Employee engagement, employer branding and the service-profit chain.
Abstract:This paper defines, explains and evaluates the concepts of employee engagement, employer branding and the service-profit chain and demonstrates their practice within three high profile, household name UK retailers, namely Marks and Spencer, Harrods and Selfridges. These retailers were interviewed to discover what retail HR practitioners are actually doing within their firms and which metrics identify their application and relative success in terms of improved performance.
The companies interviewed all practice employee engagement in some form or another. Employee engagement is part of the strategic narrative at M&S where its introduction has brought about a de facto culture change. It has been very important in the HR strategy of Harrods where the company has re-evaluated its 'DNA' and to some extent returned to the values of its past while at the same time being clear about where the future lies for staff and HR practices. At Selfridges engagement is one element in an overarching HR strategy but it is not a key strategic approach. All three companies focus strongly on developing their line managers and creating people focused KPIs. Additionally all three companies reported the importance of employer branding in attracting the best candidates. Employee engagement is about being a good employer and as Rayton et al (2012) have shown in their forensic demonstration of the benefits of employee engagement, about being financially successful. The author proposes a model, based on Heskett et al’s service-profit chain (Heskett et al,1994) which shows the linkages and synergy between employee engagement, employer branding and performance in a retail setting. This paper seeks to define, explain and evaluate the concepts of employee engagement, employer branding and the service-profit chain and demonstrate their practice within three high profile, household name UK retailers, namely Marks and Spencer, Harrods and Selfridges.
For some years there has been mounting interest from the Human Resources profession and from academics in the concept of employee engagement. Employee Engagement is a term which refers to a set of high performance working practices which promise improved performance from the staff in an organisation. It is of international importance. The concept has received considerable attention from the UK Human Resource Management community, as well as academics, business and the UK government, who commissioned the McLeod Report of 2009 to investigate the subject and to create a structured definition of the drivers or enablers of Employee Engagement. This seminal work led to the establishment of the Employee Engagement Task force at the UK Department for Business, Innovation and Skills to work with leading academics, practitioners and think tanks. (Department for Business, Innovation and Skills, 2011) This shows the serious potential of employee engagement, not only to deliver sustainable success for organisations, but to improve UK productivity and GDP (Rayton, Dodge and D’Analeze 2012).
The four enablers of engagement are: leadership that gives a strong strategic narrative about the organisation,; line managers who motivate, empower and support their employees; employee voice throughout the organisation, to challenge or reinforce the status quo and involve employees in decision making; and organisational integrity - stated values which are embedded into organisational culture (McLeod and Clarke, 2009). Engagement itself in the individual employee is a psychological and physical state, a mix of attitudes and behaviours which manifest themselves at the level of the job, or the work itself; relationships with colleagues and in feelings of trust and pride in the organisation. Purcell(2010:5) More than motivation, engagement is a passion for work, commitment to the organisations values and a willingness to help out colleagues.(Alfes et al, 2010) However Engagement is not the ‘soft and fluffy’ creature it perhaps appears to the sceptical: ‘it is a performance issue’ (McLeod to Jacobs, 2013). The discretionary effort which is released when these enablers, drivers and conditions are met improves performance, measured using a number of metrics: HR outcomes like employee surveys to measure satisfaction, labour turnover and absenteeism, organisational measures like productivity and service quality and financial outcomes such as sales and return on investment. For example, ‘Marks and Spencer’s research shows that over a four year period stores with improving engagement had, on average, delivered £62million more sales to the business every year than stores with declining engagement’ (Rayton et al, 2012). In terms of the extent to which UK workers are engaged, the figure of a third is a fairly consistent finding. (CIPD, 2011) This is described as an ‘engagement deficit’ that would not be tolerated in any other resource area of a business. (Rayton et al, 2012). The effect is that the UK ranked ninth for engagement levels amongst the world’s twelve largest economies, as ranked by GDP (Kenexa, 2009). This being so, there is an opportunity for retail businesses to introduce new strategies and techniques to improve engagement and so add value to the organisation as well as its staff.
When such management techniques are linked to the employer brand, which is the perceived desirability of an organisation as an employer to existing and prospective employees (CIPD, 2012) , engaged employees can become advocates or ambassadors for the brand through their positive attitudes and behaviour. Employer branding is important as it is key that employers remain competitive in the 'war for talent', and employer branding uses some of the techniques of marketing to appeal to the best talent. It also publicises the value proposition of the employer to prospective employees. For example, many retailers are creating conversations with potential recruits through social networking sites such as Facebook, Twitter and Linked-in with a view to informing this group of upcoming roles within their organisations. Over half (54%) of UK employers use social media for recruitment and one in nine employees who have used it to look for work have found a job this way. (Gifford, 2013) Almost all organisations use their websites to attract and screen potential employees, and many companies use on campus events to promote themselves to new talent. If organisations are serious about employee engagement, they need to protect the reputation of the company as an employer from adverse publicity. So the trust in the brand, which is part of organisational integrity, needs to be maintained through internal and external communications. CSR can also enhance the employer brand as new employees are attracted to the company, and existing employees can see the company living up to its espoused values, to the extent that they become ‘brand ambassadors’ or advocates. It can be seen that employer branding is as important in difficult economic circumstances as it is when times are good: in recession a robust employer brand is needed to attract and retain the best candidates with scarce skills , and when there is economic growth a strong employer brand will deliver competitive edge over competitors in a tight labour market. The employer brand also has a role to play in retention of employees, by segmenting them and communicating to them differently, or offering them valued rewards in an echo of the ways in which marketers seek to retain customers through development of a relationship with them. (Jenner and Taylor, 2007)
So far the synergy between the principles of employee engagement and employer branding has been identified, but it is further enhanced by the inclusion of the Service-Profit chain model, which is of direct relevance in retail settings. The authors describe the links in the Service-Profit chain as follows:
‘Profit and growth are stimulated primarily by customer loyalty. Loyalty is a direct result of customer satisfaction. Satisfaction is largely influenced by the value of services provided to customers. Value is created by satisfied, loyal and productive employees. Employee satisfaction in turn results primarily from high quality support services and policies that enable employees to deliver results to customers.’ (Heskett et al, 1994:20) See Figure 1
In a retailing context the link between satisfied, effective and engaged staff can have an effect on sales. (Purcell and Hutchinson,2007) Taken in conjunction with the Service-Profit chain, the link between engaged and satisfied employees and customer satisfaction and loyalty, and therefore profit, can be demonstrated (Heskett et al, 2008). This has implications for talent management as recruiting the right people becomes crucial. The importance of attitude becomes central, as does the recruitment, development and careful management of front line managers. The powerful synergy between employee engagement, employer branding and the promotion and support of the service-profit chain could prove essential for retail businesses in a post recession UK where the high street is still vulnerable from suppressed demand. Ultimately the success of retail business is a function of the people who work in it, and how they are managed is a crucial factor in delivering sustainable competitive advantage. See Figure 2
With the above arguments in mind three household name UK retailers were interviewed using a semi-structured interview method. It is intended that this is the first in a series of primary research studies on employee engagement, employer branding and the service-profit chain, in order to discover what practitioners are actually doing within their firms and which metrics identify their application and relative success in terms of improved performance.
Vicky Scard, Head of Employee Engagement was interviewed at Marks and Spencer’s UK Head Office in Paddington Basin, London. A series of 10 questions were asked relating to employee engagement, employer branding and their relationship with customer satisfaction as per the Heskett et al model discussed previously. Asked if M&S agreed with the definition of employee engagement produced by the CIPD (2013), Ms Scard said she did but that M&S had their own definition which is:
‘Great engagement makes sure that employees are committed to the goals of the business and motivated to contribute to them. Engaged employees have a sense of pride and personal attachment to their work and organisation and are motivated and able to give their best to help the organisation succeed.’ (Scard to McKean 2013)
There is a good fit between the company’s values which are Quality, Value, Service, Innovation and Trust, their long welfare tradition and their employee engagement initiatives, fitting well with the need for organisational integrity. M&S have a stakeholder model which is wide ranging. For example, they have worked with the Princes Trust in a youth employment progamme giving youths not in employment, education or training (NEETS) opportunities within their stores. In 2011, Marks and Spencer established their own centre of expertise in the Human Resources function for Employee Engagement.
The second interview was with Selfridges Oxford Street, London’s Reward Manager, John Lionis, using the same set of ten questions as before. Selfridges won the best Department Store in the World Award in 2012 . Overall there are around 7,500 staff, 2500 employees working directly for Selfridges plus 5000 concession staff across London, Manchester, Birmingham and the Head office in Leicester.
Selfridges, London do not necessarily agree with the CIPD 2013 definition of engagement as including discretionary effort , and in any case Lionis pointed out there are many different definitions of engagement. They do not have a company definition of engagement and see it as something broader. They have a fixed idea about what engagement is but it is not written down anywhere. But they do measure engagement using a ready made engagement scale around the relationship with team mates, working environment and so on. The survey takes place once a year and as a pulse when needed. It is to get understanding about how people are feeling and whether they have the necessary tools and power to help them to perform well, and an environment which makes them feel energised, which is part of the Selfridges culture. But, ‘The concept is overused.’ Says Leonis (Leonis to McKean, 2013)
At Selfridges there is an overall overarching HR strategy and engagement is a part of it rather than at the centre of it. The strategy is led by the business, and engagement is one of the metrics to see if the HR part is going in the right direction. Employee engagement per se as a concept is not a part of Selfridges language or part their strategy -it is an element, not a key driver.
The third interview in this series concerned Harrods, a totemic shopping destination for luxury based in Knightsbridge, London. It is the world’ s single largest store selling luxury and lifestyle goods and services over more than 1 million square feet of floor space. The same questions were put to Niall Ryan, Head of Employer Branding and Communication.Ryan agreed with the overall thrust of the CIPD (2013) definition of employee engagement but he criticised generic employee engagement surveys which relate to organisational engagement focusing on intention to stay, pride in the brand, being satisfied and so on.
‘……there is a concurrent level of engagement which is job level engagement. How psychologically engaged and immersed am I in my role? Because once we get that bit right .... that's the bit I think where we unlock real value ‘(Ryan to McKean, 2013)
Asked if there was a trigger for the introduction of employee engagement Ryan says,
‘Back in 2007 our labour turnover was extremely high . It was running at 55%. So when I joined the organisation I thought ….why are so many leaving? There were indicators in terms of our culture that it was not a conducive working environment to foster well being. In retail everything is all about metrics and HR is no different. It became obvious we should do an employee survey and find out the truth. It was one way communication back then and we weren't an organisation that listened’
The three companies interviewed, Marks and Spencer, Selfridges, London and Harrods, all practice employee engagement in some form or another. Using the four enablers of engagement as an analytical framework, it is part of the strategic narrative at M&S where its introduction has brought about a de facto culture change. It has also been very important in the HR strategy of Harrods where the company has re evaluated its 'DNA' and to some extent returned to the values of its past while at the same time being clear about where the future lies for staff and HR practices. At Selfridges engagement is one element in an overarching HR strategy but it is certainly not a key strategic approach. All three companies focus strongly on their line managers by developing them and creating people focused Key Performance Indicators. All three companies recognise that the employee voice is important, in their different ways. All use employee satisfaction surveys. But they do have one thing in common which is that they are major retail players whose retail character means they are used to using a metric-focused approach in every area of their business.
The difference is perhaps in the extent to which each company is prepared to espouse the idea of involving employees in decision making. For example Marks and Spencer and Harrods seem much more interested in creating opportunities for employees to add value by contributing ideas while the communication systems at Selfridges seems much more top down. As for organizational integrity, all three businesses have stated values that are to a greater or lesser extent embedded in their culture, which is in every case an important aspect of their relationship with staff. As for the employer brand, all three companies regard this as extremely important and have dedicated staff managing how this is communicated to prospective or existing staff. The role of Corporate Social Responsibility in enhancing the employer brand is particularly striking in the case of M&S while for Harrods, it is still a part of the 'journey' which is still a work in progress. Selfridges are making inroads of this aspect of their employer branding and it is also a work in progress. As far as making linkages between employee satisfaction and customer satisfaction is concerned, all three companies are working with academics to try and establish connections like this and M&S and Harrods have had some success in quantifying these, while Selfridges is in the process of doing so.
Lastly, but not least, as Purcell(2012) has clearly noted, none of the ideas of employee engagement are new. They are closely related to the idea of employee commitment, organizational citizenship and employment policies focused on employee well being, participative decision making, and a style of management which is less about command and control than it is about enabling and coaching staff. In short, employee engagement is about being a good employer and as Rayton et al (2012) have shown in their forensic demonstration of the benefits of employee engagement, about being financially successful . If an employer considers adopting employee engagement in a cynical attempt at labour intensification, or because it is ‘fashionable’, the lack of integrity and trust in management will soon become obvious and this strategy will fail. It is all about good employment relations and it is a serious performance issue.
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Colloquium on European Research In Retailing 2014.