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May 16, 2017

Happy customers drive profits. There’s no doubt about that. But does the same apply to companies? Do happy employees matter as much as we like to think?

With every passing day, we seem to be bombarded with more headlines saying companies should ensure that their workforce is happy, satisfied, and content.

But in reality, the evidence for that doesn’t quite stack up. It’s probably much more important to make sure that your workforce is challenged, stretched, and works together effectively – even if that means they’re not ecstatically happy.

Two articles by industry thought leader and consultant Dr. John Sullivan address the “happiness” issue. Read “A Dozen Good Reasons You Should Be Cautious About Employee HappinessandMore Reasons Why The Employee Happiness Doesn’t Drive Productivity

Happiness doesn’t mean productive

Conventional wisdom dictates that happy teams are productive teams. Many managers and CHROs have spent the best part of a decade fixated on happiness. They’ve worked harder with every passing year helping their employees feel happier.

No one wants a depressed, stressed-out, unengaged, sad workforce. That’s the very worst sort of company. But strangely, according to the evidence available, no one should really want a happy-go-lucky, enthusiastically always-positive one either.

The fact is, happy teams are often unproductive. They often don’t deliver the best results. According to a meta-analysis by Judge, Thoresen, Bono, and Patton (2001), the correlation between job satisfaction and job performance is modest at best.

And some studies even suggest it’s negative. One study on employees in British supermarkets found that the happier their staff were, the less profitable their branches, with the researchers writing that an “empirical study of one of the UK’s four large supermarket chains reveals an inverse correlation between employee satisfaction and the measures of productivity, efficiency and profitability, the most profitable stores being those in which employees are least satisfied.”

Why happiness is a bad thing

This seems to contravene common sense. How can unhappy employees be more effective, more productive, and deliver better results? How could that possibly be the case?

I think it’s because all too often a happy workforce signals that there’s too much homogeneity in teams. Everyone is getting along perfectly, and everyone is comfortable, happy and coasting. They all have the same ideas, outlooks, and perspective. Everything in the garden, for them, is rosy. And this can be very dangerous indeed. In fact, research from MIT has found just that: less gender diverse teams are happier, but they produce worse results.

There is no creative tension. There is no internal discussion, or debates and arguments, over ideas. No one is being challenged. To innovate and create, you need that spark and energy that comes through competition and rivalry because without conflict there can be no progress. Clearly this can tip over dangerously into disruptive competition. But there is a balance to be struck – a dose of competition, conflict, and rivalry is healthy.

This is important because we know that diversity of approach, gender, ethnicity and backgrounds – and the creative tension this brings – is what truly delivers the best results. According to the latest research, gender-diverse teams are 15% more likely to outperform others, and the number is 35% from ethnically diverse teams.

Agility trumps happiness

But this shouldn’t be too much of a surprise. At the end of the day, business is not about creating a happy workforce. It’s about profits. It’s about wowing customers, enabling you to charge higher margins. And thriving over the long term.

In my view, a truly productive company is one which, faced with stalling growth, anemic results, or even just stagnation, has the internal collective intelligence to recognize the problem and find innovative solutions to solve it. Pivot the business. Change processes. Create new products and services. Find new markets. Streamline.

Much like in evolution, companies need to adapt rapidly and intelligently to market changes to find product-market fit to drive a new period of growth. A productive and successful company is one that can do this process effectively. Happy companies do not necessarily survive. It’s fit companies that do. It’s the survival of the fittest – and not survival of the happiest.

This fitness is a complicated thing to measure, and it will surely include happiness, engagement and satisfaction as sub-components. But the key, important observation is that this cannot be reduced to the mental state of a single individual. It has more to do with the interaction among team members, and among between teams. It captures something deeper – and more complicated – than happiness. It captures how the organization’s teams work together.

I think this partly reveals why happiness is so inappropriate for the task. Happiness is something felt and owned by the individual in an organization. It’s not what a collection of people necessarily feel.

Team effectiveness is a better measure

I call this new important metric “team effectiveness,” and it will certainly be difficult to measure. There is no unified protocol yet, but many HR departments and management researchers have started to look carefully at what makes teams effective. It is complicated because it needs to capture not only how individuals in a team feel about their units, but how that unit is also perceived by other teams and customers outside of themselves.

What’s really exciting about measuring team effectiveness is the potential for organizations to lift their vision – and start to see companies as a collection of teams rather than a collection of individuals. This could transform the way we view an organization; how we judge performance and create change. If we can crack the measurement of team effectiveness, happiness may well come naturally again – at least for customers and shareholders.

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