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Good communication improves satisfaction for employees and therefore customers

01 Jun, 2020 Internal communication, Marketing communication

Research consistently shows a strong correlation between employee satisfaction and customer satisfaction.

Economics experts report from their global study that “Higher employee wellbeing [satisfaction] is associated with higher productivity and firm performance.” They found “correlations between employee wellbeing, employee productivity and firm performance across all industries and regions.” Writing a 2019 article for the World Economic Forum, George Ward and Christian Krekel from the London School of Economics, and Jan-Emmanuel De Neve from University College London, reported on their work conducted with Gallup consultants on a meta-analysis of 339 independent studies accumulated by Gallup, including the wellbeing and productivity of 1·8 million employees and the performance of 82,000 business units, in 230 independent organizations across 49 industries in 73 countries.

The study by Ward, Krekel & De Neve decided that:

“Employee satisfaction has a substantial positive correlation with customer loyalty and a substantial negative correlation with staff turnover. The correlation with productivity is positive and strong.”…”importantly, higher customer loyalty and employee productivity, as well as lower staff turnover, are also reflected in higher profitability of business units, as evidenced by a moderately positive correlation between employee satisfaction and profitability.”

Also, in a classic study, retail giant Sears Holdings Corporation (annual revenue around US$25 billion), found every 5% increase in employee attitude scores brought a 1-3% increase in customer satisfaction and a 0.5% increase in revenue. Good communication played a significant role in greater employee satisfaction.

Better financial performance linked to job satisfaction

Improved employee satisfaction is also associated with improved financial performance in three studies by Alex Edmans, Professor of Finance at London Business School. In a previous position as finance professor at the Wharton School of the University of Pennsylvania he also conducted the third study, below:

  1. Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices” (2011). This paper analyzes the relationship between employee satisfaction and long-run returns on company shares. A portfolio of the “100 Best Companies to work for in America” (an annual list published by Fortune magazine) earned an annual average return of 3.5% from 1984-2009, which was 2.1% above industry benchmarks [An industry benchmark conveys averages of various factors for similar businesses, which enables direct comparisons of performance.]
  2. The Link Between Job Satisfaction and Firm Value, with Implications for Corporate Social Responsibility” (2012). Edmans studied the relationship between employee job satisfaction and long-run stock market returns using a value-weighted portfolio of the ‘100 Best Companies to Work for in America.’ He found that during the period from 1984 to 2011, these companies achieved 2.3% to 3.8% higher annual returns than the industry average.
  3. How Investing in Intangibles – Like Employee Satisfaction – Translates into Financial Returns” (2008). This article in the K@W newsletter of the Wharton School about an earlier project of Edmans’ describes a similar outcome. He examined the stock returns of companies with high employee satisfaction and compared them with various benchmarks – the broader market, peer firms in the same industry, and companies with similar characteristics.” His research indicated that firms cited as good places to work earned returns that were more than double those of the overall market.” Between 1998 and 2005, firms with high employee satisfaction returned 14% per year compared with 6% a year for the overall market. Edmans said the survey was a valuable gauge of employee satisfaction because it was based on in-depth surveys of a firm’s employees, rather than just external observations.

An Australian survey in 2007 found similar results. Conducted by Professor Nigel De Bussy from Curtin University, the study found that companies actively engaging in stakeholder orientation activities achieved stronger financial performance, with a correlation of 0.84 for employee programs compared with the correlation for customers (0.36), suppliers (0.35) and communities (0.32). The correlation of financial performance with shareholder orientation was minimal at 0.08.

These studies don’t actually prove that happier employees create happier customers and therefore higher profits, but they show a very strong correlation, which is almost the same thing.

The important difference between cause and correlation

The difficulty in discussing the impact of employee satisfaction/happiness/wellbeing/gratification/engagement/commitment/association is that it is not possible to demonstrate that any of these can be directly proven to be a fundamental individual cause of performance improvement in business units or the overall organization. As an example, Edmans cautions in his above article, “How Investing in Intangibles – Like Employee Satisfaction – Translates into Financial Returns” that “a correlation between employee satisfaction and stock returns need not imply causation.” Also, the title of Edmans’s paper, “The Link Between Job Satisfaction and Firm Value,” reflects the same problem – the link is strong, but this is not necessarily clear proof that it is the single direct cause or even one of the most critical causes. A further example – Oswald, Proto & Sgroi say in their paper that various “forms of evidence…are consistent with the existence of a causal link between human well-being and human performance.” But absolute proof can’t be clearly shown.

After the confident headline of their above article – (“It’s official: happy employees mean healthy firms”), Ward, Krekel & De Neve drop back from cause to correlation: “Our work is suggestive of a strong, positive correlation between employee wellbeing, productivity and firm performance. The evidence base is steadily mounting that this correlation is in fact a causal relationship (running from wellbeing to productivity).” [Words in italics are my emphasis.] They admit a causal relationship can’t actually be proven yet.

Is satisfaction the same as engagement?

The terms employee engagement and employee job satisfaction are often used interchangeably, but there are actually differences between the two concepts. An article by the national US Society of Human Resources Management (SHRM) states that research reveals there is some overlap in the drivers of engagement and satisfaction, but there are also key differences in the components that determine each:

Engaged employees might report feeling focused and intensely involved in the work they do. They are enthusiastic and have a sense of urgency. Engaged behavior is persistent, proactive and adaptive in ways that expand the job roles as necessary. Engaged employees go beyond job descriptions in, for example, service delivery or innovation. Whereas engaged employees feel focused with a sense of urgency and concentrate on how they approach what they do, satisfied employees, in contrast, feel pleasant, content and gratified. The level of employee job satisfaction in an organization often relates to factors over which the organization has control (such as pay, benefits and job security), whereas engagement levels are more directly controlled or significantly influenced by the employee’s manager (through job assignments, trust, recognition, day-to-day communications, etc.).

“Being satisfied at work is a weaker predictor of business outcomes than engagement and lacks the two‐way reciprocal relationship characteristic of engagement,” is a conclusion expressed by Robertson-Smith & Markwick in their 2009 review, “Employee Engagement: A review of current thinking.” The same point could be made about happiness.

How you can improve employee satisfaction and therefore customer satisfaction

Whether you are on staff or are a consultant, you can initiate a program to increase employee satisfaction, because this will lead to positive performance regardless of its relationship with employee engagement:

  1. In conjunction with the marketing department, conduct focus groups of employees to identify which key customer satisfaction factors are related to interactions with employees.
  2. Include on employee surveys questions about employee behaviors and attitudes that relate to the key customer interactions that were identified in the focus groups.
  3. Include questions about communication in survey questions both to employees and customers. Communication questions are needed in order to establish the link between communication and customer satisfaction and therefore customer intentions and actions.

Ensure you compare employees and customers on the same basis. For instance, compare customers and employees from the same city or from the same branch if you are involved in a branch-based organization.

If you engage in this activity you will be able to show senior management the communication link between happy employees and happy customers.

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About the author Kim Harrison

Kim Harrison loves sharing actionable ideas and information about professional communication and business management. He has wide experience as a corporate affairs manager, consultant, author, lecturer, and CEO of a non-profit organization. Kim is a Fellow and former national board member of the Public Relations Institute of Australia, and he ran his State’s professional development program for 7 years, helping many practitioners to strengthen their communication skills. People from 115 countries benefit from the practical knowledge shared in his monthly newsletter and in the eBooks available from cuttingedgepr.com.

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