Here is an excerpt from an article written by
Tera Allas and
Bill Schaninger for the
McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out others, learn more about the firm, and sign up for email alerts, please click
here.
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Today’s leaders have never been under so much pressure. Even as they navigate the evolving COVID-19 crisis—keeping their customers and employees safe and their businesses viable—expectations are sky-high.
Shareholders are calling for foresight, bold strategies, agility, and resilience, while governments and communities increasingly expect businesses to support broader goals, such as sustainability and social justice.
For purpose-led corporations, this is a defining moment. How can they remain committed to additional stakeholder values when the imperative is to conserve cash and, in many cases, aggressively restructure? And what about businesses that have only started defining their environmental, social, and governance (ESG) ambitions? When push comes to shove, do their leaders (and shareholders) really believe in the ESG premium? And, if so, where can they best focus their attention?
To move forward, rather than stand paralyzed, crystal-clear prioritization will be key. In this article, we argue that there is one essential area where companies can create enormous social value: job satisfaction. Because of the connection between happiness at work and overall life satisfaction, improving employee happiness could make a material difference to the world’s 2.1 billion workers.It could also boost profitability and enhance organizational health.
When it comes to employee happiness, bosses and supervisors play a bigger role than one might guess. Relationships with management are the top factor in employees’ job satisfaction, which in turn is the second most important determinant of employees’ overall well-being. According to our analysis, only mental health is more important for overall life satisfaction (See Exhibit 1). Unfortunately, research also shows that most people find their managers to be far from ideal; for example, in a recent survey, 75 percent of survey participants said that the most stressful aspect of their job was their immediate boss.And those describing very bad and quite bad relationships with management reported substantially lower job satisfaction than those with very good and quite good relationships (See Exhibit 2).
Shifting the behavior of an entire cadre of managers might seem a daunting proposition. But McKinsey research on changing organizational culture indicates the key elements required. Senior leaders can create a step change in both shareholder and social value by clearly articulating the sizable upsides to high job satisfaction, including educating managers on their pivotal roles and embedding quality of workplace relationships into manager development and performance appraisals. They can also act as critical change agents by embracing servant leadership and approaching everyone in their organization with compassion and genuine curiosity
Good bosses, good performance
It stands to reason that managers would play a crucial role in their employees’ workplace happiness. The wealth of literature on what makes for a good workplace highlights two aspects that line managers directly control: good work organization—that is, providing workers with the context, guidance, tools, and autonomy to minimize frustration and make their jobs meaningful—and psychological safety, which is the absence of interpersonal fear as a driver of employee behavior. With burnout on the rise, and stress and anxiety a leading cause of ill health and absenteeism, the emotional health of workers becomes particularly important.
There are complex interactions between these factors, giving rise to potential virtuous and vicious cycles. For example, a good manager instills a sense of trust and confidence, with a clear set of attainable goals rooted in customer-centric thinking. In such an environment, frontline workers feel empowered and often receive positive feedback from customers and colleagues. They are also more likely to raise issues when things do not go well. A safe and collaborative environment for joint problem solving generates innovation, a sense of achievement, and even higher levels of customer satisfaction. With more loyal customers, lower absenteeism, and low staff turnover resulting in higher profitability, a manager may now be in a position to allocate more resources to their workers.
Such a scenario is not just a theoretical construct. Countless studies show the empirical link between employee satisfaction, customer loyalty, and profitability. For example, in an ingenious piece of research, academics exploited a so-called natural experiment—different weather patterns in different locations at different times—to show that call-center workers’ weekly sales increased by 25 percent when their happiness increased by one point on a scale of one to five. Similarly, a large-scale meta-analysis found that business units with top-quartile employee engagement achieved operating-profit margins that were one to four percentage points higher than those in the bottom quartile. Employee satisfaction has also been shown to contribute directly to shareholder value (See Exhibit 3).
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