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The Spillover Effect: How Positive Employee Engagement Can Increase Profits
February 10, 2009
By Gary Rhoads, Ph.D.
Most business managers agree that good employees have an impact on customer satisfaction. However, to really understand, measure and manage this principle requires a significant commitment. Businesses that do will gain a competitive advantage and grow faster by embracing this concept.
This is called the "Spillover Effect" and defined as the statistical relationship between employee engagement and customer engagement. This article will explore how employee engagement impacts a business in real dollars and suggest ways to capitalize on this opportunity.
Satisfaction vs. Engagement
For years, companies have given credence to the service profit chain, which states that satisfied employees create satisfied customers, which create happy shareholders. However, we now know that satisfaction is not an accurate measurement of company success. In fact, satisfaction is merely a measurement of past experiences with a company, not necessarily an indicator of how someone will feel in the future.
Therefore, companies should be looking at levels of engagement as the true measuring stick. Emotionally engaged employees believe they are doing something valuable for their organizations and that their efforts will make a difference. The positive feelings that employees have influence the level of service they give to customers. These positive experiences "spill over" to customers, who become advocates for the company's products and services.
A study conducted by Towers Perrin found that engaged employees believe they contribute to business results. From the study:
• "84% of highly engaged employees believe they can impact the quality of their company's work product, compared with 31% of the disengaged."
• "72% of the highly engaged believe they can impact customer service, versus 27% of the disengaged."
• "68% of the highly engaged believe they can impact costs in their job or unit, versus 19% of the disengaged."
For the mantra of "happy employees equals happy customers" to be real, companies should seek to foster emotionally engaged employees, because it will be these employees whose experience will "spill over" to help create emotionally engaged customers.
Drivers of Employee Engagement
To understand the Spillover Effect, managers need to understand the drivers of engagement and the specific employee characteristics that connect with customers.
First, businesses should evaluate the positive and negative characteristics of the job environment. Disengagement and burnout occur when employees depersonalize their work environment and separate themselves from their work. When they are emotionally exhausted due to pressure in the work environment, they feel they are not making a significant contribution toward the organization.
Employees become engaged when they feel they are doing something valuable. When their job has less stress and more enhancers—that is, more positive aspects at work—they are more likely to be productive and care about the customer experience. Critical job enhancers include the following:
• Having a positive impact on the lives of customers and team members
• Having opportunities for learning important new skills
• Having the ability to offer suggestions
• Completing whole jobs from start to finish
• Receiving feedback about the results of efforts
• Feeling free to perform the work the way they believe is best
With the presence of these enhancers, combined with the absence of stressful barriers, employees are more likely to be engaged. It is this emotional connection—the desire to do what is best for the organization—that spills over to customers, creating engaged customers.
Measuring the Impacts: The Rhoads-Whitlark Study
Dr. Gary Rhoads and Dr. David Whitlark, loyalty and engagement experts, conducted one of the largest studies ever on employee engagement, surveying more than 14,000 consumers and 300 employees at a large financial services organization. They found that disengaged employees hurt one out of every 10 customers. The research also found that disengaged employees had no emotional connection to the customer, and that any efforts at customer service were not sincere.
The Rhoads-Whitlark study divided the organization's employees into three basic groups:
Engaged—Engaged employees provide higher levels of service quality and higher levels of productivity. They strive for recognition from co-workers and management, are highly competent and accomplishment oriented, and focus on the organization.
Disengaged—Disengaged employees produce lower levels of service quality and lower levels of productivity. Their motivation is money, and they have selective competence and work for themselves.
Swing—Swing employees are of two types: one provides high levels of service, but low levels of productivity, and the other provides high levels of productivity, but low levels of service. Those with higher service levels are a customer's model citizen. However, those with a high level of productivity receive more recognition from management even though they are not as service oriented or competent.
During the multi-year study, the engaged group exhibited the highest levels of job satisfaction, and the lowest levels of turnover intention, depersonalization and emotional exhaustion. They were the least likely to leave the organization. The disengaged group exhibited just the opposite, with the lowest levels of job satisfaction and the highest levels of turnover intention, depersonalization and emotional exhaustion.
Engaged employees in the study looked at their jobs differently, attributing the reason they stayed to positive working conditions, sense of accomplishment, being treated good by the company and being good at what they do. Disengaged employees gave two reasons: pay and flexible hours. The swing group attributed their retention to pay and benefits, and also cited friends, fun job and team work.
The most common barrier to engagement identified in the research is management. One bad manager can pollute multiple layers of an organization, and poor managers bring down employee morale, which spills over into the engagement level of customers.
Managers have a significant impact on how much employees like their jobs, how they feel about their role in the organization, and how much their role benefits themselves, customers and the company. When managers do not support employees, do not lead by example, and do not exhibit actions that are consistent with the values of the company, then employees are less likely to be emotionally engaged.
These studies prove that it is important for companies to lead with their strengths, emphasize the positives, and remove the barriers that lead employees to be disengaged with their jobs and the organization.
Benefits of the Spillover Effect
Engagement is contagious. When employees are emotionally engaged with their employers, they are driven to help the organization and its customers. Employees who feel a sense of pride in their work understand their role and how it impacts the organization as a whole. They are recognized for the high levels of service to customers and the company and are likely to be more loyal.
Engaged employees contribute to a more positive work environment as their positive attitude and genuine happiness with their job spills over to other employees. Engaged employees also lead to reductions in employee turnover, which reduces costs associated with hiring and training new employees. Finally, engaged employees contribute to the bottom line. As their engagement is reflected in their service to customers, they are helping to create more loyal customers. And we know that highly engaged customers buy more products/services, recommend potential customers to a company, stay longer and give more feedback, which, in turn, gives companies the opportunity to address issues and concerns and preserve potentially lost revenue.
If companies can move just one percent of their disengaged or swing employees into the engaged group, they are likely to see improvements in their company culture and customer satisfaction, as well as a reduction in employee turnover.
To be effective in today's business environment, companies need engaged employees, and by understanding the concept of the Spillover Effect, they can better understand what it will take to create, maintain and realize the benefits of higher engagement.
Editor's Note: Read all of the strategies and best practices from Incentive's Survival Guide at www.incentivemag.com/survivalguide. New articles daily!
Allegiance Engagement Expert and Co-Founder
Dr. Rhoads is currently a professor of marketing at Brigham Young University and holds the Stephen Mack Covey Professorship awarded by the Center of Entrepreneurship. As an active researcher in entrepreneurial marketing strategy, Dr. Rhoads’ work focuses on identifying marketing tactics that lead to start-up success. Dr. Rhoads is also co-founder of Allegiance, Inc. (www.allegiance.com). Allegiance offers feedback management software to help organizations grow customer and employee loyalty and engagement.
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