Linking employee loyalty with customer loyalty | 
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By Michael Lowenstein, CPCM (Customer Retention Associates)
Published by The Wise Marketer in August 2003.
Examining the emerging reality of the impact of employee loyalty on customer service - first published in SOCAP International's quarterly publication, 'Customer Relationship Management' (Volume 8, No. 3 - June 2003)
Apart from customer loyalty, which is on the radar screen of every company, there is no other topic which concerns organisations more than staff loyalty, commitment and productivity.
Staff turnover is near 20-year highs for many companies. Two research firms, Walker Information and Hudson Institute, recently joined forces to conduct a nationwide employee loyalty study. Their results confirmed that staff loyalty is in short supply:
- Only 24% of employees consider themselves truly loyal, committed to their organisation and its goals, and planning to stay at least two years.
- 33% of employees were high risk, not committed and not planning to stay.
- 39% were classified as trapped. They plan to stay, but are not committed to their organisation.
- Among those who felt they worked for an ethical organisation, 55% were truly loyal. For those who didn't feel they worked for an ethical organisation, the loyalty figure was 9%.
The 72% of employees at risk or trapped represent another key, yet less explored, concern for companies. The lack of employee commitment frequently translates to being out of alignment, with each other and with customers, in executing the company's mission, goals, and strategic objectives. In other words, what they are doing on the job can be counterproductive and damaging. Since the issues impacting customer loyalty and commitment to a supplier are often highly correlated with staff productivity and pro-action, optimising employee loyalty and alignment becomes doubly important.
Many companies don't even realise the depth of their staff retention and alignment problems. While at the senior level, turnover may only be 4% to 5%, the real drain of talent is typically among those employees who are age 25 to 35 and have been at the same firm 3 to 10 years. These staff members are often among the most productive and represent the highest long-term contribution potential for any company. They can also be among the most non-aligned with company vision and strategy. Yet, the vast majority of organisations don't track defections, threats of defection, or misalignment among this important group.
This 'silent' defection and misalignment is particularly prevalent in large, decentralised companies with 20 to 100 divisions. On a single division basis, the defection and misalignment numbers among staff age 25 to 35 may not seem problematic. But when viewed across all divisions of a company, the defection, potential defection, and misalignment numbers in this age group are often alarmingly high.
Firms pay a big price for staff defection. For starters, when staff defects, customers are soon to follow. Recent customer defection studies have shown that roughly 70% of the reasons customers leave can be traced back to issues related to staff turnover. And staff turnover often leads to more staff turnover. The departure of a valuable employee can send 'shock-waves' through a company culture leaving remaining staff demoralised and disillusioned. If there was a trend toward misalignment, high staff turnover will only cause it to increase.
Replacing the departed employee is expensive. Human resource executives estimate that when all factors are considered - the recruitment fees, the defector's lost leads and contacts, the new employee's reduced productivity while he's learning the new job, and the time and energy co-workers spend guiding him - replacement costs are estimated at approximately 150% of the departing person's salary.
Misalignment, too, carries a high price tag, though it's more challenging to isolate and estimate than the loss of an employee. A lack of alignment can be seen in places like the organisation's style and culture, staff communication, teamwork, and information flow, service to/focus on customers, level of training offered, productivity and efficiency, and management effectiveness.
Responsibilities and opportunities in customer service: Customer loyalty alignment
Customer service representatives (CSRs) across the United States handle an average of 2,000 customer interactions each week. If CSR's are not aligned with the CRM strategy, indeed are not directly involved with creating and executing the strategy, this can represent 2,000 opportunities to put customers at risk or lose them.
Placing the customer first, or completely focusing on customers - two of the clarion calls of CRM - have a hollow ring if CRM strategies aren't drilled down and reduced to a point where CSRs' daily efforts can have a positive impact on customer loyalty. The reality is, however, that few organisations do this. Instead, they set unrealistic customer service productivity requirements, or establish performance metrics and levels that are not based on customer input or need. Further, because Customer Service Centres (aka Customer Contact Centres, Call Centres, or Interaction Centres) haven't, until recently, begun to be seen as profit generation centres, their vision and mission, as well as their operational construct, was seen in fairly myopic terms.
These centres of customer contact now represent the principal touch point with customers; and, beyond technology, they have the capability to generate and manage a continuous flow of customer information, and to increase customer loyalty. Getting the most out of customer contact centres will require change; and, in many companies, this means significant change.
For CRM to be optimised, one of the changes that companies will have to institute will be to start focusing on people. Hal Rosenbluth, CEO of the highly successful, multi-billion dollar travel management company, Rosenbluth International, said in his book, The Customer Comes Second:
"We're talking about a change that puts the people in organisations above everything else. They are cared for, valued, empowered, and motivated to care for their clients. When a company puts its people first, the results are spectacular. Their people are inspired to provide a level of service that truly comes from the heart. It can't be faked.
Companies are only fooling themselves when they believe that 'The Customer Comes First.' People do not inherently put the customer first, and they certainly don't do it because their employer expects it. We're not saying choose your people over your customers. We're saying focus on your people because of your customers. That way, everybody wins."
Tremendous investments have been made on technological innovations – IVR systems, call routing, multi-media integration, and the like – yet investment in people, and processes to support them, has been stagnant, lagging behind other efforts. To deliver on the promise technology offers in customer relationships, staff performance has to be prioritised. People have to be shown what to do, given feedback about how they're doing, and rewarded if they are doing well.
Meeting the objectives of a CRM strategy means, for one thing, that targets and metrics set for CSRs must be balanced to incorporate productivity, quality of service delivered, and effectiveness of performance on behalf of customers. One of the most effective ways for accomplishing this, we have found, is through 'customer first' teams, in Customer Service and throughout the company.
Tom Peters has said that, in the future: "Most work will be done by project teams. The 'average' team will consist of various people from various 'organisations' with various skills. Networks of bits and pieces of companies will come together to exploit a market opportunity." Such can certainly be the case with customer loyalty, customer service, and customer recovery programs. There are several advantages to networked, team-based structures as opposed to traditional hierarchies as they strive to create value for customers. They include better, more quickly shared information, greater decision agility, aster response time, and greater customer contact, as well as:
- Flattened, matrix-based organisational structures for greater efficiency
- Minimising non-value added functional activities, better use of staff time and talent
- Assigning ownership of performance
- Greater opportunity for self-management and a wider scope of work in each job
- Linking performance objectives, and individual and team performance to customer loyalty
- More targeted employee training and skill development
A fitting example of how customer-first teams can impact customer loyalty, customer win-back – and staff loyalty as well – comes from Baptist Health Care in Pensacola, Florida. Several years ago, Baptist Health Care had patient service performance which ranked them close to the bottom of all hospitals in national surveys. This situation also contributed to both declining patient populations and low staff morale.
Baptist Health Care executives were determined to turn this around. Quint Studer, then the hospital's president, said, "We had to create the type of environment where people drive by two other hospitals to get here." Baptist Health Care formed ten cross-functional employee teams to examine every aspect of value delivery to patients and their families. More than 150 hospital employees now participate as team members on these original teams. Each team has membership as diverse as corporate vice presidents and cafeteria workers. Additionally, Baptist has created ad hoc and ongoing teams to address areas such as customer win-back. Up to thirty percent of Baptist Health Care employees serve on teams at any given time.
Today, Baptist Health Care's service performance ranks among the very best in national customer surveys, its market share has significantly improved, staff morale is higher, and staff loss – and the money previously spent for recruiting as a result of turnover – has dramatically declined.
Baptist Health Care is now using their superior performance in patient care and services as a springboard for moving to an even higher plateau. As described by Pam Bilbrey, Baptist Health Care's Senior Vice President of Development: "We're pushing ourselves to move past the passion of service excellence to the next stage: customer loyalty." A testament to the success of Baptist Health Care is the organisation's recent naming to the #10 position on Fortune Magazine's annual list of the one hundred best companies to work for in America.
The array of cross-functional customer-first team possibilities is limited only by an organisation's willingness to embrace the concept. Bottom-line: Customer-first teams enhance loyalty and staff productivity. Baptist Health Care is an excellent example of the success of customer-first teams. Every company should want to emulate their achievements.
Companies are also going to have to do a better job of determining just how effective service groups are at creating perceived customer value and, ultimately, optimising customer loyalty behaviour. Traditional employee satisfaction studies, just like customer satisfaction studies, are much more about measuring superficial attitudes and past events, keying largely on salaries and benefits, and the working environment, than they are about understanding how aligned staff are with customers, how productive staff are on behalf of customers, and how well supported and directed they are in providing value.
For customer-facing groups like Customer Service to have the same type of contribution, alignment with goals, and leadership seen in organisations like Rosenbluth International and Baptist Health Care, and for these groups to help realise the promise of CRM, the three words that need to be emphasised are: Training, Involvement, and Measurement.
A quick 'how-to' primer for staff loyalty and alignment research
Having reviewed hundreds of traditional employee satisfaction surveys over the years, and carefully studying how the results have been applied by companies, it's clear that the vast majority of them are about as inefficient and ineffective at providing direction to corporate and HR management as their customer satisfaction survey cousins.
Employee loyalty study results are, as noted, often mirror images of what's going on with customers. For example, one of our clients was known to have a highly ineffectual regional director. In that director's region, both customer and staff defection was quite high. On the staff loyalty and alignment study, regional employees rated teamwork and staff communication dramatically lower than for other regions. Likewise, the customer loyalty scores for that same region were also low, with particularly poor performance on customer communication and responsiveness. Bottom line, staff loyalty and alignment problems ultimately become customer problems.
Don't measure staff satisfaction - measure staff loyalty and alignment. There's a lot to know about conducting staff loyalty and alignment research. You may want to seek the help of an outside expert to help design and implement your research. Here are some guidelines to keep you on track:
- Avoid measuring employee satisfaction. Satisfaction has a strong tendency to deal with attitudes and not behaviours. Also, satisfaction has proven to be poorly correlated with loyalty. For example, a recent employee study showed that only 10% said they were dissatisfied with their employers and their jobs, but 25% said they would search for a new job within a year. Instead, ask questions that measure your company's performance as an employer. (i.e. On a scale from 1 to 5, rate our performance as your employer.)
- Measure employees' likelihood to remain with you. Likewise, measure your employees' likelihood to recommend the company to other potential employees. (i.e. On a scale from 1 to 5, how likely are you to recommend the company to other potential employees?)
- Develop specific statements - on a custom basis (through qualitative research) - about key aspects of their working life, relationships, how they are guided and supported, etc., to be presented to all employees for performance and importance evaluation. These are known as attributes. I recommend that attributes be customised, rather than be identical to those applied at other companies, because the culture and operating processes of each company are unique. In your staff loyalty study, you will want to include attribute statements that address each of the following six themes:
- Cohesion – These attributes address teamwork and communication between and within groups, plus work quality, effectiveness, and staff/management interaction.
- Morale/Culture – These attributes address the 'fabric' of the organisation, consideration of staff needs, and desirability as a place of employment.
- Career Security/Growth – These attributes address the employees' sense of 'shared destiny', or belief that the company will support their security, growth, and career development.
- Business Confluence - These attributes address the extent to which employees partner and participate in the company's vision, mission, and strategic objectives.
- Customer Focus – These attributes address the employees' opinions of the company's pro-action and responsiveness with customers, and how the tools they are provided help with that goal.
- Management Effectiveness – These attributes address employees' views of how well people and processes are managed.
- Ask staff members to rank elements of their jobs - and to explain their reasons for those rankings. Employees are also asked to state reasons for low attribute and overall performance ratings, providing quantified anecdotal depth to the ratings data.
- Identify areas of expressed and unexpressed staff complaints. When unexpressed, determine the reasons. When expressed, ask about outcomes. Look at (model) the impact of complaints, especially those frequently stated, on staff loyalty.
- Model the impact of attribute performance and importance on staff loyalty. Report key findings and modelled results. Within the report, draw conclusions and make recommendations. Take action, including reporting findings back to staff.
- Ask staff for their feedback because it implies a commitment by management for action based on findings. Report findings in a timely manner to staff along with an action plan for addressing key concerns. Do this and you'll help grow employee trust and strengthen loyalty and alignment. Don't do it, and employees will likely blow-off your next staff survey. Our quantitative methods are built around self-completion interviews, and they include online staff loyalty data collection, which enables almost real time analysis and reporting of findings, conclusions and recommendations to staff and management.
A final few take-away thoughts
Higher levels of training, more involvement in strategy development and execution, and appropriate staff performance and alignment measurement will, increasingly, differentiate companies that are merely good from those that are great. For Customer Service, because they are so close to customers and so involved with creating and sustaining loyalty behaviour, the stakes are particularly high. Whether inside or outsourced, Customer Service must be completely aligned with, and supportive of, corporate customer loyalty goals and initiatives. I have identified nine 'best practices' for building staff loyalty:
- Build a Climate of Trust That Works Both Ways – Employees appreciate and respond to empowerment and opportunities to learn and contribute.
- Train, Train, Train and Cross-Train – Task-related, and non-task related, training is seen by many employees as the company's faith and investment in them. Note: Over 80% of Southwest Airlines employees are cross-trained in at least one other function every year as one method of building leadership.
- Make Sure Each Employee Has a Career Path - Provide tools so employees can inventory talents, and encourage movement within the company.
- Provide Frequent Evaluations & Reviews - Don't wait to do this on an annual basis. Do it as frequently as it will help the employee grow and develop.
- Seek to Inform, Seek to Debrief - Schedule frequent update meetings featuring employee input and contributions.
- Recognise and Reward Initiative - Employees should be both recognised and rewarded for building customer value (i.e. relationship building, creative solutions, empowered achievements, cross-functional involvement).
- Ask Employees What They Want - Conduct linkage and alignment research to find out how productive and loyal employees are and how well they are supported and guided in building value and equity for customers. Avoid measuring employee satisfaction because, like customer satisfaction, traditional employee studies provide little useful direction.
- By All Means, Have Fun! – Use creative means to give a lighter, more family-oriented 'feel' to company culture. Ideas can include events around holidays, having an open house for family members, special recognition prizes, etc.
- Hire the Right Employees in the First Place - Profile top performers to identify success factors, and make recruiting top talent a key corporate value.
Creating a culture within the organisation that nurtures loyalty, commitment, and productivity from the moment the new hire walks through the door and throughout the lifecycle of the employee will go a long way to sustaining customer loyalty. The good news is that employees, particularly those in Customer Service, will want to be active contributors to that effort. As Fortune Magazine columnist Thomas Stewart has said, "Human beings want to pledge allegiance to something. The desire to belong is a foundation value, underlying all others." When that 'something' is the optimisation of customer loyalty behaviour, to repeat the guiding conclusion of Hal Rosenbluth, everybody wins.
Publisher's note:
This article was originally published in the SOCAP International quarterly publication, Customer Relationship Management (Vol. 8, No. 3, June 2003). For more information, or to contact SOCAP International, visit http://www.socap.org
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About the author...
Michael Lowenstein, CPCM, is managing director of Customer Retention Associates, a customer and staff loyalty program development, research, and consulting firm located in Collingswood, New Jersey (www.customerloyalty.org). Customer Retention Associates specializes in helping clients optimize customer loyalty and value through customer and staff loyalty research, loyalty program/process development and refinement, loyalty action training and organization for front-line staff and management, and customer save and win-back research and protocol development.
With over thirty years' management and consulting experience in customer and staff loyalty research, CRM, loyalty program development, customer win-back, service and channel quality, customer-driven corporate culture, and strategic marketing and planning to draw on, he is an active international keynoter and speaker, workshop facilitator, and trainer, and he is a regular featured contributor to two customer loyalty newsletters. He also provides expert customer loyalty resource commentary to several professional CRM, marketing, customer service and HRD sites on the Internet.
Lowenstein is the author of two widely-regarded books: Customer Retention: Keeping Your Best Customers (1995), and The Customer Loyalty Pyramid (1997). He is also co-author of Customer WinBack: How to Recapture Lost Customers – and Keep Them Loyal (2001). Additionally, he is a contributing author to Redefining Consumer Affairs (Society of Consumer Affairs Professionals, 1995), The Answer Book for Customer Service Managers (Bureau of Business Practice/International Customer Service Association, 2000), and he has written the Afterword for Customer.Community: Unleashing the Power of Your Customer Base (2002). He is currently writing a new book on data gathering, storage, and application for creating targeted customer value, with the working title of One Customer, Divisible, and scheduled for publication in 2004.
He is a customer life cycle seminar developer/facilitator for the Direct Marketing Association, and has been a customer loyalty instructor for Pennsylvania State University and the American Management Association. He holds an M.B.A. degree in marketing from the University of Pittsburgh, and a B.S. degree in economics and marketing from Villanova University. Lowenstein is listed in several regional, national, international, and professional Who's Who editions. His clients include First Union, Comcast, Baptist Health Care, Toyota, Prudential, Westvaco, BellSouth, Charles Schwab, Borg-Warner, Metropolitan Life, Microsoft, Alliance of Community Health Plans (ACHP), Daimler-Chrysler, United States Postal Service, and Georgia-Pacific.
The company is a founding member of the CRM International Consortium (CRMIC), an affiliation of independent CRM and customer loyalty practitioners from around the world, which is based in Europe. The mission of CRMIC is to offer a synergistic array of leading-edge customer loyalty and value solutions to companies in North America and Europe. He is also an affiliate of Prism Consulting, a Zurich-based organization focused on optimizing customer loyalty process management, and he is a founding member of Business Authors Leadership Alliance (BALA), an affiliation of prominent consultant-authors in the fields of strategic planning, organizational creativity/innovation, customer loyalty, and marketing ROI which offers both customer centricity workshops and consulting services.
Customer Retention Associates is on the web at www.customerloyalty.org
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