However, it is less common to hear people speak in specific terms about the real, often hidden, costs associated with disengagement.
During recent meetings with our Partners in Improvement, a group of Improvement specialists from across North America, these costs were discussed in detail. The Partners’ conclusions were well-aligned with those published by numerous sources, including the Enterprise Engagement Alliance and Gallup.
Simply stated, disengaged employees create a negative and expensive ripple effect throughout an organization, and drive-up costs in five specific ways:
Higher turnover: Disengaged employees leave their employers as soon as they see a better opportunity. This turnover increases the costs of recruiting, on-boarding, and training, which typically range between 16% – 22% of salary for low-to-mid-level employees, and significantly more for higher-level executives based on a Center for American Progress study. In addition, every new hire brings a risk of a bad fit, and every employee leaving an organization takes with them some organizational knowledge that might have been helpful to that organization in future decisions.
Lower productivity, lower profitability: Disengaged employees don’t go the extra mile; they do not make an extra effort when faced with a challenge, and don’t put forth the same discretionary effort that an engaged person will make. An article published by the Harvard Business Review said that organizations with high levels of employee engagement yield a 22% increase in productivity over the norm.
Similarly, the Engaged Company Stock Index, which tracks the long-term results of companies with high levels of customer, employee, and community engagement as determined by independent data sources compiled by McBassi & Company, has outperformed the S&P 500 (including dividends) by 36.2 percentage points since October 1, 2012.
Little or no process improvement: Improvement requires engagement — a willingness to design and conduct experiments, a willingness to take risks to try something new and potentially better. However, disengaged employees tend to focus on their personal agendas and see little upside in trying something new to forward the organization’s goals.
Higher pay: When we say about someone, “They are only in it for the money,” we are observing disengagement. While money is important to nearly everyone, if that is the only motivation, there is no genuine engagement. As the behavioral economist, Dan Ariely, said, “Money is the most expensive way to motivate someone.”
Organizations that are unable to create an environment that intrinsically engages their employees must pay them more to keep and motivate them.
The associated cost of lost opportunities is difficult to calculate; but our experience and data surfaced over the past three-plus decades has consistently shown that, of the four primary forms of waste (capital waste, lost time, material waste, lost opportunities), the “lost opportunities” are the greatest.
Considering the above-listed realities, it is not surprising that ISO 10018, which provides guidance on engaging people in an organization’s quality management system, has become more prominent and a new certification created.
Our next post will focus on specific ways to reduce or eliminate these real costs of disengagement.