Employee Loyalty – Worth Investing In

In the modern business environment, the conditions under which many companies operate are constantly changing. Clients/Customers demand more than simply the core product or service. They often seek a wide range of values, attitudes and experiences. To what extent a company is able to deliver such an expanded product largely depends on whether the company employs staff with the ‘right’ competencies, motivation and commitment.

To develop a holistic and more profound customer experience requires well-functioning teamwork between employees, as well as successful interplay between employees and management. The importance of focusing on employees is emphasised by Hoekstra et al (1999) as they correctly suggest “every employee in a business has his/her own responsibility for creating superior client value”.

There are strong arguments for a series of relationships between employee’s job satisfaction, employee loyalty, customer satisfaction, customer loyalty and bottom line results and this conceptual framework has been termed many names including ‘the loyalty-based cycle of growth’ (Reichheld, 1996), ‘the service-profit chain’ (Heskett et al., 1997), and ‘the employee-customer-profit chain’ (Brooks, 2000). Several studies (Brooks, 2000; Dahlgaard et al., 1998; Grønholdt & Martensen, 2003; Homburg & Stock, 2003, 2004 to name a few) provide documented evidence of this employee customer-profit chain, either in its entirety, or some of the links.

The service-profit chain establishes relationships between profitability, customer loyalty, and employee satisfaction, loyalty, and productivity. The links in the chain (which should be regarded as propositions) are as follows: 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.

Companies that make an effort to achieve committed and loyal employees are found to achieve significant increases in the earnings per employee (Bashaw & Grant, 1994; Konovsky & Cropanzano, 1991; Mayer & Schoorman, 1992; Moorman et al., 1993).

Given these facts, one may assume every business has a detailed plan and solid processes in place to ensure employees are engaged. Unfortunately, this is generally not the case. Employers typically do just enough to ensure the majority of employees don’t leave; they train just enough, they offer just enough benefits, and they give just enough positive reinforcement. Is this the right way to approach employee loyalty? Consider these two facts:

• Each year the average company loses 20-50% of its employee base
– Bain & Company
• Replacing a lost employee on average costs 150% of that person’s annual salary
– Columbia University

Because the cost of replacing employees is so high, and the fact that so many continue to leave, businesses who effectively manage the employee engagement process can turn these facts around, making the burdens a strength. They can realise increased productivity, happier employees who willingly promote the business, and eventually, greater profits and other positive business outcomes. As an employer, one needs to understand why employees are emotionally connected to the business – and it’s generally much more than salaries, training, or benefits. Research shows that emotionally connected employees are the best employees because they are engaged and productive, and they feel validated and appreciated.

Employee engagement takes a village. Too many companies simply chalk it up to a HR focus and let that department deal with it. In reality, it’s everyone’s initiative – setting a purpose, communicating that purpose, equipping people to serve that purpose, and rewarding them for doing so. It’s every department/office in a company, and it’s up to every individual. It’s much more than just customer service – it’s every employee in the organization. Whether they interface with clients/customers directly or not, they have an impact on client/customer retention (and revenue). Employee engagement equals client/customer engagement and retention.

The reward? Organisations in which employees are primarily motivated by shared values and a commitment to a mission and purpose (also known as self-governing) are more likely to have high client/customer satisfaction than other firms. The employees believe in what they’re doing and they believe in what it can do for clients/customers, so they get invested in maintaining their part of that relationship for the sake of the purpose.

Reichheld and Sasser estimate that a 5% increase in client/customer loyalty can produce profit increases from 25% to 85%. They conclude that quality of market share, measured in terms of customer loyalty, deserves as much attention as quantity of share. Given the well-established link between engaged, loyal employees and the client/customer experience, employee loyalty is worth investing in, even for the smaller business.