Can healthy and happy employees impact a company’s bottom line? Traditionally, human capital and its financial impact has largely focused on calculating employee productivity. But in a post-covid world with ‘new normals’, that is definitely set to change. One organization has devised a way - to not only value its employees and their health, but also quantify the impact it has on their financials. The German software giant SAP measures and tracks its Organizational Health through its employees and has also worked out how much a % point change in its employee engagement impacts the company’s operating profit. SAP A bit of background first: SAP is renowned for pioneering enterprise-level software solutions for industries that seek to optimize technology. The company’s top-of-the-line products cater to high-performance analytics, financial accounting, supply chain and human capital management, among many others. Most recently in June 2020, SAP forayed into the carbon management ecosystem through their newly launched ‘Carbon Footprint Analytics’ tool. On the human capital front, SAP has a global workforce of about 100,000 employees (as at 2019) and has aptly established financial causation between its employee health and its bottom line, thus reflecting the company’s ‘walking the walk’ of becoming a purposeful and profitable organization. Employee Engagement Index For more than a decade, SAP is measuring its employee health and well-being through their annual ‘People Survey’, which was launched in 2009. It is an online employee survey which collects employees’ responses (on a scale of 1 to 5) across 9 statements in seven different categories. Some of these statements range from, ‘I am proud to work for SAP’, through ‘In my organizational unit, recognition and rewards other than money encourage good performance’ and ‘the high demands of my job do not interfere with my private life’ to ‘compared to others my age, I am in good health.’ For SAP, their human resources strategy plays a central role in enabling their employees to successfully contribute to their business. This strategy encompasses the employee lifecycle with a focus on being agile and integrating a digital workplace – all of which ultimately is aimed to create employee satisfaction. The Employee Engagement Index (EEI) is exactly that mechanism where the company has consistently maintained a high percentage score. They have been successful in keeping their EEI score relatively stable (as can be seen from Figure 1), and further plan to keep the score in the range of 84% to 86% through 2021.
Figure 1: SAP's EEI Scores - 2015 to 2019 (Source: SAP 2019 Integrated Report)
Business Health Culture Index (BHCI)
On top of the employee engagement is the BHCI which measures the general cultural conditions that enable employees to stay healthy and balanced. The BHCI assesses the degree to which SAP’s workplace culture support people’s well-being, work-life balance, and organizational health. It covers questions such how employees rate their personal well-being and the working conditions at SAP, including the leadership culture. The BHCI score is calculated based on the results of the annual employee survey. As such in 2019, approximately 71,000+ employees participated in the survey (equating to about 71% response rate across the organization).
Since 2014, SAP has been using linear regression analysis to calculate and document the financial impact of these non-financial indicators (the employee engagement index and the BHCI). For 2018, they reported that a 1 percentage point change in the BHCI impacted the operating profit by EURO 90-100 million. This further proves their business success as we can see from Figure 2 which demonstrates their BHCI score improvement to 80 percentage points in 2019 compared to 2015, aligning well with the company’s 2021 target of keeping it between the range of 78% to 80%.
Figure 2: SAP's BHCI Range from 2015 to Present (Source: SAP 2019 Integrated Report)
In addition to the employee engagement and the BHCI, SAP is also incorporating other sustainability aspects into its human capital metrics. For example, Figure 3 establishes how employee contribution to SAP’s sustainability goals doubled in this 10-year period, with a similar improvement on a company level importance given to sustainability. In celebration of the company’s decade long sustainability journey, employees participated in an online quiz on the UN Sustainable Development Goals (SDGs) where employees answered ‘what is your SDG goal’ and shared their stories on how they personally contribute to the SDGs.
Figure 3: Employee engagement survey on sustainability (Source: SAP 2019 Integrated Report)
Company engagements is absolutely critical to our Panvesting philosophy. In our latest engagement session with SAP in June 2020, we spoke to their Chief Sustainability Officer and Investor Relations representative and primarily covered i) SAP’s contribution to the SDGs, ii) their product and process innovation, and iii) their organizational flexibility.
SAP highlighted that their SDG commitment started as soon as the SDGs were formally launched in 2015. Furthermore, SAP is one of seven global companies (first in Germany) to have 1.5°C-aligned climate targets which is science-based target initiative (SBTi) approved - to become a carbon neutral company by 2025. Like with Human Capital they have also established the financial causation of emissions reductions, where a 1% reduction in total emissions of the company roughly equates to about savings of EURO 6 million per annum.
Post Covid World
Understanding and optimizing user experience data (be it customers or employees) will notice a significant shift in this post-covid world. With the acquisition of Qualtrics (a survey company) back in 2018 for close to US$8 billion, SAP is set to capitalize on ‘experience management’. Companies are aware of operational data (such as costs, revenues and sales), but to better understand the business and the market, they need experience data (the why, which is to understand the feelings of the people involved and why things are happening).
Hence, SAP’s experience management solutions fit in well in our current context where they combine ‘the what’ with ‘the why’ to analyze and understand experience gaps – and deliver strategies to address them. These solutions are highly relevant in today’s data-driven markets as they not only help SAP in its business, but also help their customers and their stakeholders to improve overall brand experience.
As expected from a leading technology giant, besides offering free-to-use solutions, SAP has done well by their employees amidst this global pandemic where they have kept up productivity at 100% while 90% of its workforce worked from home (many still continue to do in some jurisdictions).
Looping back to the topic of organizational health, mechanisms such as the employee engagement index and the BHCI and its financial impact is definitely an area which will pique the interest of many. Innovations like these make SAP not only standout from their peers and competitors, but also give them a leading edge with their own employees. Going forward where ‘work from home’ culture is set to become mainstream, companies like SAP stand only to gain from this while growing the business. This is exactly why our panvesting approach aligns well with the company’s purpose.