the workforce are invested; whereas new entrants aren’t; however, recruits from the “social media generation” are going to be difficult to engage.  Most aren’t looking for a career; they’re looking for an experience.  Is low engagement a form of resistance to be conquered or is it a temporal condition that requires patience?  Change Managers know the difference and have the appropriate tools for either situation.  

Where Change Managers need to apply some new thinking and find new tools for HR is for that sliver of talent that understands the company’s DNA and wants to carry the gene forward.  We need to work with HR to learn what it takes to engage those who are interested in the company’s future.

Communicate Tough Love:

Employees offer their unique gifts when they have purpose at work; however, purpose comes from principles.  Get HR to write down the principles of the business?  How are employees expected to act?  How should employees treat each other and their customers?

HR needs to let employees know the rules of the game and know they will be held accountable.  Change Managers can help through their knowledge of two way communication and expertise in setting up accountability regimes.

Let Customers Drive Engagement:

Companies have eroded their commitment to employees, and employees know it.  HR needs to work with management to give employees a purpose that transcends the company.  Employees want to be valued and customers provide this.  

Linking employees to customers is a sweet spot for Change Managers.  We know how to create a short line of sight between employees and customers – and we also know how to show HR and managers how to get out of the way.

It's Just A Beginning
So, the above are thought starters on how Change Management can help HR build a new paradigm for employee engagement.  This is important work if we are to avoid a backlash.  For years HR have worked with their companies to become “kinder and gentler” in an attempt to increase employee engagement.  It hasn’t worked.  I dread that, out of exasperation, management will return to harsh models of command and control.  

We must avoid this.  We must help HR find a new paradigm for employee engagement as supported to by advocates such as Daniel Pink; however, our first task will be to help HR look beyond itself and its constraining orthodoxies.  

Employee Engagement – We Need A New Paradigm!

The New Face of Employment

Ok, recent surveys tell us that Employee Engagement is at an all time low at about 30%.  So what are we going to do about it?  Apparently what we have been doing isn’t working!

Firstly, what’s the source of such dissatisfaction?  Well, us.  Managers.  We have worked for decades to destroy engagement.  We said that we wanted to eliminate “employee entitlement” and replace it with “performance.”  We took a lot of hygiene off the table like: merit pay, defined benefit pension plans, and health benefits.  These were replaced with: pay for performance, defined contribution pension plans, and cost sharing for health benefits.

Unfortunately, what we perceived as “entitlement” had one major benefit.  It relieved employees of economic worry and let them focus on their work.  To the extent possible, “entitlement” let people bring themselves into their jobs.  It gave them the autonomy to find purpose in their work.  It let employees feel engaged.

Those days are gone.  Most businesses are not going to build the economic safety net back into their cost structures.  Employee disengagement is here to stay.  We created it, now we have to manage it.  Here are some things we should start thinking about if we are to build a new paradigm.

Reduce the Economic Worry:

Encourage people to constantly look for and interview for new job opportunities.  Support them in their search.  One of two things will happen: they will either learn how good they’ve got it with you, or you will learn that you are under-valuing them.

Rethink how you compensate.  Kill the performance pay experiment; it hasn’t worked.  Get back to solid pay that is marked to the market and then share profits. 

Delink performance appraisal from pay.  Use it for development only.

Stratify Employee Engagement:

Stop focusing on the 30% figure and focus where it matters.  

The veterans in your workforce are likely engaged; whereas new entrants aren’t.  Let’s be clear.  Recruits from the “social media generation” are going to be difficult to engage.  Most aren’t looking to be engaged in a career; they’re looking for an experience over a short time horizon.  Accommodate where you can, but don’t lose sleep if there is low engagement and high churn.

Your focus has to be on that sliver of talent that understands your company’s DNA and wants to carry the gene forward.  Learn what it takes to engage them.

Communicate Tough Love:

Employees offer their unique gifts when they have purpose at work; however, purpose comes from principles.  What are the principles of your business?  How do you expect employees to act?  How do you expect them to treat each other and their customers?

There are rules of the game.  People are judged when they are at work.  Employees have a responsibility to engage themselves.  Tell them what is expected, and hold them accountable until they accept the responsibility.

Enable Idea Generation:

Everyone has ideas, that's the nature of being human.  You need to create a culture of ideas; a place where everyone feels free to express their thoughts; and a place where thoughts can get filtered through the organization and implemented.

Not all ideas are good ideas; and not all good ideas get implemented; however, all ideas have value even though their time may not be right.

Let Customers Drive Engagement:

Companies have eroded their commitment to employees, and employees know it.  Employees don’t work for their company any more.  We need to give them a new purpose.  They want to be valued and customers provide it.  We need to create a short line of sight between employees and customers and then we need to get out of the way.

I have a concern that high employee disengagement will result in a backlash.  For years I have watched companies become “kinder and gentler” in an attempt to increase employee engagement.  It hasn’t worked.  I dread that, out of exasperation, management will return to harsher models of command and control.  

We must avoid this.  We must find a new paradigm for employee engagement.  We must start implementing what others, such as Daniel Pink are teaching.