Chapter 6 The Effects of Employee Satisfaction- Customer Retention on Profitability

This paper has comprehensively analyzed the elements that lead to the creation of employee satisfaction and customer retention. The basis for the analysis is the hypothesis that employee satisfaction and customer retention have important implications for corporate profitability. The different elements of each of these areas has been discussed in relation to improving employee satisfaction and customer retention respectively, but also their individual implications on the increased profitability of the organization. This section of the paper will consider the effects, together, on corporate profitability in order to convey a complete understanding of the link between employee satisfaction and its relationship to customer retention and corporate profitability. After reading this section, the reader should understand the direct correlation and strong relationships between corporate profitability, employee satisfaction, and customer retention.

As this paper has stated and which should be an obvious point, without customers, there can be no profitability. Therefore, it is vital for an organization to concentrate on making customers satisfied, and more importantly, create a sense of loyalty that will lead to a long-time customer. Customers may be satisfied with a one-time sales experience, but yet not be loyal customers that will lead to profit enhancement for the organization. Therefore, it is vital for companies to focus on the elements that turn satisfied customers into loyal customers. Understanding the key drivers involved in creating customer loyalty is to understand the underlying facets of what makes an organization profitable. Loyal customers maintain an emotional connection to the organizations that they consider themselves loyal to. It is no longer enough to rely on customer satisfaction. In order to grow and improve corporate profitability, organizations must now concentrate on turning satisfied customers into loyal customers.

This paper has already concluded that organizations may increase profitability by creating loyal customers. Creating loyal customers does not happen with a one-time transaction, but rather over time. In order to turn customer satisfaction into customer loyalty, an organization must focus on understanding the needs and requirements of the customer. As previously stated, “A satisfied customer is a good customer, but may not be loyal at all. A satisfied customer may feel that their needs were met, the product was satisfactory, and the service was acceptable.” The key is that a previously satisfied customer may choose a competitor the next time for a variety of reasons. A loyal customer that has had many satisfactory experiences will come back because they are loyal and feel some emotional connection with the organization. In addition, they will tell others of their experiences and tout the organization to whoever will listen. Loyal customers have their needs met continually by the organization and do not think of going to a competitor for superficial reasons, such as a one-time savings.

The elements involved in creating satisfied, loyal and productive employees has been thoroughly analyzed and discussed in earlier sections of this paper. What will be considered in this section is how to leverage those employees for the purpose of creating value in order to improve corporate profitability. This paper previously analyzed the many elements that contribute to employee satisfaction comprehensively. In order for organizations to capitalize on these elements that create employee satisfaction, they must consider employees important and essential assets of the organization, rather than just part of the operations process. Organizations that concentrate on creating value in their employees are able to realize a positive correlation in customer loyalty, and subsequently in added profitability, as seen by the previously cited examples. As was previously stated, “establishing an organizational culture that promotes the elements necessary to enhance employee satisfaction would prove to have a positive affect on both customer retention and corporate profitability.” The next section will examine specific benefits and results that can be realized from this concept.

In depth research on the topic of the service profit chain indicates that there are three important elements that make up the chain; employee satisfaction, customer retention/loyalty, and corporate profitability. Although each is reliant on each other to form the “chain”, the process begins with employee satisfaction. In essence, the employee is a conduit between customer loyalty and the resultant positive impact on corporate profits. Employee satisfaction is a key attribute of the engaged employee who embodies a high degree of motivation and sense of inspiration, personal involvement and supportiveness (Oakley 2004). This employee satisfaction is in turn, translated into the ability and willingness to provide the best customer service, and consequently customer satisfaction, as possible. An organization that is able to constantly perpetuate this synergistic relationship will benefit by realizing greater customer loyalty that will be translated into increased corporate profitability.

Maine Savings began as BARCO Federal Credit Union in Millinocket, Maine in 1961 for the benefit of the employees of the Bangor & Aroostook Railroad Company. In the forty-five years since, it has grown to be the largest credit union in Maine as measured by membership with over 25,000 members, 500 Select Employee Groups, $170 million in assets, and nine branches throughout Eastern and Central Maine in Hampden, Milo, Jax Lab, Corinth, Vassalboro, Brewer, Hampden, Ellsworth, and two branches in Bangor. In 2001, BARCO’s Directors made the strategic decision to change the name to Maine Savings, to more accurately reflect their diverse customer base, allow for further geographic expansion, and garner better name recognition. Much of Maine Savings’ growth has occurred under the direction of John Reed, the current President and CEO, who was hired in 1990. The Board’s Executive Committee is an instrumental group and is comprised of four long time Directors, each having more than thirty years of affiliation with the organization (BARCO 1990).

Maine Savings is very fortunate to have one of the most experienced and professional Senior Management teams in the industry. In addition to Anthony L. Emerson, the Vice President of Finance/Accounting/Operations, there are four other members of the Senior Staff at Maine Savings. John C. Reed is the President and CEO. John brings with him more than twenty-five years of professional banking experience, with the last sixteen leading Maine Savings as its CEO. Robert G. Carmichael is the Vice President of Human Resources & Training, a retired United States Army Brigadier General, and brings with him more than twenty-five years of HR, training and development experience. Rick Moore is the Vice President of Lending. Rick has been with Maine Savings for more than twenty years and has occupied various positions, beginning as a Teller in the Milo branch in 1986. Dave Sayers is the new Vice President of Retail Operations. Dave joined Maine Savings in January of 2007 and brings with him more than twenty years of professional banking experience. The Maine Savings Senior Staff is recognized by its peers and the industry as educated, conscientious and professional. Members of the Senior Staff serve on a variety of state and national boards and are contacted for their professional input regularly on a myriad of issues.

The management at Maine Savings understands that they have a major influence on employees and their behaviors and attitudes. For this reason, the management team operates as transparently as possible, and strives to communicate frequently and honestly with its employees. Management strives to take responsibility for their actions and deliver on promises and commitments to employees. There are several methods used to convey information and strategy to the employees at Maine Savings. Among them are: regular departmental staff meetings, regular communication to all employees by the CEO, an employee newsletter (Appendix 7), and the use of working groups to solve problems or address operational issues at the company. Management at the firm truly has an open door policy and are available and approachable by the employees in not only theory, but practice as well. The Senior Staff of the institution strives to engage employees at every level for input and opinions that may affect them or their work.

The management at Maine Savings understands that one of the single most important contributing factors to employee satisfaction is their work environment. As a result, the organization operates as a “flat” organization for operations purposes. Everyone and every job are respected and a sense of community has been created by management and the Board of Directors. Employees are given the tools necessary to excel at their jobs, including adequate workspace and an open, inviting physical work area. Employees have access to the best that modern technology has to offer from new computers at every workstation, to new fax machines and copiers, to new VOIP (Voice Over Internet Protocol) phones, to a brand new state of the art data processing system. Managers and supervisors are very quick to respond to work environment issues and concerns that employees may voice, as these issues are commonly given top priority. Departmental and branch budgets at the firm include financial provisions for items that may be needed throughout the year to improve an employee’s work environment.