Diversity and Inclusion – Return on Investment, part 3: Employee Productivity Enhancement
Unseen millions are lost by companies every year; the result of employees withholding the full commitment of their physical, intellectual, and emotional contributions. Surveys conducted by the Gallup Organization identified an 18 percent difference in productivity between the best and worst performing companies.1 Yet, as we shall explain, even the best performing companies have room for improvement.[wcm_restrict plans=”75949, 25542, 25653″]
Cost of the Unproductive
Gallup Organization studies reveal a startling lack of employee engagement. These studies show that within the average organization 33 percent of employees are ‘engaged,’ 49 percent are ‘not engaged,’ and 18 percent are ‘actively disengaged.’2 Furthermore, employee productivity varied with the degree of employee engagement. Engaged employees apply the full measure of their abilities to the achievement of company goals, disengaged employees do just enough to satisfactorily get by, and actively disengaged employees may actually work against the achievement of corporate goals.
Applying some mathematical assumptions to the various employee engagement levels suggests that engaged employees are 100 percent productive (as productive as humanly possible), disengaged employees are 70 percent productive, and actively disengaged employees are 50 percent productive. Using these assumptions and Gallup’s finding that there exists an 18 percent productivity difference between top and bottom performing organizations suggests that top performers achieve an 88.7 percent overall productivity level, average performers 76.3 percent, and bottom performers 70.7 percent. Figure 1, Employee Engagement Levels Among Various Organizations, illustrates the Gallup Organization’s findings updated with StrategyDriven’s assumptions and analysis.
Figure 1 – Employee Engagement Levels Among Various Organizations
An Abusive Work Environment
The difference in physical labor productivity between top and bottom performing companies with 250 employees making an average of $43,000 per year is estimated to be $1.94M annually.
The workplace environment does not need to be abusive to be demotivating. Considering The 12 Elements of Great Managing that Gallup found to be engaging3, the following could be said to disenfranchise employees and lower their productivity:
- Expectations are unclear
- Needed tools and materials are unavailable
- Employee strengths go unused
- Recognition is infrequently provided
- Employees feel isolated and uncared for at work
- Employee development activities are unsupported
- Employee input is seldom sought or acted on
- The organization’s mission and goals are uninspiring
- Colleagues lack commitment to performing quality work
- Employees lack personal relationships at work
- Performance reviews occur very infrequently if at all
- Learning and growth opportunities are few or non-existent
Other workplace demotivators are far worse; some being abusive. Surveys conducted by the [email protected] Group, the Employee Law Alliance, and WBI/Zogby reveal that:
- 61 percent of employees witnessed diversity related acts of incivility, disrespect, and/or discrimination at work4
- 44 percent of employees indicate they have worked for an abusive supervisor5
- 37 percent of employees reported being bullied at work6
These surveys further identified resulting employee behaviors that reduce productivity including:
- 28 percent lost work time avoiding the instigator(s)
- 53 percent lost work time worrying about the incident or future interactions with the instigator(s)
- 22 percent reduced their work effort
- 10 percent decreased the amount of time spent at work7
In addition to the significant direct labor cost of a demotivating work environment, employees also reported withholding discretionary effort and creating insights. These too degrade the organization’s bottom line results, if in a less measurable way.
Calculating Diversity and Inclusion’s Return On Investment – Employee Productivity Enhancement
Workplace incivility and managerial factors clearly contribute to employee disengagement and subsequently reduce productivity. This presents leaders with the opportunity to improve the bottom line by investing in efforts that improve the workplace environment. Estimating the return on investment for such initiatives involves performing the following steps:
- Determine the current employee productivity rate of the organization – This rate can be calculated using surveys and resent culture assessments to determine the employee engagement level percentages combined with StrategyDriven’s productivity rate correlation assumptions. Calculate the organization’s overall employee productivity rate as the sum of 1.0 x Percent of Engaged Employees + 0.7 x Percent of Disengaged Employees + 0.5 x Percent of Activity Disengaged Employees.
- Identify the initiatives to be implemented in order to improve workplace civility and workplace engagement – Expert advice from individuals/organizations specializing in the field of diversity and inclusion and employee engagement should be consulted to identify those initiatives best suited to address the organization’s unique needs and circumstances.
- Estimate the cost of implementing these initiatives on an annual basis – Use standard project management cost estimation methods to determine the expected monetary cost of all resource expenditures expected to be made during implementation of these initiatives on an annual basis. Alternatively, expert advice from individuals/organizations specializing in the field of diversity and inclusion and employee engagement could be consulted to determine this variable.
- Estimate the overall increase in employee productivity resulting from the implementation of these initiatives – This will vary based on the nature of the initiatives undertaken. Expert advice from individuals/organizations specializing in the field of diversity and inclusion and employee engagement should be consulted to determine this variable.
- Estimate the monetary return to the organization resulting from the increased employee productivity rate – Use the StrategyDriven Value of Employee Productivity Nomograph to calculate the value of the direct labor increase resulting from the heightened employee productivity rate. Enter the nomograph using the difference between the organization’s final overall productivity determined in Step 4 and initial productivity state percentage determined in Step 1.
- Determine the component of Diversity and Inclusion’s return on investment value to the organization resulting from increased employee productivity – Subtract the cost of the workplace civility and engagement initiatives determined in Step 3 from the annual return of improving employee productivity through workplace civility and engagement initiatives determined in Step 5 and then dividing the result by the cost of implementing the workplace civility and engagement initiatives determined in Step 3. Multiply this value by 100 to convert to a return on investment percent.
Example Return On Investment Calculation for Employee Productivity Enhancement
Organization Size: 400 employees
Average Employee Salary: $43,000 / year
- Overall Average Employee Productivity: 76.3 percent (the average organization)
- Workplace Civility and Engagement Initiatives to be Implemented: workforce training, executive/management coaching, performance appraisal system upgrade, new diversity and inclusion organizational performance measures implemented, Diversity and Inclusion Council established
- Annual Cost of Implementing Workplace Civility and Engagement Initiatives: $300,000 / year
- Estimated Annual Increase in Employee Productivity Resulting from Workplace Civility and Engagement Initiatives: 4 percent (still far less than the productivity of a top performing organization)
- Annual Monetary Value of Improving Employee Productivity: $700,000 / year
- Annual Return On Investment of the Workplace Civility Initiatives: A 133 percent return on investment!
Workplace civility improvement initiatives have a far more expansive impact than just improving civility and engagement. In past and future articles, we discuss how to calculate these additional benefits to determine the total financial benefit of these initiatives.
Lastly, we presented a strong financial case for implementing programs aimed at improving the workplace environment. However, we at StrategyDriven believe such programs are not only the financially prudent thing to do, they are the morally and ethically right thing to do. All employees should be treated with the utmost respect, not because it is financially beneficial to do so but because as fellow human beings they deserve to be treated as such. It is our sincere hope that all leaders will work to end workplace abuse, bullying, and discrimination and that they and their employees will respect and value their colleagues.
- “Employee Engagement: What’s Your Engagement Ratio?,” Gallup Consulting, Gallup, 2010, page 3 (http://www.gallup.com/consulting/52/Employee-Engagement.aspx?gclid=CKuO-_CDrqYCFYpN2god8CdvnQ)
Note: The document link is located at the bottom of this webpage.
- ibid, page 1
- ibid, page 2
- “Linking Employee Commitment & Workplace Incivility to Corporate Earnings,” Craig B. Clayton, Sr., The [email protected] Group, July 2004 (http://www.hrm-ri.org/whitepapers/dEPS_White_Paper_Ver.12.2005.v17.pdf)
- “The High Cost of the Bad Boss,” American Management Association, October 2, 2007 (http://www.amanet.org/training/articles/The-High-Cost-of-the-Bad-Boss.aspx)
- “Assessing and Attacking Workplace Incivility, “ C.M. Pearson, L.M. Andersson, and C.L. Porath, Organizational Dynamics, Volume 26(2), Fall 2000
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