Happy employees help make happy customers – which, in turn, help make a successful business, right?
That’s certainly the theory behind employee engagement, and business leaders’ growing focus on the employee experience. However, despite many companies’ obsession with being named a “best place to work,” a fundamental question has been left largely unexplored: Are happy, engaged employees a driver of business success, or merely a consequence of it?
Numerous studies have identified a link between employee engagement and financial performance, be it with regard to shareholder return or a host of other business measures. But there’s a big difference between correlation and causation, which is why this becomes something of a Chicken & Egg problem.
Take a company like Google, for example. They perennially earn a spot at the top of many “best places to work” lists (including a six-year run as #1 on Fortune magazine’s rankings). The company is known for its employee perks, such as free gourmet food, nap pods, and recreation rooms – in addition to competitive compensation packages.
And Google has done very well for itself, outperforming the S&P 500 Index by more than a 2-to-1 margin over the past decade.
Salesforce is another public company that makes frequent appearances at the top of employee engagement rankings. It, too, has outperformed the S&P 500 over the past ten years (by over a 5-to-1 ratio).
But are employees at these organizations (and others like them) happy and engaged because they enjoy working at highly successful, customer-centric companies? Or was it the employees’ exceptional engagement, itself, which helped create that business success in the first place?
To put it another way: Is playing on a winning team what makes employees happy – or do happy employees help make a winning team?
“Is playing on a winning team what makes employees happy – or do happy employees help make a winning team?”
It’s not an academic question. If engagement is more a consequence of business success than a driver of it, that would have interesting implications for companies’ employee engagement efforts.
It would suggest that company leaders should focus first and foremost on improving a business’ financials, via strategies such as customer experience improvement (which has been shown to grow shareholder value), or other endeavors like market expansions, mergers/acquisitions, and cost containment. It would suggest that those profit-boosting activities should take precedence, superseding efforts to improve the quality of the work environment and the employee experience.
Now, before you start throwing away all of your employee engagement tomes and resigning yourself to a disengaged workforce (until profits improve), listen up. This is one Chicken & Egg problem that might just have a credible answer.
In 2010, researchers from Gallup and the University of Iowa completed a study to determine if the link between employee engagement and company performance was really causal.
The researchers looked at the volumes of employee engagement and company financial data that Gallup had amassed in its many years as a leading research organization – data that covered over 2,000 business units in 10 large organizations across a variety of industries.
Instead of just looking at the association between employee engagement and financial performance, these researchers were able to analyze the data over a time series, within specific business units. That enabled them to determine the relative influence, over time, between employee engagement and financial performance, and financial performance and employee engagement.
Their conclusion was clear and eye-opening: While a business’ financial success did help improve employee engagement, the relationship was stronger in the other direction. Employee engagement drove financial success more materially than the reverse relationship.
In short, these researchers found that a great employee experience (and the happy, engaged employees it creates) is indeed a precursor to business success, not a by-product of it.
So, the answer to the question, “Which should you focus on first — the employee experience or the customer experience?” is a resounding YES.
This can’t be a binary choice, because the engagement of your employees and your customers is inextricably linked. However, what this research does show is that early attention to employee experience improvement is well-placed, and indeed should be a fundamental component of any customer experience differentiation strategy.
It’s a compelling finding which offers the best evidence yet that when leaders focus on improving engagement in the workplace, it really does pay dividends — to your employees, to your customers, and to your bottom line.
Looking to turn more of your customers and employees into “raving fans”? That’s precisely what Watermark has helped some of the world’s top companies achieve. Learn more about our consulting and educational services, or Contact Us to start a conversation.
[A version of this article, authored by Watermark founder Jon Picoult, originally appeared on Forbes.com.]
The post Employee Experience or Customer Experience: Which To Focus On First appeared first on Watermark Consulting.