Employee Experience Initiatives Impact ROI in Manufacturing
In an industry where employees clock in and clock out, with little opportunity to build rapport with those outside their production line, does employee experience (EX) even matter? In short, yes, so long as profit and revenue matter.
Let’s back up.
The term employee experience is often associated with lavish office spaces and cushy perks like catered lunches, meditation rooms, and games. Not only is this a misconception, it’s one that reinforces the idea that EX is only relevant to office-based knowledge workers.
The truth is EX encompasses much more than perks and benefits. It’s a real, strategic initiative that has been correlated with not only higher retention and lower turnover, but also bottom-line financial results—regardless of industry.
At a time when 80% of manufacturers have been financially impacted by COVID-19, obtaining buy-in for EX can be difficult when these initiatives are perceived as cost drivers instead of revenue drivers. If you want to convince manufacturing executives to invest in EX, you’ll need to show that the effort not only benefits HR’s goals, but can lift the business as a whole.
To support that conversation, let’s look at two hallmark studies that prove the financial ROI of a strong employee experience.
Study #1: Organizations that invest in EX have higher average profit and revenue
The research: In 2017, Jacob Morgan, founder of The Future of Work University, interviewed a global sample of 150 psychologists, economists, and business leaders. Specifically, the group represented HR, innovation, IT, and DE&I executives across a range of industries (tech, manufacturing, retail, professional services, education, and others).
Based on those conversations, he identified three areas of work that matter most to employees: an organization’s culture, the technology it uses, and the physical environment.
Next, he analyzed and surveyed more than 250 diverse organizations, drawing on the Fortune 100 and various “best workplaces” lists, to see how their employees rated them across the three components of employee experience.
The results: Morgan found that over half the companies were rated poorly by their employees in at least one of the three areas and 20% got very low scores across the board. Only 6% (15 organizations) were investing heavily in all three, but this small group of organizations notably stood out regarding performance. Dubbed “experiential organizations,” they were shown to:
Have more than 4x the average profit
Have more than 2x the average revenue
Outperform the S&P 500
Study #2: Employee experience is a strong predictor of financial results
The research: For the past 50 years, Willis Towers Watson has conducted an annual survey of more than 500 companies and nearly 10 million employees. This sample now totals a quarter of a billion employees. The researchers at Willis Towers Watson decided to use this employee engagement data to (1) define what a strong employee experience means and (2) determine whether there’s a link between EX and business outcomes.
They started out by dividing the 500 companies into average financial performers and high financial performers then compared employee engagement data across both groups. Based on the common characteristics of the high-performing companies, they developed the High-Performance Employee Experience (HPEX) model, which groups 14 elements of EX (i.e., fair pay, trust in leadership, having a voice, etc.) into three categories:
Essentials: foundational aspects of a good work environment that most organizations deliver on, such as fair pay and support for managers.
Emphasis: aspects of EX that start to set apart high performers, such as ensuring employees feel included and are given a voice.
Excellence: the elements of EX that instill a sense of trust and create a sense of drive among employees. This category differentiates high performers from average performers the most.
To determine the correlation between EX and financial performance, the researchers surveyed employees at 120 companies, mapping questions to their HPEX model, and gave each company an EX score. Then, they mapped those scores against the organizations’ financial performance. Here’s what they found:
Organizations with a strong EX saw a 4% growth in revenue while those with a poor EX had a 1% decline in revenue.
Organizations with a strong EX had a 3% growth in 1-year gross profit margin while those with a poor EX had a 10% decrease in 1-year gross profit margin.
Organizations with a strong EX had a 4% increase in 3-year gross profit margin compared to those with a poor EX, which saw a 3% decrease in 3-year gross profit margin.
Analysis of EX vs financial performance across organizations by Willis Towers Watson
Employee experience: the payoff is worth it
Every manufacturing organization has its own unique mix of factors that influence employee happiness, productivity, and business outcomes. There are no hard and fast rules for how to approach employee experience. What we can take away from this research is that a concerted effort to build trust and put people first is not only the right thing to do, it has high potential to pay off in spades.
Read on for more information on how workforce management and HCM technology can help build a better employee experience.