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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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.4 Employee satisfaction has also been shown to contribute directly to shareholder value (See Exhibit 3).
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