The Economics of Brand Engagement 360

It stands to reason that organizations with highly engaged customers, employees, supply chain and distribution partners, and communities would outperform their competitors, but many boards, CEOs, and CFOs are unaware of extensive research showing a direct connection to the bottom line. This is part 5 of the Association of National Advertisers Knowledge Management Center on Brand Engagement 360.

Below are links to multiple research studies on the economic impact of having highly engaged stakeholders.

Click here for the Brand Engagement 360 table of contents for the ANA library.
Click here for a complete library of links to information on human capital management and Stakeholder Capitalism.
Click here for the ANA library for the Incentive, Rewards, and Recognition business
Click here or scroll down for a list of engagement solution providers committed to effective practices.

To Enhance Performance, Employee Happiness Isn’t Enough: Engagement Requires a System, Not Bells and Whistles
This August 2022 report from Gallup research legend Jim Harter offers actionable wisdom probably overlooked at 80% or more of organizations on the true costs of poor quality and productivity. This report spells out the costs in specific terms and offers a system for addressing the engagement challenge. Hint: it's not a bright shiny object.

Research Documents Connection between Customer Engagement and Employee Experience
This report was published recently in the Harvard Business Review demonstrating what the authors feel is a surprising connection.

Best Companies in JUST Capital Portfolio Consistently Outperform Their Competitors
The JUST Overall Weighted Score takes into account the 20 core Issues identified through our survey research as top priorities for just business – including paying a living wage, supplying locally, and acting ethically, has outperformed the Russell 1000 by 13.7% as of Dec. 31, 2023 since its inception since November 2016.

Barron’s List of Most Sustainable Companies Outperforms S&P by Nearly 30% in 2021
In the fifth annual Barron’s ranking of America’s Most Sustainable Companies, shares of the 100 companies on its list a 34.4%, on average, in 2021, besting the S&P 500 index’s 28.7%. Overall, 47 of the companies beat the index. The list of companies in these rankings have consistently outperformed the S&P 500,

28 Year Study of Stock Returns of Companies That Are Great Places to Work
This study by Alex Edmans, Professor of Finance at the London Business School of the stock market results of Great Places to Work companies over 28 years finds a clear connection between stock performance and employee satisfaction.

The Enterprise Engagement Alliance Engaged Company Stock Index
The Engaged Company portfolio outperformed the S&P 500 (including dividends) by 37.1 percentage points between Oct. 1, 2012 and June 1, 2018, when the study was halted based on its consistent results. The Good Company portfolio created by McBassi Inc., an analytics firm, included 47 companies with combined high scores as employers, sellers, and stewards of the community and environment. The composition of the portfolio was periodically updated (for the last time on Jan. 31, 2017), based on updated data from the Good Company Index, before completion of the study.

Gallup Study: The $7.8 Billion Worldwide Cost of Low Engagement
Employees who are not engaged or who are actively disengaged cost the world $7.8 trillion in lost productivity, according to this Gallup's “State of the Global Workplace: 2022 Report”. That's equal to 11% of global GDP, according to the authors. In 2021, 21% of the world's employees were engaged at work. Although this is an increase of one percentage point from 2020, we have still not returned to our peak of 22% recorded in 2019.

“The Value of Employee Satisfaction in Disastrous Times: Evidence from COVID-19”
Further support for the impact of employee satisfaction and financial returns icomes from professors in China in a recently published study by Chenyu Shan and Dragon Yongjun Tang, (March 30, 2022). It finds that “employee treatment is an important but challenging element of corporate environmental, social, and governance (ESG) policies. Satisfying employee needs can increase corporate productivity but is also costly to shareholders. Using unique data for Chinese publicly listed firms, we show that having satisfied employees is valuable to the firm. Specifically, firms with higher employee satisfaction scores withstand COVID-19 better, in terms of stock market performance, an effect that appears to occur in non-pandemic periods.

Putting the Service Profit Chain to Work
The service-profit chain establishes relationships between profitability, customer loyalty, and employee satisfaction, loyalty, and productivity. The links in the chain (which should be regarded as propositions) are as follows:
*Profit and growth are stimulated primarily by customer loyalty.
*Loyalty is a direct result of customer satisfaction.
*Satisfaction is largely influenced by the value of services provided to customers.
*Value is created by satisfied, loyal, and productive employees.
*Employee satisfaction, in turn, results primarily from high-quality support services and policies that enable employees to deliver results to customers." The article is authored by Harvard Business School Professors James L. Heskett, Thomas O. Jones, Gary W. Loveman, W. Earl Sasser, Jr., and Leonard A. Schlesinger.

The Surprising Economics of a People Business
This 2005 article in Harvard Business Review by Rainer Strack, Managing Partner Emeritus at the Boston Consulting Group, and Felix Barber, also a former Boston Consulting Group managing partner, makes the case for managing and measuring people as an asset rather than a sunk cost. They recommend replacing traditional metrics “with financially rigorous people-oriented metrics—for example, a reformulation of a conventional calculation of economic profit, such as EVA, so that you gauge people, rather than capital, productivity.” EVA (Economic Value Added), attempts to measure a firm's true economic profit after deducting an average cost-of-capital interest charge on the net assets used in the business, according to an article in the Harvard Law School Forum on Corporate Governance.

They continue, “Once you have assessed the business’s true performance, you need to enhance it operationally (be aware that relatively small changes in productivity can have a major impact on shareholder returns); reward it appropriately (push performance-related variable compensation schemes down into the organization); and price it advantageously (because economies of scale and experience tend to be less significant in people businesses, price products or services in ways that capture a share of the additional value created for customers).”

Manage Your Human Sigma
This study authored by former Gallup executives John H. Fleming, Curt Coffman, and James Harter, published in the Harvard Business Review, finds a direct causal connection between employee and customer engagement and financial results.

The Impact of Corporate Social Responsibility on Firm Value: The Role of Customer Awareness
This academic study published in 2013 finds that Corporate Social Responsibility activities can have a positive impact on organizational performance but generally only in cases in which the company already has high levels of brand awareness.

Journal of Financial Economics Study: The Overlooked Financial Impact of Culture
Survey find that most CEOs know that culture creates value, but few understand how to make it happen. The professors have an answer: it takes a system.

Linking Organizational Characteristics to Employee Attitudes and Behavior –
A Look at the Downstream Effects on Market Response & Financial Performance
A study conducted in 2005 by the Forum for People Performance Management and Measurement at the Medill School of Journalism, Media, and Marketing Communications at Northwestern University showing a direct link between employee and customer engagement and performance.

For More Information
Bruce Bolger, Founder
Enterprise Engagement Alliance at TheEEA.org
914-591-7600, ext. 230

Solution Providers Committed to Effective Practices

The following organizations support the EEA's effort to promote the effective strategic and systematic management of stakeholders across the enterprise to optimize brand engagement.

Enterprise Engagement Alliance
Brand Engagement 360 Supporters