Why Companies with Happy Employees outperform their Competition on the Stock Market

Edmans_SatisfactionDo happy employees affect a company´s bottom line (in a positive way)? What seems like no-brainer is actually quite hard to detect in real life. Studies in Positive Organizational Scholarship have been able to show that happy workers tend to be more productive, but this relation has been mostly detected for individuals, not on the “systems level”.

Alex Edmans, finance professor at London Business School, has been busy trying to change that. He created a hypothetic stock portfolio comprised of the “100 Best Companies to Work For in America” (as a proxy for organizations that treat their employees exceptionally well) and tracked this for more than 20 years. His conclusion: after controlling for confounding variables such as company size and industry, employee-centric companies significantly outperform their competitors year after year.

What more, he also seems to able to detect a causal relationship. Over the years, some firms drop out of the “Best Companies” ranking, while others obviously make it for the first time. Edmans finds that corporations begin to outperform their competition – several years after they´ve managed to be listed on that index.

Here are Edmans´ original research papers on this fascinating topic:

Alternatively, you can read a summary in this piece on The Atlantic: Happy Workers, Richer Companies?

Or, you can have him explain it to you personally via his TEDx talk. Share and enjoy!

 

Alex Edmans´s talk will also be posted as No. 48 on my topical list of Positive Psychology-infused TED talks, Michael Norton´s is already there.

Research: Linking “Positive Practices” to Organizational Effectiveness

Stones - GrowthThere are tons of books out there explaining how to use Positive Psychology for boosting the performance of organizations. But the truth is: from a scientific point of view, we really do not know very much about this link. There’s abundant research on the connection of positivity and individual performance – but it remains by and large unclear if this influence on the micro-level yields any outcomes on the macro-level. Of course, it seems to make a lot of sense to infer this relationship – but where’s the research?

A very worthwhile attempt is offered via an article named Effects of positive practices on organizational effectiveness by Kim Cameron and his colleagues. Based on prior research, they developed an inventory of what they call “positives practices”. According to the authors, these can be described as

behaviors, techniques, routines […] that represent positively deviant (i.e., unusual) practices, practices with an affirmative bias, and practices that connote virtuousness and eudemonism in organizations.

In order to do so, they administered a large number of questionnaire items to diverse groups of people. Afterwards, they clustered the answers in order to find common themes and pattern in the data. They found that all positives practices could be categorized into six distinct subgroups:

Caring

People care for, are interested in, and maintain responsibility for one another as friends.

Compassionate Support

People provide support for one another including kindness and compassion when others are struggling.

Forgiveness

People avoid blame and forgive mistakes.

Inspiration

People inspire one another at work.

Meaning

The meaningfulness of the work is emphasized, and people are elevated and renewed by the work.

Respect, Integrity, and Gratitude

People treat one another with respect and express appreciation for one another. They trust one another and maintain integrity.

Having found that structure, they gathered data from several divisions of a financial services company and one operating in the healthcare industry. They asked employees to assess their respective business unit (= the organization as a whole, not individuals) with regard to being a place that possesses the aforementioned attributes. Additionally, they obtained data on several objective and subjective key performance indicators of those business units – and finally looked at the connection of the presence of positive practices and organizational effectiveness measures. Here´s what they´ve Cameron and his colleagues found (in their own words):

In Study 1, positive practices in financial service business units were significantly associated with financial performance, work climate, turnover, and senior executive evaluations of effectiveness. In an industry in which positive practices might be assumed to carry little importance, organizational performance was substantially affected by the implementation of positive practices.

In Study 2, improvement in positive practices over a two year period in health care units predicted improvements in turnover, patient satisfaction, organizational climate, employee participation in the organization, quality of care, managerial support, and resource adequacy.

 In the course of arguing why positive practices should have a performance-boosting effect, the authors conclude that

cognitively, emotionally, behaviorally, physiologically, and socially, evidence suggests that human systems naturally prefer exposure to the positive, so it is expected that organizational performance would be enhanced by positive practices.

Of course, Cameron et al. urge us to be careful not to make strong inferences from their results:

The results of these two investigations, of course, are suggestive and not conclusive.

Still, their work is one of the first and still very rare pieces of research that links positive organizational behavior to organizational effectiveness. I am very much looking forward to scholars who pick up on these findings and expand our knowledge on the positivity-performance link.

7 more essential Books on Positive Psychology for 2015/16

After publishing a list of 5 essential upcoming books on Positive Psychology a couple of days ago, several friendly people approached me (Thank you!) to point me towards further noteworthy books that have just been published or are already appearing on the publishing horizon (a.k.a. on Amazon for pre-order). So, if you´re looking for further entertainment, enlightenment, or just plain Positive Psychology science, here you go. There´s books on women´s careers, rising strong after setbacks, good work and great organizations, world-changing individuals, and much more (click to enlarge the image). Enjoy – and share the good news!

Positive Psychology Books 2015 & 2016

Positive Psychology books that have already been published

Brené Brown: Rising Strong. Brené Brown is a professor at the University of Houston Graduate College of Social Work and author of the No. 1 New York Times bestseller “The Gifts of Imperfection”. About the book:

“It is the rise from falling that Brown takes as her subject in Rising Strong. As a grounded theory researcher, Brown has listened as a range of people — from leaders in Fortune 500 companies and the military to artists, couples in long-term relationships, teachers, and parents — shared their stories of being brave, falling, and getting back up. She asked herself, What do these people with strong and loving relationships, leaders nurturing creativity, artists pushing innovation, and clergy walking with people through faith and mystery have in common? The answer was clear: They recognize the power of emotion and they’re not afraid to lean in to discomfort.” 

Beth Cabrera: Beyond happy: Women, Work, and Well-Being. Beth Cabrera is a senior scholar at the Center for the Advancement of Well-Being at George Mason University and works with companies to help them create positive work environments. About the book:

“Over the course of a decade, Beth Cabrera has surveyed and interviewed more than a thousand women to gather insight into how to effectively balance career and family responsibilities. Beyond Happy: Women, Work, and Well-Being gathers essential findings and offers women proven strategies for living more authentic, meaningful lives. Through the lens of shared experience, Cabrera thoughtfully examines the challenges women face and presents a simple yet powerful model for enhancing well-being that can both improve and transform lives.”

Tom Rath: Are you fully charged? Tom Rath is a Penn MAPP alum, now a regular guest lecturer in that program, and otherwise, regularly to be found at No. 1 spots on the New York Times bestseller lists with his heavily Positive Psychology-infused masterpieces. About the book:

The book “reveals the three keys that matter most for our daily well-being, as well as our engagement in our work. Drawing on the latest and most practical research from business, psychology, and economics, this book focuses on changes we can make to create better days for ourselves and others. Are You Fully Charged? will challenge you to stop pursuing happiness and start creating meaning instead, lead you to rethink your daily interactions with the people who matter most, and show you how to put your own health first in order to be your best every day.”

Barry Schwartz: Why we work. Barry Schwartz is a professor at Swarthmore College, author of the highly-acclaimed The Paradox of Choice and a regular New York Times contributor, and a regular guest lecturer in the Penn MAPP program. About the book:

“We’ve long been taught that the reason we work is primarily for a paycheck. In fact, we’ve shaped much of the infrastructure of our society to accommodate this belief. Then why are so many people dissatisfied with their work, despite healthy compensation? And why do so many people find immense fulfillment and satisfaction through “menial” jobs? Schwartz explores why so many believe that the goal for working should be to earn money, how we arrived to believe that paying workers more leads to better work, and why this has made our society confused, unhappy, and has established a dangerously misguided system.”

Robert E. Quinn: The Positive Organization: Breaking Free from Conventional Cultures, Constraints, and Beliefs. Robert E. Quinn is a professor at University of Michigan´s School of Business and author of “Deep Change”. About the book:

“Beholden to accepted assumptions about people and organizations, too many enterprises waste human potential. Robert Quinn shows how to defy convention and create organizations where people feel fully engaged and continually rewarded, where both individually and collectively they flourish and exceed expectations.”

Upcoming books on Positive Psychology

Amy CuddyPresence: Bringing Your Boldest Self to Your Biggest Challenges. Amy Cuddy is a professor at Harvard and best known for her research on body language and “power-posing” (watch her TED Talk here). About the book:

The book “shows us we need to stop worrying about the impression we’re making on others, and instead change the impression we’re making on ourselves. Cutting-edge science reveals that if we adopt behaviors reflecting power and strength, we liberate ourselves from the fears and doubts that obstruct us. By redirecting our thoughts, actions, and even physiology, we free ourselves to be our best.”

Adam M. Grant: Originals: How Non-Conformists Move the World. Adam Grant is a professor at Wharton Business School, author of the immensely successful book Give and Take, and regular guest lecturer in the Penn MAPP program. About the book:

“Using surprising studies and stories spanning business, politics, sports, and entertainment, Grant explores how to recognize a good idea, speak up without getting silenced, build a coalition of allies, choose the right time to act, and manage fear and doubt; how parents and teachers can nurture originality in children; and how leaders can fight groupthink to build cultures that welcome dissent.”

Want to stay on top of Positive Psychology in Organizations? Here are 3 Reviews for you (PDF)

Happy ManagersBeing a manager in my day job, I am foremost interested in the application of Positive Psychology in organizations – and the science exploring these issues, Positive Organizational Scholarship. While there are a couple of good trade books on the subject, I also like to read original research papers which is always a great source for new ideas to blog about. As there are so many articles out there, the question is: Where should we start?

The (or at least my) answer is: Always start with review articles, and, if there are any, meta-analyses. Both are tremendously valuable in order to get an overview of a discipline in the shortest amount of time – as the authors first scan the extant data-bases for relevant articles, and then organize and summarize the current body of research. It´s a lot of hard work which is usually rewarded by receiving frequent citations over time. So, thanks to all those diligent, hard-working review writers out there!

Here´s a list of three reviews on Positive Psychology in organizations for you – the links will lead you to the respective PDFs. Enjoy!

7 Research Articles linking Happiness and Subjective Wellbeing to Performance and Success Measures

One of the most stunning ideas from the field of Positive Psychology is that happiness (and other forms of positive affect) are not only a consequence, but also a prerequisite for success and performance in organizations. Yet, to be honest, the empirical evidence is still very scarce. Especially the link between employee happiness and performance on the organizational level is still uncharted territory to a great extent. Yet, some things are out there – here´s a little compilation for you.

  1. The benefits of frequent positive affect: does happiness lead to success
  2. Happiness at work
  3. The moderating role of employee positive well being on the relation between job satisfaction and job performance
  4. Psychological well-being and job satisfaction as predictors of job performance
  5. The Happy-Productive Worker Thesis Revisited
  6. On the role of positive and negative affectivity in job performance: A meta-analytic investigation
  7. Well-being and organizational performance: An organizational-level test of the happy-productive worker hypothesis

Happiness_Success

No, the Chief Happiness Officer is not the Pizza Guy!

Smiling PizzaAs Positive Psychology has been entering mainstream media outlets over the past years, there have been people advocating for the implementation of ”Chief Happiness Officer” (CHO) role (sometimes also: Chief Wellbeing Officer) in organizations, typically as part of the wider HR/People Operations department. And while I fully endorse the idea in general (as there is a very distinct connection between employee happiness/wellbeing and organizational success, please see this article for an overview) I get really frustrated when reading what this role supposedly is all about. Here´s a selection of what I´ve read in several news outlets and blogs over the past weeks:

  • ordering pizza, ice-cream, massages and the like;
  • organizing office parties;
  • organizing trainings;
  • helping with relocation;
  • helping to individualize workplace furniture and design;

Excuse me – but are you f…..g kidding me? This is the description of a team or human resources assistant. We don´t need a CHO to achieve these things…

The Chief Happiness Officer is not the Pizza Guy!

A CHO that really deserves the C in her title would be a strategic role out and out, someone who reports directly to an organization´s CHRO or even CEO, as employee wellbeing has been shown to impact the bottom line in a pretty direct way. A CHO, the way I see it, should have a least 10 to 15 years of experience in different HR functions (e.g., leadership instruments, employer branding, payroll etc.) and should also have gained some experience in more operational roles to know about the “pain points” of the employees she´s responsible for. She would have (at least) a master´s degree in a field like organizational/occupational/positive psychology, or even an MBA with a specialization in one of those areas – and several years of experience in a leadership role. Increasingly, expertise in predictive data modelling could also be helpful, but I guess this could be delegated to a specialist. The role should be responsible for or at least significantly involved in the following processes and functions:

  1. strategy and mission development;
  2. leadership culture, development and instruments;
  3. training initiatives, especially on leadership;
  4. development of career tracks and work-time models,
  5. performance management including compensation & benefits;
  6. employee surveys, predictive analytics and other (big) data initiatives;
  7. employer branding, recruiting, and retention management;
  8. corporate health initiatives;
  9. workplace design;
  10. internal communications.

Only, if the CHO role is able to significantly influence all these tasks and processes in a concerted approach and is part of (or has regular access to) the company´s top management, it would be possible to leverage the valuable insights that Positive Psychology and especially Positive Organizational Scholarship (POS) have generated over the last 20 years. Image Source

CEO, want your Bonus? Then make your Employees happy!

Tui - Employee Satisfaction - BonusA couple of days ago, I introduced the term Return on Flourishing (ROFL) as a key financial performance indicator for future-minded leaders. My post described how programs that are designed to foster employee wellbeing can be assessed pertaining to their financial returns.

To that effect, today I was delighted to learn that German tourism giant TUI Group plans to base a part of their top executives´ bonus salaries on employee satisfaction in the near future. Yes, you´ve read correctly: employee satisfaction, not customer satisfaction.

That´s really good news in light of the old managerial adage:

What gets measured gets done.

Besides being a progressive and bold move in terms of leadership culture, it´s also a clever campaign in terms of profitability – as studies have shown time and time again there´s a strong link between employee satisfaction, customer satisfaction and profitability.

Here, you can read a German article about it in Die Welt, one of Germany´s premier daily newspapers. And here´s an English press release. Enjoy!

A KPI for the Leaders of the Future: Return On Flourishing (ROFL)

First, I have to admit it feels really good to think something (or at least: say it “in the digital public”) for the very first time. At least with regard to Google hits, I´ve created a new expression:

Return on Flourishing - Dr. Nico Rose

Return On Flourishing (ROFL – pun somewhat intended)

In my main occupation, I work as a human resources director. In most business organizations, Key Performance Indicators (KPIs) are of paramount importance. One of the most important KPIs in every organization is Return on Investment (ROI). In its simplest form, ROI is the return of some activity divided by the cost of that same activity. For instance, if a marketing campaign costs $10,000 and (identifiably) leads to $20,000 in additional sales in a certain period of time, the ROI of that project is 200%.

To this effect, it would also be possible to calculate a Return on Flourishing – which I propose to be the additional (financial) return that is generated by investing in measures designed to foster flourishing of the company´s workforce; minus the cost of those measures. By now, there´s an abundant body of research that is able to demonstrate that companies which invest in employee wellbeing do indeed fare better economically – which may ultimately even be detectable in stock prices (please check out the following paper: Does the stock market fully value intangibles? Employee satisfaction and equity prices).

By way of example, employee well-being could lead to a better quality of products or services; or a more engaged salesforce, leading to better sales figures. On the other hand, higher levels of flourishing may lead to cost reductions, e.g., by decreasing levels of absenteeism and healthcare costs; or lower levels of employee turnover which in turn helps to minimize recruiting costs. Therefore, it is reasonable to expect that investing in employee flourishing will lead to an increase in financial returns. In order to make this effect visible and clearly identifiable from the inside perspective, first, we would have to establish a baseline of overall flourishing in the workforce. Based on Seligman´s PERMA framework, we could rather easily measure the following:

Alternatively, there are existing “one-stop” questionnaires to measure flourishing, e.g., the PERMA Profiler (please check out my MAPP Capstone thesis for its items; this could be adapted so as to better fit to a working context).

Second, one or more activities to foster workforce flourishing would have to be implemented. For instance, there could be company-wide workshops on job crafting. Or rather, first we would have to implement that project with a part of the workforce (treatment group; e.g., a product line) in order to later compare those employees with another group that will receive the workshops at another point in time (control group; another product line). If, after implementation, the treatment group shows significantly higher levels of flourishing compared to the control group (manipulation check), we could move on to the final step.

Ultimately, the financial success of the different business units would have to be calculated for several ensuing periods. If the treatment group fares significantly better than the control group (e.g., a significant increase in sales), this difference could be attributed to the increase in employee flourishing. Of course, it is always tricky to make this kind of causal inference, but there are lots of steps one can take to rule out or control for other effects. Now, if the increase in financial returns surpasses the cost of the measures to increase flourishing (over time), we would assume a positive Return on Flourishing (ROFL).

Return on Flourishing (ROFL): the wider Perspective

Of course, this is still a rather limited point of view. Studies were able to show that an increase in well-being at work leads to higher levels of general well-being. To that effect, we can assume there could a be a wider ROFL – where higher employee well-being leads to an increased level of well-being with regard to the company´s community and stakeholder groups via a kind of ripple effect.

What are your thoughts on this?

Positive Psychology is entering German Mainstream and Business Media

A couple of times, I´ve written about how German mainstream culture and Positive Psychology may just not be a perfect match. In spite of this, German mainstream media outlets start to discover the topic, especially reporting on the connection of being happy/satisfied and positive work outcomes. Heré, I´ve compiled a list of pieces that were published in 2013 and 2014.

Glück im Job - Zeit

Here´s how Organizations create a Culture of extraordinary Creativity

For a long time, people have been interested in creativity, especially “creative geniuses” such as Mozart, Edison, or van Gogh. We´ve tried to find out what is “special” about these persons: was there something extraordinary about their intellect, their personality, even their brains?

While these are very interesting questions, there is another angle on creativity that may be somewhat more relevant to our everyday lives. Creativity and, in turn, innovation, are key facets of enduring success for most organizations on this planet. Most of this creative output will be “everyday creativity”, not some big mind-blowing leap into another dimension: small, incremental changes that lead to a competitive advantage at least for a while. So while it is surely helpful to ask “How can I get exceptionally creative people on board?” – an even more important question could be:

Killing CreativityHow can we create organizational cultures that foster creativity in each and every person?

As noted in the beginning, research on this special topic is more scarce than then the investigation of individual creativity – but it has been done. Researcher Laird D. McLean has published an article that reviews studies on the connection of organizational culture and creativity, roughly from the 1960s to 2000, incorporating findings from experts such as Harvard´s Theresa M. Amabile and Rosabeth M. Kanter.

Here are the key factors that separate highly creative organizations from the rest:

  • Organic design: influence is based on expertise instead of position, decision-making authority is decentralized.
  • Organizational encouragement: risk-taking is valued and evaluated supportively; collaborative idea flow and participative decision-making is fostered.
  • Supervisory encouragement: managers clarify team goals and support team’s creative work, support open interaction.
  • Work group encouragement: organization actively fosters/leverages diversity, integrating creative personalities into “organizational mainstream”.
  • Freedom and autonomy: organization grants sovereignty to employees with regard to determining the means by which to achieve goals.
  • Resources: finding the „golden mean“ with regard to time and money: scarcity produces fear, distrust, and burnout, excess decreases creative performance.

No rocket science, huh…? If you are a manager, now go out and do that… 🙂

 

Picture source