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When employees go the extra mile, does the bottom line benefit?
Eila Rana, CFO Europe Magazine
February 4, 2008
Like other members of Axa's executive crew, CFO Denis Duverne reckons he spends half of his time on human resources. That includes using a raft of surveys, seminars and financial incentive schemes to ensure every staff member at the €79 billion French financial services firm is "engaged," that is, is going the extra mile for the organisation.
Does this make a difference to the company's performance? The analyst community doesn't seem to think so. "Very few analysts ask questions during this part of [presentations to them] but they are listening politely when we say it is important," says Duverne. "It's probably a function of the very short-term focus that most analysts have. What we are doing on employee engagement is a very long-term action plan."
Such analyst apathy might change soon. HR experts are coming up with hard data that proves a link between employee engagement and financial performance and Duverne, like other CFOs, says he finds the growing body of evidence compelling. Why? "In financial services, you don't have any patents, you don't have anything other than the quality and engagement of your workforce to make you succeed," he explains. "It's the most fundamental driver of financial performance."
But attaining workforce engagement doesn't happen with a snap of the fingers. CFOs and HR experts agree that high levels of engagement depend on three factors: a robust strategy that galvanises employees; clear leadership from the top team, which is then adopted by every manager; and regular, two-way communication between managers and their staff.
If all three of those are achieved, a company will reap financial rewards, asserts Towers Perrin-ISR, the employee-relations arm of consultancy Towers Perrin. Along with a survey of 664,000 employees at 50 global companies, Towers Perrin-ISR compared the financial performance of companies with varying levels of employee engagement over a 12-month period. It found that three financial indicators — operating income, net income and earnings per share (EPS) — rose when engagement was high and fell when engagement was low. (See "People Power" at the end of this article.) Nick Tatchell, senior projects director at Towers Perrin-ISR, acknowledges that other factors — such as a merger or acquisition — can influence a company's financial performance but he claims the sheer size of the study factors out such influences. "Were nothing to change in your business and were you to focus on getting closer to your business as a senior management team, being open and honest in communication with your staff and showing an interest in issues that mattered to them, you could expect to see engagement — and financial performance — rising," says Tatchell.
Towers Perrin-ISR isn't alone in its pursuit of a link between engagement and financial performance. Gallup, a research company, says it has found a way to link employee engagement and EPS. In a 2006 study of 4.5m respondents at 332 companies, researchers found that the EPS growth rate of top-quartile organisations (those with the most highly engaged employees) was 2.6 times that of organisations with engagement levels in the third and fourth quartiles.
So what does this mean in practice? Towers Perrin-ISR says engaged employees display three types of behaviour — rational, emotional and motivational. At a rational level, employees believe in the goals of the company, they support the company's values and they understand how their own department contributes to the success of the company. At an emotional level, employees will, for example, recommend the company to a friend as a good place to work or believe the company inspires them to do their best work. At a motivational level, employees might work beyond what is normally expected to help both themselves and the company succeed.
It's that extra effort Duverne was looking for when he threw his support behind Ambition 2012, a group-wide organic growth plan launched in 2005 by CEO Henri de Castries. The programme seeks to improve Axa's positioning among customers, suppliers and shareholders. "If we are able to achieve that, we should be able to grow faster than the competition both in terms of revenue and profit," says Duverne. The aim is also to double revenue and triple underlying EPS from 2004 levels in eight years. How does Axa plan to hit its targets? By having great products, excellent distribution channels and — you guessed it — employee engagement.
One catalyst for Ambition 2012 was Axa's spate of successful acquisitions in the 1980s and 1990s. Shortly after Axa began operating in 1985, it bought a number of underperforming insurance companies — including Australia's National Mutual, the UK's Guardian Royal Exchange and Japan's Nippon Dantai — and turned them around. "Employees were seeing the company grow but it was not by their own doing, through interacting effectively with the customer," says Duverne. "They were, in a sense, living the victory by proxy."
Another catalyst was the poor underwriting environment that Axa faced as a result of the September 11th attacks and the stockmarket collapse in the early 2000s. Both developments forced Axa to cut costs, leaving organic growth as the best way to continue expanding.
A cornerstone of Ambition 2012 is its staff survey, based on a Towers Perrin-ISR model. Last year, 84%, or 85,000 employees, responded to the survey, which showed that 73% of them are "engaged" — an increase of 2% between 2006 and 2007. "We are still not where we would like to be," says Duverne. "We need to be at 80% to be among the best companies." Axa benchmarks its engagement levels against a cross-section of companies at global, sector and national levels.
What's the Score?
In the parts of the company where engagement levels are low, working groups are assigned to them to find out why. "We try to organise sessions, sometimes with an HR facilitator, to discuss why the score is low," says Duverne. "Is it an issue of silos? Is it an issue of internal communications? Is it an issue of perceived lack of fairness in remuneration?" A working group must then come up with a plan. In fact, to decrease the number of such cases, Axa is currently putting its top 10,000 managers through a programme of group and personal coaching to improve their management skills.
The company has also introduced a number of standalone initiatives. Passports for 2012, for example, gives each employee a document containing the answers to two questions: "What is my individual contribution to 2012" and "What are the company and my manager going to do for my own personal development?" Employees discuss answers to these questions with their managers twice a year. "It's a very good conduit to employee engagement," says Duverne.
With Axa Miles, meanwhile, every employee received 50 free company shares in July as a thank you for helping the company hit underlying EPS and customer satisfaction targets during the first two years of Ambition 2012. (Customer satisfaction scores rose from 70% in 2004 to 79% in 2006.) If the programme remains on track and customer satisfaction levels reach 82% in 2008, employees will receive another 50 shares each.
Although these initiatives help, Duverne reckons boosting engagement depends a lot on internal communications and management — making sure strategies and priorities are well understood, articulating clearly who's accountable for what, explaining what's going on in the company, and managing fairly. How is Axa achieving all this? Every year staff at its Paris headquarters are briefed on the company's performance and future plans and can ask questions to senior managers, including Duverne, at a one-day event. They can also join workshops to discuss what's happening in different parts of the company with various business unit heads.
Last year, managers went a step further and conducted a series of breakfast and lunch meetings with all 870 group-level employees based in Paris. They met 20 employees at a time to discuss their understanding of Ambition 2012 and canvas opinions on improving employee engagement.
In addition, Duverne has a Q&A session with the finance staff of every business unit he visits. "I try to have a dialogue with people and show my interest in what they are doing," he says. In his quarterly meetings with unit-level CFOs, he spends half the time talking about personal development issues. "I believe it's one of the most important things that I do," he adds.
Keep the Customer Satisfied
How do the surveys, HR initiatives and meetings contribute to the bottom line? "We know that in our companies where employee engagement is high we have better customer satisfaction indices than in our companies where employee engagement is low," says Duverne. That trickles through to better overall performance. Studies conducted at two divisions — Axa France and Axa Equitable — show that satisfied customers have a two to four times higher cross-sell rate and a two to three times lower cancellation rate than dissatisfied customers. Duverne reckons customer satisfaction also drives customer retention and acquisition, and thus Axa's financials. Revenue increased from €67 billion in 2004 to €79 billion in 2006, while underlying EPS rose from €1.43 to €1.95 over the same period. Net income increased from €3.8 billion to €5.1 billion.
Although Duverne is convinced there is a direct link between engagement and the bottom line, "we cannot statistically measure it in a way where we could assign a financial number," he says. If he could, maybe those analysts would start to really listen.
Eila Rana is senior editor at CFO Europe.