No self-respecting HR professional is likely to march into the boardroom with the pronouncement: “By Jove, I’ve cracked it: we need to be nicer!” But the evidence is mounting that treating employees well makes good business sense.
Or so says the Nationwide building society, which, after measuring business performance with employee and customer commitment over a number of years, is convinced there’s a strong link between the three.
The company, which earlier this year was hailed as the Sunday Times Best Big Company to Work For, calculates that a 3% increase in employee commitment means a 1% upturn in customer commitment and an 8m rise in business performance.
“It definitely makes business sense to do things that result in a more committed workforce,” says Jeremy del Strother, Nationwide’s divisional director (personnel and development).
Its yearly staff turnover is 8%, which is 6% below the financial services average. Every 1% of turnover is calculated to be worth almost 3m each year, so this benefits the company immensely.
With annual sales of £3.9bn and 76% of employees responding to the Sunday Times survey saying that chief executive Philip Williamson runs the organisation according to sound principles, it is clear that Nationwide must be doing something right.
According to del Strother, fairness and respect are the key ingredients.
“It’s one of our management practices to think about whether you’d like something done to you before you do it to someone else,” he says. “We go out of our way to be fair and to treat people as individuals and adults.”
The Great Places to Work Institute (GPTWI), which publishes its 2005 UK’s 50 Best Companies to Work For list later this month, certainly believes treating employees well adds significantly to a company’s competitive advantage.
A study published last month by the institute underlines the link between the culture of a workplace and its financial performance.
Trust is the key
The organisation hypothetically invested 100 in the stocks of the publicly listed companies that appear in its 50 Best UK Workplaces list.
Over a five-year period, from 1999-2004, the Best Workplaces portfolio would have returned an impressive 160 compared to the FTSE All Share Cumulative and FTSE 100 Cumulative, which would have paid out a disappointing £80.
The GPTWI says that trust is at the core of many of these high-performing companies, together with credibility, respect and fairness.
Respect is one of Asda’s principal values and is measured regularly. The supermarket chain also gauges employee trust and how well it is listening to staff.
Asda people director David Smith says: “We have long recognised that people are more than just individuals who turn up for work. We encourage an atmosphere where people treat each other decently.”
Asda came in at number two on the Sunday Times list and number three in the GPTWI’s 2004 UK list. Each time these lists are published, the company claims it sees a surge in job applications.
But the worker-friendly attitude that exists at the supermarket is driven by hard-nosed financial reality rather than pure altruism.
Just over a decade ago, the retailer was facing bankruptcy. In the absence of copious funds to dig itself out of a hole, it turned to its people.
“It was a commercial drive. There was no money, so we had to start a revolution with our people, based on listening and saying thank you more. Treating employees well is absolutely good for business,” says Smith.
And this is demonstrated by the bottom line – Asda’s annual sales are £14.4bn and staff turnover is currently at 25%, compared with an industry average of 40%.
Valuing staff is also a key element at the Scotland-based manufacturer of the Gore-Tex fabric, WL Gore & Associates, which last month topped the Sunday Times 100 Best Companies to Work For poll for a second year running, having grown from a humble husband-and-wife team in the US in 1958 to have a turnover of $1.8bn (£964m) today.
Gore’s UK leader, John Kennedy, espouses a flat “lattice” company structure, which allows easy communication between employees, or ‘associates’, as they are known at Gore.
“We have a lot less politics and point scoring than many companies. We don’t think people are fundamentally lazy; we believe if you give people the right environment, they will do good things,” he says.
This trust trait is also advocated by Chris Lamb, head of HR at American Express UK and Ireland. He says the financial services giant measures how leaders get their results, as well as the results themselves, with a 50% rating given for each.
“We look at things such as how leaders hold people accountable, how they give feedback, and how strong a focus they put on building a network of talent,” says Lamb.
The company, which has inched its way up the GPTWI’s UK list from the mid-40s to number eight last year, also measures fairness in its twice-yearly employee survey, by asking its workers whether they feel they have been recognised for doing a good job.
Trusting employees has certainly paid off for Ricardo Semler, chief executive officer at Brazilian technology and software group Semco.
Author of Maverick (published in 1993) and last year’s The Seven-Day Weekend, Semler has caused many an eyebrow to be raised with his unusual approach to management or, more accurately, his non-management strategy.
For 25 years, employees have been allowed to set their own wages, choose what work they do and who will be their manager while secretaries and organisational charts have been banished.
But instead of chaos prevailing, revenues have jumped from $35m (£18.5m) to $212m (£113.6m) in the past six years, with the firm growing from several hundred employees to 3,000, with staff turnover of around 1%.
Equally unconventional is Michael Roach, who is also no stranger to impressive business growth. The former vice-president of diamond and jewellery business Andin International’s diamond division is now an ordained Buddhist monk and the author of The Diamond Cutter: the Buddha on Managing your Business and your Life.
Roach helped build the division, using a $50,000 (26,500) loan and four employees, into a company boasting sales of more than $150m (79.3m) per year with 500 employees around the world. He attributes the company’s success to having run it according to Buddhist principles such as setting out to make money “in a clean and honest way, understanding where the money comes from and maintaining a healthy view towards it”.
This all sounds fine in theory, but one of the major challenges for companies is how to translate these elevated values into corporate culture.
Back in the UK, Nationwide attempts to bridge the gap through initiatives ranging from an ’employee of the year’ award and an employee charter outlining what is expected from employees as well as the employer.
“It’s like a deal. Each of the values is matched by the employee’s obligation to display the value,” says del Strother.
Meanwhile, at WL Gore, Kennedy says the company has no rank or reserved car parking space and no obvious career progression. Not because they want to go around hugging trees, but because “we are a commercial company and it makes good business sense for us”.
Great explanations: making workplaces work
The US-based Great Places to Work Institute asked a number of employees from a range of companies: “Is there anything unique or unusual about this company that makes it a great place to work?”
Here’s what employees at some of the best workplaces had to say:
– “Our boss is not above doing any job. She will work any job level, thereby gaining respect and loyalty of other team players.”
– “I am not afraid to make mistakes, which allows me to be a risk taker. I am able to explore my ideas at this company.”
– “Management truly encourages and expects individuals to care for themselves before work. They understand personal lives are more important than jobs.”
– “My boss is a great leader. She can make hard, but fair, decisions, and she always seems to do the right thing. She values differences in people, which is a great asset.”
– “I spent most of my career in a company which focused on efficiency and profits – employees were a ‘means to the end’. However, I have had the fortunate opportunity to join this company late in my career. This is truly a place that puts people first, manages from the heart, and cares for the community.”
– “Because this company’s managers try to make its workplace and its work activities fun, the whole company gains a very positive attitude leading to good performance.”