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Time to Re-Engage

Top businesses for HR practices -- according to an exclusive recalibration of Fortune's "Most Admired Companies" list -- are taking employee engagement very seriously in this economy.

Wednesday, December 1, 2010
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Desperate to buy steel-tipped boots in order to gain access to an active construction site -- or lose a day's wages for not having safe-enough shoes -- a man walked into a W.W. Grainger Inc. store in Lawrence, Mass., only to find that the location did not have his size in stock.

Although Grainger -- a Lake Forest, Ill.-based business-to-business supplier of more than 500,000 products -- could supply the boots the following day, that wasn't going to solve the construction worker's problem. Just then, a Grainger employee realized he was the same size and offered up his own pair.

"That customer could not believe it," says Kim Cysewski, a vice president of HR at Grainger. "We empower our team members to go above and beyond like that to keep our customers satisfied."

Lawrence J. Pilon, the company's senior vice president of HR, says employees also seem to go the extra mile when their company's customers are combating natural disasters, such as flooding, hurricanes or tornados, and are looking for generators to restore power or industrial cleaning supplies to clean up.

"We have branch managers who will come in in the middle of the night and open up the branch for a hospital that needs something to keep their facility running," he says. "We almost have to drag them off the job during natural disasters."

Creating and maintaining such an effective culture of commitment and engagement takes effort and innovative programming by HR, say Pilon and Cysewski.

It hinges on Grainger providing a very simple incentive for employees to work hard: More success means more money in the company's profit-sharing trust, divided among employees every year. (Last year, the company provided $119 million to employees, which amounted to 18 percent of pay for employees with five or more years of experience.)

"[Employees] understand the connection [between] doing more business, improving the business results and their personal contribution to that," says Cysewski.

The company also relies on good, old-fashioned conversation. Every day at Grainger's 423 U.S. branches, branch managers will call five-minute meetings -- or Daily Lineups -- to discuss goals and offer recognition for employees who are doing good work.

Engagement efforts also involve technology -- from blogs by company leaders to Yammer, a private social-networking site. In one humorous use of Yammer, employees post the "Random Product of the Day" from the company's vast catalog. One day recently, the site featured a nacho tray. Another day it featured a specialized cleanser for beer glasses.

In today's still-volatile economy, strong engagement efforts similar to those at Grainger can influence success -- not just by facilitating a happy, motivated workforce that satisfies customers, but by inspiring workers to expend discretionary effort, something highly coveted by employers in any economy ... something akin to offering a customer the shoes off your own feet.

Engagement initiatives can also re-energize workers as the country emerges from the recession and help keep high performers from looking for new positions as the job market strengthens, experts say.

Indeed, companies considered "Most Admired for HR," according to an exclusive list created for HRE by the Philadelphia-based Hay Group, are heavily focused on engagement. Hay Group researchers recalibrated its "Most Admired" companies list for Fortune magazine to develop the "Most Admired for HR" list for Human Resource Executive®. (See the Top 50 companies.)

The Fortune "Most Admired" list was created through a survey of 4,170 HR executives, directors and securities analysts asked to rank companies on nine criteria. Four of those categories with HR implications (management quality, product/service quality, innovation and people management) were pulled out and recalibrated to create the "Most Admired for HR" list. (For more information, see "Inside the Numbers.")

A common thread among top companies on both lists is a focus on monitoring and managing employee engagement, which is especially crucial in a business environment in which many companies face worker presenteeism (employees showing up but hardly working) and employee malaise due to financial concerns, says Mark Royal, a senior consultant in Hay's Chicago office.

"A big reason that 'Most Admired' companies are where they are, reputation-wise, is because of their focus on people," says Royal. In people-centric organizations, he says, top leaders deliver clear and direct communication to employees that they can -- and should -- thrive in the organization.

"To keep people bought in and committed, we can't just focus on creating a comfortable work environment," says Royal. "We have to help people grab on to their possible future [with] the organization."

Companies aren't just pushing employee engagement to keep workers smiling, either. They know its effect on the bottom line.

Almost all (94 percent) of the companies on Fortune's "Most Admired" list said employee engagement "created a competitive advantage," while 94 percent said it "reduced turnover" and 84 percent said it "strengthened customer relationships," according to Hay's research.

Royal even says top companies are publicizing their employee-engagement efforts in order to lure top job candidates and attract investors. But for companies not on the two lists, engagement is still seen as a marginal initiative because HR and other company leaders don't want to get bogged down in employee-engagement surveys and increasing engagement offerings when they are just trying to get their regular work done.

"Organizations often lose traction on the concept," says Royal, "because managers are busy with core day-to-day job activities and seem to throw up their hands at something that seems like an add-on activity."

HR executives would be wise to follow the lead of companies on the "Most Admired for HR" list and treat engagement as a crucial tool, say experts. It takes more effort and planning, but it can lead to a re-energized workforce.

Engagement and Customer Satisfaction

Grainger's profit sharing, Daily Lineups, use of technology and deep culture of customer service helped it become No. 13 on the "Most Admired for HR" list. The company stresses engagement for one simple reason: Engaged employees provide better customer service -- and customer service is the cornerstone of Grainger's business.

"We don't make anything; we distribute products. We provide services. The way we do that is through our people," says Cysewski. "We have leaders who understand the link between engaged team members, customer satisfaction and business results."

Equally as important, Pilon says, employees who aren't engaged will be the first ones to head for the door as the job market continues to strengthen.

"I think employees who do not feel a passion for their company and their customers, who are not engaged ... those are the first ones who start looking around when times get better," Pilon says.

So far, retention seems to be in good shape. Grainger reports that tenure is 2.5 times higher than at other private companies. (Average tenure at Grainger is nine years, according to internal Grainger statistics, compared to a median of 4.4 years for all companies, according to the Bureau of Labor Statistics.)

The company also reports positive outcomes via engagement surveys. In the most recent ones, more than 80 percent said they would recommend Grainger as a great place to work and more than 85 percent said they're proud to work at the company.

"Employee engagement at Grainger is going to become more important as time goes on because we see it as a significant competitive advantage," says Pilon. "If we get that right, we think we'll get great financial performance and we think we'll get great shareholder returns."

Getting Discretionary Effort

Companies on the "Most Admired for HR" list don't just create engagement initiatives that sound good at the corporate level; they ensure that line managers are heavily involved in seeing the process through, says Royal.

"The HR staff may have a guiding hand in overseeing engagement processes, but in terms of where the accountability for maintaining high levels of engagement are -- for 'Most-Admired for HR' companies -- it really extends to managers throughout the organization," says Royal. "When organizations don't get that right, engagement initiatives break down."

At fast-food giant McDonald's Corp. -- No. 11 on this year's HR-specific list -- managers have plenty of incentive to be engaged in the engagement process.

"Every single one of our managers at McDonald's has a portion of their quarterly bonus based on commitment or engagement scores," says Richard Floersch, executive vice president and chief human resource officer at the Oak Brook, Ill.-based company.

With managers literally bought in, they do plenty to engage employees. McDonald's provides flexible schedules; paid, eight-week sabbaticals for workers with 10 years' experience; classes at its Hamburger University; and chances to work at the summer and winter Olympic Games.

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That said, however, McDonald's is also no stranger to bad press in recent years -- something that could potentially hurt employee engagement as well as the brand. With documentaries such as Super Size Me and Food, Inc., showing the unhealthiness of McDonald's menu items and fast food in general, the company has made a priority of showcasing its positive points to its employees.

For example, through internal company websites, the company highlights its menu expansion -- including salads, parfaits, smoothies -- and its emphasis on chicken and fruit, says Floersch. The company also educates employees on "talking points" they can use when speaking to friends or customers about the quality of food -- such as McDonald's being one of the largest purchasers of produce in the world, especially apples.

These efforts make "employees feel special and create the environment for them to expend discretionary effort," says Floersch. "At the end of the day, when you've got lots of employees feeling very good about what they get out of a company, you're going to end up with lots of employees expending discretionary effort."

Floersch, too, believes that the company's focus on engagement will help McDonald's retain employees as the job market strengthens.

"We're seeing almost unprecedented low turnover rates for both our hourly and manager rates across our top 15 markets," says Floersch. "We're directly attributing it to the ability to be able to deliver compelling employee value propositions."

At Dallas-based Texas Instruments, makers of semiconductor technology used in electronics, one of its most successful engagement initiatives began as a diversity offering, but quickly morphed into a way to get serious discretionary effort.

The company -- No. 37 on this year's HR-specific list -- has 28 Employee Resource Groups: one for Hispanic workers, another for Bangladeshi employees and even one for new hires. With funding and support from HR, the groups provide a valuable social outlet, says Steve Lyle, director of TI's workforce development, education and diversity.

The system of resource groups "connects employees to other people like them," says Lyle. " 'I may be the only woman on my leadership team, but I know I can connect with all the other women in TI.' "

The groups have produced other interesting results. With one of TI's goals being to build its presence in China, members of the organization's Chinese Employee Resource Group in the United States took it upon themselves to open up their own personal networks to help the company build business in the rapidly developing nation, says Lyle.

They also volunteered to translate company sales material -- on their own time. (TI opened its first semiconductor manufacturing plant in China in October.)

"It's exciting to see people go that extra mile," says Lyle, noting that the Latin American group helped grow the business in a similar way.

Ownership and Autonomy

As corporate America emerges from the recession, more and more companies are looking for engaged employees who are willing to take chances and take ownership of their jobs, says Jim Haudan, CEO of Root Learning Inc., a Sylvania, Ohio-based consultancy.

"Whenever you're in a recession, fear still becomes a predominant emotion. ... I think you have a lot of people trying not to fail versus taking the risk to succeed," says Haudan, author of The Art of Engagement. "People are worried that they're the next cut, so they just keep their heads down and try not to screw up -- well, that's the antithesis of what you need to do in an environment where you need to change."

Haudan says he sees companies excited to focus on engagement efforts because they want people to take risks which, in turn, will drive business.

That's surely the case at Nordstrom Inc., where managers are encouraged to give employees autonomy as long as they work under one of the company's guiding principles -- use good judgment. That creates "a culture of ownership and empowerment" for employees, says Mike Sato, vice president of full-line store human resources at the Seattle-based retailer.

Giving employees freedom and not micromanaging can also help brand it an employer of choice.

Nordstrom -- No. 39 on HRE's list -- sends top executives to its stores across the country to get a sense of what employees need to do a better job. During many of those visits, for example, employees clamored for the ability to sell more inventory than just what is carried at a specific store.

So the company responded by providing salespeople with electronic access to inventory at other stores as well as the consumer website, allowing customers to get items shipped directly to their homes.

The company also holds recognition meetings at each store, and managers reward employees who have delivered exemplary customer service.

Employees seem to be responding.

"They see that. They feel it," says Sato. "They say, 'Oh, the company cares. Leadership cares. They're taking action. It helps me take care of the customer. It's easier and better and more reliable, and I can successfully take care of our customer.' "

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