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International Journal of Marketing and Human Resource Management (IJMHRM), ISSN 0976– 6421 (Print), ISSN 0976 – 643X (Online), Volume 4, Issue 1, January - April (2013) • Different countries have noticeable differences in retail employee engagement index scores, perhaps due to varying expectations of customer service within different cultures. • Retail employees who are engaged rate their organization’s performance about twice as high as unengaged employees. • Employees with below average employee engagement scores are much more likely to have plans to turn over than those with above average scores.KEYWORDS: Shrinkage, Employee Engagement Index, American Customer SatisfactionIndex, Improving Engagement.INTRODUCTION Since the economic downturn began in 2007, the world of retail has been shaken. Thesevere contraction in consumer spending around the world has triggered a consolidationacross the retail spectrum, impacting brand name retailers such as Circuit City and Mervyn’s.The most recent big-box retailer to fall was the U.S.-based bookseller Borders, which isclosing down more than 350 retail stores. In the UK, fashion retailer Jane Norman went outof business, as did home furniture retailer Habitat, and several others. For the survivors, costshave been cut and growth plans have been put on hold as retailers try to forecast whether theend of 2011, and the 12 months of 2012, will be robust or lukewarm at best. Staffing has beenslim, but on the positive side many businesses have streamlined their inventory managementand improved process efficiencies, from the cash register to the warehouse. Furthermore, industry reports suggest retail shrinkage—employee theft andshoplifting—is on the rise. Several situations might explain increased shrinkage, includingsecurity staff cut backs. However, others have attributed it to low pay, poor benefits and aperception among employees that their companies simply do not care about them. Given this background, perhaps it’s not surprising that in the latest WorkTrendssurvey, employee engagement in the retail sector dropped even further in 2011; the employeeengagement index score for retail employees registers only 51 percent. This puts retail at thebottom of the employee engagement list compared to other major industries (see Figure 1).We know the retail industry faces a perennial struggle with employee engagement given thenature of part of its workforce: part-time, lower-skilled and seasonal employees. However,does that mean it’s not worth trying to address low employee engagement in the industry? On the contrary—there are many reasons why employee engagement matters,including the way employee engagement has been linked to positive organizational outcomes,such as higher employee retention, greater customer satisfaction and improved financialperformance. Furthermore, the Work Trends data show employees with lower scores onengagement are much more likely to consider leaving their organization. This has clear costimplications in terms of replacing staff. 2
International Journal of Marketing and Human Resource Management (IJMHRM), ISSN 0976– 6421 (Print), ISSN 0976 – 643X (Online), Volume 4, Issue 1, January - April (2013) Using data from the extensive Work Trends survey, this report explores the linksbetween the engagement of retail employees, and employee turnover along with perceptionsof customer satisfaction. FIGURE 1: EMPLOYEE ENGAGEMENT BY INDUSTRY Percent Favourable 60 58% 58 55% 56 54% 54 53% 52 51% 50% 50% 50 48 46 Percent FavourableMEASURING EMPLOYEE ENGAGEMENT The data presented in this report were gathered through the Kenexa® HighPerformance Institute’s annual Work Trends survey, which measures employee opinionsabout a variety of workplace factors. In 2011, Kenexa surveyed 30,000 full-time employeesworking for organizations with more than 100 employees. The employees worked in all skilllevels and jobs in the world’s biggest economies, including Brazil, Canada, China, Germany,India, Japan, the United Kingdom, the United States and 19 other countries. We define employee engagement as “The extent to which employees are motivated tocontribute to organizational success, and are willing to apply discretionary effort toaccomplishing tasks important to the achievement of organizational goals.” Employeeengagement is assessed through the Employee Engagement Index (EEI), consisting of thefollowing items: • I am proud to tell people I work for my organization • Overall, I am extremely satisfied with my organization as a place to work • I would gladly refer a good friend or family member to my organization for employment • I rarely think about looking for a new job with another organization 3
International Journal of Marketing and Human Resource Management (IJMHRM), ISSN 0976– 6421 (Print), ISSN 0976 – 643X (Online), Volume 4, Issue 1, January - April (2013) Responses fall on a standard five-point Likert rating scale, ranging from stronglydisagree to strongly agree. Respondents’ scores on the four EEI items are averaged to createan overall engagement index score.In general, employee engagement is an important leadership lever for influencing a numberof organizational outcomes. Some of the top drivers of employee engagement includebelieving one has a promising future with the organization, having confidence in seniorleaders, being excited about work and having support for work-life balance. All of theseitems can be directly influenced by an organization’s leaders. To examine the link between employee engagement and organizational outcomes,such as customer service, quality, organization competitiveness and overall performance, anoverall Performance Outcome Index (POI) score was calculated, combining the followingitems: • My organization provides higher quality products and services than other similar organizations • Overall, customers are very satisfied with the products and services they receive from my organization • My organization competes well against others in the industry • My organization’s performance has improved during the past yearRetail employees who are engaged rate their organization’s performance about twice as highas unengaged employees. Further, in a sample of 158 organizations, employee engagementproved to be modestly related (r=.19) to a widely used financial metric: three-year totalshareholder return (TSR).Not only that, but numerous academic studies including linkageresearch by Wiley (2006) has demonstrated how employee surveys are leading indicators oforganizational performance.In short, employee engagement matters to retailers’ financial success.FLUCTUATING LEVELS OF EMPLOYEE ENGAGEMENT Retail employee engagement levels have fluctuated in the past few years. Mostcountries peaked around 2009 or 2010. However, countries tend to differ depending on theircontinent. European countries had the lowest EEI scores, whereas the two Asian countriestended to have the highest. In 2011, the figures show a particularly stark contrast betweenChina, with an EEI score of 70 percent, and the UK at 43 percent.EMPLOYEE ENGAGEMENT AND CUSTOMER SATISFACTION Senior management and hiring managers know how important engaged employeescan be to sales. Their knowledge and commitment can be the difference between happycustomers and disgruntled ones. Our research bears this out. We compared highly engagedretail employees to less engaged employees using customer satisfaction with the products andservices (see Figure 4). Nearly all highly engaged employees report their customers are verysatisfied, whereas only about 60 percent of less engaged employees report this is the case.This points to a relationship between higher employee engagement scores and highercustomer satisfaction, and it could mean increases in employee engagement levels couldcoincide with corresponding increases in customer satisfaction and, in turn, sales volume. 4
International Journal of Marketing and Human Resource Management (IJMHRM), ISSN 0976– 6421 (Print), ISSN 0976 – 643X (Online), Volume 4, Issue 1, January - April (2013) Additionally, for 16 retail organizations in the Work Trends 2011 dataset, weaggregated employees’ ratings of their own engagement to the organization level, creating anaverage organization engagement score. Then we correlated organizations’ engagementscores with their score on the American Customer Satisfaction Index (ACSI). We found avery strong positive relationship between organization engagement scores and ACSI scores:as organization engagement levels increase, ACSI scores also increase. In fact, the top fiveorganizations ranked by their engagement scores are the same top five organizations rankedby their ACSI scores. It is clear employee engagement is linked to customer satisfaction atboth individual and organizational levels. Even if a retail company competes in other ways besides customer satisfaction, lowemployee engagement is bad for business. Our research demonstrates lower employeeengagement levels correspond to both high voluntary turnover rates and lower organizationalperformance. FIGURE 1: CUSTOMER SATISFACTION BY EMPLOYEE ENGAGEMENT Percent Favourable 100 90% 90 80 70 60% 60 50 Percent Favourable 40 30 20 10 0 More Engaged Less Engaged As the global economy slowly emerges from the recession, opportunities foremployees will open up elsewhere and businesses could again be forced into stiff competitionfor talent. This could prove costly for retail organizations with a less engaged workforce. Infact, more than 50 percent of less engaged retail employees plan to leave in the coming year,compared to only about 10 percent of their more engaged coworkers. Employee engagement also matters when it comes to employees’ perceptions oforganizational performance. When retail employees are more engaged, twice as many reporttheir company is performing better than last year. It stands to reason that employeeengagement is related to organizational performance through less turnover and bettercustomer service. 5
International Journal of Marketing and Human Resource Management (IJMHRM), ISSN 0976– 6421 (Print), ISSN 0976 – 643X (Online), Volume 4, Issue 1, January - April (2013)HOW TO IMPROVE ENGAGEMENT Organizational leaders can take a number of steps to reduce the risk of turnoveramong retail employees. The top drivers of employee engagement in the retailindustry are effective senior leaders, support for work-life balance, fair compensationand an innovative climate.LEADERSHIP EFFECTIVENESS Effective leaders are seen as competent, and we assume they can handle thechallenges they and the whole organization face. They’re not distracted by politickingand infighting. Instead they cooperate and collaborate with others on the leadershipteam. They inspire confidence in their employees through their actions and theirdemeanor. They are trustworthy, honest and caring.WORK-LIFE BALANCE Organizations need to help their employees balance work and life priorities, notjust by offering practical support, such as flexible work schedules, but also by offeringemotional support and understanding. Organizations that support work-life balance aremore attractive to employees and prospective employees.FAIR COMPENSATION More than the amount of compensation, what matters most is the employee’sperception of pay fairness. Cultivating this attitude among employees might be assimple as explaining how their pay was determined, showing the link between theirpay and their performance, and making sure they understand how to maximize theirown compensation.INNOVATIVE CLIMATE This might be surprising, because people are less likely to think aboutinnovation in retail. However, it is logical when you think about it in terms of excitingwork. Employees like trying new things, sharing their ideas and being listened to. Thechance to be innovative both challenges and motivates them to perform at their best.CONCLUSION This report draws a number of important conclusions. The retail industry is athigh risk for employee turnover and lowered performance, because employees in thissector report the lowest engagement index scores among all industries. Understandingwhat drives employee engagement illuminates the path leaders can take to bolsteremployee engagement in their organizations. 6
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