September 13, 2004

Purdue research links employee satisfaction, profits

WEST LAFAYETTE, Ind. – A Purdue University business professor's research shows a direct link between employee satisfaction and motivation and a company's profits – even if the employees have no direct contact with customers.

James Oakley

James Oakley, a Krannert School of Management assistant professor of marketing, surveyed 100 employees of American companies and investigated the companies' corporate culture. He said the results showed "a direct link between employee satisfaction and customer satisfaction and between customer satisfaction and improved financial performance."

Oakley said the key to employee satisfaction is organizational communication – both upward and downward in the company.

"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," he said. "Organizational culture is another significant driver of employee engagement and includes management designing jobs well, providing support and setting goals for employees."

The engaged employee is oriented to providing good service and answering customer questions, which, Oakley said, "gives the customer a voice inside the company." And a customer whose voice is heard inside the company drives profit by being a repeat customer and bringing in new customers by word-of-mouth, which has a high degree of credibility. The given in all this is that a company must start with a solid product.

Oakley said previous research on customer-satisfaction issues has focused on employees who have direct contact with customers.

"Companies tend to view customer satisfaction as nice but find it difficult to measure its return on investment," he said. "So that makes it difficult, for example, for a company to justify a $1 million study to measure customer satisfaction with products and services.

"What this research shows is that a $1 million study is worth it because customer satisfaction is a great indicator of downstream profitability."

It's also money well-spent for a company to make a front-end investment in its employees.

Starbucks is the prototypical example of a company that understands the connection among engaged employees, satisfied customers and increased profits, Oakley said. Starbucks pays well for the industry and offers health-care benefits. He said the company also does excellent training before their employees take the floor and then continues with ongoing training.

"The goal is for Starbucks' employees to be able to answer customers' questions," Oakley said. "What happens then is customers are willing to spend more because of their good experience. And they communicate their experience to others."

It works. Starbucks' heavy users return 20 times per month, Oakley said.

"In the end, customers who are more satisfied with an organization's products are less expensive to serve, use the product more, and are, therefore, more profitable customers," he said.

Oakley's research on employees who don't have direct contact with customers demonstrates that the Starbucks engaged-employee model is just as relevant for those who don't serve up lattes.

However, a company that's serving customers more abstract, complex products must create an internal environment that drives higher level solutions. For the employees of organizations he studied, Oakley said he found the answer lays in creating a healthy competitive company culture.

For example, an advertising agency has just received a big new account. The temptation is to call all the account writers and designers together and come up with an approach, slogan and campaign. The problem is that this type of large-group, consensus decision-making tends to yield compromise, which is often less than the best solution.

Instead, Oakley says a better idea is for the ad firm to divide its employees into a half-dozen teams to come up with strategies for the new account. Then, management can call the larger group together to decide which team's idea is best for the organization and have the whole group fine-tune the idea.

Oakley says it's difficult to achieve and maintain a healthy enough company culture for employees to understand that the best solution benefits the organization and, ultimately, all the employees individually. But it's worth the effort.

This kind of healthy internal competition, Oakley says, is much different from the salesman-of-the-month approach.

"That's a zero-sum game and is detrimental to overall employee satisfaction," he said. "What you want is a win-win-win situation, so when the customer wins, the company wins, and the individual employee wins."

Oakley's research will be published by the Forum for People Performance Management and Measurement, a research center within the Medill Integrated Marketing Communications Program at Northwestern University.

Writer: Mike Lillich, (765) 494-2077, mlillich@purdue.edu

Source: James Oakley, (765) 494-4445, joakley@krannert.purdue.edu

Purdue News Service: (765) 494-2096; purduenews@purdue.edu

Related Web site:
Forum for People, Performance, Management and Measurement

There is a direct link between employee satisfaction and between customer satisfaction and improved financial performance. The key organizational characteristic for explaining employee satisfaction is organizational communication (a measure of the downward and upward communication in an organization). Interaction between managers and employees with regards to supportiveness and goal setting, as well as job design were also key drivers of employee engagement. Organizational culture was another significant driver of employee engagement, where employees must be expected to cooperate and work together, but also to take charge and provide a voice for the customer within the organization. A fully cooperative culture feels the need to reach consensus on a single option, where a culture promoting healthy cooperation provides multiple choices, which are then balanced against one another in an attempt to develop an optimal solution. When individuals and teams are competing to implement the optimal behaviors to the market and its customers, such competition can work to the advantage of both the organization and its customers. Organizations with engaged employees have customers who use their products more, and increased customer usage leads to higher levels of customer satisfaction. It is an organization's employees who influence the behavior and attitudes of customers, and it is customers who dive an organization's profitability through the purchase and use of its products. In the end, customers who are more satisfied with the organizations' products are less expensive to serve, use the product more and, hence, are more profitable customers. A focus on market outcomes, e.g., customer satisfaction, is warranted as they were found to mediate the relationships between employee attitudes and financial performance.

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