Tag Archives: The Engagement Formula

Douglas McGregor Concluded that a New Methodolgy for Dealing with People at Work was Needed

In 1960, Douglas McGregor concluded that a new methodology for dealing with people at work that was based on new thinking was necessary if businesses were going to succeed in tapping into the unutilized potential of their employees.  He knew the effect he wanted to achieve; he called it the Principle of Integration (today we call it employee engagement)—creating a set of conditions where employees can actually achieve their own goals best by directing their efforts to the success of the organization. In other words, the harder people work for the success of the business, the more satisfaction they experience regarding their personal needs.  This makes coming to work and working hard a “win-win” situation.  The problem, however, is that McGregor couldn’t figure out a methodology to make this happen.  This is where The Engagement Formula comes in.

In 1960, Douglas McGregor Laid the Foundation for The Engagement Formula

In 1960, Douglas McGregor laid a solid foundation for The Engagement Formula in his book, The Human Side of Enterprise.  Keep in mind, the term “employee engagement” was not in common usage at the time, but McGregor was fully aware of the low level of employee engagement that existed even then.  As he put it, “Many managers would agree that the effectiveness of their organizations would be at least doubled if they could discover how to tap into the unrealized potential present in their human resources.”   He reasoned that the traditional management model, which he referred to as management by direction and control denies individuals the opportunity to satisfy certain needs at work that are important to them.  As a result, using this management model actually prevents businesses from tapping in to the full potential of their employees.

The Reason Why Companies with a High Level of Employee Engagement Enjoy Superior Financial Results

The Engagement Formula by Dr. Ross Reck now available in Paperback and as a Kindle ebook from Amazon.com

The reason companies with high levels of employee engagement enjoy superior financial performance is they treat their employees in ways which bring out their best at work.

Their engaged employees, in turn, respond by creating a competitive edge for their company that can’t be easily copied—they’re constantly making innovative improvements to products, services and customer experiences while providing superior levels of customer service which results in loyal customers.

This means higher levels of repeat and referral business which, in turn, translates into significant increases in market share.  In addition, companies with high levels of employee engagement enjoy substantial cost savings due to reduced employee turnover, absenteeism, accidents and employee theft.

Why the Level of Employee Engagement is So Important

The term “employee engagement” is used to describe a situation where someone is excited about coming to work and working hard.  When employees are engaged with their work, they give most all of their energy, creativity and passion to performing their jobs.  The level of employee engagement is extremely important to the success of a business organization because it’s the primary driver of its financial performance.  For example, consulting firm Towers Perrin looked at 50 global companies over a 12 month period and found a direct relationship between the level of employee engagement and company performance.  They found that the companies with a high level of employee engagement had a 19 percent increase in operating income and nearly a 28 percent increase in earnings per share.  On the other hand, the companies with low levels of employee engagement experienced a drop in operating income of more than 32 percent while earnings per share fell more than 11 percent.

Regarding another dimension of financial performance, Alex Edmans, a finance professor at the University of Pennsylvania’s Wharton School tracked the stock performance of the Fortune magazine 100 Best Companies to Work For in America from 1984 through 2009.  He found that the stock prices of these firms, which have high levels of employee engagement, consistently outperformed the market.

Regarding another dimension of financial performance, Alex Edmans, a finance professor at the University of Pennsylvania’s Wharton School tracked the stock performance of the Fortune magazine 100 Best Companies to Work For in America from 1984 through 2009.  He found that the stock prices of these firms, which have high levels of employee engagement, consistently outperformed the market.

Regarding another dimension of financial performance, Alex Edmans, a finance professor at the University of Pennsylvania’s Wharton School tracked the stock performance of the Fortune magazine 100 Best Companies to Work For in America from 1984 through 2009.  He found that the stock prices of these firms, which have high levels of employee engagement, consistently outperformed the market.

Along these same lines, AON Hewitt found that organizations with high levels of employee engagement outperformed the total stock market index and posted total shareholder returns that were 22 percent higher than the average in 2010.  On the other hand, companies with low levels of employee engagement posted a total shareholder return that was 28 percent below the average.

Clearly, having a high level of employee engagement is a very desirable state of affairs for a business organization to have.