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Annette Franz

Customer Care

The Business Case for a Great Employee Experience

Have you put the spotlight on the employee experience at your company?

Published: Monday, May 2, 2016 - 13:12

I have written many times about the importance of the employee experience, both on its own in terms of retention and performance, and with regard to the effect of the employee experience on the customer experience.

Sadly, many companies still aren’t focusing on the employee experience. IDC’s 2015 EXPERIENCES Survey found that 81 percent of companies listen to customers about their experiences, but that 69.4 percent of companies do not measure the employee experience.

For those still looking for proof that this is a real thing, I’ve started to take note of some recent research and statistics about the effect of a great employee experience. I thought I’d start to compile these in one place and share them with you, in case you’re in the process of building the business case or need to remind your managers that employees matter.

It’s important to note that the employee experience starts well before the employee signs on the dotted line. Consider that your candidates may already know the brand through their own interactions as customers; or they may know someone who works—or has worked—for the company.

So let’s start there, with the employer brand. Just as your brand is important to attracting and retaining customers, your employer brand attracts potential employees and drives whether they’ll want to stay. How does your employer brand affect the business? (After all, that’s what executives want to know: If we focus on the employee experience, what does that mean for the business?)

John Sullivan wrote a great article about 10 employer branding business metrics that you should track. They are listed here in order, with the most powerful ones first; pick the ones you want to focus on:
1. Better-performing new hires that result from your branding effort
2. An increase in overall workforce productivity
3. Increased revenue from hires in revenue-generating positions
4. A high employee referral rate
5. A higher employee retention rate of current employees
6. A reduced failure rate among new hires
7. Applicants coming from top firms
8. A higher ratio of winning head-to-head recruiting competitions
9. A positive giveaway/takeaway ratio
10. Employer branding program ROI

It’s interesting that Sullivan places ROI at the bottom of the list, because it seems like that’s where everyone starts! Kevin Kruse defines the ROI or the business impact of employee engagement (which is just one component or measure of the employee experience, along with trust, happiness, satisfaction, and retention) as the “Engagement-Profit Chain,” in which engaged employees lead to...
• Higher service, quality, and productivity, which leads to...
• Higher customer satisfaction, which leads to...
• Increased sales (from more repeat business and referrals), which leads to...
• Higher levels of profit, which leads to...
• Higher shareholder returns (i.e., stock price)

Those are pretty powerful outcomes for the business. I don’t think anyone can argue with that. Here’s a graphic that supports that last bullet point about higher shareholder returns. Watermark Consulting looked at the employee experience leaders based on “Great Place to Work” findings and charted their performance on the S&P 500 for the last 18 years, from 1997 to 2014. Their annualized returns outperformed the stock market by nearly double.


Source: Watermark Consulting

Gallup is, obviously, well-known for its employee engagement research. The graphic below depicts some of its findings. The moral of the story is that those companies in the top quartile in employee engagement outperform those in the bottom quartile on 10 key metrics, including turnover, productivity, customer satisfaction, and profitability.

Aon Hewitt’s 2015 Trends in Global Employee Engagement tells us that a 5-percent increase in employee engagement is linked to a 3-percent increase in revenue growth in the subsequent year.

The work at Dale Carnegie Training uncovered $11 billion is lost annually due to employee turnover and that companies with engaged employees outperform those without engaged employees by up to 202 percent.

According to a report published by PwC, based on stock performance, Wharton professor Alex Edmans determined that companies on the Fortune list of “best companies to work for” outperformed their peers by 2 or 3 percent per year.

A white paper from Rutgers University titled, “A New Framework of Employee Engagement,” noted that a meta-analysis of the financial performance of 1,979 business units in 10 companies found that business units that score above the database median on both employee and customer engagement metrics were, on average, 3.4 times more effective financially (in terms of total sales and revenue, performance to target, and year-over-year gain in sales and revenues) than units that rank in the bottom half on both measures.

There’s also something that I’ve cited a few times from a 1998 article in Harvard Business Review, which summarizes the work that Sears executives did to rebuild the company to focus on customers. The article talks about the new business model and what they discovered: “There is a chain of cause and effect running from employee behavior to customer behavior to profits.”

When Sears went through this transformation in the 1990s, they saw some impressive results (according to the same article), “Our model shows that a 5-point improvement in employee attitudes will drive a 1.3-point improvement in customer satisfaction, which in turn will drive a 0.5-percent improvement in revenue growth.”

The piece further goes on to say that “Independent surveys show that national retail customer satisfaction has fallen for several consecutive years, but in the course of the last 12 months, employee satisfaction on the Sears TPI has risen by 4 percent, and customer satisfaction by almost 4 percent. That may seem a trivial improvement. But if our model is correct—and its predictive record is extremely good—that 4 percent improvement in customer satisfaction translates into more than $200 million in additional revenues in the past 12 months. At our current after-tax margin and price-earnings ratio, those extra revenues increase our market capitalization by nearly one-quarter of a billion dollars. Even more impressive from our point of view is what our model tells us: It is our managers and employees who, at the moment of truth in front of the customer, have achieved this prodigious feat of value creation.”

I think one of the most disheartening things that I read, although I don’t find it surprising in the least, is that 7 out of 10 companies don’t even measure employee engagement or the employee experience. (But then I also question what the other three are doing with what they heard!) That’s insane. It’s really important for companies to understand the effect the employee experience has on the customer experience, on the business, on business outcomes, and more.

Just as with customer experience initiatives, employee experience initiatives and culture transformations and making your company a great place to work happens from the top down. If your CEO isn’t committed to the transformation, setting expectations for his or her managers, and being the role model for how to deliver a great employee experience, it won't happen. A couple of examples of companies with committed CEOs that come to mind include Southwest Airlines, Zappos, Amazon, and Barry-Wehmiller.

What about your company? Would you add it to this list of examples? Or is your company part of “that statistic?”

Discuss

About The Author

Annette Franz’s picture

Annette Franz

Annette Franz, CCXP is founder and CEO of CX Journey Inc. She’s got 25 years of experience in both helping companies understand their employees and customers and identifying what drives retention, satisfaction, engagement, and the overall experience – so that, together, we can design a better experience for all constituents. She's an author (she wrote the book on customer understanding!), a speaker, and a customer experience thought leader and influencer. She serves as Vice Chairwoman on the Board of Directors of the Customer Experience Professionals Association (CXPA), is an official member of the Forbes Coaches Council, and is an Advisory Board member for CX@Rutgers.