The Proof is in the Profits: Employee Surveys and ROI

There is a lot of truth to the saying that you have to spend money to make money. Many Americans dream of having their own businesses, but the majority never follow through with that dream. Why? A lack of resources and opportunities? For many, yes, but another predominant reason is...

FEAR.

They fear their investment will not pay off.

You must make an investment not only to start a business, but also to maintain it. Once a business is established you must continue to invest by spending money on supplies, advertising, and people. Human resources are one of a company's biggest investments. It is not unusual for payroll and benefits to consume a large portion of a company's budget. In spite of this, many companies are hesitant to invest in their employees. Why? Once again, the answer is FEAR. Fear that they will not receive a return on their investment (ROI). This is an unfortunate mistake. The truth of the matter is that you cannot afford not to invest in your employees. It is an investment guaranteed to pay off, provided it is done properly. This is a scientific fact.

The relationship between employee attitudes and financial performance was demonstrated in a landmark study conducted by psychologist Benjamin Schneider and his colleagues. In this study, published in the Journal of Applied Psychology, employee attitude data collected from over 35 companies over an eight-year period were analyzed. The data were analyzed at the organizational level against financial return and market performance using lagged analyses. This type of statistical analysis enables the exploration of priority in likely causal ordering. The scientists found that employee attitudes are a predictive and causal factor of financial performance.

In another study conducted by Daniel Denison the relationship between employee attitudes and organizational performance was measured in 34 publicly held firms. Data from five successive years showed that employee attitudes had a direct relationship with financial performance. One finding showed that those organizations in which employees reported an emphasis was placed on human resources had superior financial performance. Denison's study also revealed that organizations in which employees reported higher levels of participative decision-making practices showed initial advantages and their financial performance relative to their competitors steadily increased over the five years. Studies such as those conducted by Schneider, Denison, and others, provide evidence that aggregated employee attitudes are related to organizational financial performance.

The health of an organization can be compared to the health of an individual. Many people are aware of the importance of regular medical check ups which can enable early detection by physicians of conditions or diseases. Early detection typically increases the chance of successful treatment and recovery. However, not everyone perceives the importance of such check ups. Recently I heard a financial planner talking about the process of applying for life insurance. She stated that some applicants will brag about how they have not seen a doctor for ten, twenty, or even thirty years! While such insurance applicants perceive this positively, believing it indicates good health and a lack of medical problems, life insurance companies perceive it negatively, concerned that health problems are going undetected. Likewise, often problems in organizations go undetected because they do not have regular "check-ups." If you wait until you notice a physical symptom to go to the doctor it may be too late for successful treatment. Likewise, if an organization waits until financial performance declines to investigate the problem, valuable time and money is wasted often with disastrous results for the bottom line.

A major restaurant chain recently learned this lesson the hard way at one metropolitan location. While this chain regularly surveyed its customers, employees were never surveyed. One of the chain's locations suddenly experienced a sharp decline in business and began losing money. Data from customer surveys indicated that customer service or rather, the lack thereof, was driving customers away by the droves. Investigation of the problem revealed that employee attitudes had become increasingly more negative for quite some time (dating back months before profits began to decline) and these attitudes began to affect customers. While a customer may overlook occasional poor service, most will not tolerate it when it becomes an ongoing problem. By the time the problem was identified, it was almost too late. The customer base had dwindled to critically low levels. The attitude problem amongst employees had become infectious and almost the entire staff at this restaurant location had to be replaced. The restaurant chain had to heavily invest in the location via recruitment and training expenditures. The troubled location is still in business but rebuilding a customer base is taking time. We all know that "word of mouth" advertising can be great for business. Unfortunately, research indicates that when people feel negatively about a business or product, they spread the word to others with even greater zeal. Thus, this restaurant has a long road of recovery ahead of it just to get back to the success it previously experienced. Only time will tell whether their journey will be successful.

Studying employee attitudes is a sound investment not only because such attitudes can influence financial performance, but also because the relationship between employee attitudes and financial performance is reciprocal. In other words,

just as employee attitudes influence financial performance, organizational psychologists have found that financial performance influences employee attitudes. It is only logical that people will be attracted to successful organizations and will want to remain with such organizations. Numerous scientific studies have found support for this logic. Thus, as financial performance improves, employee attitudes become more positive. As employee attitudes become more positive, financial performance improves.

By regularly surveying employees a company can detect poor employee attitudes and take action before such attitudes negatively impact profits. This process is similar to maintaining a vehicle in good working order. If a vehicle's systems are regularly checked and routine maintenance performed, many problems can be prevented before they occur. However, failure to perform routine maintenance and replace parts that are worn out can result in damage to other parts and systems and can exponentially increase the cost of repairs. In like fashion, a company can experience costly consequences if it fails to keep abreast of employee attitudes and take action to maintain optimum organizational performance.

In spite of this, some companies either never or only rarely survey their employees. As stated earlier, one reason for this is fear that the ROI will be low or worse yet, nonexistent. This fear is unfounded. It does cost money to conduct an employee survey, but the investment will pay off given two conditions:

1. the survey is designed and conducted properly and,
2. the company takes action after receiving the results.