Here is a brief excerpt from an article by V. Kumar and Anita Pansarim for MIT Sloan Management Review. To read the complete article, check out other resources, and obtain subscription information, please click here.

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It’s well known that employees’ attitudes toward the organization have a significant effect on how they approach their jobs and how they treat customers. But recent research also suggests that high levels of employee engagement are associated with higher rates of profitability growth.

Over the years, the media and academia have paid close attention to various customer-driven strategies — aimed at improving measures such as customer satisfaction, customer loyalty and company profits. However, in recent years, the focus has changed. Although the ability to deliver a good product or service to customers who want it and are willing to pay for it is still seen as the key ingredient to success, there is a growing interest in understanding the impact of employees on the bottom line.

That some companies are choosing to invest in better-trained and more service-oriented workforces should be no surprise. With increasing competition, technological advances and globalization, many companies, especially those selling services, have come to realize that employee expenditures are more than a cost: Employees are the face of the business and sources of innovation and organizational knowledge. They interact with customers at every touch point and create lasting brand impressions. They personify the company’s service philosophy and are expected to live by its culture and values. While the products and services many companies offer can appear quite similar on the surface, exceptional service can be a competitive advantage. Competing through service is only possible when the organization treats its employees as a valuable resource.

Well-known service-focused companies, including Whole Foods Market, Starbucks, Marriott International and Southwest Airlines, have long invested in initiatives focused on maintaining a holistic framework of making both their customers and their employees happy. Herb Kelleher, the founder and chairman emeritus of Southwest, summarized this philosophy well when he said, “You put your employees first, and if you take care of them, then they will take good care of you, and then your customers will come back, and your shareholders will like that, so it’s really a unity.”1 Howard Schultz, the CEO of Starbucks, echoed this view: “[Employees] are the true ambassadors of our brand, the real merchants of romance and theater, and as such the primary catalysts for delighting customers.”

Defining Employee Engagement

For the past two decades, employee engagement has been a topic of interest both in the academic literature and among managers. Initially, it was thought of as personal engagement with the organization and indicated that an employee’s focus was on the performance of assigned tasks. Over the years, several definitions have emerged. Some researchers focused on worker burnout, the idea being that employees who are not experiencing burnout are engaged. Others went beyond burnout and fatigue to focus on the basic needs at a workplace, noting that if employees are engaged, then they “are positive about their work being meaningful, their workplace being safe and the availability of sufficient resources for completing tasks.” Still others explored the emotional side of work and provided a comprehensive definition that focused on the cognitive, emotional and behavioral components associated with an individual’s performance.

Recognizing that there were various meanings attributed to employee engagement and no overall consensus about what it involved, we set out to examine how employee engagement was practiced in the business world. We conducted qualitative research in North America, South America, Asia, Africa and Europe, interviewing more than 200 HR and marketing managers from 52 companies in the hotel, telecommunications, airline, retail and banking industries. (See “About the Research.”)

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Measuring Employee Engagement

For companies to get the most out of employee engagement, it is imperative that they develop a thorough understanding of their current employee engagement strategies and the effects those strategies are having on employees. To assess an organization’s current status, we developed a measurement system that includes a scale for examining the various components of employee engagement and a comprehensive scorecard that pulls everything together. The scorecard is composed of a number of items used to measure the individual employee engagement components (based on a 1 to 5 scale, with 1 being lowest and 5 being highest). This approach allows managers to identify the areas in need of development. (See “The Employee Engagement Scorecard.”) We developed the scorecard through an extensive research process of academic literature and managerial interviews across the world. After pretesting the scorecard and conducting additional interviews with managers, we modified the items to ensure more accuracy and to capture the essence of the variables being measured. An organization’s overall employee engagement level is directly influenced by the components of employee engagement (employee satisfaction, employee identification, employee commitment, employee loyalty and employee performance) and are therefore the result of the aggregation of these components.

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Here is a direct link to the complete article.

V. Kumar is the regents professor, Richard and Susan Lenny distinguished chair and professor of marketing at the J. Mack Robinson College of Business at Georgia State University in Atlanta, Georgia, as well as executive director of the Center for Excellence in Brand and Customer Management. Anita Pansari is a doctoral student in marketing at the Robinson College of Business.