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How Employee Emotions Affect Your Organization’s Ability to Compete

By David Lee
Reprinted from HR Today
Until recently, emotions were considered a forbidden topic in the workplace. They were nobody’s business, and they had no place in business. They were not to be discussed; they were to be left at home.

Today, research on how emotions affect creativity, productivity, and career success has put a new spin on the subject. Books such as Emotional Intelligence and Executive EQ are heightening Corporate America’s awareness that employee emotions aren’t something that can be - or should be - left at home.

Instead, management is waking up to the fact that their success is directly related to their ability to work productively with employee emotions. They are realizing that how well they elicit and sustain positive emotional states in their employees plays a major role in their organization’s success or failure. This is because emotions directly influence the five major sources of competitive advantage in today’s marketplace:

Intellectual Capital - In today’s knowledge-based economy, an organization’s success is profoundly influenced by the knowledge, expertise, and innovative capacity of its workforce.

Customer Service - With 70% of the economy being service-related, providing excellent service is central to most businesses’ success. Furthermore, emerging research on customer loyalty shows that an organization’s success is closely linked to its ability to create the kind of exceptional customer service experience that leads to repeat business.

Organizational Responsiveness - In today’s ever-changing marketplace, organizations must respond rapidly, nimbly, and flexibly to changing market conditions, business models, technologies, and customer demands.

Productivity - Although productivity has always been an issue, in today’s "do more with less" workplace, it is more important than ever.

Employee Attraction and Retention - In today’s tight labor market and ultra-competitive marketplace, an organization’s success depends more so than ever on its ability to attract and retain high quality employees.

By becoming more knowledgeable about how emotions affect the primary sources of competitive advantage, HR managers can help their management team recognize the critical connection between employee emotions and the bottom line. By doing this, they can help their management team recognize that addressing employee emotions is not a "warm, fuzzy" thing to do, but a smart business strategy that directly affects the bottom line. The information in this article on how emotions affect the primary sources of competitive advantage can be used by HR Managers to begin this conversation.

Intellectual Capital

In today’s knowledge-based, innovation driven economy, the smart will survive. Thus, one of management’s most important tasks is to cultivate and engage the intellectual capital of its workforce. The general emotional state of a workforce plays a major role in both the "amount" and "liquidity" of an organization’s intellectual capital. Emotions directly affect the "amount" of intellectual capital - how smart and innovative the workforce is - because emotions directly affect intellectual functioning.

Research shows that when people are in a negative emotional state, their thinking becomes less flexible, original, and discerning. To put it bluntly, we are "dumbed down" by negative emotions. Also, at the simplest level, when a workforce is dispirited, they don’t have the interest or the energy to create, to innovate, or to recognize new opportunities.

Conversely, when people are feeling confident, secure, and passionate about their work, they are more likely to envision new possibilities, generate creative solutions, and make wise decisions.

Competing in a knowledge-based and innovation-driven economy requires the sharing of information, knowledge, and expertise throughout the entire organization. The greater the "liquidity" of Intellectual Capital - the more freely it is disseminated and used - the more successful the organization.

Emotions affect this liquidity. Whether or not an individual’s Intellectual Capital is liquid - i.e. available for use by others - depends upon how safe, valued, and committed they feel. If people feel insecure, they are unlikely to share their knowledge and expertise, for fear of losing their power base.

If they don’t feel valued or committed, they will withhold their knowledge and insights as a form of "payback." Either way, the organization loses out when intellectual capital is kept out of circulation.

Thus, emotions affect people’s intellectual functioning and their willingness to share their knowledge and expertise with others - two essential components of maximizing Intellectual Capital.

Customer Service

The connection between emotional state and customer service is obvious. If service workers are angry, demoralized, or just plain disinterested, no amount of training will offset the service climate their emotional state creates. The economic consequence of not addressing front line employee emotions is disastrous. Customer service research shows that 68% of customers defect from a company because they were treated with an attitude of indifference. Thus, 68% of what leads to customer defection is related to emotion - or in this case, the lack of emotion.

Research by Bain and Company, a Boston based consulting firm, has shown that if a company reduces its defection rate by only 5%, it can improve its bottom line by 30% to 85%. Thus, when a company doesn’t address what is creating a disinterested, dispirited workforce, they are in essence saying "We’re not interested in that extra 30% to 85% profit."

Organizational Responsiveness

In today’s high velocity, constantly changing marketplace, organizations need to be extremely responsive. Being responsive means being both fast and flexible. Emotions affect how fast and flexible people are in their responses, and therefore how fast and flexible organizations are in their’s. If people are feeling threatened, stressed out, or just plain dispirited, they will resist change. They will cling to outdated behaviors and methods, even when such behaviors and methods are clearly not working.

Employees who feel secure, committed, and passionate, find organizational and marketplace changes energizing. They see these changes as something that adds "spice to life," not something to be feared and resisted. Thus, an organization’s ability to respond nimbly in the marketplace is directly related to employee emotions.


Emotion is sometimes defined as "energy in motion." When people feel happy and excited, they have far more energy at their disposal than people who are depressed or disinterested. Thus, a spirited workforce has more "fuel" to power their production. On a practical level, the happier an employee is with their work and their company, the more likely they will work hard.

Employee Attraction and Retention

Employee emotions clearly influence an organization’s ability to attract and retain employees. The happier employees are, the more likely they will want to stay. If an organization has a reputation for being a fun place to work, a place where employees are treated well, and an organization that inspires pride and passion; people will want to work there. Thus, such organizations not only reduce costly turnover, they also benefit from their ability to attract the "best of the best."


By helping management create an environment that elicits and sustains positive emotional states in employees, HR Managers can directly contribute to their organization’s bottom line. The first step in this process is to help managers see how employee emotions directly affect the primary sources of competitive advantage.

Only after this connection is made, will management be willing to do the work necessary to create an organizational environment that elicits and sustains positive emotional states in its employees.

About the Author: David Lee is an internationally recognized authority on organizational and managerial practices that optimize employee performance. He is the author of Managing Employee Stress and Safety, as well as dozens of articles on employee and organizational performance that have been published in trade journals and books in North America, Asia, Europe, and Australia. For information on his programs and service, click here.

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