Return on Safety Continued from page 35 financial impacts to a business. In that case, Evans et al. (2010) reported on the financial performance of US Airways post-incident: the airline underperformed compared to their peers by as much as 154 percent and lost nearly $328 million dollars of market capital. We already know safety isn’t simply defined by the absence of a negative (for more information on that topic, see ABJ, 1st Quarter 2015), but we also know that the human impact and staggering costs of an accident are a part of what drives us to improve. So, investing time and financial resources in safety are usually effective at reducing potential negative outcomes, but a suc- cessful business has to do a lot better than simply avoiding failure. Tony Buckley, VP and COO for Denver-based jetCen- ters of Colorado says, “Our business relies upon meeting an expectation of safety, service, profits and culture.” Safety, in its most inclusive form, is about much more than safety itself. It provides a mechanism for examining and improving service, profitability and organizational culture. Here’s how. SAFETY, COMMUNICATION, AND TRUST For years, Alcoa has been heralded as an example of safety improvement done right, and Paul O’Neill, the former CEO, was outspoken about his view that investment in safety and health management systems was crucial to the com- pany’s business strategy. Presenting to a group of investors early in his tenure as the Chief Executive, O’Neill took to the stage and said, “If you want to understand how Alcoa is doing, you need to look at our workplace safety figures.” In fact, during O’Neill’s time with Alcoa, the company expe- rienced tremendous reductions in workplace accidents and injuries, but it also grew share value by a factor of five, and increased sales an average of 15 percent annually. How is safety connected to profitability? One way Alcoa made the connection is when the company committed to safety as a core business value, they also made it clear that ideas about safety were meant to be shared. They backed it up across management by providing phone numbers for senior leadership—including O’Neill himself—and asking employees to let them know if they hadn’t followed up on safety suggestions. Workers began calling, and the sugges- tions weren’t always safety-related. When employees felt they were being listened to, and when they saw manage- ment making a sustained commitment to learning, they jumped at the opportunity to share ideas. In Alcoa’s case, that meant improvements to processes that had been in 36 place for years, but simply weren’t efficient. The patterns of enriched communication that resulted from a commitment to safety was linked directly to increased profits, and the improvements stuck. McCarthy Construction, the largest privately-held construction firm in the U.S., had a similar experience after implementing a businesslike approach to safety management in the late 1990s. Addressing cul- ture and a broad view of organizational systems enabled McCarthy to reduce lost-time incidents by 92 percent over just 12 years. At the same time, McCarthy’s commit- ment to understanding the systems that workers experi- enced at the front line allowed profitability to increase, insurance costs to plummet and retention to improve. WORKFORCE EFFECTS Most of us in aviation recognize the struggle to find, hire and retain talented people. Safety investment may not have a direct link to hiring, but it certainly plays a role, with research showing that perceptions of safety commitment and culture directly impact employee engagement, which can positively affect retention and reduce the cost of attract- ing new talent. A study by Towers Perrin notes that com- panies with high levels of engagement perform better than their peers on operating income, net income growth and earnings per share. A Goldman Sachs study further exam- ined the link between engagement and profitability, conclud- ing that when management teams and systems are rated highly among employees, share price is likely to be higher. By design, safety management (SMS) involves formal, top-down efforts that rely on sound leadership to influence organizational culture. Extending beyond simply preventing accidents, this view of safety as an enabler of performance is what allows us to address the frictional cost of disengage- ment in our businesses. In studies by Gallup and the Queens School of Business, disengaged workers demonstrated 37 percent higher absenteeism, 49 percent more accidents and 60 percent more errors. Engagement isn’t simply a workforce issue, it is a threat to organizational safety and resilience. Organizations with low employee engagement scores experienced 18 percent lower productivity, 16 per- cent lower profitability, 37 percent lower job growth and 65 percent lower share price over time. Data from ten research studies show that empowerment of the workforce, good relations between managers and front-line employees, and Continued on page 37 Aviation Business Journal | 1st Quarter 2018
