Effective Communications: A Leading Indicator of Financial Performance 2005/2006 Communication RIO Study

As the Summer winds down and we enter the Fall season, many companies begin to examine their financial results in anticipation of those December year end result reports. This is a good time to examine your communications programs in an effort to help increase financial performance. Effective communications is the lifeblood of any successful organization. This statement is a mantra in companies of all sizes. They use it to explain their improved financial results.

Now we have solid proof that it's true. Watson Wyatt, a major and respected HR consulting firm, recently conducted a revealing study that links effective communications to financial performance. The results of their analysis are staggering, a must-see; and critical information for every CEO and CFO.

Companies that communicate effectively have a 19.4 percent higher market premium than companies that don't.

At Inward Strategic Consulting, we have always believed that effective communications, through internal branding and change communications campaigns, creates more educated and motivated employees. They embrace change and adopt new behaviors to support it. The findings of this 2006 study substantiate our claim: they amplify the call for internal branding efforts, employee communications and the use of staff to create team alignment and awareness.

We have taken the liberty of summarizing some key findings to share with you. If you would like a complete 20-page PDF of the Watson Wyatt Report (a $45.00 value - sold online), just write me back and I will be happy to send you a copy for free.

Three amazing conclusions:

• Companies that communicate well have a 19.4 percent market premium over companies that do not.
• Communications effectiveness is a leading indicator of financial performance.
• Firms that communicate effectively are 4.5 times more likely to report high levels of employee engagement than firms that communicate less effectively.

Study Highlights: What characteristics define effective communications?

• Helping employees understand your business
• Educating employees about your culture and value
• Sharing financial information and objectives
• Exhibiting strong management leadership during organizational change
• Alignment of employee practices with customer needs
• Explaining and promoting new programs and policies, i.e., employee integration.

What the study found:

Link to shareholder value: Companies with more effective communications experienced a 57% higher total return to shareholders over a five-year period than those with less effective programs.

Increase in market premium: Communications effectiveness is associated with a 19.4% overall increase in market premium.

Effective communications is a leading indicator of financial performance: If a company invests in communications and implements or improves its communication practices, it can expect up to 20% higher financial returns.

Reduction in reported turnover: Companies with high levels of communications effectiveness are 20% more likely to report low turnover rates than their competitors. Lower turnover translates to improved continuity, better understanding of the business and less need to train and re-educate staff.

Practices at highly effective companies:

• Communications programs are in place and ready to support organizational change efforts when needed
• Documented internal communications strategy in place
• Open communications with employees about events that affect them and the reasons for major decisions
• Sharing business plans and goals with employees
• Linking communication objectives to business objectives
• Linking pay and benefit programs to achievement of the business strategy
• Treatment of managers as a key audience, and sharing advance information with them
• Regular transmission of communications counsel and insight to the CEO and senior management team
• Eliciting the support of senior managers, and engaging them in the communications process
• Effective coordination of internal and external communications

What areas could you improve?

Every organization always has room for improvement. More and more organizations are starting to improve their communication processes, but look at these trends:

• Less than 50% of high effectiveness companies (only 25% of low effectiveness companies) do any proactive communications planning. Some companies are reluctant to plan far ahead given the current pace of change. But where no plan is in place, firms typically lose sight of the big picture.
• Less than 1/3 of companies actually give employees the ability to add their insight and input to decisions. Companies must educate their employees on how to communicate effectively and develop channels for two-way communications.
• Over 60% of companies have an intranet enterprise portal, yet companies need to document their electronic communications strategy. Use emerging technologies such as blogs and wiki's to get the message across.
• Global communications is still North America centric! While 60% of companies surveyed in this study have international operations, the study found that few companies really communicate effectively with employees and business units around the world. You can improve this area by integrating the global communications plan into the company's overall communications strategy. Form a global advisory group to identify local needs, customize messages and secure international buy-in at the micro level.

Conclusion: The elements of effective communications

The study identified characteristics of organizations with successful communications programs, using a comparative index of successful communications policies, programs and behaviors from various organizations.

If you're interested in improving your communications, consider the following characteristics of the high performers:

• A comprehensive communications program is an essential part of the organization's business strategy.
• Senior management bases its communication efforts on a clear, well-defined communications strategy.
• Communications programs are developed proactively rather than reactively.
• The organization has a well-defined, two-way communications philosophy.
• Employees are kept in the loop about how their firm is doing at meeting its goals.
• Employee communications programs focus on helping employees understand the business.
• Employee communications programs focus on providing information and feedback to motivate and improve job performance.
• Managers at all levels are rewarded for communicating effectively.

The essential message of the 2005/6 Communication ROI Study is clear: financial success does not lag far behind when senior management takes the time to plan, identify and reward effective communications, Thoughtful strategic planning and development of internal communications initiatives correlates directly with financial success.

Please don't hesitate to contact me if you would like to discuss how an effective communications plan can help improve your organization's financial performace. I'd be happy to share some insight, tips and best practices on how we have helped many companies improve their bottom line.

About the study:

The 2005 Watson Wyatt Communications ROI Study visits the relationship between an organization's communication practices and its business performance. The study's goal was to identify where communications practices have the highest returns.

Its 335 participants came from large companies across North America. (The average participating company has revenues of $3.9 billion and 13,000 employees.) Survey questionnaires included questions about employee engagement, global communications, and the relationship of the communications function to senior management and emerging technologies.

The study was broken out into two separate parts, each with its own findings. The first shows, basically, that companies with effective communication practices can earn a significantly higher market premium over their competitors. The second part concludes that effective communications practices can earn a market premium for the organization and can identify the key metrics for instituting an effective communications program.

Here's to a profitable Fall season!

-Allan