Exposing management’s dirty little secret

June 25, 2012, 3:32 PM UTC

(TheMIX) — How would you feel about a physician who killed more patients than she helped? What about a police detective who committed more murders than he solved? Or a teacher whose students got dumber rather than smarter as the school year progressed? And what if you discovered that these perverse outcomes were more the rule than the exception, that they were characteristic of most doctors, most policemen, and most teachers? You’d be more than perplexed. You’d be outraged. You’d demand that something be done!

Given this, why are we complacent when confronted with data that suggests most managers are more likely to douse the flames of employee enthusiasm than to fan them? Why aren’t we a little bit angry that our management systems are more likely to frustrate extraordinary accomplishment than to foster it?

Consider the 2007–2008 Global Workforce Survey1 conducted by Towers Perrin (now Towers Watson). In an attempt to measure the extent of employee engagement around the world, the company polled more than 90,000 workers in 18 countries. The survey covered many of the key factors that determine workplace engagement, including the ability to participate in decision making, the encouragement given for innovative thinking, the availability of skill-enhancing job assignments, and the interest shown by senior executives in employee well-being.

Here’s what the researchers discovered. Barely one-fifth (21%) of the employees surveyed were truly engaged in their work, in the sense that they would ‘‘go the extra mile’’ for their employer. Nearly four out of 10 (38%) were mostly or entirely disengaged, while the rest were in the tepid middle. There’s no way to sugarcoat it: this data represents a stinging indictment of management-as-usual.

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So why aren’t we scandalized by this data? I talk to thousands of managers each year and for most of them, employee engagement isn’t Topic A, or B, or even C. How do we account for this apparent disregard? There are several possible hypotheses.

1. Ignorance. It may be that managers don’t actually realize that most of their employees are emotionally tuned out at work. Maybe corporate leaders haven’t seen the many other studies that mirror the results of the Towers Watson survey. Or maybe they just don’t have enough emotional intelligence to recognize the low-grade disaffection that afflicts most of their workforce.

2. Indifference. Another explanation: managers know that a lot of employees are flatlining at work but simply don’t care, either because a callous corporate culture has drained them of empathy, or because they view engagement as financially unimportant. It’s nice to have, but not an imperative.

3. Impotence. It could be that managers care a lot, but can’t imagine how they could change things for the better. After all, a lot of jobs are just plain boring. Retail clerks, factory workers, call center staff, administrative assistants — of course these folks are disengaged, how could it be otherwise? Like prison wardens, managers would be shocked if their charges suddenly started bubbling with joie de vivre.

Let’s evaluate these hypotheses. The first seems to me unlikely. Anybody who has ever read a Dilbert strip knows that cynicism and passivity are endemic in large organizations. Only an ostrich could have missed that.

The second hypothesis has more to recommend it. I believe there are many managers who have yet to grasp the essential connection between engagement and financial success. Companies that score highly on engagement have better earnings growth and fatter margins than those that don’t — a fact borne out by the Towers Watson study, as well as by the work of Professor Raj Sisodia of Bentley College. This correlation between enjoyment and profitability is likely to strengthen in the years ahead. Let me use the example of the Apple iPhone to explain why.

Companies need to discover and show off their individual stripes

Ask yourself: What allowed Apple (AAPL) to jump into the mobile phone business so quickly, despite a complete lack of industry experience? The answer? It was able to leverage a lot of commodity knowledge and standardized components from third-party vendors. A lot of companies, mostly in Asia, know how to make a mobile phone. While this helps to explain how Apple got into the business so speedily, it doesn’t explain why the iPhone succeeded so spectacularly. In the first quarter of 2011, Nokia (NOK) sold nearly six times as many phones as Apple, but Apple made more money. Why? Because the average wholesale selling price for an iPhone was $638 versus $87 for a typical Nokia product, this according to a proprietary report by Strategy Analytics quoted in a Computer World blog.

The lesson here: you don’t have to be the biggest to be the most profitable, but you have to be the most highly differentiated. Apple made the iPhone a money machine by injecting it with a lot of non-commodity knowledge. When it debuted in June 2007, the iPhone offered users a unique portfolio of functions: a touchscreen display, a built-in music player, a highly capable Web browser, and a suite of useful applications that let users check the weather, track stocks, and watch YouTube videos.

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The fact that Apple’s margins are so much better than Nokia’s reflects a simple reality: in making a mobile phone, Apple adds a lot more differentiation to the standard componentry than does Nokia, and Apple adds it in a highly efficient manner. Or to state it another way, among all the various players in the iPhone value chain, Apple has, by far, the highest ratio of differentiation-to-cost, and thus the fattest margins.

In a world of commoditized knowledge, the returns go to the companies that can produce nonstandard knowledge. Success here is measured by profit per employee, adjusted for capital. As you would expect, Apple’s profit per head is significantly higher than its major competitors, as is the company’s ratio of profits to net fixed assets.

It doesn’t matter much where your company sits in its industry ecosystem, nor how vertically or horizontally integrated it is. What matters is its relative ‘‘share of customer perceived value’’ and the costs it incurs to produce that value. The greater one’s share of differentiation, the greater one’s share of industry profits.

Of course, Apple isn’t immune to the forces of commoditization. Within a few months of its launch, many of the iPhone’s original features had been duplicated by its competitors. So Apple had to innovate again. It invited third-party developers to write applications for the iPhone and thereby laid the groundwork for a revolution in portable computing. But once again, competitors like Blackberry and Google (GOOG) are in hot pursuit.

So what does all this have to do with engagement? Just this: in a world where customers wake up every morning asking, ‘‘What’s new, what’s different, and what’s amazing?’’ success depends on a company’s ability to unleash the initiative, imagination, and passion of employees at all levels, and this can only happen if all those folks are connected heart and soul to their work, their company, and its mission.

Not everyone is in the business of making “magical” devices

Fair enough, you might say. “I’d love to create a highly engaging workplace, but the folks who work for me are not creating gorgeous products at the cutting edge of technology; they’re answering phones in a call center, cleaning hotel rooms, or bagging groceries. How can you expect people to be engaged in their work if their work isn’t engaging?” A lot of jobs are kind of crappy. Isn’t that what the data is telling us?

Actually, no. Eighty-six percent of the employees in the Towers Watson study said they loved or liked their job. So why not more engagement, then? Julie Gebauer, who led the Global Workforce Study, points to three things that are critical to engagement: first, the scope that employees have to learn and advance (are there opportunities to grow?); second, the company’s reputation and its commitment to making a difference in the world (is there a mission that warrants extraordinary effort?); and third, the behaviors and values of the organization’s leaders (are they trusted, do people want to follow them?).

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All of these are management issues. It is managers who empower individuals and create the space for them to excel, or not. It is managers who help to articulate a compelling and socially relevant vision and then make it a rallying cry, or not. It is managers who demonstrate praiseworthy values, or not. Here, again, the survey data is disturbing.

Only 38% of employees believe that ‘‘senior management [is] sincerely interested in employee well-being.’’ Fewer than four in 10 agree that ‘‘senior management communicates openly and honestly.’’ A scant 40% believe that ‘‘senior management communicates [the] reasons for business decisions,’’ and just 44% of employees believe that ‘‘senior management tries to be visible and accessible.’’ Perhaps most damning of all, less than half of those polled believed that ‘‘senior management’s decisions [were] consistent with our values.’’

My conclusion from all of this: if we’re going to improve engagement we have to start by admitting that if employees aren’t as enthusiastic, impassioned, and excited as they could be, it’s not because work sucks; it’s because management blows.

The following is an adapted excerpt from What Matters Now by Gary Hamel, reprinted by permission of John Wiley & Sons, Inc. Copyright (c) 2012 by John Wiley & Sons.