Case study Tesco Employee Engagement, Lecture notes of Business

Download Case study Tesco Employee Engagement and more Lecture notes Business in PDF only on Docsity! 1 Final Report A study of the link between Performance Management and Employee Engagement in Western multinational corporations operating across India and China Dr Elaine Farndale, Assistant Professor, HR Studies Department, Tilburg University, The Netherlands Prof Dr Veronica Hope Hailey, Associate Dean & Professor of HRM and Change, Cass Business School, City University, UK Prof Dr Clare Kelliher, Professor of Work and Organization, Cranfield School of Management, UK Prof Dr Marc van Veldhoven, Professor of HR Studies, Tilburg University, The Netherlands October 1, 2011 2 FOREWORD This research project expands our knowledge of employee engagement in multinational enterprises operating across different country contexts including Western countries (the UK and Netherlands) and the developing economies of India and China. A grant was awarded in October 2008 to the authors of this report by the SHRM Foundation in the USA (http://www.shrm.org/about/foundation/Pages/default.aspx) to investigate the link between performance management and employee engagement in multinational enterprises (MNE) operating across developed and developing economies. The MNEs that participated in the project are:  GKN (UK, India, China)  AkzoNobel (Netherlands, India, China)  Tesco HSC (India)  InsureCo 1 (Asia-Pacific) This report constitutes a summary of findings on the cumulative data collected from the different organizations. It is not exhaustive in its representation of the data but highlights pertinent findings. The authors would like to express their gratitude to all of the company participants who engaged with this research project, in particular the key contact people, interviewees, and survey respondents, without whose very generous support it would not have been possible to carry out this study. Thanks also go out to the SHRM Foundation for funding this project, plus to the other important academic contributors to the study, in particular Susanne Beijer (Tilburg University, The Netherlands), Reimara Valk (Utrecht University, The Netherlands), Timothy So (Cass Business School, UK), Pawan Budhwar (Aston Business School, UK), Ingmar Björkman (Hanken School of Economics, Finland), and Fons van de Vijver (Tilburg University, The Netherlands). 1 InsureCo is a pseudonym for this company as confidential participation was requested. 5 2. PARTICIPANT COMPANIES GKN GKN is a leading global supplier to the world's automotive, offhighway and aerospace manufacturers. GKN provides technology-based, highly engineered products to virtually all of the world's major manufacturers of light vehicles, agricultural and construction equipment, aircraft and aero engines. Headquartered in the UK, some 40,000 people work in GKN companies and joint ventures in more than 30 countries. This study focused on two business divisions operating in China and India: GKN Driveline (supplier of automotive driveline components and systems) and GKN Sinter Metals (producer of precision powder metal components), and two parts of the GKN Group based in the UK: GKN Autostructures/Chassis Systems (part of GKN Automotive, responsible for producing chassis and wheels for road and off-road vehicles) and GKN OffHighway (part of GKN Portfolio business, supplying the agritechnical engineering and construction industries). AkzoNobel AkzoNobel is a major global paints and coatings company and a producer of specialty chemicals. The portfolio includes well-known brands such as Dulux, Sikkens, International and Eka. AkzoNobel is a Global Fortune 500 company and is consistently ranked one of the leaders on the Dow Jones Sustainability Indexes. Operations are based in more than 80 countries, involving 57,000 employees around the world. The corporate headquarters is based in Amsterdam, the Netherlands. This study focused on three business units within AkzoNobel: Decorative Paints (supplier of decorative coatings to protect buildings, including homes, offices, and infrastructures), Automotive & Aerospace Coatings (part of the Performance Coatings business division - supplier of paints and services for the vehicle refinish, OEM commercial vehicles and automotive plastics markets), and Marine & Protective Coatings (also part of Performance Coatings - producing paints and anti-foulings for ships and yachts, as well as supplying protective coatings for bridges and buildings). Tesco HSC Tesco HSC is the global services arm for Tesco, a major retailer operating in 14 countries, employing over 492,000 people in 2009, providing IT‚ business and finance services to its operations across Europe‚ Asia and America. Tesco HSC went live in May 2004‚ and at the time of the study had over 3,000 employees. Tesco HSC has three functions: IT (1,700 employees), Business Services (500 employees), and Financial services (600 employees). Tesco HSC designs‚ develops‚ tests‚ and manages some of the retailer’s mission critical IT applications. InsureCo InsureCo Group is active in the fields of banking, investments, life insurance and retirement services in more than 40 countries. With its substantial worldwide experience and with nearly 125,000 employees, InsureCo Group provides a full range of integrated financial services to over 85 million customers globally, including individuals, families, small businesses, large corporations, institutions and governments. This report focuses on one part of the InsureCo Group: the InsureCo Investment Management & Insurance Asia/Pacific, based in Hong Kong. Hong Kong is the Asia Pacific Headquarters of InsureCo Group. Insurance Asia/Pacific conducts life insurance and asset/wealth management activities in the region 2 . 2 Since this study started, there have been substantial changes in the InsureCo Group which are not represented here. 6 3. METHODOLOGY This section outlines the methods used, the type of data collected, and the employees selected to take part. The research design involved constructing multiple case studies for each of the participating companies in the different country locations. There were two methods of data collection: qualitative semi-structured interviews or focus groups, and an online questionnaire. Pilot study At the start of the project, in January-March 2009, eleven employees from a range of companies completed the draft online survey (3 in UK, 3 in India, 3 in China, and 2 in Hong Kong). Each person was subsequently contacted by telephone to ask about their experience of completing the questionnaire (e.g. time taken, language, clarity and sensitivity of questions). In addition, colleagues of the research team carrying out cross-cultural research were also invited to give comments on the questionnaire. This piloting resulted in the rewording of questions based on the feedback received. Interviews/Focus groups Interviews and focus groups were held with senior HR and other managers across the business divisions and countries of the participant companies. Each of the interviews lasted approximately one to one-and-a-half hours, and was recorded and transcribed. Focus groups lasted two to three hours and were also recorded. The interview guide was developed based on a review of the literature and the study’s research questions, which revolved around understanding employee engagement in a western MNE operating in India and/or China. In total, 42 people were interviewed for the project, spread over the following companies/countries: GKN AkzoNobel Tesco HSC InsureCo UK/Netherlands May ’09 (UK) Focus Group (6 people) + Interviews (2 people) May ’11 Interviews (4 people) (Netherlands) China/Hong Kong June ’09 Interviews (3 people) April ‘11 Interviews (5 people) Aug ’09 Focus Group (8 people) India June ’09 Interviews (6 people) May ’11 Focus Group (4 people) March ’09 Interviews (4 people) Questionnaire The criteria for inclusion of employees in the sample of respondents was that they must have been through the performance management process at least once, and were able to read and complete a questionnaire in English online. Employees were invited by email to complete the survey. Respondents were given two weeks to do this, with a reminder email being sent after the first week of the survey. In total, 964 responses were received from the 1,268 email 7 invitations sent out, which represents a 76% response rate across all businesses. The following response rates were achieved per company/country: Source Date Response rate Number of respondents GKN (UK) Dec 2009 61% 192 GKN (China) May 2009 91% 31 GKN (India) July 2009 36% 133 AkzoNobel (The Netherlands) June 2011 78% 134 AkzoNobel (China) April 2011 85% 202 AkzoNobel (India) May 2011 74% 183 Tesco HSC (India) May 2009 93% 37 InsureCo (Hong Kong) July 2009 91% 52 Average/Total 76% 964 Note: the response rate in GKN (India) was substantially lower due to problems with employees being able to access the survey via the internet system in place. Occasionally, respondents either did not complete a sufficient proportion of the questionnaire, or they were normally based in a country other than where the survey was being carried out (e.g. on a temporary assignment). These respondents were deleted from the database before further analysis. In total, the final useable dataset which we report on here included 926 responses. Respondent profile The summary profile reported below shows the average respondent is a male middle manager, aged 30-39, with up to five years’ service with the company. However, there are some differences in the samples across the companies. The following table shows the breakdown of respondent characteristics per company: GKN (total: 347) AkzoNobel (total: 505) Tesco HSC (total: 37) InsureCo (total: 37) Grade Manual worker 13 8 0 0 Administrative 42 36 2 4 Professional/Technical 119 107 13 28 Middle management 136 303 18 5 Senior management 37 51 4 0 Gender Male 314 384 28 23 Female 33 121 9 14 Age Under 20 7 1 0 0 20-29 years 61 84 16 35 30-39 years 104 241 20 2 40-49 years 102 120 1 0 50 or more years 73 59 0 0 Tenure less than 2 years 55 103 1 27 2-4.99 years 69 111 35 7 5-9.99 years 64 142 1 3 10-19.99 years 88 86 0 0 20 years or more 71 63 0 0 10 team, and they can work in a similar direction to push the company to grow in the same direction and it will grow faster.” [HR Manager, China] “What does a good engaged employee look like in the UK? I think it’s one that in the current climate understands why things are happening, and puts it in the context of what’s happening with the industry rather than a random act of local violence in terms of restructuring ... an engaged employee is one who believes the enemy is the competition, not the management or the system”. [HR Director, UK] Engagement was also seen as a two-way process. Employees are more willing to engage with the organization if they feel they receive something in return, such as extra pay in China or India, and work-life balance in the Netherlands: “People are dedicated to their job, and the company takes care of the things that they care about, so under such a balance, the company gets the best outcome and the employee gets theirs – so this is a win-win situation.” [HR Manager, China] “When the realization comes to the employee that what he is enjoying is also really benefiting the organization, that is the moment when a sense of respect and pride will set in.” [Business Manager, India] Engagement with the organization as a whole, rather than just with a person’s job was generally seen as preferable and expected to lead ultimately to better productivity and profit. Organization engagement is often seen to be negatively affected by previous ownership of an operating site, or by loyalty to product brands rather than to the organization as a whole: “Leaders and managers and people at senior levels are actually replicating [the corporate values]; or appreciating the right behaviors that support that … if you day in, day out see that being demonstrated, that yes, our leaders actually see that as important, then slowly your mind will change.” [Marketing Manager, India] Line managers are seen as fundamentally important to encouraging employee engagement, particularly in more difficult times: “I do believe that the line manager is possibly the most critical element in employee engagement because for all employees, their immediate boss or supervisor is like the company.” [Business Manager, India] 4.3 Performance Management Systems Table 4.3 highlights that three of the companies involved in the study had standard corporate performance management systems (PMS) in place (leading to transparency and consistency in the process), usually with a semi-annual review process. Only InsureCo had a local system, but there was a general move towards future centralization of this system. GKN also differentiates between a standard system for white-collar employees, and a local system for blue-collar workers. The AkzoNobel and Tesco HSC systems explicitly incorporate corporate values into the PMS to help to develop employee competencies in this area. Most systems linked performance evaluation outcomes to reward (with the exception of a new plant in China), either as salary increments or as individual or group bonuses. Interestingly, in Asia, in AkzoNobel it was noted that people expect (and receive) bonuses 11 even if they are not performing to a high standard, whereas in InsureCo, these bonuses were held back for non-performance. All of the systems appeared to give equal weight to a combination of achieving targets and developing employees. Particularly in the developing economies, skill development was a key outcome of the PMS process: “Performance management in its rawest form of getting someone to work harder ... it’s about having the skills to be more effective”. [HR Director, UK/China] The PMS was, however, often seen as an administrative ‘duty’ rather than a tool which can help to improve performance and build engagement. The key to a shift in mind-set appears to be the responsibility of HR – encouraging line managers to use the system to its full benefit. For example, line managers should be aware of the importance of communication throughout the performance management process: “There should be no surprises during the PDP discussion. If there are any surprises, it means you do not communicate”. [HR Manager, China] Equally, the PMS can be used as a tool for recording performance evaluations, but: “Performance management is much more than the P&DD: this way you can only maybe see three key points in time, but during the whole year the manager and employee, they have a lot of interaction”. [HR Manager, China] Other HRM practices used to encourage engagement included those mentioned by AkzoNobel China and India:  selecting employees who have shown loyalty previously;  fair and transparent compensation;  a wide range of training and development opportunities;  cross-functional team building and training;  and employee clubs to arrange social events outside of work. At GKN, cultural fit was also identified as important, e.g. having the ability to work in an open communication culture, especially in cultures such as China where this is not standard practice. 4.5 Impact of national culture and institutions The first point to note here is that the majority of business units interviewed had a standard corporate performance management system and employee engagement survey in place. These were considered to be working well, which implies a lack of cross-cultural problems in implementing these systems. However, the interview data highlight some issues as noted in Table 4.5. To provide further examples, firstly there were references to the difficulty of the feedback process in performance management, and the sharing of opinions via surveys: “There are some countries [e.g. China] perhaps where I can think of where giving open, candid, straightforward feedback is not feasible, it’s not something you do” [Regional HR Manager, Asia Pacific]; “I see that the Indian culture and the Chinese culture are more likely to rate themselves a little bit higher, whereas cultures like the Thai and Malaysian would be a little bit more modest in their initial rating.” [Regional HR Manager, Asia Pacific]. 12 Another issue concerns how engagement can be created in terms of what employees are looking for in the workplace: “[In India] we need to have more connection with employees on a personal level rather than send them information through email. We have seen that it works better if we have more one-on-ones, more meetings, if you are able to connect with them”; [HR Manager, India] “That is an Indian concept. There is a family day where our wives or husbands come and we intermingle with workmen, we have food with them. We generally try to attend certain events which take place in the houses of these workmen.” [Plant Director, India] Finally from a cultural perspective, some interviewees noted some inconsistencies between corporate values and national cultures: “It’s certainly not easy in Asia where you have more of the old traditional respect for seniority, whether it’s age or whether it’s hierarchy, and so on. So it can be a little bit difficult for a young Chinese employee to challenge his manager”; [Senior Business Manager, China] “People just obey the orders and they [management] do not encourage you to give suggestions; this is quite normal in a Chinese plant”; [HR Manager, China] “This process of ‘free call’ – you can just call up people at the top and complain. We are not used to it in India.” [Plant Director, India] In addition to variations in culture, the impact of different local laws and regulations was also apparent. For example, the increasingly high levels of protection of Chinese workers were affecting the type of contract being given (potentially impacting employee engagement due to the increasingly temporary nature of the employment relationship). This was also part of a current trend of employees to ‘job hop’ due to the vast range of opportunities in a growth economy. In the Netherlands, the very generous collective bargaining arrangements in AkzoNobel were helping to retain people, but at the same time gave very little leeway to encourage improved performance. The following pages include the Tables referred to in the above text. It is important to note that this interview data is based on broad reflections by the interviewees on their organization as a whole, whereas in the following section which presents the results of the online survey, these results refer specifically to the sample of employees included. CONFIDENTIAL 15 4.3 Performance Management Systems GKN AkzoNobel Tesco HSC InsureCo UK/ Netherlands  Group-wide system including performance development plans (PDP) for all white-collar staff.  Objective setting at start of year, mid- year review, end of year evaluation.  Focused on achieving results through personal development.  The system is a means of formal record keeping, whereas daily targets posted in the plants focus on continuous improvement.  Reward is linked to local targets (KPIs), not profit levels which can be affected by shifts in raw material costs.  Standard Performance and Development Dialogue (P&DD) tool for all employees worldwide.  Objective setting at start of year, mid- year review, end of year evaluation.  Includes ‘success factors’ linked to corporate values.  Beyond the P&DD system, line managers are seen as critical in the performance management process, particularly to encourage engagement.  Bonuses are linked to both company and individual performance. China/ Hong Kong  The standard PDP system is used for all management and office staff.  An issue can be that the resultant development demands may exceed the resources available.  PDP is not yet linked to reward at the new sites.  Blue-collar workers have a local performance management system which focuses on skill development, and is linked to a monthly bonus based on productivity.  The standard P&DD system is used for all employees and consists of targets, development plans and success factors (competencies related to corporate values).  Employees assess their own performance and then discuss this with their manager.  People expect to receive a bonus, even when they are graded low on performance (the bonus will just be reduced not taken away).  Historically performance management has been a local system, but is becoming more centralized.  The local system links performance against targets to both reward and development outcomes.  Performance evaluation is based primarily on achieving objectives, rather than the behavior adopted.  Non-achievement of objectives results in no bonus payment. India  The standard PDP system is used for all white-collar staff and linked to bonus payments.  Blue-collar staff have a local system which sets team targets and rewards.  Skill development is critical as there is a lack of skilled talent available.  Local targets are posted in all plant locations/offices.  The advantages of the P&DD system lie in its transparency and consistent application.  HR’s role is to encourage management to use the system fully rather than just seeing it as administration.  Clear performance expectations are considered to contribute to employee engagement.  Performance is assessed against standard corporate values, using a ‘traffic-light’ system of grading. CONFIDENTIAL 16 4.4 Impact of national culture and institutions GKN AkzoNobel Tesco HSC InsureCo UK/ Netherlands  Within the UK workforce, there can be great variation between levels of employee in how engagement might be interpreted.  The performance management system in place was developed in the UK, and is therefore considered a good fit for UK employees.  Employees are strongly protected by collective bargaining arrangements, giving little leeway to use reward as a motivator. Instead, personal recognition from line managers is valued more highly.  A culture of flat hierarchies means people want to feel involved in the business. China/ Hong Kong  The Chinese management style tends to be a family setting where the manager is the father figure and is obeyed, rather than the Western style which is more participative.  Chinese modesty prevents people from saying their career aspirations, but they are happier to enter these into a computerized performance management tool.  It is common for employees to be on temporary contracts in China due to strict regulations about termination.  The labor market is very volatile with a short supply of key talent.  China’s tradition of loyalty has diminished with new generations who expect to switch jobs for new opportunities. Extra pay is now often used as a retention tool.  In the Chinese culture, it was seen as difficult to encourage people to challenge the status quo (as desired by the company).  Chinese labor laws are increasingly protecting individual employees.  Engagement is measured in some cultures through the hours which a person is in the office, and how much they try to please the manager (e.g. Korea, Japan).  It can be difficult to give open feedback to employees on their job performance due to cultural sensitivities of ‘losing face’.  In Hong Kong, there is a tendency to grade highly because people feel very bad giving low grades – this tendency varies across Asian cultures. India  Blue-collar workers are protected by legislation. This makes it difficult to deal with non-performance issues, especially with powerful unions.  Indian culture encourages a strong emphasis on corporate social responsibility.  There is also a strong need for a sense of community, with family events linked to the workplace to encourage engagement.  The company encourages upward communication, but this is difficult in the Indian culture.  There were some questions in the employee engagement survey which appeared culturally less applicable to the Indian context (e.g. having a best friend at work).  Indians may be less frank in their views when completing surveys or evaluations, due to their culture.  The changing Indian culture influences engagement to the extent that where people see opportunities, they will move to another company to benefit from these. Previously, people tended to stay with a company for life.  Personal connection and communication with employees is critical to developing engagement. CONFIDENTIAL 17 5. QUESTIONNAIRE RESULTS Following the information from the interviews and focus groups, the tables on the following pages highlight a number of key findings from the online survey. These highlights are summarized further below. First, for clarification, the following list explains the different elements of each of the headings measured in the Tables (further information on the meaning of many of these elements can also be found in the Appendix). The information in parentheses indicates how many questions/items were used to make up the scale to measure that construct, what the scales’ source was, and when possible we also report Cronbach’s alpha indicating scale reliability. A. PERFORMANCE MANAGEMENT A.1. Frequency of appraisal ­ How often an employee has a formal performance appraisal/review (1 item). A.2. Outcomes of appraisal ­ The range of performance appraisal outcomes includes: new targets, training opportunities, retraining for a different job, pay adjustment, career assessment, development plans, job rotation, and promotion (8 items; α = .677). A.3. Involvement in target setting ­ The extent to which an employee is responsible for setting work targets on his/her own (rather than being led by the line manager) (1 item). B. EMPLOYEE ENGAGEMENT B.1. JOB-LEVEL B.1.1. STATE ­ How energized employees feel about their work, how absorbed they are, and how much they are dedicated to their job (17 items from Schaufeli, Bakker & Salanova, 2006; α = .932). B.1.2. BEHAVIORAL B.1.2.1. Initiative ­ The extent to which employees accept personal responsibility to take initiative to improve aspects of their work (5 items from Van Veldhoven & Dorenbosch, 2008; α = .870). B.1.2.2. Active learning ­ The extent to which employees push themselves to achieve high standards and learn new things in and for their work (5 items from Van Veldhoven & Dorenbosch, 2008; α = .855). B.2. ORGANIZATION-LEVEL B.2.1. STATE B.2.1.1. Affective commitment ­ The extent to which employees align themselves with the organization, feel a sense of belonging, and are emotionally attached to the organization (6 items from Allen & Meyer, 1990; α = .817). B.2.1.2. Organization satisfaction ­ The extent to which employees like the organization, feel satisfied working there, show dedication, and are energized by the 20 With regard to work climate and job characteristics (available resources and demands), higher levels of job resources (with the occasional exception of autonomy and feedback) and the specific organization resources of support and welfare are positively related to all of the desired outcomes. Conversely, organizational justice is only linked to the two types of state engagement and perceptions on how well the organization is performing. Looking at the demands on employees, high workload is linked to lower levels of organization state engagement and organization performance perceptions. Conversely, high emotional load is linked to higher levels of job and organizational behavioral engagement, as is high pressure to produce at the organization level. These organization demands are also positively associated with job state engagement. This highlights the reasoning that a certain level of demands is positive for employee engagement, rather than assuming that pressures or demands need to be minimized. From this information, we can conclude that high levels of job and organization resources in general are the key elements linked to all of the types of engagement studied. 5.2 Detailed correlational analysis of the antecedents of engagement Table 5.2a gives further detail to the previous table, presenting the actual Pearson correlations between each type of performance management practice, resource, and demand and the components of the different types of engagement. Only significant correlations (p>.010) are reported. The higher the correlation statistic reported, the stronger the correlation between the two variables. For example, one of the highest correlations noted is between development opportunities and organization satisfaction (.562). Table 5.2b presents the results of multiple regression analyses, which go beyond the correlational analysis, exploring which variables (performance management practices, resources, and demands) best predict the outcome variables (the different types of engagement and organization performance). The results show, for example, that the job resources ‘task variety’ and ‘development opportunities’ have the strongest positive effect on job state engagement, and the organizational resource ‘welfare’ and the job resource ‘development opportunities’ have the strongest positive effect on organization state engagement. In general, the red highlighted figures show that development opportunities have the greatest effect on most outcome variables (all except organizational behavioral engagement), followed by task variety and welfare (each having a strong effect on four outcomes). Interestingly, for some antecedents we find negative regression coefficients in the multiple regression, whereas in the bivariate correlations, positive associations were found. This happens especially for distributive justice. These findings suggest that the interpretation of results for distributive justice depends on whether other important antecedents of engagement are taken into account, especially job quality (variety and autonomy). 5.3 Country comparisons Table 5.2 compares the mean in performance management, employee engagement, resources and demands of each country group against the mean of the other country groups, showing the differences where the ANOVA (analysis of variance test) is significant at the <.01 level. The table ranks each country group as either having the (joint) highest, second or third highest mean on each of the variables measured. The table shows that on average, the overall engagement score is highest amongst Indian respondents, who also reported high levels of job resources and job/organizational demands. 21 Organization resources were in general lower in India than in the other two country groups. Amongst the China and Hong Kong respondents, we see the exact opposite pattern. Most significantly, this tells us that perceptions of the work climate, job characteristics and engagement do vary across countries. However, further analysis on the data will be carried out in the future to explore these observations further. 5.4 Four dimensions of employee engagement Based on the existing engagement literature (see Appendix for further details), this study has explored four dimensions of employee engagement based on two different foci of engagement, and whether it concerns employees’ feelings or behavior: Job focused Organization focused State Job state engagement Organization state engagement Behavior Job behavioral engagement Organization behavioral engagement In order to be sure that we have made an appropriate division of the employee engagement construct, further tests were carried out to see how well the data supported this four- dimension model. Table 5.4 shows the results of a series of structural equation modeling tests which compare which model best fits the data. As a guide for interpreting the results, the higher the GFI and TLI statistics, and the lower the RMSEA statistic, the better the fit of the model. In addition, where the change in χ 2 is significant (***) this indicates that the new model is a significantly better fit than the previous model. In short, Model 4 (M4) shows the best fit for the data: this model divides out the four dimensions of engagement as shown above, and is significantly better than any of the previous models which take engagement as a single construct, or as a two-factor construct (using either the job/organization or state/behavior dichotomy). The final column in Table 5.4 also shows us how the different dimensions of engagement correlate with each other. For Model 4, we see that the strongest correlations exist between the two state dimensions of engagement (.731), followed by the two job-level dimensions of engagement (.700). As we might expect, there is a weak correlation between organization state engagement and job behavioral engagement (.392). This gives further support to the notion that there are four distinct dimensions of engagement, although they do correlate to a certain extent which tells us that they can be considered part of an overarching construct. CONFIDENTIAL 22 5.1 Significant correlations (positive + and negative -): Job state engagement Job behavioral engagement Organization state engagement Organization behavioral engagement Perceptions of how well the organization is performing Performance Management Frequency of appraisal + Outcomes of appraisal + + + + Involvement in target setting + + Resources Job resources + + † + + †‡ + † Organization resources - justice + + + Organization resources - support & welfare + + + + + Demands Job demands – workload - - Job demands – emotional load + + Organization demands + + + Note: based on total dataset of 926 responses. Significant at the level of p<.010. † excluding Autonomy; ‡ excluding Feedback. CONFIDENTIAL 25 5.3 Country comparisons: UK/Netherlands China/Hong Kong India Employee engagement Job state engagement 3 2 1 Job behavioral - Initiative 2 2 1 Job behavioral - Active learning 3 2 1 Org state - Affective commitment 1 2 1 Org state - Organization satisfaction 1 2 2 Org behavioral - Citizenship behavior 2 3 1 Performance management Frequency of appraisal 2 1 2 Range of outcomes of appraisal 2 1 1 Involvement in target setting 1 1 1 Job resources Feedback 1 1 1 Autonomy 1 2 2 Development opportunities 2 1 1 Task variety 1 2 1 Organization resources Distributive justice 1 1 2 Interactional justice 1 1 2 Procedural justice 2 1 2 Support from line manager 1 1 2 Support from colleagues 1 1 1 Support from senior management 2 1 1 Welfare 1 2 2 Job demands Workload 2 1 1 Emotional load 2 1 1 Organization demands Pressure to produce 2 3 1 Key: 1 = highest mean 2 = second highest mean 3 = third highest mean Note: based on total dataset of 926 responses. CONFIDENTIAL 26 5.4 Confirmatory factor analysis of combined scales: Notes: M1 = 1 factor model (all items entered together with no distinction between types of engagement) M2 = 2 factors (job versus organization) M3 = 2 factors (state versus behavior) M4 = 4 factors (1: job state, 2: organization state, 3: job behavior, 4: organization behavior) Based on dataset of 879 usable responses for the analysis. An additional scale measuring organizational compliance was included in the organization behavioral engagement measure. *** p<.001 χ 2 = a measure of goodness of fit of a model Df = Degrees of freedom p = level of significance of test GFI = Goodness of Fit Index RMSEA = Root Mean Square Error of Approximation TLI = Tucker-Lewis Index Model χ 2 Df p GFI RMSEA TLI Change in χ 2 in comparison with M1 Correlations between factors M1 1503.5 27 .000 .727 .250 .620 M2 1348.7 26 .000 .717 .241 .647 154.4*** M3 862.3 26 .000 .806 .191 .777 640.8*** M4 97.0 20 .000 .975 .066 .973 1406.1*** 765.3*** (comparison with M3) 1 2 3 4 1 2 .731 3 .700 .392 4 .509 .380 .667 CONFIDENTIAL 27 6. CONCLUDING REMARKS In this final section we offer some thoughts on the key questions that this research was designed to uncover 4 . A) How should firms be measuring engagement? Our study uncovered what has also been commented on by others before us, that there are many different scales being used across companies to measure engagement – so is there one best way to measure engagement? In this study, we have distinguished multiple dimensions of engagement, so it is essential to be clear about what types are being measured, and which of these are important for the company given different operating contexts. The following matrix highlights the different dimensions: Job focused Organization focused State Job state engagement Organization state engagement Behavior Job behavioral engagement Organization behavioral engagement Job state engagement is about people loving their job, having great enthusiasm to get out of bed each morning and do their daily tasks. This can lead to individuals talking passionately about their job, but not necessarily having loyalty to the company they work for (although the two can be highly correlated). Organization state engagement on the other hand is about people loving the company: these people make great ambassadors for spreading the corporate brand. Behavioral engagement, on the other hand, is less focused on loving what you do or where you work, and is more about people going the extra mile and putting in the extra effort to complete the work. Job behavioral engagement is about people taking the initiative in their daily work, and looking for development opportunities. Organization behavioral engagement is about employees being proactive in highlighting problems and suggesting improvements. Arguably, behavioral engagement may be more beneficial to firms from a productivity perspective, whereas state engagement creates a pleasant environment for people to work in. Ultimately, it is important to know what type of engagement you are measuring, how you are communicating about the types of engagement you desire, and what action plans might help to create the necessary engagement to achieve firm performance. B) Have we uncovered a framework of effective performance management practices which may enhance engagement? The questionnaire data showed us that having a broad range of outcomes of the performance management process (from training to pay rises, from job rotation to bonuses) has the 4 It is important to remember when reading this section that the survey data was biased towards employees holding middle management or professional roles in the participant companies. 30 continue to work with this data to uncover further important relationships between performance management, work climate and employee engagement. As more detailed understanding emerges, we will be working hard to have this new knowledge published in academic and practitioner journals (of course, respecting company confidentiality), as is a key aim of the sponsors of this research, the SHRM Foundation. CONFIDENTIAL 31 APPENDIX: THEORETICAL FOUNDATIONS What is employee engagement? Although the term ‘employee engagement’ is well known in the organizational psychology literature (Macey, & Schneider, 2008), and is becoming well known in current everyday working life (Vance, 2006), in the human resource management (HRM) field there has been little research into this concept. However, there are very real implications for HRM stemming from the notion of engagement. The roots of the concept of employee engagement can be found in the work of Khan (1990), who discovered that people occupy roles at work to a varying degree (personal engagement or disengagement), suggesting that people can use varying degrees of their personal selves - cognitively, emotionally and physically - in the roles they perform. Job engagement is the opposite of burnout, referring to high energy levels, involvement and professional efficacy (Maslach, et al., 2001). It incorporates notions of employee well-being, characterized by high levels of activation and identification: “a positive, fulfilling, work- related state of mind that is characterized by vigor, dedication, and absorption” (Schaufeli, et al., 2002: 72). Saks (2006) took a similar approach to Kahn (1990) by arguing that engagement is role-related, but argued that a distinction should be made between engagement towards the job and towards the organization since these reflect the most important roles of an employee. Saks defined employee engagement as “the extent to which an employee is psychologically present in a particular organizational role” (p. 604). Rather than focusing on roles, Macey and Schneider (2008) take a different perspective on engagement by distinguishing three components, namely that of trait, psychological state, and behavioral engagement. Trait engagement focuses on personal level attributes such as personality, behavioral engagement encompasses the actions of employees, whilst psychological state engagement is characterized by affect and feelings of energy (Macey & Schneider, 2008). Since the work by Macey and Schneider (2009) was conceptual, empirical studies are needed to examine whether this distinction between different components of engagement is indeed supported empirically (Harter & Schmidt, 2008). Taking these core dimensions of employee engagement, Robinson, Perryman and Hayday (2004: ix) offer the following definition which is employed in this study: “Engagement is a positive attitude held by the employee towards the organization and its values. An engaged employee is aware of business context, and works with colleagues to improve performance within the job for the benefit of the organization. The organization must work to nurture, maintain and grow engagement, which requires a two-way relationship between employer and employee.” This definition is deliberately broad as there is as yet little consensus as to what exactly should be measured when gauging engagement (see, for example, Vance, 2006: 5). What are the drivers of employee engagement? Performance management Performance management is “an integrated process in which managers work with their employees to set expectations, measure and review results, and reward performance, in order to improve employee performance, with the ultimate aim of positively affecting organizational success” (Den Hartog, et al., 2004: 557). Such practices are being recognized as increasingly central to high performing organizations (Kirby, 2005). Particularly empowerment enhancing practices have been found in Western cultures to have a significant effect on employee commitment (Gardner, et al., 2001), one important dimension of 32 engagement. Despite this idea that performance management practices have particular significance for notions of engagement, as yet evidence of the direct linkage is weak (Guest, et al., 2003). This study has been designed to explore this further. Work climate Extant literature which has explored relationships between performance management and important employee level outcomes frequently highlights the important mediating role of work climate (Greenberg, 1990; Macky, & Boxall, 2007). In this sense, we define work climate as being a combination of factors such as perceived organizational justice, trust in the employer and in colleagues, and the relationship between an employee and their line manager. In addition to this literature, looking specifically at the desired outcome of engagement, Kahn (1990) reported three psychological conditions which are critical in influencing people’s engagement: meaningfulness, safety and availability. Meaningfulness is a sense of return on investment of a person’s effort in his or her work. Safety is a sense of being able to employ oneself without fear of negative consequences to self-image, status or career. Availability means possessing the physical, emotional, and psychological resources necessary for investing oneself in role performance. The latter can also be divided into two dimensions: personal resource availability, such as energy, competence, and family demands (Rothbard, 2001); and job resource availability, such as social support and job control (Mauno, et al., 2007), and not too high job demands requiring physical or mental effort (Demerouti, et al., 2001). How attitudinal and behavioral responses can differ over national contexts Much of the theory described above has been explored in a Western, predominantly US, context. Extant cross-cultural and cross-national research however leads us to expect differential attitudinal and behavioral responses by employees in different countries to experiences in the workplace. For example, the four dimensions of national culture identified by Hofstede (1980) – power distance, individualism/collectivism, masculine/feminine, uncertainty avoidance – can have crucial effects on the outcomes of HRM practices (Schuler, & Rogovsky, 1989). From an institutional perspective, factors such as the role of the state, labor legislation, trade unions, shareholders, education systems and other influential stakeholders set the context in which HRM is experienced by employees (Brewster, et al., 2007; Whitley, 1999). Looking at important elements of employment relationships, academic commentators have found significant differences, for example, between the dimensions of organizational justice, commitment and trust in different countries (Chen, & Francesco, 2000; Gales, & Barzantny, 2006; Glazer, et al., 2004; Huang, & Van de Vliert, 2006; Hui, et al., 2004; Wong, et al., 2006). There is also recent evidence that although the underlying relationships between employee attitudes and behaviors are fundamentally the same, i.e. based in social exchange relationships (Zhang, et al., 2008), the impact of a collectivist as opposed to individualist society may affect outcomes such as affective commitment, job satisfaction and turnover intention (Wang, et al., 2002; Wong, et al., 2001). This emerging evidence that employee motivations may differ, particularly between Asian and Western cultures, requires further research, particularly in this new field of employee engagement (Hui, et al., 2004). There are also important cultural elements to the design and implementation of performance management systems (Fletcher, 2001; Fletcher, & Perry, 2002). 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