International School of Management
Customer Satisfaction/Retention
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- The Combination of the Three Elements That Form the Service Profit Chain
- Interview Results Summary
- Chapter 13 Summary, Discussion, Conclusions, and Limitations Employee Satisfaction
- Leadership – Management Attitude/Response
- Work Environment
- Employee Training
- Employee Development and Leadership Planning
- Employee Recognition
Customer Satisfaction/Retention The executives and Board members were given an initial question that read, “what are the most important elements of customer service?” The majority of their responses were much the same and included answers like: being friendly, approachable, knowledgeable, convenient, and flexible. The next questions were based on the differences noted in the responses to the first set of questions. The questions centered on the importance of employees in delivering great customer service, as well as the impact on corporate profitability as a result of satisfied customers. The interviewees were also asked if satisfied customers were loyal and profitable customers. Their responses varied and were wide-ranging, generally reflecting their positions within the company or on the Board of Directors. All of the respondents did agree however, that satisfied customers were essential to corporate profitability. The human resource executive attributed much of the customer satisfaction measure to the level of satisfaction the employee who engages the customer possesses. His opinion was that the employee is the face of the organization and the initial contact point for the customer. He added, “if the store looks great, the product essential, and the price is right, none of this matters if the employee engaging the customer fails to deliver the service and support necessary in order to make the customer feel special.” When asked if employee satisfaction cannot only add to customer satisfaction, but also create customer loyalty, the executive initially replied, “it depends.” Upon further reflection, he did say that more factors were involved in creating customer loyalty and retention than are involved in customer satisfaction. One of the retail operations executives was asked, “what is meant by being considered a “customer-centric” organization?” He responded that when an organization is considered to be customer-centric, it will go to any length possible to ensure customer satisfaction. In his experience, a company deciding to become customer-centric must take action toward this goal, not just make the statement. This executive actually had experience with this at two different organizations in the past. One initiative succeeded, while the other failed. In his first experience, the CEO called the executive team together and cited his concern that he felt the organization was losing many of its customers to the competition. His idea was to become a “customer-centric” organization, making decisions for the customer whenever possible. His first order of business was to create a new mission statement declaring that the organization was a ‘customer-centric” organization. He subsequently called a special company meeting and gave a speech declaring that the company was now a “customer-centric” organization and that the customer was the first priority. Everyone seemed to leave the meeting feeling excited about the prospects of garnering more business because of the new focus and mission statement. However, there was no incorporation of the philosophy into the strategic plan, no additional training, no financial commitment to the initiative, and no tangible effort put toward making the organization any more customer-centric than it was before. Soon, the employees realized that they had always tried to deliver great customer service and whenever possible, put the customer first and give them what they wanted. To them, it became evident in a very short amount of time that nothing had really changed. Inevitably, the organization continued to lose market share to the competition and the senior management team all left within twelve months of the “customer-centric” proclamation by the CEO. In his second experience with an organization attempting to become “customer-centric”, the executive had quite a different experience from the one he had at his former company. In this situation, The CEO assembled the executive management team for the purpose of discussing the concept of the customer-centric organization. In this meeting, the CEO passed out literature and examples in regard to companies that had successfully made the conceptual change to a customer centric organization. The CEO gave the team two weeks to read through the materials, write down their ideas, assemble suggestions, then they would meet to discuss the results. When the team met two weeks later, they drafted a budget to support the initiative that included funding for additional training, marketing to customers, funding for customer-based initiatives, and funding for additional staff to support the initiative. In addition, the team reworked the strategic plan to reflect the organization’s new focus as a customer-centric organization. The final task for the team was to create a priority list for implementation. Once this was accomplished and the team had a plan of action, a meeting was held with the employees of the company in order to present to them the plan and how it would be carried out. The outcome of this initiative produced an increase in customers for the organization of more than thirty-percent in just six months. In addition, the organization’s profitability per customer ratio increased by just more than twenty-five percent in the same time period. Several of the executives discussed the issue of empowerment as being the key to increased customer satisfaction/retention/loyalty. The executives were asked if their comments in regard to empowerment were in reference to empowered employees being able to provide better customer service. One of the executives answered that it was a combination of both employee and customer empowerment. He stated that in a truly customer-centric organization, customers are also empowered to make decisions that they have not traditionally been able to make. He indicated that this ability to have more say in the outcome of a transaction and experience equated to increased empowerment on the part of the customer. In many of the interviews regarding customer service, the executives spoke more about employee satisfaction than they did about direct initiatives that could lead to increased customer satisfaction. The interviewees would begin to relate certain initiatives that could improve customer satisfaction, and soon be talking about the “employee” effect on that element of customer satisfaction. The most prevalent sentiment was in regard to the impact of employee empowerment on increased customer service. One executive commented that most organizations recognize that at some level, customers are important to their business and their satisfaction is important. His opinion was that many companies fail at customer satisfaction when they install frustrating bureaucracies that act as a barrier for the employee to deliver the best customer service possible. He noted that organizations that allow employees to break down these bureaucracies for the benefit of the customer are organizations that tend to have a more loyal customer base. His conclusion therefore, was that employee empowerment can be the element that has the greatest effect on customer satisfaction. The interviewees were asked about the importance of meeting customer expectations as a part of enhancing customer satisfaction and loyalty. Many of the responses were to the effect that they believed that their organization already understood their customers’ expectations and worked to fulfill them. The interviewees were then asked if their customers’ expectations were being met then why was their customer acquisition flat. Many of them blamed the economy and the consumers’ hesitance to move from one competitor to another under the uncertain circumstances. However, one interviewee did comment on the fact that in many cases, organizations think they understand customer expectations but don’t and in most cases, they do not ask or endeavor to really find out. This executive explained an experience he had while at another financial institution in relation to customer expectations. The institution was opening a new branch and was trying to decide what the hours should be for the branch. Subsequently, the management team looked at the competition’s hours and decided that they should have the same hours because that is what their customers would want. After the new branch had been open for six months, a transaction analysis was done on the new branch. This analysis revealed that less than twenty customers per week were taking advantage of the extra hours established at the branch. The management team decided to poll its customer base as to what their choice for hours at the new branch was. In the end, the customers overwhelmingly decided on very different hours that would be convenient for them. The institution changed the hours and within a week, they saw that more than five hundred customers had used the new hours to perform some kind of transaction. The Combination of the Three Elements That Form the Service Profit Chain Directly after the first round of interviews, the executives were provided some excerpts from the book The Service Profit Chain by Heskett, Sasser, and Schlesinger (1997), as well as some other literature on combining the three elements in order to increase corporate profitability. For executives that were interviewed a second time, they were asked about their opinions of employee satisfaction, customer retention/loyalty, and corporate profitability, after having the benefit of reading the associated materials that were provided to them. Only one out of this group of executives had actual hands-on experience implementing a service profit chain strategy. In order to allow for idea building and brainstorming feedback, two senior executives were interviewed at the same time while these particular questions were asked. One of the executives who previously focused most of his attention on employee satisfaction during previous questioning now said he believed that all three elements must be considered equally if the initiative were to succeed. He agreed now that concentrating so much on one element (employee satisfaction) is a myopic way to view things and does not allow an organization to implement a balanced plan. He added that after being able to read some of the literature, he now understands the importance of the relationship of one element to another and visa versa. This executive mentioned that although the organization he was previously with considered itself to be customer-centric, because he put so much focus on the employee aspect of the solution, the organization in truth was probably employee-centric. The other executive agreed that too many times, one or another element is highlighted or made a priority at the expense of the other two. Both admitted that in order to maintain a balanced approach to the service profit chain strategy, a complete view of the individual initiatives should be analyzed before acting. One executive had an analogy of a misguided initiative from a previous place of employment. In his story, the organization was striving to become more customer focused by attempting to empower the customer in more ways. One of the ways that they tried to do this was by introducing a new initiative that they publicized to the customer called “the customer empowerment” program. This program stated that if a customer was dissatisfied with their service or a decision from a particular employee, they could just go to another employee and achieve what they were trying to get. The purpose was to try to let customers know they have a choice in their service and with whom they deal with at the employee level. This initiative backfired in a very short amount of time. The result was that the employees did not feel empowered and it actually caused problems between certain employees, and eventually entire departments within the organization. In hindsight, the organization should have empowered the employees more to service the customer better. However, in this case, one of the elements was given priority at the expense of another very important consideration. The executives admitted that this experience had been eye opening and at the same time, somewhat embarrassing. Each of them told of experiences they had where they pushed an initiative they though was an important part of the solution that they now realize was at the expense of another element in the service profit chain. The most senior executive interviewee, a CEO of a large financial institution, related the experience he had in making a decision he thought was beneficial to the customer, but in the end, negatively affected the organization’s profitability. The interviewee had received several complaints from customers in regard to their credit card skymiles being stale dated and subsequently canceled. Because he thought this was having an adverse impact on all customers, he mandated that the stale dated skymiles for all customers be reinstated. The subsequent bill from the credit card processor for this was $130,000 and ended up only affecting twenty-two customers in an adverse manner. In the end, the executive realized that he should have calculated the opportunity cost risk of the decision better. Interview Results Summary As was previously stated, the interviews for the analysis contained in this paper were not the primary basis for the research, but rather they were used as additional sources of information and observation. The primary research and foundation for the analysis contained in the paper is from the literature. The information ascertained from the interviews was valuable and helpful in gaining a practical viewpoint of the theory presented in the literature research. The professional experiences of the interviewees was invaluable at helping to understand the importance of considering all three main elements of the service profit chain equally and in a balanced manner. The resounding consensus of this researcher and the interviewees is that although improving one element at a time can be beneficial in many ways, it is far more important and effective to consider all of the elements as part of an initiative. Chapter 13 Summary, Discussion, Conclusions, and Limitations Employee Satisfaction Having and maintaining a highly satisfied workforce is a key factor in improving corporate profitability. Organizations that understand the elements involved in employee satisfaction maintain an important competitive advantage over their competition. Addressing or improving employee satisfaction within an organization is a process that deserves planning and commitment on the part of the senior management team and is not something that will happen overnight. Many companies attempt to address specific elements related to employee satisfaction, but very few actually analyze every component to ensure a comprehensive approach to the issue. As this paper has shown, employee satisfaction consists of more elements than just benefits, pay, or job description. In fact, many elements related to employee satisfaction are often times overlooked or relegated to areas totally unrelated to human resources. No organization with employees is exempt from the responsibility to examine the elements necessary to improve employee satisfaction. With the impending shortage of workers due to the upcoming retirement of “baby-boomers”, attention to the satisfaction of employees is not only prudent but also necessary to maintain a satisfied and motivated work force. Leadership – Management Attitude/Response Without a supportive and committed leadership team, employee satisfaction initiatives are predestined for failure. Any employee satisfaction related initiative must be supported and championed by the leadership team of an organization. The executive team must adopt a well-thought out strategy to ensure that their best people will remain engaged and ready to help lead the economic rebound. “There must be a top-down vision that can be articulated and shared by every member of the leadership team” (O’Connor 2004). In order for employees to feel that initiatives will be successful, they need to see that the leadership of the organization is supportive of the initiatives. Working with a leader who does not provide support, show consideration, or engages in hostile behaviors can be stressful for employees. Negative leader-employee interactions can result in decreased pleasure with work, questioning one’s skill on the job, reacting harshly to the leader, and eventually leaving the organization (Chen and Spector 1991). Considerate leaders, also known as expressive leaders because they show concern for people, have been found to facilitate a group of employees with higher productivity and higher performance (Singh 1998). The research is quite clear that a participative leadership style that takes into account the input of employees and treats workers as partners in the business, is far more effective at creating and maintaining real employee satisfaction. On the other side of the coin, task structured leaders, also known as instrumental leaders, show less concern for employees and are high on initiating structure. Leader behavior characterized as high on initiating structure leads to greater rates of grievances, absenteeism, and turnover and lower levels of job satisfaction (Robbins 1998). Although the relationship between concern for employees and job satisfaction is not always clear, research in this area generally indicates that consideration is more highly related to satisfaction than a task structured style of leadership (Wilkerson and Wagner 1993). Work Environment Work environment considerations are quite often one of the overlooked aspects of employee satisfaction. There are two primary categories that make up work environment; physical, such as workspace and location, and interaction with other employees. These two considerations are very important to both the physical well-being and the emotional/psychological well being of the employee. In order to maintain a feeling of satisfaction, employees must be given the opportunity to work in the most comfortable and appealing physical setting as possible. Also, employees should be given the opportunity to work in an environment with others that is respectful, amiable, and free from hostility or abuse. Organizations that pay attention to and realize that creating an inviting work area that is open to productive collaboration with other employees often reap the rewards of greater productivity and satisfied employees. Far too often offices and other work areas are designed to facilitate the maximum use of space at the expense of what will encourage worker productivity and increase worker satisfaction. The design of contemporary office environments is often based largely on intuition derived from personal experience or from highly simplified accounts of the academic literature applied without reference to this literature’s underlying association of physical design with the nature of work (Heerwagen 2004). Organizations have a fiduciary duty to provide their employees with a workplace that is free from hostility or threatening co-workers. An employer has a responsibility to provide a safe and effective mechanism for reporting experiences. If there is a history of people using that vehicle and being punished for doing so, it can be argued that the employer has failed to provide such a mechanism (Parham 2003). Allowing or tolerating psychologically or detrimental behavior in the workplace not only carries with it legal ramifications, but also the negative implications for employee satisfaction. This negative impact on employee satisfaction will soon manifest itself in the form of poor customer service and consequently, negative ramifications for corporate profitability. Employee Training This paper has established that employees should be considered valuable assets that are capable of continued earning capacity for the organization if invested in and cared for properly. Many organizations have regular maintenance schedules for their machinery that includes preventive care, and in many cases, upgrades in order to improve efficiencies and streamline production processes. Organizations can benefit from applying this methodology to their human workforce as well. The training an organization provides its workforce should be planned, funded, and relative to the goals of the organization and employee. Training has become a necessity in today’s workplace due to rapidly changing technologies, customer expectations, and the ever-changing business environment in which we operate. Organizations can centralize and formalize their training programs in order to provide a planned avenue for employees to increase their skill and knowledge levels. Research in the area of corporate training has shown that companies that invest in their employees through comprehensive and effective training programs have less turnover, more productive employees, and consequently are more profitable. These training programs also offer the organization the ability to identify those employees that have the capability and desire to grow further and progress upward within the organization. Employee Development and Leadership Planning Employee development and leadership planning is closely related to corporate training, but is the next step in employee advancement. A major factor in engendering employee satisfaction is the known ability by the employee that they have potential opportunities for development and promotion at their organization. It is quite clear from the analysis in this paper, as well as other empirical research on the subject, that employees who are afforded the opportunity for continued development and leadership add to the success of an organization. By retaining employees, the value of their development increases. They will increase productivity and contribute to the over-all success of the organization. Their expanded knowledge makes them valuable assets for the company. Over time, this added value will more than cover the costs of their development (Garavan et al. 1998). Organizations should work with their employee base to create a development plan that will truly enhance the leadership skills of the employees for future promotion. Organizations that work with their staff to assess and provide feedback on their skills and interests, assist in selecting development activities that match their career development objectives and job needs, tend to have seasoned and satisfied leaders. The key function of the development process should be to identify and cultivate leadership for the future of the company. Although employee development initiatives are typically associated with lower level employees, senior level executives can benefit from continued development training as well. Executive development programs should enhance an executive’s leadership abilities in terms of profits and reducing costs. Leadership models help to define actions required by managers. This leadership emphasis is reinforced in the organization through effective and responsible managerial staff (Mailliard 1997). Employee Recognition Employee recognition programs are an important part of creating and sustaining employee satisfaction. However, these programs must be administered fairly, correctly, and in the right quantity. Having too few employee recognition awards or too many is another mistake to be avoided. Awards should be rare enough to be sought after, but common enough that every employee believes they will earn recognition for exceptional work performance. The higher level awards should be quite difficult to obtain to remain truly meaningful (Roche 2006). Recognition programs are in integral part of continuous employee motivation and act as positive behavior modification tools when administered correctly. Someone who is commended for an achievement usually responds by producing even better results. Ultimately, the employer can expect that the result will translate into cost savings, quality improvements, and strengthened customer relationships (Recognition 2006). Managers can use recognition as a leadership tool. It can convey a strong message to employees regarding the work performance and behavior that is valued by their managers. By communicating these essential values, employees will understand how their performance directly contributes to the organization’s ability to achieve its goals (Brintnall 2005). Not only do employees benefit from employee recognition programs, but so too do their organizations. Employees receive recognition for their outstanding achievement and organizations get more satisfied employees, as well as behaviors and results they set out to enhance in the first place. 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