In today’s workplaces, employees often feel like they’re punching a clock, with no investment in the organization’s broader purpose and no way to tap into the company’s profits. That’s because most firms haven’t designed the company-employee relationship in the right way, says Harvard Business School Professor Dennis Campbell.
“Most companies treat their employees like hired hands,” he says. “They just pay them for a certain number of hours of work.”
Through ongoing research, Campbell argues that the quickest way for companies to improve profits and growth isn’t through innovation or acquisitions—it’s by treating employees like owners. “The ownership mindset doesn’t just have to exist at an ownership level,” he says. “We’ve seen lots of great companies that create that at the rank-and-file and frontline level.”
Along with John Case, author of the book Open-Book Management, and Bill Fotsch, founder of Open-Book Coaching, Campbell advocates for a set of principles they’ve collectively dubbed “economic engagement” that can both energize employees and increase a company’s bottom line.
“Employees often have better ideas than managers,” says Campbell, the Dwight P. Robinson Jr. Professor of Business Administration. “They are on the front lines. They are interacting with customers. But they lack the incentives or motivation to do things differently.”
Companies reap the rewards
In early 2020, the team set out to track companies by measuring their economic engagement and its effect on profitable growth. They found that hundreds of companies in a variety of industries had high economic engagement, and in each case studied, significant profits followed, says Campbell.
Among members of the California Restaurant Association, for example, companies that scored in the top quartile in terms of economic engagement grew by 20 percent on average between 2017 and 2019, twice as fast as companies with average engagement.
Five steps to engagement
An economically engaged business has five key characteristics, according to the team:
1. Customer engagement: These companies start by making strong customer connections, acknowledging that customers define the value of any business.
2. Economic understanding: The companies align all employees in a common understanding of the company’s definition of success.
3. Economic transparency: Employees are able to see how the company is doing financially and learn from both its successes and failures.
4. Economic compensation: All employees have a shared stake in the company’s results, making them economic partners.
5. Employee participation: Employees are invited to participate in making important decisions to reach goals. This has a positive effect on employee well-being, lowering turnover and improving relationships between managers and employees.
The key to economic engagement, explains Campbell, is making sure that employees understand what drives profits in a company, giving them meaningful ways to participate in goal-setting, and rewarding them for success. While that sounds simple enough, it can be difficult to implement.
“The hard truth is that it takes real leadership and commitment,” Campbell says.
Before offering incentives to employees, says Campbell, companies must first educate them about the economics of the business. “That could mean starting to involve them in decisions about what the objectives could be,” he says.
Tie ownership to meeting goals
International manufacturing firm Gardner Denver began implementing these principles after being acquired by private equity firm KKR in 2017. While the company sought to increase profits overall, it searched for a manageable objective that could engage all employees—from the person sitting in accounting to workers on the factory floor.
It settled on the goal of boosting working capital, which was lower than that of comparable firms. The company trained 150 employees on the basics of the plan, and then dispatched them to speak with the other 6,000 employees about how they could address the issue in each of their departments. Employees worked on everything from reducing the number of manufacturing parts involved in building a product to speeding payments by customers.
“It was a bite-sized objective that everyone could see how they contributed to,” Campbell says. As the program gained steam, the company created a scoreboard to track progress, as well as financial incentives such as stock options to make employees feel invested in the outcome.
“Once employees see their opinions are valued, it allows you to get better information about what’s going on in the business, as well as get more buy-in from employees once everyone agrees what you are going to focus on,” Campbell says.
When the company meets its goals in one area, he says, it can work with employees to set new goals. “The objective may change next year, but this is the thing you are focusing on now,” he says.
Building a culture of trust
At the same time, giving employees economic incentives can create risks for employees by tying their pay to company performance, which can be variable. It’s easier to do, he says, in companies that create a strong culture.
“It requires a high degree of trust to sustain this model for a long time,” Campbell says, “which is another reason not all companies do this.”
One company that has done well with this model is Handelsbanken, a Swedish bank that has bestowed an inordinate amount of key decision-making powers to its branches. Individual managers are empowered to make any decision they want regarding financial products they offer to customers, and loan officers are free to develop their own criteria beyond credit scores.
“It sounds like a recipe for disaster, but they have better profit than their peers year after year,” Campbell says. “It’s because they’ve developed this unique culture of trust.”
On the flipside, the emphasis on culture also makes it easy for companies to lose employee support if they feel like that trust is betrayed. Southwest Airlines has become successful in part based on an employee-first culture with a no-layoff policy for years. When the COVID-19 pandemic decimated the airline industry and the company floated the idea of cutting jobs for the first time, however, it faced an instant backlash from its workers.
Why companies should give employees more
Despite such potential challenges, creating more economic engagement by employees can clearly lead to a huge payoff for both employees and companies when implemented well.
Operating in this way changes almost every aspect of the relationship between employers and employees, Campbell says—both creating better jobs for front-line workers, and allowing them to more meaningfully contribute to the overall health of the company—which also encourages them to stay at a company.
“They are not just hourly workers anymore,” he says. “You are expecting more out of them, but you are giving them more as well.”
About the Author
Michael Blanding is a writer based in the Boston area.
[Image: iStockphoto/philadendron]
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