Strativity

Global +1 201 808 8500

Blog

“Customer Experience is not just about

passion. It is about profitable results.”

~Lior Arussy

Engaged Employees Deliver Higher Customer Satisfaction and Greater Profitability

Posted: Dec 06, 2013 by Lior Arussy

Engaged employees deliver better customer satisfaction and profits. This axiom sounds logical, but despite a multitude of arguments and research, empirical evidence of the linkage between customer actions and employee engagement is still missing. As a result, many executives are saying the employee engagement concept will result with tactical improvements at best. 

We recently worked with a major luxury car manufacturer to design and deploy an employee engagement tool that would lead to customer-centric transformation. The challenge was that each of the 360 dealers selling and servicing the cars was an independent company, and the individual owners only cared about the bottom line of their dealership.

The dealers tasked us with creating a business case for employee engagement and customer centricity. It boiled down to: How many more cars would it help me sell? They also wanted proof of the financial impact.

The first step was creating a link between customer satisfaction and profitability. Since many of the top-selling dealers scored at the bottom of the customer satisfaction ranking, the case for delighting customers was critical. Our analysis of the dealers’ satisfaction scores compared to their profitability showed that the top 50 dealers in customer satisfaction were 59% more profitable than the bottom 50 dealers.

Even though all the dealers sold the same exact vehicles, the dealers who delighted customers were able to command a premium price for the vehicles, as well as bring in more customers for service appointments. The message loud and clear: customer satisfaction means more profitability, and if you do not focus on it, you leave money on the table.

As the transformation efforts got started, it was clear that, for many dealers, there was a long way to go to engage employees and provide effective leadership. Once again, the typical “show me the money” approach was on display. Dealership executives wanted to see why they should invest more in their employees. Many were convinced that they were already doing the best job possible; others did not see the point. 

We conducted an in-depth employee engagement study which assessed engagement across the core relationships an employee has with an employer – Individual, Manager, Customer, and Organization. Their core relationships correspond to the different needs employees have, from wanting a job, to the need to belong and the desire to make an impact.

The survey was deployed online to over 22,000 employees. Over 15,000 completed the survey, a 71% response rate. Ranging from 15 to 450 employees per store, 360 dealers from across the U.S. participated. Dealerships ranged from major, publicly traded companies to those owned by individual entrepreneurs – representing a number of different leadership styles and strategies.

The distribution of employee engagement results ranged from 100% engagement to 9%. We analyzed the customer satisfaction results of each dealership and correlated it to their employee engagement results.  

Engagement score range

No major differences were identified based on size, geography or ownership. Results showed, however, that dealers in the top Customer Satisfaction Index (CSI) quartile had employee engagement scores that over indexed all dealers by an average of 3%, while those in the bottom CSI quartile under indexed the dealer average by 6%. Essentially, employees at the most engaged stores produced happier customers. 

index all dealer average

 

In addition to the linkage between customer satisfaction and profitability, we ventured to create a clearer financial linkage. We calculated the impact of a 10% employee engagement improvement on the operating profit of typical dealers. Our analysis showed that such improvement would result in growing operating profits from 2.5% to 3% on average.

impact revenue and expenses

The study provides a unique opportunity to compare the employee engagement impact across a multitude of companies. It covers different company sizes and types of ownership, further illustrating the validity of the conclusion. 

These conclusive results demonstrate that engaged employees directly impact customer satisfaction and profits. Employee engagement is no longer “fluff” or a “soft issue,” but rather a core differentiating factor that needs to be developed and managed with the same rigor as any other operational discipline in the organization.

In an ever increasing customer-centric world, employees are the key to unlocking customer loyalty. Employees are the most elusive component of every strategy. Their performance is the hardest to affect and create consistency, but it is the only success factor that can actually surprise customers and create memorable experiences that will result in higher profits. 

Lior Arussy is President of Strativity Group – connect with him on linkedin

Ed Murphy is Research Director of Strativity Group – connect with him on linkedin