International School of Management
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- LIST OF CONTENTS Acknowledgements i List of Figures ii Notations iii Abstract v Executive Summary vi Page
- Chapter 4 – Customer Service Loyalty and Retention 89
- Chapter 6 – The Effects of Employee Satisfaction-Customer 178 Retention on Profitability
- Page Chapter 7 – An Analysis/Evaluation of the Service Profit Chain at 186 Maine Savings
- Chapter 8 – Customer Service, Loyalty, and Retention at Maine 234 Savings
- Chapter 9 – A Summary of the Service Profit Chain Initiative at 272 Maine Savings
- Chapter 12 – Interview Results 296
- Chapter 14 – Recommendations Where, When, How, and Why 344
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International School of Management The Effects of Employee Satisfaction and Customer Retention on Corporate Profitability: An Analysis of the Service-Profit Chain by Anthony L. Emerson Doctoral dissertation submitted for the International School of Management’s Doctor of Business Administration degree Word Count: 91,611 April 2007 LIST OF CONTENTS Acknowledgements i List of Figures ii Notations iii Abstract v Executive Summary vi
Leadership-Management Attitude/Response 5 Work Environment 8 Employee Training/Programs 14 Employee Development & Leadership Planning 20 Employee satisfaction and Recognition 25 Organizational Goals and Employee Expectations 33 Communicating With Employees 37 Employee Satisfaction and Teamwork 48 Employee Empowerment 53 Interaction in the Workplace 60 Organizational Culture/Employee Focused 65 Employee Benefits 73
Employee Motivation 77 Chapter 3 – Increased Employee Satisfaction Leads to Increased 83 Creativity and Innovation Innovation Process Examples to Learn From 85 Suggestions for Improving the Innovation Process 87 Apple: An Example of Creativity and Innovation 88 Chapter 4 – Customer Service Loyalty and Retention 89 The Customer-Centric Organization 90 Customer Acquisition-Branding & Marketing 93 Customer Acquisition and the Internet 94 Target Marketing 98 Delivering World-Class Customer Service 101 Customer Expectations 103 Training for Customer Service 110 Customer Service Training at the Disney Organization 113 The Important Elements of Delivering Great Customer Service 116 Exceptional Customer Service at the Ritz-Carleton 123 The Employee-Customer Relationship 127 The Customer-Employee Relationship at Pike Place Fish Market 131
Transforming Customer Satisfaction Into Customer Loyalty 134 Measuring Customer Satisfaction 142
What is Knowledge Management? 150 Customer Relationship Management Systems 154 The Need and Benefits of CRM Systems 155 CRM Systems Implementation 163 Potential CRM Pitfalls 169 CRM at Amazon.com 172
The Effects of Customer Loyalty on Corporate Profitability 180 Customer Loyalty is a Direct Result of Customer Satisfaction 181 Creating Value Through Satisfied, Loyal, & Productive Employees 183 Satisfied Employees’ Impact on Customer Loyalty & Profitability 184
Maine Savings History 187 Leadership at Maine Savings 188 Leadership-Management Attitudes/Response 189 Work Environment 191 Employee Training/Programs 194 Employee Development & Leadership Planning 199 Employee Satisfaction and Recognition 201 Organizational Goals and Employee Expectations 205 Communicating With Employees 208 Employee Satisfaction and Teamwork at Maine Savings 211 Employee Empowerment 213 Interaction in the Workplace 217 Organizational Culture/Employee Focused 222 Employee Benefits 228 Employee Motivation 231 Chapter 8 – Customer Service, Loyalty, and Retention at Maine 234 Savings Maine Savings as a Customer-Centric Organization 234 Page Customer Acquisition – Branding & Marketing 237 Maine Savings Customer Acquisition and the Internet 241 Target Marketing at Maine Savings 242 Delivering World-Class Customer Service at Maine Savings 244 Training for Customer Service at Maine Savings 245 Important Elements of Customer Service at Maine Savings 247 The Employee-Customer Relationship at Maine Savings 252 The FISH Philosophy at Maine Savings 256 Transforming Customer Satisfaction Into Customer Loyalty 259 Measuring Customer Satisfaction at Maine Savings 261 Knowledge Management Strategies at Maine Savings 264 Knowledge Management Instruments at Maine Savings 265 Knowledge Management Barriers Identified at Maine Savings 266 Customer Relationship Management at Maine Savings 270
The Benefits of Added Employee Satisfaction at Maine Savings 273 The Benefits of Increased Customer Satisfaction at Maine Savings 276 Resultant Effects on Corporate Profitability at Maine Savings 282 Page Chapter 10 – Academic Literature Review 282 Overview 282 Employee Satisfaction 284 Customer Satisfaction 286 Customer Loyalty 289 Corporate Profitability and the Service Profit Chain 290 Chapter 11 – Research Methodology 291 Objectives 291 Research Approach 292 Method & Data Collection 293 Selection and Description of Interviewees 294
CEO, Vice Presidents and Board Members 296 Service Profit Chain 296 Employee Satisfaction 298 Customer Satisfaction/Retention 302 The Combination of the Elements of the Service Profit Chain 307 Interview Results Summary 310
Employee Satisfaction 310 Leadership-Management Attitude Response 311 Work Environment 312 Employee Training 314 Employee Development and Leadership Planning 315 Employee Recognition 316 Organizational Goals and Employee Expectations 317 Communicating With Employees 318 Employee Satisfaction and Teamwork 321 Employee Empowerment 322 Interaction in the Workplace 324 Employee Benefits 325 Employee Motivation 325 Customer-Centricity 327 Customer Acquisition-Branding & Marketing 327 World-Class Customer Service 329 Customer Expectations 331 Customer Service Training 332 The Employee-Customer Relationship 333 Transforming Customer Satisfaction Into Customer Loyalty 335
Measuring Customer Satisfaction 336 Customer Relationship Management 337 Creating Value Through Satisfied, Loyal & Productive Employees 339 Customer Loyalty Effects on Corporate Profitability 341 The Service Profit Chain at Maine Savings, Discussion 343 Limitations 343
Appendices 381 ACKNOWLEDGEMENTS
Figures Page Figure 1 Maslow’s Hierarchy of Needs 25 Figure 2 Organization Strategy 33 Figure 3 Organization Environment 33 Figure 4 Performance Management 34 Figure 5 Leadership for Empowerment 54 Figure 6 Management/Employer Performance Cycles 67 Figure 7 Employee Motivation 78 Figure 8 Motivational Theories 79 Figure 9 Motivation & Satisfaction Levels 80 Figure 10 Maslow’s Hierarchy of Needs (illustration) 81 Figure 11 Customer Acquisition/Experience Model 98 Figure 12 Customer Perceived Value 137 Figure 13 Customer Loyalty Pyramid 140 Figure 14 Adoption Factors for Knowledge Management Systems 151 Figure 15 Purposes for Knowledge Management Systems 152 Figure 16 Static Knowledge Management 153 Figure 17 Automated Knowledge Management 153 Figure 18 Reasons to Implement CRM Strategies 156 Figure 19 CRM Risk Tolerance 168 NOTATIONS ACH Automated Clearing House
Abstract
The elements that lead to employee satisfaction and customer retention are said to have fundamental implications for corporate profitability. Unlike much of the mainstream literature, which generally focuses on the relationship between two of these three subjects (employee satisfaction, customer retention, and corporate profitability), this paper considers the effects, importance and reliance between all three. Based on published research, completed case studies, and interviews, the paper emphasizes the effects of employee satisfaction and customer retention on corporate profitability, otherwise known as the Service-Profit chain. It especially highlights the importance of the link, and subsequent success of each area. It argues that, in order to be effective, a complete understanding of the link between employee satisfaction and its relationship to customer retention and corporate profitability must be understood and practiced. Executive Summary Most every organization must deal with the issues of employees, customers and profitability in the normal course of carrying out business. This paper considers each issue, but in relation to how they correlate with, and affect each other. More and more research is being done in regard to the effects of employee satisfaction and customer retention on corporate profitability, and the importance of this relationship. The focus of this paper is to fully define each issue, highlight the important relationship between each, and offer dynamic recommendations to improve the benefits of their correlation. This will be accomplished by analyzing published research, interviews with established professionals in the field, and case studies related to employee satisfaction, customer retention, and corporate profitability.
Chapter 1 Introduction For many years now, research has been conducted on the effects of employee satisfaction and the correlation to categories such as: productivity, turnover, customer loyalty, and profitability. The aim of this paper is to examine the effects of employee satisfaction and customer retention on corporate profitability, often referred to as the “service profit chain.” These three elements are the main touch points in business that account for a majority of all organizational processes. The empirical literature is clear that if organizations concentrate on employee satisfaction elements, positive effects on customer satisfaction and corporate profitability can be realized (Levine 1995). The analysis in this paper will highlight the integral relationship between employee satisfaction, customer retention, and corporate profitability. It will outline a clear and direct link between these elements, as well as provide evidence of the benefits to an organization that makes these elements a priority. In order to sufficiently examine the service profit chain, each of the three elements will be comprehensively analyzed and defined. The main tenets and elements of employee satisfaction will be discussed in relation to one another, as well as how they fit together to achieve the desired result. In much the same fashion, the elements of customer satisfaction will be analyzed in relation to both employee satisfaction tenets and potential effects on profitability. An in-depth examination of the relationship between employee satisfaction and customer retention and their effect on corporate profitability will be presented. The paper considers the theoretical research and analysis on this subject, as well as comparisons to actual case studies on the Ritz-Carleton organization, Pike Place Fish Market, the Disney Company, and Amazon.com. In addition, an analysis of the current service profit chain initiatives being carried out at Maine Savings will also be examined. The combination of theory, case study analysis, and physical observation will enhance the foundation and serve to support the main hypothesis of this paper. The information in this paper will be presented in the context of achievable initiatives that are capable of being implemented at most present day organizations. Although previously published empirical research data will be used to support the analysis presented in this paper, the data will be presented in a context relevant to businesses today. The paper will also attempt to answer the question, “If it is so easy, why aren’t all companies doing it?” Several of the reasons for this will be given and examined relative to the elements of the service profit chain. In the end, the reader will be able to assess the processes, elements, and benefits of instituting a service profit chain initiative that focuses on the effects of employee satisfaction on customer retention and corporate profitability (Appendix 1). The Service Profit Chain Employee Satisfaction The three main components of the service profit chain theory are employees, customers, and profitability. This section focuses on the place and importance of employees to the process that makes up the overall theory. The specific components of “employee satisfaction” will be discussed later in further detail. As most everyone in business is aware of, employees are important to any organization, as they are the foundation for any potential productivity. Employee satisfaction has been directly linked to employee loyalty. Because employees can be considered the heart of an organization, management should consider investments in employee satisfaction and subsequent loyalty, to be a necessity. Most organizations fail to take into account the loss of productivity and a decrease in customer satisfaction that results from poor employee satisfaction and increased employee turnover (Heskett, Sasser and Schlesinger 1997). This paper will also highlight the negative effects of low employee productivity that are a result of employee dissatisfaction in the section that will address the link between employee satisfaction and corporate profitability. Although there are three main elements to the service profit chain, customer retention/loyalty can be considered the primary conduit between the other two. In other words, the glue that binds the elements together and produces positive results from the theory itself. Creating customer value is the key to attaining customer loyalty. The issue of customer retention and loyalty is more complex than usually assumed and may be affected by many different aspects of operations within an organization. Customer retention is a gauge that is used to assess how well an organization is doing at creating value for its customers (Reichheld 1996). It is widely accepted that it is far cheaper and more efficient to have loyal, repeat customers, than to have to market and mine new customers. The major component of customer retention is “loyalty”, which is why the paper will explore the elements of customer loyalty in more depth later in the customer satisfaction section. However, it is important here to point out the importance of customer loyalty to the theory of the service profit chain. Within the concept of the service profit chain, the important point in regard to customer loyalty is that customers should be looked upon as revenue generating assets. That is, they should be accounted for, monitored, and proactively taken care of as any valuable corporate asset. By adopting this viewpoint, a company is able to view customers not only as one-time events but also as long-term, valuable assets that require attention in order to bolster their retention and satisfaction. The third main element of the service profit chain is profitability, which is a by-product of employee satisfaction and customer retention/loyalty. While many organizations still focus on trimming expenses and generating new business, there is an abundance of evidence linking customer retention to positive financial performance (Marketing Innovators 2005). This theory has been embraced and implemented by many successful titans of business including Jack Welch, former CEO of General Electric and Herb Kelleher, founder of Southwest Airlines. It is not enough anymore for a company to focus only on improving profitability; it is necessary to examine the main components that lead to profitability. It is now recognized that the best way to improve corporate profitability is to focus on the effective management of human capital and customer capital. As this paper will highlight in the case studies and the ongoing efforts at Maine Savings, this theory can be implemented successfully and profitably. Many successful managers and leaders today are focusing more attention on frontline workers and their customers, rather than the traditional items of profit goals or market share (Jones 1994). Chapter 2 The Elements of Employee Satisfaction Employees can derive satisfaction from their jobs by meeting or exceeding the emotional wants and needs they expect from their work (Pepitone 2006). Therefore, Managers that can recognize this and understand the many different aspects that are involved in employee satisfaction will be successful at achieving the link between employee satisfaction, customer retention and added profitability. As previously stated, the issue of employee satisfaction has a major impact on customer retention and corporate profitability. This section will comprehensively analyze the many important elements that are related to employee satisfaction, and resultant employee loyalty. The paper will consider the elements, define their concepts, and discuss the salient points in relation to the main hypothesis that employee satisfaction has a major impact on customer retention and corporate profitability.
Although there will be many aspects of employee satisfaction discussed in subsequent sections of this paper, the element of leadership and management’s attitude toward employees should be considered the foundation of employee satisfaction. There is no single definition of a successful leader or manager but recognized leaders and managers do share many of the same traits. Jack Welch, the widely acclaimed former CEO of General Electric states, “Without question, there are lots of ways to be a leader. You need to look only as far as the freewheeling, straight-talking Herb Kelleher, who ran Southwest Airlines for thirty years, and Microsoft’s quiet innovator, Bill Gates, to know that leaders come in all varieties” (Welch and Welch 2005). The main point here is that successful leaders can possess different styles, but use similar strategies to engender employee trust, loyalty, and satisfaction. The paper will now discuss and consider several of the successful traits exhibited by successful leaders and managers. One would be hard pressed to argue against the fact that leaders in organizations can have a definitive influence on employee behavior and subsequent employee satisfaction. Employee satisfaction issues have been researched extensively. A heavily researched topic relating to employee satisfaction is the relationship of an employee’s satisfaction level and the leadership style of the organization (Brooke 2005). Up to this point, the paper has combined the terms “leadership” and “management”. It should be noted that there are distinct differences between the two, as leaders establish the vision to be accomplished and managers monitor the performance and progress at attaining the vision. However, for the purposes of this paper, the two terms shall be referred to synonymously because of the way they are typically viewed by employees of an organization. Directory: uploads uploads -> 587 Return function, r i(X) r i(0) r i(1) r i(2) r i(3) 1 0 2 4 6 Thermal Station, I 2 0 1 5 6 3 0 3 5 6 10 uploads -> Department of science and humanities department of mathematics part-a questions and answers uploads -> The Case Against the nypd’s Quota-Driven ‘Broken Windows’ Policing What Is It? uploads -> For want of a nail uploads -> Ownership Models There are two different types of ownership models uploads -> Police Militarization uploads -> City of rising star regular meting thursday, july 14, 2016 uploads -> Township of winfield uploads -> Stop Militarizing Law Enforcement Act of 2014 uploads -> The Black Panther Party’s Ten-Point Program What We Want Now! Download 1.01 Mb. Share with your friends:
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