Recently I needed to hire a car for an interstate visitor. We selected the hire car from the internet based on location and price. We booked online and when we collected the car it was ready for us, clean, full tank, maps included. The company appeared to have done everything right, they had the right stock, the right location and even the right pricing, but we will never go back.
Why? Because the staff were so disengaged, we felt like we were an inconvenience. By failing to address the low employee engagement, the organisation forfeited the opportunity to win us over as customers for life. Even though their depo is the most convenient for us and even though there was no problem as such with their customer service, they were so indifferent towards us that next time we need to hire a car, will try another company.
What is the point of having great product to sell, unless you have engaged employees to sell or deliver it. It is not worth investing in attracting more customers (marketing) until you have engaged employees. That is why increasing employee engagement is the other side of the “winning customers for life” coin.
The Engagement Profit Chain
The link between employee engagement and profit was first documented by Jim Heskett and Earl Sasser in 1994 as the service profit chain. The model (pictured on the left) shows a series of sequential steps which demonstrate how employee engagement leads to better shareholder value.
Heskett and Sassar (2008) found that a 5% increase in customer loyalty alone can boost profits by 25-85%. One reason this is so high is because there are less costs associated with servicing existing customers than continually sourcing new customers.
In their research, they showcased a number of examples of the engagement profit chain in action. For example Taco Bell, a fast food chain, found that stores with low staff turnover (one of the key indicators of employee engagement) had twice the sales and 55% higher profits than stores with high staff turnover.
In particular they found that employee satisfaction soars when you enhance the internal service quality that is by equipping employees with the skills and power to serve customers.
For example Campbell’s Soup has lost 54% of its market value when Conant joined the company as CEO. He was told that the employee engagement levels were the worst for any company in the Fortune 500. So he determined to keep employee engagement a priority “to win in the marketplace… you must first win in the workplace”. As a result, by 2009, when the industry average was 25-30% disengaged employees, Campbell’s Soup had reduced disengagement to a mere 5%. More importantly, in a decade that saw the S&P 500 stocks lose 10% of their value, Campbell’s Soup share price increased by 30%.
Gallup Organisation states that companies with engaged employees have 22% higher productivity, 38% higher customer satisfaction and up to 27% higher profit.
Similar research by the Corporate Leadership Council shows that engaged employees perform 20% better and are 87% less likely to leave the organisation. The cost of an employee leaving can significantly impact the profitability of an organisation if you count not only the recruitment costs, but the loss of intellectual property and the time taken to rebuild relationships with customers. Of course when the employee is a salesperson, often their loyal customers may also follow them to their next employer too.
More recently Aon Hewitt (2011) conducted a survey of over 124,000 employees across 200 companies, in Australia and New Zealand. Amongst other interesting findings, they reported that companies with an engagement score of 65 per cent or higher have, on average, profit growth four times that of other organisations.
Organisations who want to remain competitive clearly need to address employee engagement. This is even more important for staff who interact with customers. In the value zone, employees have a direct opportunity to “sell” the organisation by virtue of their enthusiasm about their employer, or conversely to turn potential customers off.
This was the case for my hire car experience. The organisation had done all the right things to get me there, including paying advertising and wages. If only they had engaged employees, instead of turning me off, I could have become a customer for life.
Heskett, J., Sassar, E., (2008) “Putting the Service-Profit chain to Work”, Harvard Business Review, July-Aug 2008