Can happiness be a good business strategy?

How happy are you at work? Maybe you're reading this at work right now? Which could indicate that you work in a friendly workplace culture where you're empowered to do as you see fit and read whatever you want online. Or it could mean that you're bored out of your brain, whiling away the hours until the clock clunks to home time. The former suggests that you're a happy and productive worker; the latter, quite the opposite. And this link between happiness and productivity at work is becoming increasingly understood.

Nic Marks, of the New Economics Foundation (Nef), has spent the last 10 years of his life working in this field. It used to be known as 'well-being economics' until it was discovered that "normal people didn't know what that meant", says Marks. Happiness is what it's really all about.

"People who are happier at work are more productive – they are more engaged, more creative, have better concentration", says Marks. "The difference in productivity between happy and unhappy people at work can range between 10-50%. That's 10% for non-complex repetitive tasks, or up to 40-50% in service and creative industries." And that's an awful lot in terms of business revenue.

The current poster boy for happiness in business circles is Tony Hsieh. A beneficiary of the dot-com boom he became a multi-millionaire in his early 20s by selling his web company LinkExchange to Microsoft for $265m. He then took over fashion start-up Zappos in 1999 because he missed working in a happy environment. "It began selfishly for me", he admits. "I was in the financial position of not having to work again... so if I'm going to go back into an office it better be around people I would choose to hang out with. Otherwise, what's the point? But it actually turned out to be a good business strategy."

By 2005, Hsieh decided that a happy company culture was Zappos's number one business priority, from which everything else would grow. In an ironic echo of the General Electric CEO Jack Welsch who advocated axing the bottom performing 10% of managers each year, Hsieh removed the 5-10% of employees who did not buy into the same vision. "The best way to make [a happy culture] stick is to get rid of the whatever percentage of people who aren't living up to the company values", he argues. "What we found is that short term pain was totally worth the long-term gain of strengthening the relationships with everybody else."

By removing the cynics, says Hsieh, the remaining 90% "became super-engaged". Empowerment policies then came thick and fast. The company moved from San Francisco to Las Vegas where they could recreate a college campus environment; the sole communication policy reads "'be real and use your best judgement"; call centre staff are hired on friendliness – only 5% of calls result in sales but long-term relationships are built over time. By 2008 the company reached $1b in gross merchandise sales. In 2012, it is now over $2bn, with 5,000 staff. That sort of growth – especially through a prolonged recession – is hard to ignore.

The UK government is not ignoring happiness. For the last two years Lib Dem MP Jo Swinson has chaired the All-Party Parliamentary Group on Wellbeing Economics. When it started out, two people came. The last sitting in May was standing room only. "Anyone who has worked in a business knows that when colleagues feel motivated, empowered and wake up looking forward to going to work – then they will work better. We all know that", says Swinson. "And increasingly businesses are recognising that too."

In light of this groundswell of interest, Nic Marks and Nef have just launched an online tool to help businesses measure and manage the happiness of their employees. Marks feels that the employee engagement surveys run by many businesses are too extractive, based on what employers can get out of their employees rather than what employees want. To avoid disappearing down an HR blackhole, as Marks puts it, Nef's happiness survey gives employees instant results – including personalised action plans – as well as collating the results anonymously for the business.

One company who trialled the Nef approach – The Works, a recruitment agency in the north of England – ended up changing its working hours and internal communications practices on the back of the survey. "It's given employees empowerment, hopefully it's given them more job satisfaction", says Joanne Shires, the firm's head of people and talent. "And for us it's a return on our social investment."

So can happier people at work actually lead to a happier and more prosperous society? In down town Las Vegas, Tony Hsieh and Zappos are putting that to the test. Having bought the old Las Vegas city hall to house the new company headquarters, planning the obligatory cool workplace trimmings – funky break-out areas, an internal pub – all felt too insular, says Hsieh. So Zappos set up and funded a $350m project to invest $100m in local real estate, $100m in residential development, $50m in small businesses, $50m in education, and $50m in technology start-ups.

"What started out as a new office move has actually turned out to be a project to revitalise down town Vegas," says Hsieh. And guess what, "we've seen our employees become engaged on a whole new level because of this. It all feeds back into the Zappos brand... we can do well and do good." Which has to be more than just a happy coincidence.

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