Employee Engagement's Impact on Organisational Performance

Abstract

In our modern day and age everyone has heard of employee engagement in one way or another. As a HR professional I have been bombarded with numerous employee engagement platforms, survey providers and consultants. However up until recently there have been very minimal empirical studies that looked objectively at the possible connection between employee engagement and an organisation’s performance. In this literature review first, I looked at the brief history of engagement research. In the second part of this literature review focused on empirical studies that looked into the links between employee engagement and intention to turnover. The reviewed literature indicates that there is a strong connection between these to dimensions.

Brief History of Employee Engagement Research

There are studies that indicate that due to disengaged employees US businesses lose USD300 billion in a year (Ram & Prabhakar, 2011). As a Human Resources professional employee engagement is a fascinating and fundamentally important topic. The topic of employee engagement caught the attention of practitioners and academics likewise (Truss, Delbridge, Alfes, Shantz, & Soane, 2014).

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The original reason why the topic of engagement became so fascinating within the academic and practitioner circles are not quite clear, but it is speculated that a number of changes that were taking place in the working culture had important roles, especially the “post liberalisation, privatisation, globalisation era” (Sahoo & Sahu, 2009).

Schaufeli reasons, that these changes required significant psychological capabilities, such as adaptation, assertiveness etc. This motion resulted in what was called ‘psychologization’ which means that employees in our day and age have to bring “their entire person to the workplace” (Schaufeli W. B., 2014). Based on the above, work engagement fits in well with positive psychology – “the scientific study of positive human functioning and flourishing on multiple levels that include the biological, personal, relational, institutional, cultural, and global dimensions of life' (Seligman & Csikszentmihaly, 2000).

In academia, the topic of employee engagement was first studied by Khan in 1990 when he published his paper “Psychological conditions of personal engagement and disengagement at work” (Bach and Edwards, 2013, p336). Khan conducted a research whereby he sought to understand the “self-in-role” process or in other words the degree of physical, cognitive and emotional investment of the individuals who perform their role (Khan, 1990). He claims that physical involvement, cognitive awareness and emotional connections are the means of showing one’s self.

Since Khan’s first publication, academia has been looking at the topic from different points of view, which can mainly can be grouped into 1) cause and 2) effect (Holbeche & Matthews, 2012). Due to this, many different definitions emerged in recent decades.

According to Shaufeli and Bakker (2010) the everyday meaning of engagement constitutes of “involvement, commitment, passion, enthusiasm, absorption, focused effort, and energy.” (Shaufeli, Schaufeli, & Bakker, 2010, p. 11). Even though there isn’t a clear consensus of the definition of engagement, in their literature review they summarise the ways engagement is conceptualised. They say it is made up of 1) organisational commitment or emotional attachment to the organisation and the desire to stay with the organisation; and 2) extra role behaviour (Shaufeli, Schaufeli, & Bakker, 2010, p. 11).

On the other hand, the term itself was generally first credited to the Gallup Organisation in the 1990’s, an organisation that developed the Q12 Gallup’s engagement questionnaire (Truss, Delbridge, Alfes, Shantz, & Soane, 2014, p. 16). According to the Gallup’s ‘State of Global Workforce’ report they define engagement as “employees are highly involved in and enthusiastic about their work and workplace. They are psychological “owners,” drive performance and innovation, and move the organization forward.” (Gallup Inc., 2017, p. 41).

In this paper I will discuss the fundamental ideas of all three of these dimensions, however the manner in which I will review the subject will focus on employee engagement as a whole, or as Baumgardner and Myers defined employee engagement: “the extent to which an employee feels so connected to the work and to the organization that he or she is willing to give discretionary effort to the work at hand. Everyday terms that describe engagement including passion, enthusiasm, connection, flow, and focused effort.” (Baumgardner & Myers, 2012, p. 202).

Performance

There are a number of studies that focus on the links between employee engagement and overall business unit performance. One of these studies was conducted by Blizzard’s in 2005 looking into the relationship between nurse engagement and medical errors (Blizzard, 2005). In the research the standardized mortality and complication indexes were used and in the context of more than 200 hospitals including nurse engagement. In their regression analysis, they identified the nurse engagement as a key factor (Blizzard, 2005) and data showed “ nurse engagement was the number one predictor of mortality variations across hospitals” (Blizzard, 2005). They also found that engagement was a factor in preventing complications.

Arakawa and Greenberg in 2007 studied the relationship between manager optimism, employee engagement and team performance. To conduct this study, they used the Gallup Organisation Q12. They used nine attributes to measure project performance. They included attributes such as whether the requirements were effectively managed, whether they managed to stay within budget, accuracy and quality in project performance, client satisfaction etc. (Arakawa & Greenberg, 2007). Although this was one study, they ran the set of inter-correlations twice, first in 2005 and in 2006. In 2005, retrospective data was made up of 86 employees and 17 managers. They found that employee engagement significantly correlates with project performance. In their 2006 prospective data they reviewed 39 employees and 14 managers, a “subset of the original data with different alignment” (Arakawa & Greenberg, 2007, p. 84). In this second prospective review again employee engagement and project performance correlated (Arakawa & Greenberg, 2007).

In 2009 Xanthopoulou et all. conducted a research in a fast food company, where they examined the reasons behind the variations in work and personal resources are related to daily job engagement and financial performance (Xanthopoulou, Bakker, Demerouti, & Schaufeli, 2009). In their theoretical model they took Bakker and Demerouti’s job demands-resources model (Bakker & Demerouti, 2007). In this model “work engagement is perceived as stable, positive, affective-cognitive psychological state” (Peccei, 2013, p. 339). Their empirical study was based on forty-two employees working across three branches completed a questionnaire and a diary booklet over five consecutive days (Xanthopoulou, Bakker, Demerouti, & Schaufeli, 2009). The data was collected over one month to minimise the shared observation on financial performance. In this study they measured the general work engagement using the Utrecht Work Engagement Scale (Schaufeli & Bakker, 2004), which focuses on three dimensions of work engagement: “vigour (e.g. ‘At my work, I feel bursting with energy’); dedication (e.g. ‘I am enthusiastic about my job’); and absorption (e.g. ‘I get carried away when I am working’)” (Xanthopoulou, Bakker, Demerouti, & Schaufeli, 2009, p. 7). The outcome of the study showed that employees, who were generally engaged were more likely to be engaged in their work tasks. On the other hand, the study also revealed a significant negative correlation between work engagement and day-level financial returns, but the authors believe this was due to the fact that engagement acted as a suppressor variable.

Zelles conducted a research to define the impact of employees on the firm’s financial profitability in the knowledge worker age (Zelles, 2015). The author also analysed “the relationship between employee engagement and profitability and other specific intangible indicators such as job satisfaction, employee happiness, absenteeism, inspiration and proudness.” (Zelles, 2015, p. 63). Zeller conducted a survey at information technology firms, funded by owners in the 20’s and 30’s within 10 years of conducting the research. Zelles used the Utrecht Work Engagement Scale (Schaufeli & Bakker, 2004), which consisted of 16 statements to assess how employees felt about their work and their work environment (Zelles, 2015) on a 1-6 scale. The higher the score was the higher the work engagement was. The outcome of the research proved the relationship between engagement and traditional measures of profitability, however there wasn’t direct correlation between employee engagement and net profit due to other factors such as product that is being sold, company debt, profit margin, demand etc. (Zelles, 2015).

In a 2017 study Rhaman et al. researched the connections between work engagement, psychological contract and contextualised performance (Rahman, Rehman, Imran, & Aslam, 2017). The author’s hypothesis was based on Khan’s original, 1990 paper and they speculated that ‘there is a positive impact of work engagement on employee’s contextual performance” (Rahman, Rehman, Imran, & Aslam, 2017, p. 1104). They obtained data from ten Pakistani financial sector organisations and by applying simple random sampling they selected 450 respondents. The research used the Utrecht Work Engagement Scale (Schaufeli & Bakker, 2004). The result of their study showed that there was a significant correlation between work engagement and contextualised performance. They argued that when employee engagement is present employees tend to participate in decision making and therefore help the organisation to perform to their best potential (Rahman, Rehman, Imran, & Aslam, 2017).

A recent study from 2018 looked at the relationship between key performance indicators, job satisfaction and work engagement (Lepold, Tanzer, & Jimenez, 2018). The authors built their hypothesis around findings that support the belief that employees working in a responsive environment, for example having influence on their KPIs, have high engagement. They surveyed 136 employees of a bank and work engagement was assessed using the Utrecht Work Engagement Scale (Schaufeli & Bakker, 2004) that included 9 items. “Results showed that 18% of the variance in work engagement can be explained by professional self-efficacy, influence expectations on economic KPIs, and influence expectations of the branch manager.” (Lepold, Tanzer, & Jimenez, 2018, p. 13).

Turnover Intention

Turnover intention refers to employees' thoughts of quitting their present job, when employees may choose to withdraw either physically or psychologically (Ram & Prabhakar, 2011). Turnover is strongly linked to “low cost of replacement, possible loss or shortage of explicit tacit knowledge, skills and ability possessed by incumbent employees” (Kim & Hyun, 2017, p. 709). According to Harter et all. (2002), a series of research was based on the above mentioned “positive psychology” movement. A meta-analysis was conducted on data from more than 7,939 business units in 36 companies. It looked at the relationship at the business-unit level between employee engagement and the business unit results of organisation performance, throughout of the dimensions of customer satisfaction, productivity, profit, employee turnover and accidents. Their hypotheses were that employee engagement would have a positive correlation with business-unit results on the above-mentioned attributes and that it will be correlated across the whole business. In terms of methodology, the research used the Gallup Workplace Audit which included an overall satisfaction question and the Q12 questions. They defined employee engagement as “the individual’s involvement and satisfaction with as well as enthusiasm for work” (Harter, Schmidt, & Hayes, 2002). In the analysis they looked at customer satisfaction-loyalty, profitability, turnover, safety and composite performance. Latter is the overall business performance measure. In this study they concluded that employee engagement and satisfaction are related to organisational performance.

In 2010 Shuck conducted a non-experimental, correlation study (Shuck, 2010). The author examined the relationship between employee engagement and intention to turnover. Using the Colarelli’s Intention to Turnover Scale he reported that there was a clear link between employee engagement and intention to turnover. He argued that employees, who feel like their work is meaningful, and are provided with resources to succeed in their roles would less like to resign (Shuck, 2010).

Another research on this topic examined the relationship between employee engagement and employee retention (Ram & Prabhakar, 2011). The authors took a snowball sample of 310 respondents from the hotel industry in Jordan (Ram & Prabhakar, 2011). One of their hypotheses was that employee engagement would positively correlate with, inter alia, organisation citizenship behaviour and negatively with retention. They concluded that “the level of engagement determines whether people are productive and stay with the organization—or quit and perhaps join the competitors” (Ram & Prabhakar, 2011, p. 59).

Bothma and Roodt (2012) conducted a research to investigate the relationship between work engagement and intention to turnover (Botham & Roodt, 2012). The research was based on a sample of 2429 employees, and they used the Utrecht Work Engagement Scale and Turnover Intention Scale (Botham & Roodt, 2012). They found that work-based identity and work engagement are similar predictors of intention of turnover.

Kim and Hyun examined the intermediating effects of work engagement, personal resources and turnover intention within a Korean firm (Kim & Hyun, 2017). Their research was based on Hobfoll’s conversation of resources model from 1989 (Kim & Hyun, 2017) (Kim & Hyun, 2017)n which led them to believe that personal resources and employee engagement feed off of each other, engaged employees use their resources better hence they can stay more positive (Kim & Hyun, 2017). They used 571 validated responses in their study, work engagement was measured by UWES-9 and turnover intention was studied by a three-item measurement by Colaerlli (Kim & Hyun, 2017). The result of the research proved that personal resources (e.g. self-efficacy, organization-based self-esteem and optimism) have a positive effect on work engagement which in turn have a negative effect on turnover.

A recent Taiwanese study explored the links between resilience, abusive supervision, intention to leave and work engagement (Dai, Zhuang, & Huan, 2019). Dai et all. hypothesised that employee resilience has a positive effect on work engagement and it negatively correlates with intention to quit (Dai, Zhuang, & Huan, 2019). They found that higher resilience does indeed have a positive effect on both of these dimension.

Conclusion

Having researched this topic I believe that there is be a positive link between employee engagement and organisational performance since most research point to the same direction and when it comes to everyday practice. Employees who have a meaningful connection with the organisation will have more input and will contribute more to the company’s succession therefor will have an effect on performance.

Having said that it’s important to emphasise that as of yet there isn’t a consistent, proved concept towards employee engagement (Peccei, 2013) and hence the above studies have potentially answered their questions from very different perspectives.

Turnover is an important factor of organisational performance because it can be very costly to replace incumbents and sometimes the knowledge that leaves the business can be even more difficult to develop. There are a number of studies that focused on the specific connection between employee engagement however these studies only focused on specific companies or sector which means findings cannot be perceived as general consensus and employee engagement hasn’t been pinned down as a main predictor of intention to turnover.

For future research it would be interesting to study whether employee engagement has the strongest effect on intention to turnover or are there other dimensions that would worth to focus on.

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