The Impact of Leadership on Employee Engagement

Table of Contents

Table of Contents

List of Abbreviations

List of Figures

List of Tables

1 Introduction

2 Problem Discussion

3 Theoretical background
3.1 Definition and relevance of Employee Engagement
3.2 Definition of Leadership
3.3 Strategic perspectives on Employee Engagement
3.3.1 Social Exchange Theory
3.3.2 Transformational Leadership Style
3.4 General key drivers of Employee Engagement
3.5 Leadership as one specific driver
3.6 Definition of the included variables

4 Practical application: Example of Company X
4.1 Research Approach
4.2 The Employee Engagement Survey of Company X
4.3 Measurement of the dimensions
4.4 The results of Company X’s Employee Engagement Survey

5 Discussion
5.1 Limitations

6 Conclusion

7 Bibliography

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Figures

Figure 1 Organizational impacts of Employee Engagement (Zahid & Özyapar, 2017, p. 10) 12

Figure 2 The Additive Effect of Transformational Leadership, adapted from (Bass & Avolio, 1990a) 16

Figure 3 Analysis: Relationship of leadership variables and employee engagement 21

List of Tables

Table 1 Overview: Drivers of Employee Engagement based on (Zahid & Özyapar, 2017) 18

Table 2 Correlation analysis in STATA with p < 0,01 26

Table 3 Means and Standard Deviations in STATA 27

1 Introduction

Leadership has an important role in securing growth and success in any organization in today’s world (Wiley, 2010; Wallace & Trinka, 2009). In times of fast changing work environments and demanding tasks for employees it is highly important to take actions and adjust the organization’s strategy to drive a competitive advantage and ensure a high-performance outcome especially when competing in a market with strong competitors. Organizations are questioning what it is that makes them more successful than another. Since all the factors as products, services, strategies and technologies, which have the potential to create a higher outcome and greater performance, can all be copied over time, the workforce itself plays a key role in securing a sustainable competitive advantage (Carnegie, 2012). A highly engaged, and by that efficient and high-performing, workforce is a key factor for the growth of an organization and helps to differentiate amongst competitors. This can further influence the return on investment (ROI) and overall value of the company.

Engaged employees outperform not engaged and even more disengaged ones, because engagement leads to greater performance quality and quantity and therefore a better task performance (Carnegie, 2012; Zahid & Özyapar, 2017; GLINT, 2018). The engagement level of an employee can change because “people can use varying degrees of their selves, physically, cognitively, and emotionally” (Kahn, 1990, p. 692). Reports state that only 20% of employees are engaged in their work today, which causes losses in productivity and a decline in performance. In their work, Ghadi, Fernando and Caputi (2013) calculated annual losses of US$300 billion in the United States of America, US$100 billion in the United Kingdom and over US$232 billion in Japan. On these grounds, companies have an intensive focus on employee engagement and more than 720 MUSD are spent per year in order to improve it (Gerst, 2013; Wiley, 2010). It is included in the organizations’ strategies and is part of the strategic objectives in today’s companies (Zahid & Özyapar, 2017). Further, IMB Software (2014) estimated that 90% of their global survey clients execute employee engagement surveys.

Leadership plays a key role and has a great impact towards driving growth and success of any organization and therefore relates to organizational success through its positive effect on employee engagement (Zahid & Özyapar, 2017; Wiley, 2010; Wallace & Trinka, 2009). Further, employees’ mindsets have changed over the last years and social criteria in their work environment are now more important than financial rewards (Wong, 2017). This is why the relationship between supervisor and employee is of increased importance and more and more employees yearn for personal development and responsibility to satisfy their individual needs. Accordingly, the aim of this report is to investigate the correlation between different leadership variables and employee engagement. The main purpose of this report is therefore to examine how do specific leadership variables influence the level of employee engagement within Company X.

This relationship is explored theoretically and tested empirically in a case of an organization, demonstrated by using both the existing theoretical literature and the employee engagement survey results of Company X. Since there is an interest in understanding the general and overall interaction between the leadership variables and employee engagement, a quantitative approach was chosen to analyze the existing data and reports of Company X. Based on an analysis of existing literature, this quantitative approach will be taken to empirically test relationships suggested by the literature.

2 Problem Discussion

As mentioned above, there is a strong link between employee engagement and performance with engagement being a prime factor for securing business performance.

“It helps to mitigate the challenges encountered by an organization during times of economic volatility and drives future growth. Focus on enhancing employee engagement in the recent business scenario in view of the dynamic economic situations is inevitable.“ (Ruban Antony, 2018, p. 45).

In addition, organizational performance was predicted relatively better by how the company treats its employees than by its own past financial performance (Attridge, 2009). Therefore, the employees’ perceptions and feeling of engagement can been seen as much more influential and important regarding the overall company outcome and should be paid at least the same attention to by the organization as the past financial performance.

In the two parts of the problem to be discussed the leaders and direct supervisors are standing on one side, representing the organizations, while the employees are on the other side. They are hired by the organizations to perform their roles and functional tasks. It is expected that they perform even better with the support and through certain actions taken by their direct managers (Zahid & Özyapar, 2017). Many articles and studies that have been published, investigate the organizational behavior and its main concepts like in example human interaction, effects of and within groups and motivation with its links to turnover, absenteeism, productivity, work-life-balance and job satisfaction (Kahn, 1990). Even though the subject of the report is clearly related to psychology, the implications have deep impacts on management of the organizations and their performance. It is very relevant for companies to keep their employees engaged because there are high costs involved with disengaged employees. There have been costs estimated for disengaged employees in the United States between US$250 billion and US$350 billion a year (Attridge, 2009). For example, the recruiting costs normally equal approximately 1,5 annual salaries of the open position (Carnegie, 2012). Worldwide 24% of all employees are actively disengaged, 62% moderately engaged and only 14% are fully engaged. In Europe, this number is even lower and only 11% of the European workforce are engaged in their daily work (Attridge, 2009). In contrast to the costs of disengaged employees, engaged employees provide a significant organizational benefit in almost every imaginable organizational metric (Shuck & Herd, 2012).

Leadership has the potential to influence the factors that affect the engagement level of the workforce to a great extent and is a crucial element when developing and increasing employee engagement (Shuck & Herd, 2012). “As evidenced in various articles, academic research and practice, engagement has emerged as critical for organizations and leadership seems to be the driving force for engagement to happen.” (Popli & Rizvi, 2016, p. 969)

The aim is to leverage employee engagement in order to reach a high performance within an organization. But the discrepancy between the perceived importance of engagement and the level of engagement that actually exists in corporations today presents a serious gap between employees, organizations and Human Resource professionals (Shuck & Herd, 2012). When tying employees and employers together in an employment relationship, it is expected that organizations align the interests of their employees to those of the firm. This is essential to make sure that employees act in ways expected of the organization and aligned with the corporate objectives to positively impact the outcome (Masson, et al., 2008).

After Kahn published his work about engagement and disengagement in 1990, many different researchers investigated the effect of managers and leadership on employee engagement (Zahid & Özyapar, 2017). For example, Carasco-Saul, Kim and Kim wrote an article on the relationship between leadership and employee engagement in 2015 and suggest further empirical verification to increase external validity of the existing theories (2015). This was one reason to investigate this relationship in this paper and add an empirical study to the existing literature base by using the access to a broad database. Company X conducts an anonymous employee engagement survey on a yearly basis among all employees. Its main target is to measure the overall organizational health, including mainly employee engagement but also leadership characteristics to identify the key drivers and to secure a sustainable competitive advantage. This case study provides an analysis of data from different functions in different departments and business areas across various countries. The investigation could benefit Company X by building a link between the different leadership characteristics and employee engagement and would provide a basic knowledge to formulate the right actions and focus areas to concentrate on. Further, by determining the level of influence leaders have towards employee engagement with a real case example and matching it with the known theories from literature will not only benefit the company, in this case Company X, but also the theoretical discourse, by contributing further empirical examination of the proposed conceptual relations.

3 Theoretical background

There is a vast range of literature when searching for leadership or employee engagement. Nevertheless, this paper focuses on the link between those two, and their interaction leading to organizational outcomes. Effective leadership of the immediate manager has been identified to be a “more important organizational variable than any other” (Wallace & Trinka, 2009, p. 10) which results in an increased level of employee engagement (Zahid & Özyapar, 2017). Further, it was clearly noticed that employee engagement is a key factor for any successful organization in the modern times (Wallace & Trinka, 2009). These results are based on the fact that leadership in the workplace is positively related to job performance, effort, commitment, motivation, satisfaction, effectiveness, and productivity and further reduces stress levels and the employees’ intention to leave the company (Zahid & Özyapar, 2017).

As a new generation of employees started in the modern times, employees now have higher expectations about their involvement in organizational activities and decision making. Previous practices of leadership have been challenged and the demand of a good manager evolved. As the work environments keep on changing, the view and practices of leadership must also evolve. Leaders begin to try to deeper understand employee engagement as response to these new challenges and use the insights as a strategy to shape the future of their organization (Shuck & Herd, 2012).

3.1 Definition and relevance of Employee Engagement

In his article, Kahn (1990) illustrates the nature of personal engagement and disengagement and found three different psychological conditions that influence these behaviors of employees. Kahn defined engagement as employees who employ and represent their preferred self and connect it to their roles at work, who are present and express themselves physically, cognitively and emotionally (Kahn, 1990). Later, this definition was extended to a work-related state of mind with vigor, dedication, and absorption (Schaufeli, et al., 2006). Vigor describes high levels of energy and persistence even when facing difficulties, a mental resilience and willingness to invest effort while working. Dedication is characterized by a strong involvement at work and the experience of enthusiasm, inspiration, pride and a psychological identification with one’s work. Absorption describes the state of being fully concentrated at work, so that time passes quickly. Employees with a high level of absorption often have difficulties in detaching their selves from work (Schaufeli, et al., 2006). It is the extent to which employees are involved with, committed to, enthusiastic, and passionate about their work and includes behaviors as going the extra mile, speaking highly about the organization, spending extra hours at work, assisting colleagues, sharing knowledge and participating in proactive problem-solving (Popli & Rizvi, 2016).

In recent studies, organizational factors can also be found to be included in the definitions, such as the extent to which employees are motivated to contribute to the company performance, and how much effort they are willing to spend in order to reach organizational goals (IBM Corportion, 2014). This enables them to accomplish a higher output with the same resources, leading to an increased productivity and profitability (Masson, et al., 2008). The individual phenomenon directly influences the organizational success by improving individual outcomes. Employees feel to belong to the company and therefore have a lower intention to leave (Macey & Schneider, 2008).

In short, employee engagement is a psychological and motivational state wherein employees go above and beyond the typical role-performance and invest in their work to promote organizational outcomes (Kahn, 1990). It is not a trait-like factor and might even change for the same person over time because it is grounded in individual experiences and interpretations of work-related environmental inputs and outcomes (Tims, et al., 2011; Macey & Schneider, 2008).

Three different levels of engagement have been identified: engaged, not engaged and disengaged (Ruban Antony, 2018). Being not engaged is a neutral level and a behavior of an employee that neither benefits nor harms the organizational performance. In contrast to the previous defined engagement, disengagement describes the opposite and therefore the uncoupling of a person’s preferred self from work roles, where people withdraw themselves physical, cognitively, or emotionally during their work tasks. The behavior is described by emotional absence, a passive and incomplete performance, and a disconnection from others by hiding real thoughts and feelings (Kahn, 1990).

The topic of employee engagement is highly relevant because it helps organizations to stay competitive in the market by gaining advantage through engaged employees who can deliver better work results than a less engaged workforce (Carnegie, 2012). A survey found that engaged employees can increase the operating income by 18% compared to a loss of almost 33% for companies with a low engaged workforce. Further, disengaged employees have an increased desire to quit by 84% compared to only 48% of their engaged colleagues. They further investigated that 71% of new employees started their new job with high levels of engagement, but after only six months on the job, this rate dropped to 57% (Permuth-Levine & Rettle, 2012). In the United States 19% of the workers at the age of 18 or older are disengaged which leads to cost the corporations about US$300 billion per year (Gallup, 2001). In addition, engaged employees have 37% lower absenteeism, 65% lower turnover (in low-turnover organizations), and 48% fewer safety incidents (Popli & Rizvi, 2016).

But the importance of employee engagement is not only beneficial for the organizations but also for the employees (Attridge, 2009). Each individual itself has an interest in an engaged work environment because it makes one’s existence and their contribution meaningful, supports the physical and mental health and their overall joy and satisfaction at work (Masson, et al., 2008). These interests were already identified by Maslow in his hierarchy of needs (Maslow, 1954). He found that experiencing meaningful tasks at work is closely related to satisfy higher order needs. Maslow’s theory relates to employee engagement and its relationship to leadership because of the principle that failing to fulfill first-level needs constrain the rise to meeting needs of higher levels. This explains why many leaders do not manage to fully engage their employees, as they do not provide reasons for them to move forward and exceed expectations (Ghadi, et al., 2013; Shuck & Herd, 2012).

As a result, organizations are continually looking for ways to improve employee engagement and literature and research have at the same time pursued to study what exactly it is that drives an employee’s level of engagement. The broader concept of employee engagement and how it impacts and improves the organizational and its performance is shown in Figure 1.

Abbildung in dieser Leseprobe nicht enthalten

Figure 1 Organizational impacts of Employee Engagement (Zahid & Özyapar, 2017, p. 10)

3.2 Definition of Leadership

Employees are strongly influenced by their leaders’ impact on their workplace perceptions and behaviors. Hence, the relationship between leader and follower is predictive of outcomes at the individual, group, and organizational level. Leadership is a key antecedent of many factors, one of them is employee engagement (Carasco-Saul, et al., 2015). It is a complex and multifaceted construct, which is defined as “a process whereby an individual influences a group […] to achieve a common goal ((Northouse, 2010, p. 3) in (Shuck & Herd, 2012, p. 162)). Leadership is further described as an influential process between leader and follower and not as a set of traits as it was characterized in the past. Nowadays, it is the common understanding that everybody can lead and that the position of a leader is not limited to some specific humans with certain traits or demographic variables. The practice of leadership is supposed to be have a positive influence that transforms the employees and followers in a positive way. This is linked to Kahn’s perspective around the emergence of employee engagement (Kahn, 1990) (Shuck & Herd, 2012).

3.3 Strategic perspectives on Employee Engagement

In a world and environment of increasing competition, especially on an international level, as well as slower growths opportunities, employee engagement is characterized as a key strategy for an organizations competitive advantage and organizational success (Popli & Rizvi, 2016; Macey & Schneider, 2008). Additionally, leadership and engagement also have implications on the external perception of an organization as well as its recruiting efforts and the level of retention. The more highly engaged the employees are, the more positive reputation will be spread by the workforce, Thereby, the employees are contributing to a positive employer brand and attracting new, talented employees. Further, the employees want to remain within the organization, which is minimizing the turnover and furthermore the recruiting costs when in the need of looking for new colleagues. If employees are highly engaged on a regular base, it will lead to a superior level of effort and potentially influence many other variables as service quality, customer satisfaction, productivity and profitability (Carasco-Saul, et al., 2015).

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