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Organizational Dynamics (2014) 43, 180—188 Available online at www.sciencedirect.com ScienceDirect journal homepage: www.elsevier.com/locate/orgdyn Two numbers for growth, innovation and high performance: Working and optimal employee energy Theresa M. Welbourne a,b,* a FirsTier Banks Distinguished Professor of Business and Director, Center for Entrepreneurship, University of Nebraska, Lincoln, NE, United States b Affiliated Research Scientist, Center for Effective Organizations, Marshall School of Business, University of Southern California, Los Angeles, CA 90089, United States In 2003, when Frederick F. Reichheld published his article in Harvard Business Review titled ‘‘The One Number You Need To Grow,’’ it changed how many people thought about doing surveys. Reichheld argued that to acquire more customers and grow revenues, organizations needed feedback from customers, but the form of that information did not have to be 50 to 100 questions that were traditionally found on customer feedback surveys. He suggested that one single metric could replace the long traditional surveys. His insights were not wholeheartedly accepted. As you would expect, there was disagreement and controversy. However, the Net Promoter1 score (a short, one question, validated metric to assess customer reactions) which grew out of his work, is being used all over the world with success. Think for a moment what could be done if that same model of using simple metrics could be part of every manager’s tool kit. What if managers could use an evidence-based system to help improve employee performance, team outcomes, innovation, growth and with all of that overall firm performance? In this paper that is what is being suggested. Rather than relying on annual measures of employee engagement, commitment or satisfaction, an alternative of simple, frequent * Corresponding author at: Professor, University of Nebraska, Center for Entrepreneurship, Lincoln, NE, United States. Tel.: +1 734 429 4400. E-mail address: theresa.welbourne@unl.edu. http://dx.doi.org/10.1016/j.orgdyn.2014.08.004 0090-2616/# 2014 Elsevier Inc. All rights reserved. assessments of employee energy can provide high value to leaders. In this paper a body of work that has progressed in a fashion very similar to that of the Net Promoter work is presented; however, the topic is about employees versus customers. The research, which started the use of employee energy as a key lever to improve performance, began in 1996. The focus is on employee energy at work–—how to optimize energy, direct energy and measure energy in order to drive growth, innovation and high performance. As Reichheld triumphed in helping many business and marketing professionals learn that simple was better, the same is being done by managers and human resources (HR) professionals. After introducing the concept of energy at work, details are provided about a large research project demonstrating that a key human capital metric, employee energy at work, can be assessed using only two numbers. These metrics are shown to be predictors of both short- and long-term firm performance. Data showing that energy, at the individual level, predict individual employee outcomes (e.g. turnover, 360 ratings of performance, sales, patient satisfaction and more) also are discussed In the firm level studies, energy predicts firm survival and stock price growth when other factors such as marketing, sales, product, technology and leadership do not differentiate between the longterm winning and losing companies. In the same way that marketing professionals use the Net Promoter score as a quick number to improve customer service, leaders are utilizing Two numbers for growth, innovation and high performance: Working and optimal employee energy employee energy as a fast, leading indicator of firm performance and employee outcomes. In order to grow, innovate and create high performance organizations, employee energy at, work must be optimized (not maximized) and directed. The article also weaves the tale about the processes and interventions that grew out of the research and case study work using these two numbers. The measurement of energy and associated research allow organizations to take an evidence-based approach to managing employees, not just once a year, but in the same way other organizational assets are measured and managed–—frequently. Over the last 18 years, our research team has collected over one million data points on employee energy at work. The article presents selected highlights from the research project, the learning from conducting large implementations of the employee energy process, what has been learned to date and why and how measuring employee energy has helped numerous organizations drive high growth and performance. Last, a sample set of data from the Leadership Pulse will be explored. WHAT IS ENERGY? Science, and in particular physics, tells us that energy is the ability to do work. There are two types of energy: (1) potential or stored energy; and (2) kinetic or moving energy. Energy cannot be created or destroyed. Therefore, managers can view themselves in the role of master directors, setting the stage for employees to optimally convert potential energy into moving energy. However, as is the case in physics, one cannot start thinking about the energy conversion process, and how to optimize energy, without data. Thus, the science of employee energy at work begins with the challenge of measuring and obtaining data on human energy at work. Once energy is assessed and a baseline set, then managers can learn how to optimize the process of converting potential to moving energy and then directing that energy to accomplish the goals needed to drive organizational objectives. ENERGY AND EMPLOYEE ENGAGEMENT While energy is related to engagement, the two constructs are different. Employee engagement, in fact, has become a catch-all phrase for many employee-related attitudes. However, numerous literature reviews on the topic conclude that the idea or goal of employee engagement is focused on employees staying on the job, being proud of their jobs and going ‘‘above and beyond’’ at work. The term engagement, with its associated meaning of long-term commitment and marriage as an ending state, in many ways does describe how this work has evolved. However, being tied together forever does not necessarily say anything about what one is doing during the highly committed formal relationship. Employee engagement impacts employee energy at work. However, it appears from the research that engagement is a necessary, but not sufficient, condition for continual high performance. Engagement seems to consistently result in retention and positive attitudes (e.g. higher customer satisfaction), but it does not necessarily lead to higher overall performance. When engagement leads to improved employee energy utilization, however, we see positive links to both individual and firm-level outcomes. Thus, energy may 181 be the critical ingredient between engagement and performance. In fact, in many cases, energy alone provides enough data for decision making, providing managers with a more direct and leading metric focused on performance. Engagement work tends to provide data for priority setting of interventions that may positively affect energy at work. HOW CAN ENERGY BE MEASURED? Given the many definitions of engagement and the numerous types of employee attitudes studied, it is important to delve into not just the definition of energy, but also how it is different, and how it can be measured. In physics, energy measurement focuses on the rate at which energy is exerted. Scientists record the amount of energy needed to elevate temperature by one degree or to move an object of a given size and weight. Our definition and measure of human energy at work parallels these primary concepts from physics. Energy defined: Energy is the internal force available for an employee to exert at work (ability to work) = our version of potential energy. Energy measured: Energy is measured by assessing the level of energy it takes for an employee to be at his or her best at work (how energy is used) = our version of kinetic energy. THE ROOTS OF STUDYING HUMAN ENERGY AT WORK In addition to the body of work from physics, the theoretical work supporting energy came from two other streams of work: sports physiology and protection motivation theory. Each approach is briefly introduced next. Sports physiology In our 2005 research paper on energy at work, Welbourne, Andrews and Andrews discuss this theory in detail. Energy is an optimization construct. Think of energy like your body pulse. When beginning an exercise program the goal is to work toward a target heart rate, which is based on age, physical condition and other factors. It is not good to maximize your heart rate; it could lead to very negative consequences (e.g. heart attack). You also cannot burn calories well if you are too low on the heart rate. To optimize one’s workout, the goal is to be ‘‘in the zone.’’ The same phenomenon applies when studying employee energy. Employees have a target pace of work (or conversion level of energy, moving from potential to moving), and ideally managers can help employees learn how to stay ‘‘in that zone’’ and at their ideal performance level. The sports physiology work, in particular, helped us move the measurement work toward the concept of optimization versus maximization. Just like over exerting oneself during an exercise routine, employees cannot handle over exertion at work for very long. When individuals start an exercise routine, they are given guidelines about optimal heart rates and working out in a target zone. Why would it be any different when expending energy at work? Why do we think the human mind and body can multi-task, work long hours 182 and continue to go ‘‘above and beyond’’ and not be at risk? It is unrealistic to think that energy in the workplace is any different from energy used when exercising or during other activities. In fact, the growing body of work on mindfulness and investments in wellness attest to this reality. Protection motivation theory Although the motivation literature is quite expansive, and there are multiple theories and models from which to choose, we focused on protection motivation theory because it had the closest application to the focus of our work. Marketing experts use the knowledge from this theory to help people alter habits and behavior (e.g. used for anti-smoking campaigns and to help people start brushing teeth). Protection motivation theory suggests that change in behavior is more likely when some level of fear is activated. However, fear must be targeted at something specific and balanced with ability to cope. Thus, fear is an optimization construct, with balance of fear and coping needed to change behavior. As we started measuring energy at work, we realized that too much stimulus affecting energy (non-optimal state) was the equivalent to high levels of fear, and helping employees optimize energy could be done by providing an ability to cope and by managing the anxiety-producing events. Protection motivation theory also shed light on how to raise energy when it was too low, which was the case in many organizations when we began this body of work. These ideas led to work helping increase the sense of urgency in company cultures while simultaneously avoiding productivity or energy loss that could have ensued from these interventions. The key to success was balance, and this concept was used to help new leaders initiate change and to improve the success rate of large change events. Physics In addition to using the core definitions of energy in order to drive our research work, we also tapped into the concept of inertia. At first glance one may think that inertia is a bad thing. However, inertia is all about something in motion staying in motion or something at rest remaining at rest. The bad rap inertia gets is focused on the ‘‘at rest’’ part of the definition. We work with the ‘‘in motion’’ definition instead. How does a company in motion (going through change or growing) stay in motion? The work in physics allowed us to think more about how to build energy and how to sustain energy when the environment was changing. This was the need in our studies of initial public offerings (IPOs); many IPO companies find their ways of working are altered dramatically when they go public. However, to be successful post IPO, they need to harness the positive energy that got their firms to the IPO and avoid distractions that run rampant after this large-scale organizational change event. THE IPO STUDIES: ROOTS OF THE ENERGY RESEARCH The work on energy began in 1993 with a series of studies examining the predictors of long-term performance with thousands of firms. The focus originally was on initial public offerings, predicting stock price and earnings growth as well T.M. Welbourne as survival. In these studies, we learned that 3-year growth, 5-year firm performance and long-term firm survival (alive or dead) could be predicted from a series of factors representing energy at work. When we studied company culture, we focused on the sense of urgency exhibited in the culture. We later translated sense of urgency to the individual unit of analysis, the employee, and began studying energy at work. Both concepts — urgency and energy — needed to be optimized to drive high performance. The concept of balance, where people could thrive, emerged as an important theme. IPOs are ideal samples to study in many ways. I like to call them the fruit flies of management because they live and die quickly, thus allowing for higher quality causal and longitudinal research. Also, IPOs are diverse, allowing one to generalize to the larger population of organizations. Finally, these firms have money to grow. Basically, if they spend their acquired funding wisely and if they have created an organization with the core strength to grow, they will do well. Human capital is part of this core strength. LEARNING FROM THE LARGEST IPO COHORT–— THE CLASS OF 1996 In 1996 close to 1000 firms went public, and we studied about 800 that met our research requirements. Names you might recognize from this sample include Yahoo!, Abercrombie & Finch, Wyndham Hotel Corporation, Forrester Research, Planet Hollywood and 1-800-Attorney, Inc. The sample is diverse in size of firms (from small teams of 4 to hundreds of thousands of employees), industry and country location. It includes young and old firms, high tech and other. This diverse set of companies is thus representative of the larger population of established organizations. In 1997, we sent a survey out to the executive team members of all firms in the 1996 cohort, and we received responses from about 300 organizations. The survey focused on the resources that mattered to their success. We asked how important a number of items were to their firm’s performance to date. This approach addressed what the executives valued. Questions focused on the following potential organizational assets or resources: culture, ability to innovate, rewards structure, company structure (how organized), firm’s risk taking propensity, organizational strategy, marketing strategy, sales team and sales strategy, economic environment for the firm, employees in general, leadership team, management team, human resources team overall, staffing strategy, training and learning, venture capitalists and other investors, financing availability, product, technology used and lastly employee energy at work. We then did extensive detective work to find out which firms were both alive and thriving ten years later. A firm was defined as thriving if it were alive and had a stock price at least at what it went out at when it went public in 1996. About 38 percent of these firms were alive ten years post IPO, and only 22 percent were thriving (per our definition). EMPLOYEE ENERGY CREATES LONG-TERM COMPETITIVE ADVANTAGE The only factor predicting longer-term performance (e.g. survival and stock price growth) was employee energy at work. Controlling for factors such as age, size, risks, profitability at Two numbers for growth, innovation and high performance: Working and optimal employee energy IPO and industry, we found that employee energy at work beat out marketing, sales, technology, leaders and culture as a predictor of longevity. It was the only statistically significant predictor found in the research. This finding should not be surprising if we consider that growth is all about moving forward, and how can one grow a business if employees are not expending energy to propel their organizations ahead? Also, long-term competitive advantage comes from building assets that cannot be easily copied; ongoing, optimal employee energy is just that type of human capital–—unique, hard to copy and positively driving performance. However, as important as energy might be, most leaders know very little about their own energy at work, their employees’ energy levels, how to assess energy, how to direct energy and how to optimize it. The rest of the article will focus on these topics, drawing on 18 years of research and client or case study work on energy, analyzing over one million data points from a broad range of firms around the world. MAKING ENERGY EASY TO MEASURE AND MANAGE 183 in a way that is useful to individual managers (calculations and process used for determining group zone status can be obtained from the author). Using outcome metrics such as 360-degree performance, sales and turnover, we calculated target energy zones. When energy is ‘‘in the zone,’’ teams are not at risk, and when the scores are out of the zone for multiple periods of time or when trending in the wrong direction, then it is a clear sign that actions are necessary. PROCESS TRUMPS RESEARCH AND TECHNOLOGY The energy work started in 1996 as a small research project using Lotus Notes on a laptop computer, and since that time it has evolved to use proprietary, globally scalable software-asa-service (SaaS) technology. As the process has become accessible to more organizations, the lessons learned from implementation, working with managers and teaching employees about energy have generated new learning. Below is a summary of some of the key takeaways. Survey fatigue is a myth In order to help managers optimize and direct employee energy at work, we moved toward creating a simple way to measure energy. Simplicity is key because energy, unlike similar constructs such as employee engagement or commitment, fluctuates quite a bit. Therefore, once measurement starts, it needs to continue on a frequent basis. Many organizations are now measuring energy frequently as a supplement to employee engagement initiatives. This works for two reasons: (1) employee engagement affects energy, and energy in turn impacts performance, and (2) managers use the more frequent energy measurement process to help them work toward their longer-term employee engagement goals. In a sense, the employee engagement survey work and associated action taking are more like the annual reporting process in an organization, and the energy measurement process parallels the types of weekly sales, quality or production tracking an organization would do. In order to create a fast, easy and useful measurement tool, in 1996 we introduced a two-item energy metric. Using a color-coded scale (from blue to red), employees are asked to rate their current working energy and the energy level where they are at their best or most productive. The simplicity and color-coding have allowed us to use this question effectively in over 50 countries, with questions being translated into over 15 languages. Regardless of location, energy predicts outcomes …
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