Why Employee Engagement Matters: the Service Profit Chain Model
By Bernard Chanliau, Monday 17 August, 2009
In 1994 the Harvard Business Review (HBR) published a seminal paper entitled "Putting the Service-Profit Chain to Work". The authors brought together two facts managers had known intuitively for years: (1) satisfied, loyal customers drive business growth and profitability, and (2) satisfied, loyal employees are more productive and deliver better customer service.The service-profit chain stresses the importance of people - both employees and customers - and how linking them can leverage corporate performance.
This circular relationship between employees, customers and shareholders contributed to the well known Sear's model in the mid-90: a 5% increase in employee attitude leads to a 1.3% increase in customer satisfaction which leads to a 0.5% increase in revenue growth. Led by CEO Arthur Martinez, a group of more than 100 top level Sears executives spent the better part of three years rebuilding the company around its customers and in the process changed its culture. The company tracked success from management behaviour through employee attitudes to customer satisfaction and financial performance.
The service profit chain model of business performance (Heskett, Sasser, & Schlesinger, 1997) enacts relationships between profitability, customer loyalty, and employee satisfaction, loyalty, and productivity. The causality effect of hard values and soft measures because the intangible 'soft values' of employee engagement perceptions metrics attend with the left brain, tangible, hard value metrics of business performance.
In order to keep them profitable we need to manage all the links, both sides of the coins and not only focus on quality process management such as lean, six-sigma for example.
In a subsequent reprint HBR article - Putting the Service-Profit Chain to Work (July-August 2008) the authors describe the links in the chain are as follows: "Top line profit and growth are stimulated primarily by customer loyalty. Loyalty is a direct result of customer satisfaction. Satisfaction is largely influenced by the value of services provided to customers. Value is created by satisfied, loyal, and productive employees. Employee satisfaction, in turn, results primarily from high-quality support services and policies that enable employees to deliver results to customers".
The Gallup Organisation states that companies with engaged staff have 38% higher customer satisfaction, 22% higher productivity and up to 27% higher profits.
The Corporate Leadership Council states that engaged employees perform 20% better and are 87% less likely to leave their organisation.
Dr. Daniel Denison, of IMD Business School in Lausanne, has been conducting research to prove the link between Organisational Culture and bottom-line performance metrics since the early 80's and all his research indicates that today's culture affects tomorrow's performance . (Denison 1984; Denison 1990).
These studies demonstrate that Organisational Culture has not only a short-term impact on performance but lasting effects as a competitive edge in the work environment.
For example, the turnaround of IBM under Louis V. Gerstner's leadership is considered to be one of the most remarkable turnarounds in corporate history - under Gerstner, IBM's new strategy was to use processes and culture to regain advantage.
"The customer is always right!" is a well-worn motto. However equal effort must be made in human resource management activities such as executive coaching and leadership development as much as relationship marketing, ultimately delivering improved shareholder returns. Fewer than 1 in 4 employees (23%) in the UK and Ireland are fully engaged and nearly as many -- 22% -- are actually disengaged (Blessing White 2008) - so which side of the coin are we missing in the equation?
The key link here is the correlation between employee engagement and corporate performance because it is essentially one of our scientific approaches to organisational analysis. The impact of organizational culture on corporate performance is one of Xenergie's core competencies.
Tip: Make this month the time you and your teams renew a focus on real employee satisfaction.
