Relational and emotional health includes things like leadership, teamwork, employee engagement, emotional intelligence, conflict management, organizational culture, employee self-care, etc.
“The single greatest advantage any company can achieve is organizational health. Yet, it is ignored by most leaders”
Here are some reasons to consider...
WHY DOES RELATIONAL AND EMOTIONAL HEALTH MATTER?
Organizational Health is a Clear Competitive Advantage
Gallup’s research found that business or work units that score in the top quartile in employee engagement have nearly double the odds of success (based on a composite of financial, customer, retention, safety, quality, shrinkage and absenteeism metrics) compared with those in the bottom quartile. Those at the 99th percentile have four times the success rate of those at the first percentile.
Tower Perrins found that companies with high levels of employee engagement improved 19.2% in operating income over the observed year while companies with low levels of employee engagement declined 32.7% for a 52% performance gap between high a low engagement companies.
Hay Group conclude that engaged employees generate 43% more revenue than disengaged ones.
Kenexa Research found that the most engaged companies (top 25%) had twice the annual net income and returned seven times more to shareholders over a 5-year period compared to the least engaged companies (lowest 25%).
Disengaged Employees Are Costly to Organizations
According to Gallup, only 33% of employees meet the criteria of an engaged employee. Of the remainder, 51% are not engaged and 16% are actively disengaged. Actively disengaged employees have a negative effect on their organization’s prosperity and growth. Gallup estimates that actively disengaged employees cost the U.S. $483 billion to $605 billion each year in lost productivity. Using the lower figure, this is a cost of $31,250 per actively disengaged worker.
Healthy Organizations Have Better Sales and Revenue Performance
IES found that just a 1% increase in employee commitment (using a five-point scale) can lead to a monthly increase of 9% in sales. For a company with an average revenue/employee ratio of $100,000 – this means $9,000 per employee. Gallup found that account executives who were disengaged produced 28% less than their engaged counterparts
Healthy Organizations Have Better Income and Shareholder Value
Hewitt Associates found that in companies where 60-70% of employees were engaged, average total shareholder’s return (TSR) stood at 24.2%. In companies with only 49-60% percent of engaged employees, TSR fell to 9.1%. Companies with engagement below 25 percent saw negative TSR levels. Standard Chartered Bank reported that branches with a statistically significant increase in levels of employee engagement (0.2 or more on a scale of five) had a 16% higher profit margin growth than branches with decreased levels of employee engagement.
Trust Levels Affect Revenue and Income
An Interaction Associates study found that companies with high levels of trust are 2.5 times more likely to have higher revenue than low trust companies. The Department of Labor Statistics shows the average revenue per employee as $100,000. Not surprisingly, the organizations on the Forbes list of Most Competitive Companies have revenues well above that average – from $125,000/employee to over a million/employee. A Harvard Business School paper by Robert Eccles studying trust between managers and employees in a hotel chain found that merely a one-eighth point improvement in the hotel’s manager-employee trust score on the five-point scale could be expected to increase the hotel’s profitability by 2.5% of revenues.
Absenteeism is Costly but Significantly Lower in Healthy Organizations
Gallup found that happy and highly engaged employees took an average of 2.7 sick days per year, compared with 6.2 days per year for unhappy and disengaged employees. This results in an average of $28,000 annual per-person cost of lost productivity due to sick days compared to just $840 a year for the happiest and most engaged workers. The Nampak company saw a 26% reduction in absence levels following a program that improved employee engagement by just 5%.
Healthy Organizations are More Productive
The Corporate Executive Board found that employees who feel they have a better work-life balance tend to work 21% harder than those that do not. They concluded that moving from low to high engagement can result in a 21% increase in performance. Gallup reports that business units with the highest engagement scores (top 25%) averaged 18% higher productivity than those with the lowest engagement scores (bottom 25%).
Employee Turnover, Retention, and Recruitment Are Better in Healthy Organizations
The Corporate Executive Board determined that employees with lower engagement are four times more likely to leave their jobs than those who are highly engaged.
Gallup’s data shows that 50% of workers are thinking leaving their jobs. Studies vary in their assessment of the cost of replacing a worker, from 30%-200% of the salary of the worker to be replaced. When it comes to attracting good employees, businesses with highly engaged employees enjoy 100% more job applications than those with poor engagement.
DDI found that turnover in low-engagement teams averaged 14.5% and only 4.1% for highly engaged teams. A 2010 Organizational Dynamics paper found that for every one-point increase (seven-point scale) in an employee’s reported emotional health, the probability that an employee will stay with their current organization doubled.
Conflict is Costly
CPP Global reported that employees lose 3 to 6 hours of productivity per week due to unproductive conflict. For an average employee wage of $50,000/year, this equates to between $1,875 and $3,750 per employee each year. Cisco Systems (a company with high engagement) concluded that unhealthy conflict resulted in a 3% drop in employee productivity, simply due a resulting discouragement and lack of motivation.
Complaints, Grievances, and Lawsuits are Costly When Ignored or Mishandled
When emotional and relational health is challenged in an organization, there is usually an increase in complaints, formal grievances, and possibly lawsuits. If problems are handled skillfully from the beginning, many issues can be resolved informally at much lower cost. If they are ignored or handled poorly, then the conflict spirals out of control and requires third-party intervention, requiring more time, effort, and cost. When a dispute leads to a hostile termination, there is a risk of legal action. An average out of court settlement runs about $40,000, and 10% of wrongful termination and discrimination cases result in a $1 million dollar settlement. Gifford, Gould, Latreille, and Urwin argue that mediation often occurs too late. Rather, it would be most effective when deployed at an earlier stage before parties become entrenched in their positions. They urge managers to focus on early intervention, rather than rely on crisis mediation.
Organizational Health Significantly Impacts Quality Control
DDI studied quality of deliverables of high and low engagement organizations. They found 5,658 (ppm) quality errors for the low-engagement group and only 52 (ppm) for the high-engagement group – a 100-fold difference. Realizing even a fraction of this ratio by improving its organizational health would be a dramatic improvement.
Customer Satisfaction and Retention Are Far Better in Healthy Organizations
Towers-Perrin observed that 70% of engaged employees claimed to have a good understanding of how to meet customer needs where only 17% of nonengaged employees made that claim. According to Gallup, 78% of engaged employees would recommend their company’s products of services, compared to only 13% disengaged. Work Aon Hewitt found that contracts serviced by employees whose engagement had improved over the year had net promoter scores (an indicator of customer loyalty) that were 24% higher than those employees whose engagement had declined.
Unhealthy Organizations Seriously Impact Employee Health and this is Costly
An Eckerd College study found that dysfunctional conflict can create considerable stress for employees, resulting in a number of physical and psychological health problems. These problems cause employees to use more health care resources, which ultimately lead to increased insurance premiums for the organization and the employees. The American Psychological Association says the workplace is the second greatest cause of stress in people’s lives (second only to personal financial issues). Over $500 billion is siphoned off from the U.S. economy because of workplace stress. Approximately 550 million workdays are lost each year due to stress on the job, 60% to 80% of workplace accidents are attributed to stress, and more than 80% of doctor visits are due to stress
Reinforcing Employee Resiliency is Critical when Preparing for Change
Change is often necessary in organizations, but it can be hard in employees who are not relationally and emotionally prepared for it. The American Psychological Association reports that 50% of American workers say change is affecting or will be affecting their organizations. Of these employees experiencing change: 55% reported chronic stress; 39% experienced work-life conflict; 34% said they don’t trust their employers; 46% said they intend to seek employment outside the organization.
Healthy Organizations Have Much Greater Safety Records
Gallup reports that organizations with engagement in the bottom quartile averaged 62% more accidents than those in the top quartile of engagement.
Creativity, Innovation, and Decision Making are Better in Healthy Organizations
Runde and Flanagan’s research revealed that dysfunctional conflicts result in people talking less with one another, and this results in less information being shared. Leaders need quality information and vigorous dialogue to reach the best decisions, otherwise there is a high risk of groupthink. This will stifle decision making and innovation. Tower Perrins surveyed 1,500 who felt the management style of their organization as “innovative,” and 92% of those managers said they were proud to work there (an indicator of relational and emotional health).
If you’re convinced that relational and emotional health is critical, the next question is how do you address it?
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Scott Maurer, Founder and President
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