Insights

How employee engagement leads to higher profits

I interviewed Nikki Gattenby, MD of the agency Propellernet. Her book SUPERENGAGED is now out, launched October 2018. Read my exclusive interview with Nikki below. 

Over the last eight years Nikki has led a team that has tripled margin, quadrupled revenue and generated ten times more profit. And she has proved beyond all doubt that putting people first creates genuine business success. The agency has been voted one of the best places to work in the UK for the last 6 years running.


1. Why is employee engagement important for agencies?

Agency profit margins have been dwindling over time. In the Mad Men heydays of the 1970s our margins were in the realms of 30%+.

Roll forward to today, the average agency margin is languishing around 9%. And falling. We have to take action to reverse the trend.

If you’re looking to drive more profit in your agency, you should take your employee engagement figures as seriously as your margins. (Do you know what your engagement figures are?)

Employee engagement is a direct driver of profit. And essential for the survival for future fit organisations. It’s important for both long term sustainability and commercial health.

 

2. Do you have any evidence to back that up? Is there a direct link between engagement and the success of an agency?

Yes. Here are some highlights;

We live in a world where only 30% of people are engaged in their jobs (source; Gallup 2018), meaning the other 70% have left their ingenuity at home, probably not bringing their full selves to work, possibly just turning up hoping not to get fired.

What a waste of our collective human intelligence. How bad is that for business?

How brilliantly could we be doing if that 70% were engaged too? How much better could each of our companies be performing if everyone was more engaged? And how can we make that happen?

I’ve spent the last 20 years on a mission to put people before profit. Having worked with various captains of industry in the advertising world, and been a little disappointed at the single line focus on the money, the margin on everyone’s head, rather than the human side of business.

The irony being if you put people first, your business performance increases and your profit naturally does too.

Against a backdrop of only 30% engagement, 90% of our team are engaged at Propellernet. And that’s important as it shows up in the numbers every time;

• 98% of our team would recommend working at Propellernet to others – and actively do, this has a positive impact around the business, on each other, our clients, our environment and saves us a considerable sum on recruitment fees.
• Our staff turnover rate is less than 7%, the industry average, according to last IPA report is over 30%. Again, we benefit from a reduction in wastage, less time needed on re-recruiting, and the pain of client knowledge and agency expertise walking out the door with each leaver.
• We average 1 day off sick a year, industry average is way higher, anywhere between 5 and 12 days, depending on what source you look at.

The last point is particularly pertinent in our industry; where overwork and burn out are endemic. At what point did it become acceptable for a cerebral career in marketing to cause so much anguish?
Nationally there is a worrying increase in the number of people absent from work through illness. And if we take the statistics from London alone, according to the Mayor of London’s office, sickness absence costs London businesses £10.4 billion. An organisation of 250 people can lose £250,000 a year due to sickness absence.

That’s shocking. And there is so much we can all do about it.

At Happy, a training and consultancy business, they have also proved the impact of employee engagement (source; Happymanifesto.com);
• Happy, engaged staff are 22% more profitable
• For every 2% increase in how happy employees are, revenue grows by 1%
• Investing in a great workplace compared to the standard stock market over the last 25 years would give a 3.5% increase in return

Don’t think ‘why is employee engagement important?’ Ask ‘why would it not be?’

And here’s the best bit. Anyone can benefit from these gains too. We know it from our research, there are so many simple, fast, easy things you can do that actually have a provable measurable effect on people’s engagement. It’s about going out and putting this into action. (Have a read of Superengaged to find out more; www.superengaged.co.uk)

 

3. So what exactly is “employee engagement”?

In short, it’s the degree to which an employee feels personally involved in the success of the business; eager and able to drive change, have a positive effect on those around them and to be the best version of themselves.

It requires treating people as human beings, not robots or numbers on a spreadsheet. It’s not hard.

According to Engage for Success (www.engageforsuccess.org )

Employee engagement is an approach that enables everyone to give their best, through commitment to the company goals and values and motivation to contribute to success, whilst enhancing their own sense of wellbeing.

What’s not to like?
Taking it up a gear, and working with culture experts, ThenSomehow (www.thensomehow.com) we have defined superengagement, where employees;
• Know the organisation cares for its people and is doing its utmost to ensure their emotional and psychological wellbeing
• Have complete faith that the organisation will tell the truth, while being faithful to its own core principles
• Feel genuinely challenged, with the appropriate training and support to take on those challenges with a sense of how they can progress

1. Caring 2. Telling the truth 3. Enabling people to feel a sense of achievement in their work. Not too much to ask, is it?

Happy, engaged people do better work than miserable people, it’s not rocket science, but it’s rarely factored into the business plan.

 

4. If you’re working in an organisation that isn’t people oriented, what can you do to create more engagement?

You take action. You don’t sit on the side-lines and wait for someone else to make it happen. You take the bull by the horns and do it yourself.

To be a leader, you don’t wait for someone to give you a leadership title. You are a leader by your actions, not what it says on your business card.

 

5. What myths and misunderstandings do you think people have about employee engagement?

That it’s the fluffy stuff.
That’s only if you think your people are fluffy stuff. And if that’s the case, why did you employ them?

That it’s the role of HR
If people are your business, as they are in most agencies, your culture should not be ‘outsourced’, this is way way bigger than one department.
When people are your business, culture is your strategy.

That it’s not got a commercial benefit.
If you look at the amount of waste, with 70% of people not engaged in what they are doing, having left their ingenuity and imagination at home. Why would you pay people to be like this?
What a waste of human potential. I’d say it’s the biggest commercial hole on the balance sheet.

It’s not a differentiator
If you believe that, in a people based industry, where we are evaluated by the impact created by our collective human intelligence, then you shouldn’t be running a people based business.

 

6. How would you go about persuading an agency FD to ‘invest’ in engagement? I can imagine some agency FD’s being quite cynical about this.

I’d ask them to think about the overheads in their business. What makes up the majority of cost in an agency?

Salaries.

If you think about your compensation to revenue figure, it tends to be around 60-65%, often more.

If you’re spending over half of your revenue on your people’s compensation, I’d say they’re important in the grand scheme of your operation and should be treated as such.

The old school way of looking at this is to try and ‘sweat the assets’. Quite frankly, if you’re in that mindset, you’re going to get left behind. Employees are human beings, not assets to be exploited. Would you do your best work whilst being continually ‘sweated’?

In the knowledge economy that agencies operate within, people have choices. Where would you rather work – in an environment where you are seen as an asset to be sweated, or as a human, worthy of investment to enable you to have ideas that may just light up the world?

To attract and retain the best people, you need to be clear what’s in it for them as well as what’s in it for you. And if you attract great talent, who then become demotivated, unengaged and lack the performance you expected, who do you think is to blame? It’s happened on your watch…

There’s that insightful apocryphal tale to throw another angle on it:

“CFO to CEO. “What if we invest in our people and they leave?”
CEO to CFO. “What if we don’t and they stay?”

When people are unengaged and only there for a salary, they are loyal to the cash not the company. They can easily be tempted elsewhere and staff turnover increases.

The time and cost of replacement recruitment has a drag effect on any business, it takes your eye off the real economic drivers in the company whilst you watch valuable client and product knowledge walk out of the door, right before your eyes.

When we’re all looking to employ more talented people, we should hold a mirror up to our current staff, they are right there in front of us. We employed them because they were good and top of their game – we should focus on enabling them at least stay like that. Ideally, we should help them to become even more brilliant.

Over the last decade, by raising our engagement levels and all the benefits this brings, we have tripled our margin, quadrupled our revenue and have ten times more profit. Hard-nosed proof that being human, pays off.

And there are swathes of evidence to further show that engagement returns dividends, literally. According to Gallup in a survey of 1.8 million employees, in the context of engagement the top 25% of companies enjoy 200% more annual profit than the lowest 25%.
(This is regardless of the organisation, industry or company)

 

7. To an agency MD wanting to super-engage their people, what should be their first key steps?
Listen, ask questions and find out about how people feel about the organisation right now. It will give you an indication as to how engaged they are.
A great question is whether or not they would recommend working at your agency to others. Our personal reputations are at stake to do this, so it can tell you a lot about how people feel (many companies ask this about their products and services). Simply ask for anonymous response to;
“On a scale of 1-10, with 1 being low and 10 being high, how likely would you be to recommend working at this company to others?”
It’s the classic Net Promoter Score question, with the scores meaning:
6 or under they are a detractor of your business, likely to have a negative view
7-8 passive/neutral, neither actively negative nor promoting the agency
8,9,10 a promoter of your company
How would you score you agency?
How do you think your team would score?
Would the leadership team score differently to the rest of the business (hint, in 99% of places there is a significant gap between the engagement of the senior team and others). What do you think the difference might be?
There’s a deeper question set in Superengaged to find out more about what’s going on in your company and more importantly, how to react to it.

 

8. What mistakes have you made trying to engage your people?
You need to have the energy to keep engagement front of mind. Much like having a vision, defining your values and establishing your products, they don’t stand still. They have to be lived to be believed, otherwise they’re not worth having.
We offer 12 Propel Days a year, a day a month, for our people to focus on their personal development and how they can ‘propel themselves forward’.
Just as paying through the nose for a gym membership won’t actually get you fit, we have learned the hard way that creating the concept of Propel Days wasn’t enough.

In the first year, for example, only 146 of the 600 potential Propel Days were taken; that’s less than a quarter. And while we were initially surprised, when we asked our people why, the reasons they gave made sense:
• They didn’t have time or felt it wasn’t a top priority for them.
• They didn’t know what to do or lacked inspiration.
• They didn’t feel comfortable taking a whole day out, just for themselves.

So, we tackled this up front. We realised that, if we wanted to hold people to account for their own development, encouraging them to take Propel Days wasn’t enough. We had to empower them to do so, by making it clear that these days shouldn’t be moved around other things, and by helping them to inspire each other and protect each other’s time.

 

9. Presumably this has to be done for the right reasons, otherwise it could be seen by employees as manipulation?
Yes. Trust is key to engagement and if you don’t really subscribe to it, don’t really buy into it and don’t have the energy to commit to engagement for the right reasons. Don’t bother. You’ll end up in a worse place than before, probably having undermined any positive culture development, possibly eroding your margins even further, as people look elsewhere for more fulfilment.

 

10. Why do you think agency leaders don’t take this more seriously?

Bloody good question.

Many don’t see the immediate value on the P&L – which is at best understandable, at worst downright careless, overall it’s not sustainable. Spreadsheets mask a whole range of human realities.

Others may think it’s hard. If it was easy, wouldn’t everyone be doing it? Funny thing is, it’s not that hard if you’re invested in it. It’s a mind-set shift.

For those gunning for a sale, it’s not the traditional blueprint of how to attract a buyer to your business – the focus is EBITDA and the multiple. The levels of employee engagement in the business rarely make it onto the investor dashboard. But they should do – it’s the key to unlocking so much value.

And that’s what everyone is chasing. Oh, the irony.

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