According to Peter Drucker, employee engagement is “one of the last true sources of competitive advantage”.

And why is that? It’s because, he says, few organisations are good at it.

Regrettably, Drucker’s observation has resonance but you’ve got to ask why.

I read a Corporate Leadership Council study recently that shows committed employees perform 20% better. It also reveals they are 87% less likely to leave the organisation.

A Gallup Q12 study also shows that organisations with high engagement generate 27% higher profits, 38% above average productivity, and 50% higher sales and customer loyalty.

By contrast, the Gallup study estimates the cost of disengagement at more than $39 billion in productivity alone.

So, employee engagement is a no-brainer and I would contend that being good at it is not rocket science.

Most of us recognise disengaged employees and it’s usually because they’re giving us bad service, whether behind a counter, over the phone or inside our own workplace. They don’t care about you and they don’t care about the company that employs them. Their guiding performance principle is personal comfort.

So, what is employee engagement? And why does it make so much difference?

Towers Watson research proposes that engagement involves how employees think, feel and act. If they understand what their responsibilities are (think) and enjoy doing what they’re doing (feel), they are likely to put in the extra something and do it very well (act). That extra something is sometimes called discretionary effort and it shows itself across all parts of the business, including innovation in product development, creative ways to get to market and excellence in customer satisfaction.

Engaged employees look for ways to enable the company to make full use of their talents and they are keener on learning and trying better ways to do things than simply being risk averse and doing what they’re told.

From the perspective of the organisation, Hewitts’ studies have shown that engagement is a big contributor to revenue growth, cash flow and return on investment. It also lowers staff turnover. In addition, the studies show that it generates higher productivity, lowers absenteeism and enables greater readiness for change.

From the employee perspective, engagement lowers job related stress, injury and workers compensation costs, and improves physical health.

Studies by both Gallup and Towers Watson reveal that engagement correlates with improvements in performance, innovation and cost reduction through lower turnover.  Gallup also reveals that engagement can be measured so that comparisons can be made between different parts of the organisation, and drivers can be identified.

It is no surprise that crucial factors in enabling engagement are strong leadership from the top that shows employees how their job fits within the company vision and strategy, and competent management that provides clarity and support, and also contributes to a culture in which employees can see that the organisation lives its values.

If Drucker is right, HR is looking at a big opportunity to create competitive advantage. Any thoughts on how best to do it are welcome.

Carol Webb, Education and Training Manager, Australian Human Resources Institute