Emerson Ism Dissertation

International School of Management
The Effects of Employee Satisfaction and Customer Retention on Corporate

Profitability: An Analysis of the Service-Profit Chain
by
Anthony L. Emerson
Doctoral dissertation submitted for the International School of Managements Doctor of

Business Administration degree
Word Count: 91,611
April 2007
LIST OF CONTENTS
Acknowledgements
List of Figures
ii
Notations
iii
Abstract
Executive Summary
vi
Page
Chapter 1 Introduction
Chapter 2 The Elements of Employee Satisfaction
Leadership-Management Attitude/Response
Work Environment
Employee Training/Programs
14
Employee Development & Leadership Planning
20
Employee satisfaction and Recognition
25
Organizational Goals and Employee Expectations
33
Communicating With Employees
37
Employee Satisfaction and Teamwork
48
Employee Empowerment
53
Interaction in the Workplace
60
Organizational Culture/Employee Focused
65
Employee Benefits
73
Page
Employee Motivation
Chapter 3 Increased Employee Satisfaction Leads to Increased
77
83
Creativity and Innovation

Innovation Process Examples to Learn From
85
Suggestions for Improving the Innovation Process
87
Apple: An Example of Creativity and Innovation
88
Chapter 4 Customer Service Loyalty and Retention
89
The Customer-Centric Organization
90
Customer Acquisition-Branding & Marketing
93
Customer Acquisition and the Internet
94
Target Marketing
98
Delivering World-Class Customer Service
101
Customer Expectations
103
Training for Customer Service
110
Customer Service Training at the Disney Organization
113
The Important Elements of Delivering Great Customer Service
116
Exceptional Customer Service at the Ritz-Carleton
123
The Employee-Customer Relationship
127
The Customer-Employee Relationship at Pike Place Fish Market
131
Page
Transforming Customer Satisfaction Into Customer Loyalty
134
Measuring Customer Satisfaction
142
Chapter 5 Knowledge Management & Customer Relationship
149
Management Systems
What is Knowledge Management?
150
Customer Relationship Management Systems
154
The Need and Benefits of CRM Systems
155
CRM Systems Implementation
163
Potential CRM Pitfalls
169
CRM at Amazon.com
172
Chapter 6 The Effects of Employee Satisfaction-Customer
178
Retention on Profitability
The Effects of Customer Loyalty on Corporate Profitability
180
Customer Loyalty is a Direct Result of Customer Satisfaction
181
Creating Value Through Satisfied, Loyal, & Productive Employees 183

Satisfied Employees Impact on Customer Loyalty & Profitability 184
Page
Chapter 7 An Analysis/Evaluation of the Service Profit Chain at
186
Maine Savings
Maine Savings History
187
Leadership at Maine Savings
188
Leadership-Management Attitudes/Response
189
Work Environment
191
194
199
Employee Satisfaction and Recognition
201
205
208
Employee Satisfaction and Teamwork at Maine Savings
211
213
217
222
Employee Benefits
228
Employee Motivation
231
Chapter 8 Customer Service, Loyalty, and Retention at Maine
234
Savings
Maine Savings as a Customer-Centric Organization
234
Page
Customer Acquisition Branding & Marketing
237
Maine Savings Customer Acquisition and the Internet
241
Target Marketing at Maine Savings
242
Delivering World-Class Customer Service at Maine Savings
244
Training for Customer Service at Maine Savings
245
Important Elements of Customer Service at Maine Savings
247
The Employee-Customer Relationship at Maine Savings
252
The FISH Philosophy at Maine Savings
256
259
Measuring Customer Satisfaction at Maine Savings
261
Knowledge Management Strategies at Maine Savings
264
Knowledge Management Instruments at Maine Savings
265
Knowledge Management Barriers Identified at Maine Savings
266
Customer Relationship Management at Maine Savings
270
Chapter 9 A Summary of the Service Profit Chain Initiative at
272
Maine Savings
The Benefits of Added Employee Satisfaction at Maine Savings
273
The Benefits of Increased Customer Satisfaction at Maine Savings 276

Resultant Effects on Corporate Profitability at Maine Savings
282
Page
Chapter 10 Academic Literature Review
282
Overview
282
Employee Satisfaction
284
Customer Satisfaction
286
Customer Loyalty
289
Corporate Profitability and the Service Profit Chain
290
Chapter 11 Research Methodology
291
Objectives
291
Research Approach
292
Method & Data Collection
293
Selection and Description of Interviewees
294
Chapter 12 Interview Results
296
CEO, Vice Presidents and Board Members
296
Service Profit Chain
296
298
Customer Satisfaction/Retention
302
The Combination of the Elements of the Service Profit Chain
307
Interview Results Summary
310
Page
Chapter 13 Summary, Discussion, Conclusions, and Limitations
310
310
Leadership-Management Attitude Response
311
Work Environment
312
Employee Training
314
Employee Development and Leadership Planning
315
Employee Recognition
316
317
318
321
322
324
Employee Benefits
325
Employee Motivation
325
Customer-Centricity
327
Customer Acquisition-Branding & Marketing
327
World-Class Customer Service
329
331
Customer Service Training
332
333
335
Page
336
Customer Relationship Management
337
Creating Value Through Satisfied, Loyal & Productive Employees 339

Customer Loyalty Effects on Corporate Profitability
341
The Service Profit Chain at Maine Savings, Discussion
343
Limitations
343
Chapter 14 Recommendations & Where, When, How, and Why
344
Bibliography
355
Appendices
381
ACKNOWLEDGEMENTS
I would like to thank the many business executives, college professors, and business
scholars that helped me identify, analyze, and choose this topic. I would especially like to
thank all of the employees at Maine Savings for their generous gift of time and attention
to my many inquiries as I pursued this research. In particular, I would like to recognize
the members of Maine Savings Executive Team for their many hours of input during
interviews and their contribution to my data gathering efforts.
I would also like to thank my family for their support, understanding, and flexibility as I
undertook this task. I would like to especially thank my Son Anthony who spent many
long hours next to me as I endeavored to compile my research. I would be remiss if I did
not mention the appreciation I have for the outstanding program of study at the
International School of Management, for which I am grateful. I would like to especially
thank Professor Peter Horn, PhD. for his input, support and patience during my time in
the DBA program.
LIST OF FIGURES
Figures
Page
Figure 1 Maslows Hierarchy of Needs
25
Figure 2 Organization Strategy
33
Figure 3 Organization Environment
33
Figure 4 Performance Management
34
Figure 5 Leadership for Empowerment
54
Figure 6 Management/Employer Performance Cycles
67
Figure 7 Employee Motivation
78
Figure 8 Motivational Theories
79
Figure 9 Motivation & Satisfaction Levels
80
Figure 10 Maslows Hierarchy of Needs (illustration)
81
Figure 11 Customer Acquisition/Experience Model
98
Figure 12 Customer Perceived Value
137
Figure 13 Customer Loyalty Pyramid
140
Figure 14 Adoption Factors for Knowledge Management Systems
151
Figure 15 Purposes for Knowledge Management Systems
152
Figure 16 Static Knowledge Management
153
Figure 17 Automated Knowledge Management
153
Figure 18 Reasons to Implement CRM Strategies
156
Figure 19 CRM Risk Tolerance
168
ii
NOTATIONS
ACH
Automated Clearing House
AVP
Assistant Vice President
B2B
Business to Business
B2C
Business to Customer
CE
Corporate Entrepreneurship
CEO
Chief Executive Officer
CFO
Chief Financial Officer
CPV
Customer Perceived Value
CRM
Customer relationship Management
CSM
Customer Service Management
DP
Data Processing
EAP
Employee Assistance Program
ERP
Employee Response Program
HR
Human Resources
IT
Information Technology
KM
Knowledge Management
MBO
Management by Objective
MS
Maine Savings
NI
Net Income
NPV
Net Present Value
OTJ
On the Job
PAT
Process Action Team
iii
PFI
Primary Financial Institution
PTO
Paid Time Off
R&D
Research and Development
ROA
Return on Assets
ROE
Return on Equity
ROI
Return on Investment
SOP
Standard Operating Procedure
US
United States
VP
Vice President
iv
Abstract
The elements that lead to employee satisfaction and customer retention are said to have
fundamental implications for corporate profitability. Unlike much of the mainstream
literature, which generally focuses on the relationship between two of these three subjects
(employee satisfaction, customer retention, and corporate profitability), this paper
considers the effects, importance and reliance between all three. Based on published
research, completed case studies, and interviews, the paper emphasizes the effects of
employee satisfaction and customer retention on corporate profitability, otherwise known
as the Service-Profit chain. It especially highlights the importance of the link, and
subsequent success of each area. It argues that, in order to be effective, a complete
understanding of the link between employee satisfaction and its relationship to customer
retention and corporate profitability must be understood and practiced.
Executive Summary
Most every organization must deal with the issues of employees, customers and
profitability in the normal course of carrying out business. This paper considers each
issue, but in relation to how they correlate with, and affect each other. More and more
research is being done in regard to the effects of employee satisfaction and customer
retention on corporate profitability, and the importance of this relationship. The focus of
this paper is to fully define each issue, highlight the important relationship between each,
and offer dynamic recommendations to improve the benefits of their correlation. This will
be accomplished by analyzing published research, interviews with established
professionals in the field, and case studies related to employee satisfaction, customer
retention, and corporate profitability.
The research on employee satisfaction is constantly evolving, with new points of view
and strategies emerging on a regular basis. In fact, there are a plethora of books that have
been written on the subject. This paper will analyze the various components of employee
satisfaction, as well as the key drivers involved in employee fulfillment. The results of
this analysis will be used to examine the relationship between a satisfied employee and
effective customer retention and loyalty. The paper highlights the major considerations
for retaining customers, and the relationship between satisfied employees and loyal
customers.
vi
In the end, the issues of employee satisfaction and customer retention are examined in
relation to their impact and influence on corporate profitability. This paper will analyze
and focus on the touch points that must be considered in the relationship between each
issue. The paper will conclude that there is a direct and fundamental link in the
relationship between employees, customers and corporate profitability. The paper also
concludes that an organization can benefit from enhancing these elements that make up
what is known as the service-profit chain. After analyzing the research contained
herein, the reader should be able to conclude that there is attainable value in combining
these elements into a synergistic system for the benefit of the organization.
vii
The Effects of Employee Satisfaction and Customer Retention on Corporate Profitability: An Analysis of the Service-Profit Chain
Chapter 1
Introduction
For many years now, research has been conducted on the effects of employee satisfaction
and the correlation to categories such as: productivity, turnover, customer loyalty, and
profitability. The aim of this paper is to examine the effects of employee satisfaction and
customer retention on corporate profitability, often referred to as the service profit
chain. These three elements are the main touch points in business that account for a
majority of all organizational processes. The empirical literature is clear that if
organizations concentrate on employee satisfaction elements, positive effects on customer
satisfaction and corporate profitability can be realized (Levine 1995). The analysis in this
paper will highlight the integral relationship between employee satisfaction, customer
retention, and corporate profitability. It will outline a clear and direct link between these
elements, as well as provide evidence of the benefits to an organization that makes these
elements a priority.
In order to sufficiently examine the service profit chain, each of the three elements will
be comprehensively analyzed and defined. The main tenets and elements of employee
satisfaction will be discussed in relation to one another, as well as how they fit together to
achieve the desired result. In much the same fashion, the elements of customer
satisfaction will be analyzed in relation to both employee satisfaction tenets and potential
effects on profitability. An in-depth examination of the relationship between employee
satisfaction and customer retention and their effect on corporate profitability will be
presented. The paper considers the theoretical research and analysis on this subject, as
well as comparisons to actual case studies on the Ritz-Carleton organization, Pike Place
Fish Market, the Disney Company, and Amazon.com. In addition, an analysis of the
current service profit chain initiatives being carried out at Maine Savings will also be
examined. The combination of theory, case study analysis, and physical observation will
enhance the foundation and serve to support the main hypothesis of this paper.
The information in this paper will be presented in the context of achievable initiatives
that are capable of being implemented at most present day organizations. Although
previously published empirical research data will be used to support the analysis
presented in this paper, the data will be presented in a context relevant to businesses
today. The paper will also attempt to answer the question, If it is so easy, why arent all
companies doing it? Several of the reasons for this will be given and examined relative
to the elements of the service profit chain. In the end, the reader will be able to assess the
processes, elements, and benefits of instituting a service profit chain initiative that
focuses on the effects of employee satisfaction on customer retention and corporate
profitability (Appendix 1).
The Service Profit Chain

The three main components of the service profit chain theory are employees, customers,
and profitability. This section focuses on the place and importance of employees to the
process that makes up the overall theory. The specific components of employee
satisfaction will be discussed later in further detail. As most everyone in business is
aware of, employees are important to any organization, as they are the foundation for any
potential productivity.
Employee satisfaction has been directly linked to employee
loyalty. Because employees can be considered the heart of an organization, management

should consider investments in employee satisfaction and subsequent loyalty, to be a
necessity. Most organizations fail to take into account the loss of productivity and a
decrease in customer satisfaction that results from poor employee satisfaction and
increased employee turnover (Heskett, Sasser and Schlesinger 1997). This paper will also
highlight the negative effects of low employee productivity that are a result of employee
dissatisfaction in the section that will address the link between employee satisfaction and
corporate profitability.
Although there are three main elements to the service profit chain, customer
retention/loyalty can be considered the primary conduit between the other two. In other
words, the glue that binds the elements together and produces positive results from the
theory itself. Creating customer value is the key to attaining customer loyalty. The issue
of customer retention and loyalty is more complex than usually assumed and may be
affected by many different aspects of operations within an organization. Customer
retention is a gauge that is used to assess how well an organization is doing at creating
value for its customers (Reichheld 1996). It is widely accepted that it is far cheaper and
more efficient to have loyal, repeat customers, than to have to market and mine new
customers.
The major component of customer retention is loyalty, which is why the paper will
explore the elements of customer loyalty in more depth later in the customer satisfaction
section. However, it is important here to point out the importance of customer loyalty to
the theory of the service profit chain. Within the concept of the service profit chain, the
important point in regard to customer loyalty is that customers should be looked upon as
revenue generating assets. That is, they should be accounted for, monitored, and
proactively taken care of as any valuable corporate asset. By adopting this viewpoint, a
company is able to view customers not only as one-time events but also as long-term,
valuable assets that require attention in order to bolster their retention and satisfaction.
The third main element of the service profit chain is profitability, which is a by-product
of employee satisfaction and customer retention/loyalty. While many organizations still
focus on trimming expenses and generating new business, there is an abundance of
evidence linking customer retention to positive financial performance (Marketing
Innovators 2005). This theory has been embraced and implemented by many successful
titans of business including Jack Welch, former CEO of General Electric and Herb
Kelleher, founder of Southwest Airlines. It is not enough anymore for a company to focus
only on improving profitability; it is necessary to examine the main components that lead
to profitability. It is now recognized that the best way to improve corporate profitability is
to focus on the effective management of human capital and customer capital. As this
paper will highlight in the case studies and the ongoing efforts at Maine Savings, this
theory can be implemented successfully and profitably. Many successful managers and
leaders today are focusing more attention on frontline workers and their customers, rather
than the traditional items of profit goals or market share (Jones 1994).
Chapter 2
The Elements of Employee Satisfaction
Employees can derive satisfaction from their jobs by meeting or exceeding the emotional
wants and needs they expect from their work (Pepitone 2006). Therefore, Managers that
can recognize this and understand the many different aspects that are involved in
employee satisfaction will be successful at achieving the link between employee
satisfaction, customer retention and added profitability. As previously stated, the issue of
employee satisfaction has a major impact on customer retention and corporate
profitability. This section will comprehensively analyze the many important elements that
are related to employee satisfaction, and resultant employee loyalty. The paper will
consider the elements, define their concepts, and discuss the salient points in relation to
the main hypothesis that employee satisfaction has a major impact on customer retention
and corporate profitability.
Leadership Management Attitude/Response

Although there will be many aspects of employee satisfaction discussed in subsequent
sections of this paper, the element of leadership and managements attitude toward
employees should be considered the foundation of employee satisfaction. There is no
single definition of a successful leader or manager but recognized leaders and managers
do share many of the same traits. Jack Welch, the widely acclaimed former CEO of
General Electric states, Without question, there are lots of ways to be a leader. You need
to look only as far as the freewheeling, straight-talking Herb Kelleher, who ran Southwest
Airlines for thirty years, and Microsofts quiet innovator, Bill Gates, to know that leaders
come in all varieties (Welch and Welch 2005). The main point here is that successful
leaders can possess different styles, but use similar strategies to engender employee trust,
loyalty, and satisfaction. The paper will now discuss and consider several of the
successful traits exhibited by successful leaders and managers.
One would be hard pressed to argue against the fact that leaders in organizations can have
a definitive influence on employee behavior and subsequent employee satisfaction.
Employee satisfaction issues have been researched extensively. A heavily researched
topic relating to employee satisfaction is the relationship of an employees satisfaction
level and the leadership style of the organization (Brooke 2005). Up to this point, the
paper has combined the terms leadership and management. It should be noted that
there are distinct differences between the two, as leaders establish the vision to be
accomplished and managers monitor the performance and progress at attaining the vision.
However, for the purposes of this paper, the two terms shall be referred to synonymously
because of the way they are typically viewed by employees of an organization.
The leadership of an organization is expected to establish a vision, create parameters to

work within, monitor performance, and set the overall tone for employees of the
organization. A majority of the research that has been done on the topic of leadership
highlights the importance of clear communication by leadership to employees, as a key
factor in the success or failure of the organization. Effective leaders and management
focus on accurate communication processes with employees, and take the time, effort and
expense to ensure that the message is understood. There are several important processes
involved with effective leader-employee communication. Leaders are responsible for
creating the vision, ensuring that employees understand the message, and ensuring that
the information is being acted on as expected (Kaplan and Norton 2001). One of the most
important factors involved in communication from leaders/managers to employees is the
issue of conviction. Leaders and managers must have conviction in their message and
show that they too are complying with the content of the communications that they are
conveying to employees. This builds trust and loyalty on the part of employees that is in
turn, transferred to other factors that are part of overall employee satisfaction.
In addition to being able to effectively communicate with employees, good leaders and
managers must also possess other important traits such as: being accountable, the ability
to be trusted, approachability, and the ability to set a clear and concise vision for the
organization. Of these traits, the research most often points to the issue of trust as being
equal to, or more important than open communication. Based on published data, loyalty
and the belief in the trustworthiness of organizational leadership are interrelated
(Appendix 2). Leaders and management that work to foster trust between them and their
employees can have a positive effect on employee retention and the satisfaction of their
workforce (Burke and Collison 2004). This hypothesis is easily proven by examining the
situations involving the numerous corporate accounting scandals and executive pay
debacles that have come to light in the last few years. Although it may seem like common
sense, trust in an organizations leadership and management leads to reciprocal trust by

employees, and a subsequent increase in employee satisfaction.
In order to engender or improve employee satisfaction, good organizational leadership

must be able to credibly engage employees at every level, in pursuit of organizational
goals. It is not enough for an organization to exhibit leadership at the very top; it is also
necessary at every management level throughout the organization. Organizations need to
have consistent leaders at all levels in order to be successful. Effective leadership dictates
that management talent is constantly identified and developed for future leadership
positions within the organization (OConnor 2004). As part of this leadership
development initiative, consistency and unity of message must be maintained. Leadership
that includes an understanding of employee expectations, desires and needs is necessary
in order to bolster and maintain employee satisfaction.
Work Environment
The single most important factor contributing to employee satisfaction is the internal
quality of the work environment. The respect and appreciation employees derive from
their co-workers and employers helps to determine the internal work environment (Stein
and Book 2000). The term work environment encompasses many different aspects such
as: physical work environment, managements attitude toward employees, relationship
with colleagues, and working conditions. Recent research has highlighted the hypothesis
that an employees work environment can have a dramatic effect on his/her performance
and attitude toward work. For example, ones workspace has traditionally been
conceptualized as just a passive host to its user activities. However, it is now recognized
that the space workers occupy at work effects patterns of interaction, and can have a
noticeable impact on behavior and performance. In addition to the physical attributes of a
workplace, are the attitudes of management geared toward the well being of the worker.
Does management exhibit respect, empathy, and strive to provide a hostile free work
environment for its employees? This section will comprehensively address these different
aspects as they relate to their effect on employee satisfaction.
An environment is anything that supports employees to be or to perform a certain way.

There are many elements related to a working environment. Quite often, people are not
even aware of many of the elements that make up a work environment. It stands to reason
that everything around employees has some impact on them and how they do what they
do. If there are elements of an employees work environment that are having a negative
effect on them, steps should be taken to remove the elements so that only positive
environmental effects remain (Fuimano 2006). This description of environment is quite
comprehensive and expansive and therefore deserves detailed analysis and a firm
understanding by an organization striving to understand its effects on employee
satisfaction.
The first work environment issue that will be considered here is that of the physical
workspace. This issue has become so important in recent years that in 1997, the Center
for the Built Environment was created at the University of California at Berkeley. The
main mission of the foundation is to conduct research on innovative building
technologies that will improve the workplace productivity of commercial buildings. An

example of the work that is being done at the CBE can be found with their research into
the physical settings of workspaces geared toward teams and collaboration. Team
workspace design is done in order to specifically support the collaborative work of a
group of employees. Although the designs allow for private workspaces, there are
provisions made for open collaborative workspaces that are conducive to teamwork
(Arens 2002). Many companies today are expending greater effort to ensure that
productive, conducive work environments exist for the productivity and satisfaction of
their employees.
Rather recently, organizations have come to the realization that an employees physical
work environment can have a tremendous effect on their productivity and overall
satisfaction. Aspects of this realization relate to issues such as space, lighting, sound, and
ergonomically correct design. People spend 90 percent of their time indoors, and much of
that time is spent at work. Studies have shown that up to 30 percent of U.S. office
workers suffer from health problems caused by sick-building syndrome. Organizations
can create long-term value in not only the facilities themselves, but also for the
employees of the organization. Organizations can attempt to understand the
environmental implications for employee productivity and satisfaction if they are
considered essential elements of their business processes (Obenreder 2004). In addition to
the aspect of employee satisfaction, the issue has become such an economic factor that
many insurance companies require organizations to have workplace surveys and audits
done on an annual basis. For example, Maine Savings, a financial services firm in
10
Hampden, Maine with 150 employees, is required to have a third party workplace audit
review annually as part of the yearly renewal process for their disability insurance policy.
As part of this audit, employees are surveyed and interviewed, and an inspection of the
physical work environment is conducted.
The major focus of designing an appealing physical workplace for employees is that it is
the basis for all other elements that play into employee satisfaction. Because appealing
and comfortable workspaces improve employee attitudes and overall employee
satisfaction, both employees and employers can benefit from a well-designed work area
(Herz 2005). Therefore, when employees are satisfied with their physical work
environments, they will be more productive, tend to be more loyal, and be more satisfied
with their work situation. The research indicates that developing physical environments
where employees can feel comfortable, accessible to both management and coworkers,
and have input into their work environment, are more satisfied with their jobs. An issue
that must be highlighted while discussing physical work environments is the issue of
collaboration with coworkers. Although collaboration is defined as working together,
effective collaboration entails both individual focused tasks and interactive group work.
Organizations that wish to foster an atmosphere of collaboration and teamwork should
ensure that the appropriate space, furnishings, and technologies exist in order to properly
facilitate these activities (Heerwagen 2004).
In addition to the physical aspects of ones work environment, there are other important
factors such as flexibility, a hostile free work environment, and telecommuting that have
11
an effect on employee satisfaction. This next section will focus on flexible work
environments, and the resultant benefits and effects on employee satisfaction. Like the
other characteristics of the effective workplace, the flexible workplace calls for new ways
of managing and working. Flexibility is often associated with the ability to easily move
from one situation to another. Flexibility in the workplace however, is a strategy that is
being used to increase productivity by leveraging employee schedules and technology.
Managers and employees that are involved in flextime strategies must be able to work
more autonomously, but yet assume more responsibility (Bond, Galinsky and Hill 2002).
One of the more popular strategies today is the implementation of a flextime system,
which engenders both employee accolade, as well as incentives from particular state
governments. For example, flextime schedules are promoted by the state government in
California as a way to reduce peak time traffic problems.
Traditional flextime arrangements allow the employee to select their starting and ending
work times, within a range of acceptable and established core hours. For example, if the
core hours at an organization are established as 10 a.m. to 2 p.m., an employee may
choose to work 5 a.m. to 2 p.m. or 10 a.m. to 7 p.m. As long as the employee is present
during the established core hours, they are free to make their own schedule. Some
employees may have to work the same hours once they are established, but more and
more employees are being allowed to change their hours on a daily basis, as necessary.
Statistics show that 43 percent of U.S. employees now have access to traditional flextime,
up from 29 percent in 1992 (Bond). In terms of gender differentiation, women are more
likely to use flextime benefits; however, the majority of men (68%) and the majority of
12
non-parents (70%) use flextime when they have it. These statistics indicate the extent to
which flextime adds to employee fulfillment and satisfaction (Appendix 3).
Two other flextime strategies that should be mentioned here are compressed workweeks,
and reduced time work programs. A compressed workweek strategy allows employees the
opportunity to work their allotted weekly hours over fewer days. For instance, an
employee could work 10 hours per day over 4 days rather than 8 hours per day over 5
days. A reduced time strategy allows certain employees the opportunity to work a parttime, flexible schedule throughout the week, as needed. This strategy is especially
important for Americas aging baby-boomer workforce. With the impending worker
shortages that are forecast to take place in the next five years, strategies that can be used
to retain an older, more versatile workforce will be needed (Bond). The issue of
impending worker shortages, retention, and overall employee satisfaction make flextime
strategies an important employment consideration.
An analysis of employee satisfaction in the workplace would be incomplete without a

discussion about the effects of hostile work environments. Hostile work environments are
like a cancer that can eat through the core of productivity and employee satisfaction faster
and more devastating than any other work associated instance. Employers seek to prevent
events that may lead to a hostile work environment, as they can be extremely disruptive
to the work force. In addition to the potentially devastating financial ramifications of the
existence of a hostile work environment, there is the potentially lasting impact on
employee morale and satisfaction. There are many circumstances that may constitute
13
what is considered to be a hostile work environment. For the most part, they are
predefined by law or organizational policy, but may have to be examined on a case-bycase basis (Parham 2003). Management must strive to always be aware of toxic
relationships, tense behavior between employees, and negative overtones in the work
environment. By creating positive environments that nurture success, employers are
exhibiting to their employees a commitment to achieving an atmosphere that will
engender employee satisfaction in the workplace.
A common mistake made by many organizations is the failure to adequately invest in the
continued training of their employees after they are hired. One of the biggest factors in
employee satisfaction/loyalty levels is the amount of training and development
companies provide. The research on this topic is clear that employees want to grow, be
given the opportunity to identify a desired career, and be given an opportunity to pursue a
chosen career path by the organization (Sussman 2006). As a result, the training and
development of employees is an essential part of their satisfaction and longevity and
should be made a priority of the organization. Continued training and programs not only
help to bolster employee satisfaction, but also produce tangent benefits for the
organization. Training initiatives should be well planned, funded, and designed to meet
organizational goals. This section will consider the effects of well- designed,
comprehensive training programs. Included in this analysis will be the effects of training
on employees, benefits of employee training to the organization, types of training
14
programs, and the required commitment needed for a successful training and
development program.
What is the definition of an effective training program? The answer is different

depending on the type, size and focus of the particular business. Some organizations still
utilize outside training consultants that are sporadically used to deliver slide presentations
at a discount rate. The effectiveness of these training sessions is questionable, but
employees are generally only temporarily enlightened about a training topic (Laff 2006).
An issue that exacerbates the lack of pertinent training is the scarcity of funds committed
to training endeavors. Organizations must realize that the quality of their employees is
directly related to the level of training and development they receive. In order to
accomplish this, training should be an integral part of the strategic plan, and be
adequately funded in order to achieve the desired result. Employees, in most cases, are
the largest investment a company will ever make. A commitment to investing in their
training and development is a prudent strategic move that will not only enhance
productivity, but also increase employee satisfaction.
There are many specific reasons for a company to focus on the training and development
of its employees. Among these reasons are: creating qualified replacements for departing
employees, enhancing the organizations ability to adopt new technologies/processes,
developing informed/knowledgeable teams, and the ability to ensure trained and
experienced employees for potential growth and expansion. There are also many different
types of training programs and methods, but all of them should address the following
15
considerations: what are the organizational objectives (strategic plan)? What are the
specific training needs? What are the training objectives? Who are the candidates to be
trained? What are the methods and modes of training? How to evaluate the candidates,
conduct the training, and evaluate the training process. Some organizations rely on
outsourcing these requirements, while other, typically larger organizations, create their
own in house training programs; in some cases branding them as corporate universities.
Companies have access to various outside training resources such as webinars, canned
training products, and outside training consultants. Although these resources may prove
to provide many different options and viewpoints, they lack the specificity that a welldesigned in-house training program would have (Carolina 2004). In-house,
comprehensive-training programs can be very effective but require commitment and
funding.
The first step an organization must take toward administering a worthwhile training
program is to assess the organizational objectives for the training to be done. In many
cases, the majority of ongoing training may be associated with reinforcing the
organizations strategic goals and vision. The primary goal of many employee
training/development programs is to communicate the vision of the organization, help
workers understand the corporate values and culture, and show employees at every level
how they can help the company succeed. Many of these types of training programs help
employees become indoctrinated to the organizations corporate culture, which helps
them better understand and support the strategic initiatives of the company. Although
specific technical training is necessary and generally the focus of a corporate training
16
program, being able to instill and reinforce corporate culture and a strategic vision to
employees can prove to be invaluable (Shelton 2001). Whatever the objective of the
training, it should be documented and agreed to by the leadership of the organization.
After assessing the organizational objectives in relation to training, the next step is to
establish the training objectives of the organization. There are several different ways to
go about establishing the training objectives of an organization, but the method should
take into consideration the three major human resource areas: the organization as a
whole, the job characteristics, and the needs of the individual. In order to begin this
process, a comprehensive assessment of what tasks are needed to be accomplished in the
organization, by whom, and what are the necessary skills for the tasks. This process
should result in an established foundation for which future training and benchmarking
can be done. There should be short term, medium range and long term training goals
established as part of the strategic plan. Training plans and objectives should then be
tailored to specific jobs that are then filled with the most qualified candidates possessing
the requisite traits that are best suited for a particular position.
Selecting the appropriate employees for training is a crucial step in the organizations
training process. Because of the time and financial commitments necessary for an
effective training program, being able to efficiently target the required training for the
appropriate individuals will allow the organization to work more effectively and
efficiently. Training programs should be designed to consider the ability of the employee
to learn the material and to use it effectively, and to make the most efficient use of
17
resources possible. Training can be a valuable source of motivation for an organizations

employees, if administered correctly. In order to ensure the maximum effectiveness of
any training program, the candidates for training must be chosen correctly and the
training must be pertinent and add value for their particular employment situation
(Carolina 2004).
One of the most important elements of the training process, that includes a myriad of
options, is the method of training. Especially in todays high-tech, automated world,
many different training methods exist as alternatives to companies. Some of the more
popular methods include: on-the-job training (OTJ), lectures, video study, seminars,
webinars, distance education, and a variety of others. With the constant upgrades and
improvements in technology, previously unheard of methods of training are beginning to
dominate the corporate training realm. For example, one of the hottest new trends in
corporate training is the use of the MP3 player as a training delivery device.
Organizations are now able to take advantage of the efficient and cost effective use of
technology as a training tool. Specifically, the use of MP3 devices that can store large
amounts of data and are convenient to use as training tools is exploding. According to a
recent report from eMarketer, an Internet research group based in New York, the number
of podcast users grew to 11.4 million last year, up from 800,000 in 2004, and could reach
about 55 million by 2010 (Agnvall 2006). As long as the method is effective and
accomplishes the intended training outcome, it should be considered.
18
The next consideration is to plan the training administration. Training administration is

the coordination of programs, facilities, employees, equipment, supplies, and time frame
for the training to be conducted. For the training process to be effective, employees must
be satisfied with their training experience. This process entails ensuring that employees
have all of the time, supplies and comfort necessary to understand and properly digest the
information that they are presented with. Employee satisfaction is not only a derivative of
the information received, but also the training process as a whole. A well-managed
training administration program can ensure that all of the elements necessary for an
effective training program are present and functioning as planned.
One of the final steps, but also one of the most important ones necessary for an effective
training program, is the ability to accurately assess and evaluate the training conducted.
Training evaluation should not be considered a one time, or static event during the
training process. It should be constant and dynamic in nature, with established goals and
outcomes. As was previously noted, benchmarks should be established at the outset of the
training process, with target milestones as goals. Both employees and the training process
should be evaluated comprehensively in order to accurately determine the effectiveness
of the training conducted and that the employee received the desired information. Any
deviations from the desired results should be noted and corrected in a timely fashion.
Timely evaluation is critical in any training program, as it prevents a prolonged deviation
from organizational goals.
19
Research in the area of corporate training has established that companies with strong
training programs have less employee turnover, more productive employees, and
consequently, are more profitable. It is reported that in 2004 U.S. based corporations
invested more than $50 billion in training initiatives. As with any other large business
investment, there should be a rational expectation of a positive return on investment
dollars for this training. In order to realize a positive return on training investments,
organizations should ensure that the training being given is properly aligned with
organizational goals and strategic initiatives (Clark and Kwinn 2005). As this section has
highlighted, the training function is an important and essential part of employee
development, and subsequent employee satisfaction.

Closely related to the topic of training, but different enough to deserve its own analysis, is
the subject of employee development. Employee development typically encompasses two
main areas: personal development and professional development, and is more long range
than traditional training. Training typically refers to providing the skill necessary to
effectively do ones current job, or deal with ones current situation. Career development
encompasses a broader set of training topics that have to do with ones overall
professional development and career planning. Professional development skills, although
typically outside the scope of an employers job description, provide the skills and
abilities necessary for the growth and maturation necessary for leadership positions
(Chapter 11 2006). This section of the paper will focus on the importance and relevance
of employee development as it relates to employee satisfaction.
20
Recent research has shown that the number one key to employee satisfaction is not pay,
as most would suspect. Pay is not the leading consideration, according to an ongoing
survey by Career Systems International. Even the much-vaunted notions of recognition
and respect fall lower on the list of Top 20 Retention Drivers. Almost half 48.4 percent
of the 7,600 plus respondents in the seventh edition of the survey, claim that exciting
work and challenge top the list of reasons for staying at a job. Second on the list of Top
20 Retention Drivers, at 42.6 percent, is career growth, learning, and development
(Kirkpatrick 2005). For this reason, it is incumbent on organizations to satisfy this
inherent need and maintain employee satisfaction. Organizations that invest in the
development of their employees more than recover the costs over time. By retaining
employees, the value of their development increases. They will increase productivity and
contribute to the overall success of the organization. Their expanded knowledge makes
them valuable assets for the company. As more than a quarter of the working U.S.
population reaches retirement age in the next three years, employee development plans
will be a vital part of the knowledge transfer process for both companies and employees
alike.
One of the key functions of a good employee development program is to select, cultivate,
and train future leaders and managers. Employees throughout the organization will be
motivated to move up in the organization if they know that they have a chance to be
considered for leadership development. Developing the skills of this carefully chosen
staff is essential to achieving the organizations business strategy and achieving a high
21
level of worker satisfaction. Continual education for employees is one of the most vital
organizational strategic goals. When organizations hire the best candidates and develop
them properly, both the organization and the employees benefit. When organizations are
able to retain quality employees with sharp skills, the economic prospects for the
organization improve considerably (Cascio 1998). Employees throughout an organization
should be examined and considered for future leadership positions within the
organization. In many cases, companies only confine their search for future leadership to
administrative or management employees (Sussman 2005). If employees throughout the
organization believe that through hard work, motivation, and accomplishment they can
achieve leadership positions, they will be more likely to exhibit these traits. The
management and leadership development process is flexible and continuous, linking an
individuals development to the goals of the job and the organization. In order to provide
opportunities for employees to attain a broad based set of management skills; many
organizations establish management development programs. The ultimate goal of these
management development programs should be to provide the basis of knowledge
necessary to develop the organizations employees into its future leaders (Chapter 11
2006).
Developing future leaders should be a main focus for any organization that considers
itself a going concern. Developing leaders that will help to facilitate employee
satisfaction is a key factor in maintaining an engaged, motivated workforce. The
traditional view of leadership suggests that for the most part, people are powerless and
lack discipline and vision, traits that can only be overcome for them by a few strong
22
leaders (Senge 1990). Organizations that focus on collaborative style leadership and
developing like talent for the future will stand a better chance of garnering the support of
the workforce. Traditional leadership development that promotes overly political selfinterests, the goal to achieve personal agendas, and manipulation of information, in the
end, has a devastating impact on employee morale. Certain political behaviors waste a
teams time and energy, divert the focus to the wrong things, and lead to decisions based
on inaccurate information. Good employee training models include training for
collaborative management, in addition to career management and skill enhancement
training (Seldman and Thomas-Williams 2005).
An important element of employee satisfaction is the acknowledgement and support of an

organization for the development of their workforce. Every employee in an organization
possesses natural or innate abilities that if developed and nurtured could lead to improved
work performance and a greater level of job satisfaction. Most people understand their
abilities and what they do well (with greater ease), and also what they tend to have
difficulty with. Knowing and understanding this allows employees to have the ability to
decide what work is best suited for their skills and abilities in order to derive the most
possible satisfaction from it (Tavantzis and Emanuel 2006). Organizations that promote
this kind of open and honest self-discovery then, allow employees to take advantage of
related development opportunities, and find higher levels of satisfaction among their
workers. Other important leadership skills such as resiliency must also be allowed to
develop. Organizations should allow employees the opportunity to occupy positions that
require dynamic thought and are fraught with change, and make decisions that will lead
23
to a more resilient leader. Many employees that are not given the opportunity to gradually
work in stressful situations end up blaming management and others for their feelings of
distress. Instead of learning to deal with stress and build resiliency skills, they instead feel
victimized and become counterproductive. Organizations can overcome this possibility
by supporting and organizing resiliency strength development for their employees
(Siebert 2006).
Employee development is not only good for the employee, but also the organization. One
commonly overlooked aspect of employee development that also encourages employee
participation, is the practice of knowledge sharing. Transferring knowledge between
employees not only promotes collaboration in the workplace, but also serves to leverage
the expertise of a few individuals to a larger potential pool of workers. This practice has
served to be an effective mode to transfer much needed knowledge, but also as a
collaborative satisfaction tool as well. Organizations that concentrate on a proactive
approach to retaining knowledge can help to assure a higher level of organizational
satisfaction (Salopek 2005). An organization that takes the steps necessary to provide
stimulating and relevant development to their employees will experience employees with:
upgraded skills, working to their full potential and equipped to deal with the changing
demands of the workplace; employees with higher morale, career satisfaction, creativity,
motivation; increased productivity and responsiveness in meeting organizational goals.
24

Employees were once thought to be just a normal part of the production process of
creating goods and services. Today however, most organizations realize that employees
are much more than just input as part of the business generation process, and require
motivation and subsequent recognition in order to build and maintain employee
satisfaction. This section will consider the different methods associated with motivating
and recognizing employees, in order to achieve maximum employee satisfaction. Much
of the basis for employee motivation can be traced to the Hawthorne Studies, conducted
by Elton Mayo from 1924 to 1932. The major conclusion of this study was that
employees are not solely motivated by money and employer behavior and attitude have a
great deal to do with an employees satisfaction. After this initial research, understanding
employee motivation was the focus of many other researchers, the most notably being
Maslow, who developed the need-hierarchy theory. According to A.H. Maslow, peoples
needs resemble a pyramid. As basic needs are satisfied, higher levels of needs emerge and
motivate the employees behavior. Because of this, organizations need to provide a work
environment that will motivate employees above and beyond their physiological and
safety needs (Gray 2006). The analysis in regard to this topic will be done using the
analysis and research presented in Maslows hierarchy of needs theory (Fig. 1).
Figure 1: Maslows Hierarchy of Needs
Source: John Gray Awards
25
Motivation has been defined somewhat differently by many different researchers, but is
generally accepted as: the psychological process that gives behavior purpose and
direction; a predisposition to behave in a purposive manner to achieve specific, unmet
needs; an internal drive to satisfy an unsatisfied need; and the will to achieve (Lindner
1998). For this paper, motivation is operationally defined as the inner force that drives
individuals to accomplish personal and organizational goals. Having established a
working definition for motivation, the next step is to assess the role of motivation in
organizations. The obvious question that must be asked before assessing the role of
motivations in organizations is, why is it necessary or important to motivate
employees? The answer is one of economics. Motivated employees are more productive,
more engaged, and are satisfied workers. Employees that are motivated have a sense of
purpose and belonging, and therefore tend to exhibit greater loyalty to their respective
organizations.
A good example of an organization proactively assessing the factors that motivate their
employees can be found at the Piketon Research and Extension Center in Piketon, Ohio.
The Company developed a survey questionnaire consisting of ten factors and asked
employees to rank them in order of importance. A comparison of these results to
Maslows need-hierarchy theory provides some interesting insight into employee
motivation. The number one ranked motivator, interesting work, is a self-actualizing
factor. The number two-ranked motivator, good wages, is a physiological factor. The
number three-ranked motivator, full appreciation of work done, is an esteem factor. The
number four-ranked motivator, job security, is a safety factor. Therefore, according to
26
Maslow (1943), if managers wish to address the most important motivational factor of the
Center employees, interesting work, physiological safety, social, and esteem factors must
first be satisfied. As is the case in this example, an employee survey can help
management effectively identify the factors that they should consider in order to better
motivate their employees.
An integral part of employee motivation is making it constant and perpetual and one of
the best ways to accomplish this is with a formal employee recognition program.
Recognizing and applauding employees achievements and contributions are critical to
reinforcing desired behaviors. The best way to encourage desired behavior and create
enthusiasm for continued future improvement is to formally recognize employees.
Recognition programs have proven to play an important role in a companys employee
satisfaction and growth. Recognition programs serve to create positive environments that
encourage desired behaviors. Organizations that implement meaningful and effective
recognition programs often gain a competitive edge through increased employee retention
and an increase in overall employee satisfaction (Recognition 2006). This section will
highlight the benefits of formal recognition programs and site examples of successes with
recognition programs.
The implementation of effective award and recognition programs can create a positive
working environment that encourages employees to thrive. Recognition makes employees
feel valued and appreciated, it contributes to higher employee morale, and increases
organizational productivity. In addition, strong recognition programs are effective
27
employee motivation tools. They work to reinforce organizational goals, mission, and
vision (Brintnall 2005). The research in this area has consistently shown a strong
correlation between employee satisfaction and strong recognition programs. In a recent
Gallup poll survey of 80,000 employees, recognition ranked fourth among the 12
dimensions that consistently correlated with those workgroups that have higher employee
retention (Gallup 2006). These results only serve to reinforce the hypothesis that
recognition programs serve to motivate employees and bolster employee satisfaction.
Another issue the research has helped to clarify is that the recognition need not be in the
form of monetary payment. Employees have indicated that certain forms of recognition
such as: formal and informal acknowledgement, increased responsibility, better title, or a
special parking space, achieve the same desired result as a cash award. The key to
recognition programs being successful is to formalize them and make them a priority, like
any other corporate goal.
An effective recognition program must be aligned with organizational strategies and

goals. This will ensure that employees efforts are channeled toward the ultimate goals of
the organization. A well thought out and designed recognition program will take into
consideration factors such as: the goals of the program, the audience, the budget,
guidelines, communication, and methods of award. The following is an appropriate
example of the 12 steps of the recognition program at the Sony Corporation:
Step 1: Awareness. What will the recognition program be used for? Will it be
used for promoting safety, improving performance, driving quality, or building
morale? Define the goal for the program and promote the goal through standard
lines of communication in the company. Other communication methods may also
28
assist in communicating the program use posters, contests, group meetings,

department luncheons, fliers in employee paycheck envelopes.
Step 2: Define the audience. Determine what the behaviors are that need to be
changed or improved upon. Then determine whom the program will be targeted
for. Is it for all company employees, or one specific department? Identify the
people who will most benefit from the program and make a commitment to
promote the program in that group.
Step 3: Identify how your program will be set up. There is no cast-in-stone
formula to follow. Try different approaches and see what works best. Determine
if you will recognize individual performance or team performance. Will it be peer
recognition, or data and measurement related? Who will make the determinations
of who receives the award(s)? Will there be a deadline or time frame for
submission of candidates? Will the program take the form of a suggestion
program, or will it be performance based? Will there be a theme for the program?
The company must determine the criteria for the incentive or recognition before
the implementation, and then track the data. If the data does not reflect what is
needed, then either establish a new goal, or track a different data point but
either way make sure you communicate that the parameters of the program are
changing!
Step4: Build a budget. There is no set cost for recognition programs. Items may
be as inexpensive as a $5.00 gift certificate to a $50,000 car. The budget should
be based on what the company can afford to put forth. But, if nothing is put forth,
remember that a thank you only goes so far to improve morale or motivate
employees.
Step 5: Seek help if you need it. Look to industry groups, human resource firms,
or even your competitors to see what they are doing with their programs.
29
Step 6: Select the awards to be given. You value your employees. Why not extend
that value to award items that match what your employees value. Movies,
lunches, grocery certificates, electronics, quality clothing items, or cash are
examples of items that could be valued by employees. Take a survey and see
what people would like. Suggest price ranges (items under $20, items under $50,
and items under $100.) You may be surprised what employees come up with, but
be sure the awards are something they want. The biggest pitfall in recognition
programs is offering an item that is not valued by the person receiving it.
Step 7: Establish the rules for the program. Common criteria for the program
usually include: the duration or time frame of the program, the qualifications to
be considered for an award, the requirements to be met, the selection process, and
how the awards will be delivered. The rules should be clearly written, avoiding
buzzwords and jargon. Keep it simple and understandable. Make sure the rules
are fair and equitable to all parties involved.
Step 8: Communicate the program to employees and staff. Once the essentials are
in place, its time to get the employees involved and motivated! Develop a solid
communications plan for the program that determines what will happen (and
how) from beginning to end. Be as creative as you like, or delegate someone in
your company to oversee the program. What promotional materials will be used
and who will create them? How long will the initial promotional launch take?
Dont oversell or inundate the employees with too much information, but use the
tools available (e-mail, voice mail, meetings, intranet systems, etc.) At the midpoint of the program, use a company newsletter or e-mail, or some other tool to
communicate the changes that occurred because of the implementation of the
program.
30
Step 9: Track the changes in performance. Did the program have the desired
impact? Did employee attitudes or behaviors change in the desired way? Ask for
employee feedback on the programs success. Develop quantifiable methods to
determine if the program was a business success.
Step 10: Announce the winners. Congratulate the top performers but be sure to
show appreciation to the whole team for their efforts. Meetings provide the
perfect opportunity to recognize workers for a job well done. Public recognition
reinforces their achievements and serves as a reminder to others to do an even
better job next time. Send congratulatory letters to the employees at home (a nice
surprise) or at work. Not only can they share the kudos with their friends and
family, but they have a tangible token to remind them of their success. E-mail
announcements give instant gratification. Wired workers like to receive
immediate recognition and this option is cost-efficient and easy to implement.
But, be sure to ask employee permission to use their names, as some people do
not like to be recognized publicly.
Step 11: Deliver the awards. Pay attention to the details of the presentation. First,
a letter of congratulations is always required. Deliver any tangible awards on the
date promised. If a ceremony is to take place, be sure to get the buy in of the
participants, and determine if they would just like their name mentioned, or if
they would be willing to be called to the front to receive their award. Make sure
their immediate supervisor and top company officer(s) are on hand for the
ceremony. If the delivery is to be less elaborate, the supervisor and company
officer(s) should still be there to present the award and their congratulations and
thanks for a job well done.
Step 12: Maintain the momentum. Just because the program is over, doesnt mean
it cant still contribute to the business success. Will you run another program?
31
Will the principles and lessons learned from this program be transferable to
another program? Evaluate what worked (and what didnt) in this program and
apply it to the next one. Determine if this program helped enhance employeremployee communication, and ask employees for ideas and suggestions on what
to do next time, or differently (Recognition).
Although organizations may have different designs and plans for a recognition program,
this example from the Sony Corporation includes the essential elements necessary to
effectively effectuate positive employee behavior.
The important point to keep in mind regarding recognition programs is that they come in
all shapes and sizes and do not have to be expensive to initiate. The most important
factors are that they must be fair, consistent, and valued by the employees. As this paper
has previously noted, effective recognition does not have to be in the form of monetary
remuneration, but must be tangible and appreciated by employees. Most employee
surveys indicate that their organization lacks an effective recognition program, and also
that recognition programs are valuable at increasing employee satisfaction. Organizations
that are able to implement effective recognition programs often benefit from higher
employee morale, increased productivity, and a general increase in overall employee
satisfaction (Roche 2006).
Organizations are entities that have a life of their own. They are like a big machine with
many moving parts, diagrams, and purposes. Organizations are typically involved with
elaborate data collection, in-depth analysis, and making decisions based on the results of
that data collection (Wheatley 1994). Essential elements of an organization are the
32
employees that control the environment. In order to be successful in the organizational

environment, employees must understand the goals, structure, and procedures that
management has laid out as the basis for organizational operations. In todays competitive
and rapidly changing business environment, establishing and achieving goals and
objectives are common denominators of successful businesses. Goals are essential tools
that help employees and organizations alike, focus on the desired results of the business
strategy. Employees that are involved with goal setting tend to stay longer and be more
productive employees (Jewell 2006). The impetus is on management to set attainable
goals in accordance with the strategy of the organization, and then effectively
communicate these goals to employees. The focus of this section is to understand the
value and benefit of defining organizational goals, assessing employee expectations in
relation to those goals, and the effect of this discipline on employee satisfaction.
Figure 2: Organization Strategy
Figure 3: Organization Environment
Source: Ithaca State University
If you dont know where you are going, any road will get you there. This line from
Alice in Wonderland has been true in many organizations and companies. They often
dont have-or maybe dont articulate very well real business goals (Davis 2006). If the
leadership has no plan, or does not effectively articulate a plan to the employees, how are
employees expected to know and understand what goal they are working toward? For this
33
reason, it is necessary for management to set the goals, define the goals, develop a plan of
action to achieve the goals, communicate the goals to employees, and to follow up on
expectations (Fig. 2 & Fig. 3). Many issues that face management on a daily basis could
be diminished or eliminated by effectively communicating expectations to employees
(Findley and Amsler 2006). While the principles of setting expectations are well
understood, it is worth review. Without defining the organizations goals, employees will
lack the focus to stay productive and will soon become distracted and misguided.
Figure 4: Performance Management
Source: U.S. Office of Personnel Management
Employees today expect not only to fully understand the mission and goals of their
organizations, but to also be involved in many cases with creating the mission and setting
the goals. Goal setting is one of the most prominent and basic tools used by both
individuals and organizations to assist in guiding their direction and in accomplishing it
(Fig. 4). There are several important goal related terms that will be addressed here such
as: mission, objectives, strategy, and action plans. Allowing employees to be involved in
34
the goal setting process, whether by participating in the actual concept, or just
participative delivery, creates an atmosphere of collaboration and helps to enhance
employee satisfaction. Many researchers define a collaborative work environment as a
group in which people work effectively together to achieve business results and sustain a
positive work environment that includes work/life balance. Organizations wishing to
promote collaborative work among their employees create structures and practices that
encourage the desired results (Gewirtz 2005). Teamwork will be addressed in greater
detail later in this paper. The important point is to recognize the strong correlation
between employee involvement in organizational goal setting and positive organizational
results, including increased employee satisfaction.
Those that are involved in the organization and are affected by organizational outcomes
are called stakeholders. In almost every organization, employees are the largest group
of stakeholders. As is the case with any organization, the different stakeholders have
different motivations and different ideas of what is important to them and the
organization. Employee owned change and involvement in the process is practical and
functions as a discipline to focus energy on specific tangible goals. While most
organizations begin purposefully, economic shifts, changes in the marketplace, and
alterations in leadership values and styles impact organization effectiveness. The wants
and needs of the individual are essential input to the overall goal-setting process of the
group. If each group member is provided the opportunity to contribute to the goals of the
group, then the individual energies of the group members will be transformed into
achieving the common goal as a team (Carter-Scott 2006). The following section will
35
delineate several of the goal setting processes that employees should be involved with in
order to garner greater employee support and satisfaction.
The mission statement is a crucial element in the strategic planning of a business

organization. Creating mission statements is one of the first actions an organization
should take, but may be adjusted over time as the need arises. The mission statement
should be the foundation for the development and implementation of the organizations
business strategies (Cardani 2000). Because the mission statement is considered the
foundation for the rest of the organizations goal setting processes, allowing employee
input and involvement helps to engender a feeling of loyalty and trust among employees.
The next elements of goal setting that would benefit from employee involvement are
objectives and strategy. The objectives of an organization typically arise out of the
mission statement. The objective should be what the company will do to achieve its
goals. For example, we will grow our customer base through superior service. Goals
would then naturally flow from attempting to meet this objective. Once an organization
has determined its overall objectives, it must then develop a strategy, a general course for
meeting the objectives, taking into account the current situation and available resources.
Developing an overall strategy is quite often accomplished before goal setting begins
(Davis 2006). Employees all come to an organization with their own mission, objectives,
strategies, and goals. Allowing them to actively participate in the goal setting process for
the company that they work for creates a lasting loyalty and instills a sense of process
36
ownership. These feelings translate into satisfied, productive employees that are not only
willing, but also wanting to positively contribute to the success of the organization.
Communicating with Employees

The art of communication is a vital component of employee satisfaction and engagement.
Without workplace communication, nothing would be accomplished. Instructions could
not be given; equipment and supplies could not be ordered; progress could not be
measured; and services could not be delivered to customers. The five functions of
management: planning, organizing, staffing, leading, and controlling, are all dependent
on communication. Surveys conducted with highly successful managers consistently
highlight the benefits of effective communication (Slagle 2006). There are many different
methods of communicating in the workplace that include: face-to-face meetings, staff
meetings, small group meetings, department meetings, management forum meetings,
walkabouts, telephone conversations, mission statements, newsletters, bulletin boards, email, and intranets, just to name a few. All other components of this analysis would be
impossible to implement without communication. For that reason, this section will be
concerned with employee communication in the workplace, and the many considerations
involved with effectively communicating at work.
Employees communicate with each other and management in many different ways, as
well as being communicated to by management in many different ways. Employee
communication is a very powerful factor in the level of employee satisfaction that
workers in an organization have. From the perspective of the employee, communication
37
from management is a reaffirmation of what the leadership believes and stands for. For
this reason, the effectiveness and efficiency of communication in an organization is often
used as a barometer to gauge the performance and overall effectiveness of an
organization. In an article titled, Interpersonal Style and Corporate Climate:
Communication Revisited, Jay Hall (1980) states in regard to the importance of
communication:
High on the diagnostic checklist of corporate health is
communication. The ease with which information flows
downward, upward, and horizontally is often a major internal
indicant of organizational effectiveness; who listens to whom
may reveal the real as opposed to the apparent authority structure
in a firm; and the proportion of people who consistently fail to
get the message is frequently taken as a statistical baseline for
predicting the efficiency with which plans will be translated into
actions (p.216).
This statement highlights the importance of effective communication in the workplace,

and the potential negative ramifications of errant or misguided communication.
Communication is traditionally thought to have three main elements: a message, a sender,

and a receiver. However, this is a stark over simplification of the process involved in
workplace communications. Each of these stated elements has attached to it, several
factors that must be considered in the process of communicating. The first to be analyzed
here is the element of the message. Some of the more important considerations in regard
to the message are: clarity, purpose, audience, meaning, complexity, and pertinence.
Vague words or phrases may lead to ineffective results or no reaction at all from the
intended recipient. Different words have different meanings to different people,
38
depending on their age, economic status, position within the company, or cultural
background.
Simplicity and understandability are important factors to remember when attempting to

communicate in the work environment. The more words and punctuation there is in a
sentence, the more likely it is to be confusing to an employee. Precision and clarity are
keys to delivering the intended message and invoking the intended outcome.
The second element of communication is the sender, or source of the message. The
sender must be known to, or have relevance to the recipient in order for the message to
carry any importance in most cases. This element is closely related to the amount of
communication an employee is subject to in the workplace. In many organizations, mass
communications or cross-departmental communications are done everyday that do not
have particular relevance to everyone they are communicated to. This issue creates two
problems; first, it increases the amount of information an employee is subject to and
second, the information may not be pertinent to all those that read it. This situation has
the effect of employees, over time, becoming immune to certain communications. It may
also result in information overload, which may have an adverse effect on future employee
communication. Employees generally prefer to hear from their direct supervisor, but in
some cases, mass communication may be appropriate. As long as the sender of the
information is legitimate, known, and relevant, employees will be more willing to
internalize the message being sent.
39
The third element of communication is the receiver, which is closely related to the
element of the sender in the regard that the receiver must be relevant and known. A
relative message that is sent by a relevant sender, but is sent to an irrelevant recipient, has
no effect and is wasted communication. If the receiver of the communication is relevant
and is the intended audience, the message must be understandable to the employee. This
concept goes back to the element of the message itself. If it contains information that is
valuable and pertinent to the receiver, it will be received much better. Two important
factors involved in the communication process that involve the receiver, and are used to
ensure a successful communications loop, are follow-up and feedback. The sender should
follow-up with the receiver to see whether or not the receiver has interpreted the meaning
of the message as it was intended. To help facilitate this process, the receiver, in turn,
should provide adequate feedback to the sender of the information that gives an
indication that they received the information and understand its intended meaning. This
process helps to close the continuous communications loop and ensure that the
communication process was successful and effective.
This next section will consider communications in the traditional work environment,
expectations of employees, and managements responsibility in regard to effective
communication to employees. Many supervisors and managers already know and
understand how important it is to be effective communicators with employees.
Communications in the workplace is not just about communicating directives; it is also
concerned with building relationships, instilling trust, promoting mutual understanding,
and providing a tool for employee involvement. Like many facets of an employees job,
40
communication can be taught, and effective organizations ensure that it is. In most cases,
the communication style of an organization conveys the values and culture of that
organization. Communication is not only an important part of each internal department, it
is affected and shaped by the culture of a workplace and therefore demonstrates and
transmits the characteristics of a workplace culture. Communication patterns within an
organization typically follow the hierarchal model that exists, such as a command and
control management style. If an organizations management exhibits an open,
participative environment that is receptive to employee involvement, so too will be the
communication style of the overall organization (Communication 2006).
Just like the planned direction of a company, so too should organizational

communications have a strategy that is conveyed and understood by all members of the
organization. Many organizations fail to recognize the importance of highlighting internal
communications, but rather choose to assume that employees should automatically march
in lock step with organizational priorities, strategies and initiatives. The research on the
subject indicates that companies that focus on improving the effectiveness of their
internal communications experience increased productivity, employee satisfaction, and
market value. Communication in progressive organizations reflects a view of the
relationship with its workers. Management provides information to support participation
of the workforce in decision-making. Collaborative employee-management
communication is designed for the management and employees of an organization to
mutually understand the strategies, goals, and initiatives that exist. It also allows all of the
41
parties involved in these goals and initiatives to understand their roles, as well as
expectations, in relation to meeting the objectives to be attained (Wilkins 1989).
A major communications issue that many organizations face is the issue of trust. There is
a predominate school of thought that feels employees should only hear good news, or
information that has been slanted to sound good. This kind of perspective can lead to a
mistrust in management by employees and lead to degrading communications in the
workplace. Effective employee communication should be honest and should address
issues in a substantive manner. The goal of communication should be to facilitate the
bilateral flow of information that should improve the employees commitment to the
organizations goals and objectives. Leadership must also be open to feedback.
Employees need to believe they have a voice in the company and that their input matters.
The management of an organization must do more than talk about bilateral
communication; they must prove that it exists within the organization (Varelas 2005). If
employees see that the management of an organization is committed to a communications
process that is based on respect, dignity, trust, and shared ideas, they will participate in
the communications process openly and honestly.
This paper previously mentioned that an organization should have a strategy for internal
communications, and that strategy should be shared with all employees. Organizations
should delineate the communications expectations to employees and establish clear
guidelines for communicating in the workplace. The communications strategy should be
developed in order to encourage open two-way communication and also facilitate the
42
exchange of information necessary to conduct business. Having a strategy in place and

everyone in the organization understanding it, is good management and helps to promote
effective relationships within the organization. Some of the early research on this topic by
Blake and Mouton (1968) revealed that where management is effective and relationships
are sound, there are fewer problems with communication (Blake and Mouton 1968). The
starting point for developing internal organizational communication processes that build
trust and credibility is to establish a set of working principles as the foundation. Here are
some examples of such principles that could guide communication in an organization
trying to operate on the basis of trust and credibility:
It is essential that all employees understand the business
Communicating the rationale for, and details of, strategies, decisions, and actions
is vital
Immediate, general dissemination of critical information is needed
Communicate on a Right-to-Know rather than a Need-to-Know basis
The more important the information, the more people we tell
Negative information is used to improve the organization, not to punish people
Always say what you actually did and do what you say you will do
If you cannot tell employees something, at least tell them why you cannot tell
them
The issue of communication in the workforce is one of great breadth and size that covers
many different sub topics. Certain advances in technology have helped modern
communication, but at the same time, have created other issues that must be considered
when examining the communication process. One of the positives of the introduction of
technology to the communications process is the ability to communicate with many
43
employees quickly, without regard for geographic location. An issue that exists in
communicating with employees electronically is that most senders of information expect
that when a message has been sent, and subsequently received, that it has been
understood as intended. J. Douglas Brown (1973) said: The complex of technical
devices which have come to facilitate the process of communication in larger
organizations tends to divert attention from the essential truth that effective
communication is more a matter of minds than of machines (Brown 1973). It is very
easy to get lost in the technological advances that are related to communication.
However, it is important for organizations to concentrate on effective communication and
not get distracted by the technology itself (Harshman and Harshman 1999).
As this analysis indicates, effective organizational communication plays a major role in

employee satisfaction. Although this paper deals with specific components of the
communications process in the workplace, there are broader, general techniques that
managers can use to ensure open communication in the workplace. The following is a list
of ten general tips to consider when addressing communication in the workplace
(Flaherty):
1. Overcommunicate
Increase the frequency of your communication, particularly during
periods of rapid organizational change. Tell your employees what
you know, even if you preface it with Based on what I know
todaybut it could change tomorrow. Telling employees what you
know, even if it may be subject to change, helps build trust. On the
44
other hand, withholding information erodes trust levels between

management and employees.
2. Keep Your Door Open
Whenever possible, keep your office door open. In addition, make
sure your body language also tells employees that you have an open
door policy. Crossing your arms, sighing over interruptions, and not
looking at the speaker all say that you may be accessible, but not
approachable.
3. Review Schedules
Keep your employees updated on your schedule. Knowing your
schedule will help them prioritize their work and allow them to make
better decisions relevant to supporting you. Knowing their schedules
will help you understand their current pressures.
4. Offer Assistance
On a regular basis, ask your employees, What do you need from
me? Doing so gives employees the opportunity to update you on
projects. It also prompts you to provide the information needed to
keep those projects on schedule.
5. Call In Frequently
If you are away from the office, touch base with your support team
on a regular basis. Doing so allows you to respond quickly to
messages and troubleshoot potential issues that may have surfaced in
your absence. It also says to your employees, indirectly, I care
enough to check in with you when Im gone.
6. Hold Regular Meetings
45
Keep employees informed about management decisions, goals, and

direction. Allow employees time to question issues that impact them.
Have employees update one another on the status of their projects.
Scheduling short, well-planned departmental meetings on an ongoing
basis will not only keep employees informed, but also boost team
effectiveness.
7. Keep Personalized Files
Keep an anecdotal file for each employee. Doing so will help you
stay informed and current about that particular employee. A simple
note saying Janice said that she plans on taking a computer course
in the fall will not only help you remember the fact, but impress
Janice when you bring the point up in later conversation.
8. Conduct Quarterly Reviews
Want to make annual reviews less dreaded for both manager and
employee? Conduct quarterly reviews. Doing so allows the employee
time throughout the year to address performance issues. Meeting
with an employee on a quarterly basis also conveys to an employee,
Your success is important to me.
9. Tackle Tough Issues
Conflict is alive and well in most organizations. What differs from
organization to organization is the way conflict is handled. Healthy
organizations address conflict. We recently ran across the term
carefrontation. It takes courage and guts to honestly communicate
the real issues to people. When you do not honestly discuss but
instead sidestep the tough issues, employees may feel that you do not
care. If you do care, you will confront people with compassion.
46
When you honestly communicate, even the tough issues, people trust
you because they know you really value them.
10. Commit to Communicating
Communication is an art, not a science. You can easily learn
principles related to communication, but to become a master, you
must practice. Monet was not a great artist the first time he put a
brush to canvas. It took years of practice! With practice and
commitment to effectively communicating with employees, you will
eventually become known as a great boss.
These tips are not meant to be an over simplification of the communications process in
the workplace, but only as indicators for the foundation of an effective workplace
communications strategy that will enhance employee satisfaction.
An often over looked aspect of effective communication is listening. Listening is just as

important as speaking, when it comes to communication. The supervisor who is a good
listener is more likely to have employees who help identify and solve work related
problems. It is important for managers to be aware of barriers that exist when receiving or
listening to messages, just as they must do when sending messages (Slagle 2006). High
performing organizations provide channels for upward communication and listen to what
employees say. A common factor revealed at many high-performing organizations is the
very effective channels of communication that exist from the employees up to
management. In these organizations, employees feel that their messages are heard by
management and quite often used in the decision making process (MacGregor 2006).
Employees have an intrinsic need to know that their input counts and that when they
47
attempt to communicate with management, the message is received and understood. All
staff, no matter their length of tenure should have frequent opportunities to clarify goals
of their work and give and receive feedback about how they perform their jobs. It does
not matter what the content of the message may be, as long as workers feel that they can
effectively and openly communicate with the management of the organization
(Communications Strategy 2006).

Only motivated, committed workers can successfully compete in the global marketplace.
Working smarter can only be achieved with an involved workforce. Teamwork has been
proven to improve many of the factors related to employee satisfaction that includes
increased motivation and productivity (Harper 1994). Teamwork is now being used as a
behavioral modification tool, used to increase employee satisfaction and motivate groups
of employees toward organizational goals and objectives (Morley and Heraty 1995). The
assumption behind teamwork is to upgrade autonomy that is realized in terms of
identifying the best way of practicing a job to achieve the highest performance through
continuous search of employees for alternative ways of work practices. Increased
autonomy is expected to foster self-fulfillment and make jobs significant (Ross 1999).
Teamwork is often viewed as an efficient and motivating method of coordinating and
condensing the individual contributions of individuals into one cohesive outcome. In this
regard, teamwork is viewed as a motivational tool for the purpose of enhancing
individual input and involvement through a group of employees working together in team
environments (Rodwell et al. 1998).
48
Teamwork is not a new concept. Americans have cheered on their teams for as long as
there have been teams. However, the concept of teams has tended to be relegated to
sports and media, rather than in business environments (Wellins et al. 1991). The sports
analogy is often used to cite the benefits of teamwork in organizations. The idea being
that a true team is a group of cohesive equals with a common goal. The team functions as
an organic whole where the group truly is greater than the sum of its parts. The term
self-directed work teams has been used since the 1950s to describe teams of
employees working together toward one common goal. There is no universally accepted
way of designing one of these teams because the formation process should be
participative, and will probably differ from organization to organization. In the typical
work environment, a self-directed work team is an intact group of employees who are
responsible for a whole work process or segment that delivers a product or service to
an internal or external customer. In essence, individuals work as an autonomous team that
plan and control their work in order to achieve specified organizational goals and
objectives (Wellins, et al. 1991).
Extensive research in the field of employee satisfaction has supported the hypothesis that
employees derive pleasure and satisfaction from socializing with their co-workers, with
the greatest source of satisfaction coming as a member of an on the job team. That is a
tremendous source of morale for employees. In fact, a good deal of the interaction while
socializing is work related. Teamwork contributes to an environment of socializing
between employees, in regard to work matters as well as non-work related matters. This
49
socializing contributes to a solidifying of relationships between employees. This social

interaction and team environment leads to the establishment of an effective and cohesive
work community (Sirota et al. 2005). Although teamwork has been shown to improve
employee satisfaction and worker productivity, it is often not managed well or even
promoted by some organizations. Teamwork requires dedication and attention from
management in order to be an effective morale and production tool. Teamwork is an
important factor to manage well. Teamwork requires constant managerial attention and
knowledge of the important elements associated with effective teamwork. Managers
should understand the personalities involved in teams, the forming process, and the
factors associated with successful team formation (Special 2006).
Teamwork carries with it the connotation of collective thought and action. Ironically, the
research that has been done on teamwork shows that the process actually encourages
autonomy and personal flexibility. Due to the continuous improvement principle,
teamwork is expected to give rise to increased involvement in decision-making and
greater responsibility that requires a wide array of skill base leading to higher complexity
and autonomy. Several researchers have found that employees realize greater job
satisfaction and autonomy when able to work in teams (Ascigil 2003). Therefore, an
organization that promotes and encourages teamwork, and that provides an environment
receptive to teamwork, stands to improve both employee satisfaction and productivity. It
is claimed that the experiences of employees about team-based initiatives are shaped by
multiple factors. Organizational behavior research has shown that management practices
give rise to particular job attitudes on the part of employees. It has been found that the
50
participation associated with teamwork leads to positive effects on job satisfaction and to
the commitment level of employees (Boshoff and Mels 1995).
Thus far, this section has focused on the positive attributes and benefits that stem from
effective teamwork in an organization. There are however, negative effects of ineffective
teamwork, or dissatisfied members of a team. When a member of the team experiences
problems or worse yet, causes problems for other members of the team, the affected
employee is not the only one that suffers. In fact, the issue may result in a breakdown of
team cohesiveness and productivity. In fighting by team members cannot only cause team
ineffectiveness, but also lead to individual mistrust and paranoia (Sirota et al. 2005).
Because teams are a composition of individuals, they present many unique problems that
must be addressed in a timely manner by management, as well as by the team members
themselves. Quite often teams experience problems during the formation and norming
stages of team development. Going in circles is a perfectly natural evolutionary stage and
one that is important for the development of the group. Teams must go through different
stages of formation in order to achieve autonomy as a group element. It is necessary for
teams to experience tension and conflict on its way to becoming an effective entity.
Groups that recognize and deal with conflict early on are much better equipped to handle
issues that may arise later in the process (Wellins et al. 1991).
In addition to the employee satisfaction benefits that an organization is able to reap as a

result of effective teamwork, there are other tangible benefits as well. These include
employee empowerment, trust in management, and an engendered feeling of
51
organizational involvement. Employee involvement practices have been one of the

techniques extensively used for improvement purposes by pioneering organizations.
Among those initiatives, redesign of work combined with job enrichment are two that are
widely aiming at quality increases by creating jobs that entail autonomy and feedback.
All of which are accomplished by effectively employing a teamwork strategy (Hackman
and Oldham 1980). As was previously stated, management has an important role in
ensuring the success and intended outcome of teamwork in the organization.
Management needs to fully understand the teamwork concept and realize that unless
management behaves differently, nothing will change. Management needs to give the
work-teams clear direction on what needs to be accomplished and autonomy and control
over how they do the tasks. Teams should be given clear guidelines and understand the
parameters that they are empowered to work within (Harper and Harper 1994). With the
proper guidance, team members learn to act more like managers that are part of a larger
organizational focus. Both management and the employees in the team can learn from the
teaming process while contributing to the accomplishment of organizational objectives
(Wellins et al. 1991).
Empowerment in the workplace is an often-misunderstood concept. Employee
empowerment is a term that many managers and organizations think they understand, but
few actually do, and even fewer really put into practice. Many managers feel that by
empowering employees, they relinquish the responsibility to lead and control the
organization. This is not the case. Empowerment is actually a culmination of many of the
52
ideas and tenets of employee satisfaction that have been discussed previously in this
paper. For an organization to practice and foster employee empowerment, the
management must trust and communicate with employees (Fig. 5). The single most
important element of employee empowerment is communication. Consistent
communication from management in regard to every facet of the organization empowers
the workforce and engenders a feeling in them as active participants in the success of the
company (Adams 2006). Employee empowerment has been described and defined in
many ways but is generally accepted as: the process of enabling an employee to think,
behave, act, react, and control their work in more autonomous ways, as to be in control of
ones own destiny. Effective employee empowerment not only has positive implications
for employee satisfaction, but also many other organizational facets, such as customer
service and retention. This section of the paper will consider the implications of
employee empowerment as a factor in employee satisfaction.
Figure 5: Leadership for Empowerment
Source: Nova Southeastern University
53
A great deal of managerial discussion has centered on the need to empower employees
and give them a sense of ownership and pride in their work. Options have included
flattening organizational pyramids and using team management. Many companies
actually set out to increase employee empowerment by attempting to increase the level of
entrepreneurship within the company (Denton 2004). Traditionally, entrepreneurship has
been thought of as a concept of independence and self-direction, a concept that is
diametrically opposed to the process of a synergistic organization. However, the concept
of entrepreneurship has been employed in successful organizations and is often referred
to as corporate entrepreneurship. Corporate entrepreneurship focuses on ways to
encourage entrepreneurial activities in corporations, and seeks to identify relevant factors
associated with corporations that exhibit characteristics most often associated with the
individual entrepreneur (Gartner 1988). The concept of corporate entrepreneurship is
becoming more important to organizations everywhere as the need increases to retain
good employees, while at the same time needing to constantly compete and innovate.
Empowerment and entrepreneurship can be synonymous terms when trying to prompt
employees to operate with more autonomy, take action, and ultimately control their own
destiny. This motivational action often leads to employees feeling more independent and
in control of their work situation, which in turn, is translated into greater effort and
improved work productivity (Miecevole 2006).
The most important factor in effective employee empowerment is bilateral

communication. Employee surveys and evaluations show repeatedly that empowerment
and communication rate highest in regard to employee satisfaction in an organization
54
(Appendix 4). Companies committed to employee empowerment provide more

information in greater detail than the average company. As previously mentioned, a key
to employee empowerment is effective and honest communication. It requires that
management increase the amount of time they devote to actively communicating with
employees, as well as how they go about doing it (Hildula 1996). Communicating and
sharing information accomplishes several objectives that are not only important for the
empowerment process, but also for overall employee satisfaction with the organization.
The sharing of information lets people understand the current organizational situation in
clear terms. It begins to build trust throughout the organization and breaks down
traditional hierarchical thinking. Information leads to employees accepting more
responsibility, making informed decisions, and having an understanding of the goals and
objectives of the organization. Information ultimately empowers employees to act as
stakeholders of the organization (Blanchard 1996).
It is also important to remember that communication must work both ways. That is to say,
employees must be allowed to have a say in issues that they are required to work with.
This includes the opportunity to offer ideas and solutions to situations that may confront
the organization. An important factor to consider when discussing idea generation is the
treatment of the people involved in the process. It is vital that the participants receive
feedback and feel that they have ownership in the process. People must know that their
ideas will be listened to and, if they have merit, acted upon. If they do, it is possible to
mobilize individual creativity on a very broad scale (Champy 1995). Making sure the
55
participants are treated fairly and as equal partners in the process is a key to successful
innovation and creativity.
Everyone involved in the process must believe that anything is possible and that
exploring new paradigms and ways of thinking are the goals. Fear of failure and
retribution for unsuccessful ventures cannot be presented as impediments to the process.
Punishing the innovator when an innovation fails is the best way to ensure that no one
ever attempts to be innovative (Hammer and Champy 1993). One last note about the
people involved in the process is in regard to the hiring of the people themselves. Far too
often we hire people in our own image. By doing this, we inadvertently create a uniform,
standard line of thinking and methodology. The most efficient way to introduce creativity
and innovation into an organization is by hiring creative and innovative people. In order
to effectively do this, the leadership of an organization must be willing to step outside of
their comfort zone and hire people that may be different from themselves (Freiberg
2004).
Employee empowerment requires a strong and lasting commitment from an

organizations management. A pervasive misconception in relation to employee
empowerment is that it is a top down desire. Employee empowerment comes from the
individual. That is not to say that management ceases to have the responsibility to lead
the group and is not responsible for performance. In fact, companies that seek to
empower employees demand stronger leadership and accountability. This strong
leadership and accountability must start at the very top and permeate all levels of
56
management. Once the organization becomes a cohesive, understanding team, the real
benefits of employee empowerment can then be realized (Butcher 2006). It is up to the
management of an organization to lead the empowerment process, even though it is most
likely the employees that are advocating the issue. Creating and stimulating employee
empowerment in established organizations is not an expeditious proposition. It is an
easier proposition in newer organizations where the leadership has made empowerment
of its employees a priority from the beginning. For this reason, it is incumbent on the
leadership of established organizations to demonstrate the benefits and expected
outcomes of employee motivation initiatives to employees (Fox 1998).
Employee empowerment is an acknowledgment by an organizations management that

they realize that their employees have a lot to offer. Employees derive satisfaction from
many aspects of employee empowerment endeavors, not the least of which are the
corresponding benefits that allow an organization to become more competitive,
profitable, and innovative. An organization can realize many benefits from learning how
to properly empower its employees; not all of which are strictly monetary. Empowered
employees can have many positive effects on an organizations performance as a result of
the innovation that comes with empowerment. Empowered employees that operate more
independently tend to be more creative and innovative, thereby benefiting the
organization in possible other ways (Hayes 2003). Traditional top down management
tends to stifle worker productivity, create barriers to innovative solutions, and adversely
affect employee satisfaction. Employee empowerment utilizes a participatory
management style that requires a great deal of employee involvement to be successful.
57
The concept of employee empowerment differs from traditional workplace

democratization initiatives because of the extent to which employees have control over
the outcomes of their own performance. (Dimitriades 2001).
The government has also researched the benefits of empowering employees. In a 2005
review of 100 workplace studies, the U.S. Department of Labor examined the link
between progressive employment practices and improved bottom line results. The
Department found that a positive correlation exists between motivating and empowering
employees and significant improvements in productivity, employee satisfaction and
financial performance (Clark 2006). Many employees that are not empowered by their
organizations feel underutilized, micro-managed, and helpless to make positive changes.
These feelings and attitudes not only adversely affect the employee, but also the
organization. As has been stated before, research has shown that empowered employees
improve organizational performance and possess higher rates of satisfaction. A major
competitive advantage that stems from an organization empowering its employees is the
universal understanding and support of the organizations goals and corporate strategy
(Vinas 2001).
A good lens by which to examine the employee and organizational benefits of employee
empowerment is through the customers of the organization. It is a well-known fact that
companies who are truly successful in delivering exceptional customer service have
several traits in common, one of which is employee empowerment. This empowerment is
exhibited by employees that are able to make on the spot decisions for the benefit of
58
customer service delivery (Healey 2006). There are now many companies that tout
employee empowerment as a selling point to prospective customers. They advertise the
fact that the employee empowerment philosophy allows their employees several
important capabilities, including the ability to respond intelligently and independently to
customer needs, and make critical decisions on-the-spot. Because employee
empowerment leads to more satisfied and motivated employees, organizations are able to
deliver higher quality, lasting customer service (Catapult 2006). Since our society has
become a service related society, with a service-based economy, empowering
employees to make customer service related decisions is imperative to organizational
success. It is necessary for customer service employees to exercise a higher level of
personal judgment than their manufacturing counterparts because of their proximity to
the customer service delivery experience (Huq and Stole 1998). Using this reasoning, one
can easily see that empowering employees to make customer service related decisions
will result in the satisfaction of the customer, employee, and subsequently, the
organization.
In addition to the employee, organizational and customer benefits already cited here,
employee empowerment holds added benefits and outcomes for employees. One of the
measures of success for any organization is the personal growth and development of its
employees. Empowerment allows employees the opportunity to build on their current
skill set. Being empowered gives them the ability to use all the skills that they already
possess as well as gain new skills and experiences. Being able to practice these skills and
exercise their creativity and innovation will help them improve upon future performance
59
(Hayes 2003). When encouraged and managed properly, empowerment can be a great
solution for many organizational problems. Once organizations and employees are able to
understand and practice employee empowerment, they can then begin to recognize
personal and corporate growth that results from the empowerment initiative (Butcher
2006).

Trust and a positive work environment are important elements in developing
interpersonal relations at work (Billikopf 2006). Employees gauge how they are regarded
by management in many ways, but the words that managers use and the way they are
delivered are critical to employees perceptions of whether they are respected or
disrespected. A multitude of job satisfaction surveys indicate that when employees are
treated with respect by the management of an organization, the organization reaps the
benefits of increased retention, increased productivity, and an overall increase in job
performance. However, When employees do not feel respected the results are
correspondingly negative (Pounds 2006). This section of the paper will focus on key
elements of interpersonal interaction with employees, such as: empathy, sensitivity,
conflict resolution, stress, sexual harassment, and creating a generally accepting and
congenial workplace, all of which are key elements in employee satisfaction.
Peoples reactions to change are generally not logical from an outsiders (ie. Managers)
perspective. People react according to their own needs at the time. People differ in the
value they place on satisfying different needs, so peoples reactions to any change will
60
differ from person to person. Empathy is generally considered the ability to put ones self
in the position of another and try to understand the emotional impact on them as a result
of the situation (Bacal 2006). An important part of supervision and management is the
ability to react empathetically when necessary, in order to foster a perception of
understanding and be able to promote employee satisfaction. Research has shown that
empathy, to a certain degree, is an innate emotion that most humans are born with. For
example, babies seem to understand sadness and crying, or the laughter of others. The
research also shows that empathy can be coached, trained, taught. In his book Emotional
Intelligence, Daniel Golemans (1995) identifies five emotional competencies. Among
them are four that appear to be necessary to manage others respectfully: the ability to
identify and name ones emotional states, the capacity to manage ones emotional states,
the capacity to read, be sensitive to, and influence other peoples emotions, and the ability
to enter and sustain satisfactory interpersonal relationships (Pounds 2006). These four
competencies are all related to the ability of a manager to be empathetic toward
employees.
In order to promote employee morale and maintain employee satisfaction, it is necessary

for supervisors and managers to display the ability to be sensitive to the problems
workers occasionally have. Accepting an occasional request for a sympathetic, listening
ear, or for advice, is simply part of a supervisors job. A supervisor who can help workers
cope with their difficulties may deflect further exacerbating issues stemming from the
original problem. The sooner workers cope with their problems, the sooner they can
concentrate on their jobs. This does not mean to infer that supervisors and managers need
61
to become personally involved with an employees situation, but rather be able to help the
employee to find a resolution to the problem (Billikopf 2006). The point is to be sensitive
and approachable to and for employees. This does not always have to be on a reactionary
basis and may result in increased employee satisfaction if done on a proactive basis.
Toward this end, supervisors and managers should begin to understand each person as a
distinct individual with unique problems and passions. As an example, child care is often
a concern. If you can exhibit sensitivity for that issue, in most cases, you could mitigate
anxiety by helping people integrate their children into their work lives. Many employees
will react to this positive outcome by performing at a higher level and exhibiting greater
energy for their work (Freiberg 2005).
It is an obvious assumption that employees are satisfied when their work situation is
congenial and free from conflict. However, this cannot be the case all of the time.
Conflict is an inevitable part of our workday life as different values and points of view
provide richness and tension. When conflict in the workplace does arise, the impetus is
on management to actively take steps to resolve the conflict (Melamed 1996). Conflict
resolution is not meant as a tool to give employees what they think they deserve, but as a
way to settle differences that may arise in the workplace. The main reason to confront
conflict is to reach a resolution. Without resolution, conflict merely becomes an
opportunity to recycle old arguments and disagreements. When conflict is unresolved, it
takes on a life of its own and eventually produces damage that could have been
prevented. Proactive organizations provide an atmosphere conducive to resolution and
opportunities for employees to voice concerns and be involved with change processes
62
(Kemp-Longmore 2000). If employees understand that potential conflict will be dealt

with in a constructive manner, they will tend not to let issues fester to the point that job
performance or others are adversely affected.
Many times conflict in the workplace is the result of two employees that experience
issues with one another. When this is the case, mediation may be the best course of action
for an organization to implement. The mediation process attempts to amicably settle a
disagreement between two parties by using an objective, third party as an arbitrator in the
dispute. This Mediator listens to the positions of the parties, considers amicable
alternatives, and offers a potential solution to the issue (Mediation 1997). Mediation is
not used solely for the resolution of problems between two individuals, but also for issues
that may arise between departments, divisions, or teams within an organization. The
mediator can design and facilitate a process that creates a safe place to focus on what is
not working in the group(s), and help find ways to bring new focus and clarity. The
objective of conflict resolution, whether for individuals or groups, is to promote
understanding and enhance employee satisfaction in the workplace.
Another important factor in maintaining overall employee satisfaction in the workplace

for organizations is the ability to establish boundaries. Anytime a group of people works
together in one place, boundaries must be established, whether formal or informal. A job
description should set the basic parameters or boundaries for individual responsibilities,
but these boundaries will probably need to be further defined. Interpersonal parameters
should be negotiated as well. Because boundary issues can have an impact on
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productivity and employee satisfaction, the leadership of an organization should address

them and establish parameters (Leadership 2006). The definition of a boundary is the
ability to know where you end and where another person begins. Typically, when terms
like space, limits, and autonomy are used, they are in reference to boundaries. It is not a
correct assumption that having good boundaries will result in distancing employees from
each other (Gafner 1996). When clear formal boundaries have been established and
delineated, it will be easier for informal boundaries to be formed. The term boundaries
is a very broad term that can encompass: physical space, sexual harassment, acceptable
language, authority, processes, and general operating guidelines. If organizations take the
time and effort necessary to establish formal boundaries, employees will possess an
understanding of the expectations and be prepared to deal with situations related to
boundaries.
Interaction in the workplace and the effective use of interpersonal skills is a factor in
creating a congenial workplace environment and sustaining employee satisfaction.
Managers should understand that bad employee interaction or incorrect use of
interpersonal skills will adversely affect employees attitudes and performance. Because
people congregate at the workplace everyday, each with their own issues and sets of
circumstances, the workplace experiences its share of negative communication. An
organization is defined by its structure and rules. The more employees know and
understand about the organizations structure, the more efficient the organization will
operate (Kirby 2002). The main point is that if employees understand that the
organization has policies and procedures in place to deal with issues relating to
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interaction in the workplace, they will be better prepared to deal with related situations
when they arise. Knowing that there are defined expectations for interpersonal
communications will lead to increased productivity and increased satisfaction in the
workplace.

Organizational culture is generally defined as the ways of thinking, behaving, and
believing by the members of a particular social unit (Cooke and Rousseau 1988). Culture
may also have indirect effects on performance in benefiting other aspects of an
organization. For example, researchers have found that organizational culture is linked to
service quality and employee performance, both of which have been identified as
fundamental links in Harvards Service Profit Chain leading to subsequent consumer and
financial success indicators (Klein, Masi, and Weidner 1995). As this paper has stated, the
key to enhancing employee performance is the ability of an organization to maintain
employee satisfaction. Therefore, establishing an organizational culture that promotes the
elements necessary to enhance employee satisfaction would prove to have a positive
affect on customer retention and corporate profitability as well.
It was not that many decades ago when businesses viewed people as machines. During
the Industrial Age, the little attention that employees did receive was focused on speeding
production, mechanizing human movement and ensuring a consistent product. Business
leaders wanted employees to follow orders and suppress individuality. Today, we
recognize that people are not machines, but powerful resources that help business
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succeed. Employees are now recognized for their important creative and innovative
contributions to industry and business in general (Frazee 2004). This paper has thus far
focused on many of the elements necessary in order to promote and sustain employee
satisfaction. These elements however, need a fertile ground for implementation and
sustainment. This section of the paper will consider the importance and necessity of an
organizational climate that will allow these elements to thrive and continue to promote
employee satisfaction to the maximum extent possible. Many different facets of
organizational behavior that would be conducive to fostering these elements such as:
leadership attitudes, assessment programs, HR focus, the learning organization concept,
organizational structure, organizational values, and the people first concept, will be
examined (Appendix 5).
The tone of an employee-oriented organization is set at the very top of the organization
with its senior management team. The leadership of an organization must set the example
for employees and communicate and exhibit the traits of commitment, honesty, ethical
behavior, and teamwork. The following six behaviors are essential for leaders in
establishing an organizational atmosphere conducive to a high level of employee
satisfaction:
Create an environment for empowerment
Create an environment for innovation
Create an environment for organizational agility
Create an environment for organizational learning
Create an environment for employee learning
Create an environment that fosters and requires ethical and honest behavior
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These behaviors serve to instill a trust in management by employees that is necessary to

cultivate an atmosphere of mutual trust and commitment.
Figure 6: Management/Employee Performance Cycle
Source: Ventana Research
Organizations are facing major challenges in the modern day marketplace that often times
have adverse effects on employees. Because employment environments have become so
complex, the need for effective and enlightened leadership has become essential (Earle
1996). Success in this dynamic business environment requires that everyone in the
organization trust one another and be working toward the same common goal (Fig. 6).
This should be the goal of leaders seeking to leverage the satisfaction of their employees
in order to achieve maximum benefit for the organization.
Leaders can create cultures, whether it is a culture of service, profitability, or employee

focus. There are many examples of this from Southwest Airlines to Wal-Mart. Leaders
must practice what they preach and pledge tangible support to initiatives that have been
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planned and promoted to the employees of the organization. If an organization

communicates to its employees that they are valuable and essential to the success of the
company, they must act upon this notion. If these organizations fail to invest in the
development of their workforce, they are sending a message that their statements are
nothing but shallow and unsubstantiated talk (Frazee 2004). In an effort to stay
competitive and increase margins during the recent past, organizations have focused on
automation and processes. Many organizations have just focused on operational
efficiency, which is only one piece of the larger business performance puzzle. The most
important asset, the one that operates and manages the business, are the employees of the
organization. Having a motivated and satisfied workforce has a positive effect on the
performance of the business (Smith 2006). Good leadership can assure an organizational
atmosphere that will accomplish business goals, and at the same time, assure a high level
of employee satisfaction by maintaining a strong focus on the employees of an
organization.
An important element of creating an organizational environment that is conducive to the

input and suggestions of employees is the ability of employees to provide feedback to
management. A particularly effective way of doing this is through the use of an employee
survey or assessment. Progressive organizations attempt to survey their employees on a
regular basis in order to gauge the level of commitment and satisfaction of the workforce.
This proactive approach captures the voice of the employees and provides actionable
feedback to management. This will most often result in such benefits as enhanced
leadership, enhanced strategic planning, collaborative efforts, more effective
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communication and employee teamwork. Collaborative, forward-thinking organizations

understand that fostering a culture of employee satisfaction requires direct input from the
organizations employees. In order to remain pertinent and valuable, the attitudes and
input of the employees should be assessed on a regular and continual basis. Employees
should be involved in assessing the different aspects of the organizational culture.
Organizational leadership should strive to measure all parts of the business that can have
an effect (positive or negative) on the quality or impression of an organizations culture
(Frazee 2004).
The employee satisfaction objective recognizes that employee morale and overall job
satisfaction are now considered highly important by most organizations. Having satisfied
employees is not only an ethical consideration for organizations, but satisfied employees
are also necessary for increased productivity, customer service delivery, and the ability of
the organization to exist as an economic entity (Kaplan and Norton 1996). If employees
understand that they will be given the opportunity for input in a non-judgmental forum,
without fear of retribution, they will be more willing to do so. Their satisfaction and
confidence in management will be enhanced if they are able to see action taken on the
concerns voiced, or feedback given during the survey process. Employee satisfaction
surveys should be taken very seriously and management should act on the results, as
employee satisfaction is a direct indicator of employee retention and employee
productivity. A well-designed survey may generate actionable information about
employee morale, and/or the efficiency and effectiveness of work and organizational
processes. Employee surveys can play an important part in improving elements related to
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enhancing the abilities of an organization to function more effectively in every respect

(GuideStar 2006).
Organizations that considered themselves to be human resource focused concentrate on

ways to enable employees to develop and utilize their full potential. They also undertake
efforts to build and support a conducive environment for employee growth and
development (Human 2006). In an attempt to be more relevant in todays rapidly
changing business environment, some organizations are redefining the human resources
function in order to better serve company and employee needs. At Eastman Chemical
Company, human resources is matrixed to the business organizations, and as a business
partner it is responsible for helping to define the needed competencies as the first step in
hiring the right people (Lancourt and Savage 1995). This strategy allows the human
resource function to operate with more agility and be more responsive to both the needs
of the company and the workforce.
Throughout this paper effective communication processes and methods have been linked
to increased employee satisfaction. Communication is also an integral part of
organizational behavior, often referred to in this context as knowledge sharing.
Knowledge sharing can have a significant impact on employee satisfaction and should be
considered a key factor in any organizations culture. There is a revolution going on in
the workplace. Knowledge is replacing infrastructure and empowered self-starters are
replacing direct supervision. Instead of multi-tiered hierarchies, computer networks and
virtual teams are replacing human management and committees. Internet connections
70
have replaced the need for co-workers to be located in the same geographic location
(McShane and Von Glinow 2004). We live in a knowledge-driven economy.
Organizations are only as intelligent as the individual employees that make them up.
Corporate entities therefore, are only as good as their people (Bradley and Russiello
2000). For these reasons, it is imperative that organizational cultures be adapted to
communicating effectively in such environments.
The subject of formal knowledge management systems is a complex issue and will be
addressed more comprehensively later in the paper. From an organizational behavior and
culture perspective, management of an organization should recognize the importance and
impact on employee satisfaction, of an effective knowledge management strategy. Two
important factors concerned with knowledge management strategies are employees
having unfettered access to knowledge from all areas of the organization, as well as
having access to information they need to efficiently perform their jobs (Trubisz 2006).
Because of rapid technological advances and changes in the way that employees
communicate with peers, subordinates, management, and customers, organizations need
to examine how information and knowledge is communicated. These technological
advances in communications and knowledge management are reshaping the field of
organizational behavior, and require a defined culture in order to be effectively managed
by employees.
An element of organizational culture that has a profound effect on employee behavior and
satisfaction is the structure of the organization. Organizational structure is the established
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formal hierarchy of positions, roles, and work flows within an organization (Porras and
Robertson 1992). This structure represents the coordination of the different functions
within the organization that work together toward the accomplishment of organizational
goals. Within this structure there exists defined roles of authority, divisions of labor, and
assignment of responsibility (Tetrick 1995). Issues may arise if the organizational
structure is too hierarchal in nature and becomes too bureaucratic for employees to
understand or work within its structure. Learning organizations eliminate the traditional
organizational hierarchy and instead promote local control and decision-making.
Learning organizations invest in improving the quality of thinking, the capacity for
reflection and team learning, and the ability to develop shared visions and shared
understandings of complex business issues. Organizations that are able to exhibit
structural flexibility and the ability to evolve will maintain a competitive advantage over
the hierarchal competition (Senge 1990).
Organizational values are an important factor in supporting employee morale and

satisfaction. However, leaders of organizations cannot be perceived as hypocritical when
it comes to living the stated values of the organization. There are many studies that have
shown the power of meaningful values to energize employees, providing them with a
sense of purpose and identity in an ever changing and dynamic work environment.
Building bricks and mortar facilities is an easy task for companies. However, the
challenge for organizations is to build an environment of trust, respect, and open
communication. It is the establishment of these values that will help an organization
establish and promote its reputation, highlight their values, and create an environment
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that is sought out by employees (Freiberg and Freiberg 2004). The most important aspect
of establishing organizational values is the ability of employees at all levels to trust the
values and not view them as just an attractive tag line on a lobby sign.
Employee Benefits
Due to escalating costs, family needs, retirement, flexibility and a myriad of other
personal desires, an employees benefits package has become an important part of their
job, as well as their level of commitment to and satisfaction with the organization they
work for. Because of the costs involved, many organizations today have to make a
choice: Offer an attractive benefits package and forgo profits, or cut back on employee
benefits and risk harming employee morale or even losing good employees. With the
ability to maintain qualified and satisfied workers at a premium today, providing
attractive benefits to employees is an important consideration for any organization. Due
to an exponentially increasing economy and a growth in new businesses, employees in
many cases, have the advantage in employment negotiations (Ruddy 2001). Employees in
todays economy expect more than just access to reasonable employer provided medical
insurance. Other benefit considerations may include: dental insurance, eye care,
accidental death, short-term and long-term disability insurance, generous vacation,
holidays, sick/personal days, pension plans, dependent care, flextime, and various other
possibilities. The key for management is to be able to provide as many of these benefits
as possible to ensure an adequate level of employee satisfaction, while at the same time
being able to maintain organizational profitability.
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Most employees require, at a minimum, some sort of employer provided healthcare plan.
This employee requirement is being bolstered by many states that are now requiring
employers to provide at least a basic form of healthcare coverage for their employees, or
face fines, penalties, or a minimum payment into a state funded plan that would then
cover their employees. The realities of rising healthcare costs have resulted in employees
being forced to accept a greater financial burden in order to cover costs and still keep the
expenses at a reasonable level for the organizations that they work for. Although this
negatively impacts employee satisfaction, the situation is much the same at every
organization throughout the country. A large appliance manufacturer based in Ohio has
had to engage the assistance of its employees in order to continue to offer a viable
medical benefits package. To continue offering good health coverage to some 24,000
U.S. employees, Whirlpool would have to revamp its approach. Employees would be
asked to meet the company halfway (Huff 2005). Although employee satisfaction is
initially negatively impacted by the situation, organizations that work with their
employees to improve their medical benefits will engender positive sentiments at the end
of the process.
The negative ramifications stemming from an organizations resistance to work with their
employees on maintaining or bettering their medical benefits can be devastating to the
morale of the workforce. Wal-Mart is the latest example of this, as exhibited by a recent
internal memo that was made public referring to high medical coverage costs, and the
impending need to hire healthier workers. Although the memo proved devastating to the
morale of the workforce, as well as being a public relations nightmare, it did point out
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certain realistic issues associated with providing adequate healthcare benefits to

employees. Wal-Marts efforts capture the struggle that all of corporate America is having
in trying to control fast-growing health and benefits costs. And the most frightening
statistic in the memo is this: Only 48 percent of all Wal-Mart employees are covered by
the company health plan (Hollan 2005). If these percentages rise much higher, Wal-Mart
and its employees could face an insurmountable crisis, as could many other businesses in
America.
A benefit that organizations are able to offer most days that can have a constant, positive
affect on employee morale is a flexible work schedule or liberal time-off policy. With
vacations shrinking, flexible time-off plans are increasingly being regarded by both
workers and employers as the best way to ensure that employees actually take days off
when they need them. Sixty-three percent of U.S. companies now use some form of
flexible paid-leave bank, compared with 21 percent in 2000 (Weber 2004). The number
of hours of work a job requires, the arrangement of hours, and freedom (or lack of it) in
determining work schedules effect the non-work part of a persons life, the time available
for family, leisure and self-development. There is a growing dissatisfaction on the part of
employees over the number of hours they are being required to work, excessive overtime
requirements, and a sense of inflexible work hours (Milkovich and Boudreau 1997).
Organizations that are able to allow their employees flex time schedules, often find a
higher level of employee morale and satisfaction as a result of being able to offer the
benefit.
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Another major benefit focus that can affect employee morale is having a viable retirement
benefit available to employees. With the future of social security benefits in the U.S.
being uncertain, at best, employees seek to ensure that there is some form of employer
assisted or provided retirement plan available to them. Anyone who has examined the
American social security system to any extent knows that the system is in danger of
insolvency in the very near future. Because most Americans will spend 20% to 25% of
their lives in retirement, financial security after employees retire is a major consideration
(Taube 2001). Because retirement is such an important and ever present topic for most
workers, organizations that provide retirement benefits to their workforce are in a better
position to enhance employee satisfaction with the organizations benefit package.
Employee Motivation
Motivational theories were briefly mentioned in the motivation and recognition portion
of this paper. This section will offer a more in-depth, analytical perspective of
motivational theories. Many of the topics covered thus far in this paper are elements that
serve to motivate employees such as: development, compensation, training, etc. However,
in addition to these elements that motivate employees are the theory and practice of
motivation that can be practiced actively in the workplace. This section will examine
several of these theories and practices, as they relate to employee motivation and overall
satisfaction in the workplace. This section of the paper is predicated on the heavily
researched hypothesis that motivated employees are satisfied employees. The job of a
manager in the workplace is to get things done through employees. To do this the
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manager should be able to motivate employees. This having been said, actual employee
motivation is not a simple proposition due to of all of the elements associated with
employee motivation theory (Accel 2006). Human nature can be very simple, yet very
complex too. An understanding and appreciation of this is a prerequisite to effective
employee motivation in the workplace and therefore, effective management and
leadership.
Figure 7: Employee Motivation
Source: Accel Team
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In order to maximize productivity and efficiency in the workplace, employees must be

motivated. When employees feel motivated they are more creative, more efficient, and
most importantly, satisfied with their work and the organization that they work for (Fig.
7).
The theory of motivation is really rooted in the field of psychology. Because of this, one
can infer that motivation is unique to the particular individual, affected by different
circumstances. Motivation is the set of processes that moves a person toward a goal. The
purpose of behavior is to satisfy needs. A need is anything that is required, desired, or
useful. A want is a conscious recognition of a need. A need arises when there is a
difference in self-concept (the way I see myself) and perception (the way I see the world
around me) (Allen 1998). Although there are several cited motivation theories, two of
the more popular will be discussed here: Maslows Hierarchy of Needs, which has
previously been mentioned in this paper, and Herzbergs Two-Factor Theory (Fig. 8).
Work motivation is one of the key areas of organizational psychology. Using these two
different motivational theories, this paper will analyze the motivation triggers used to
maximize employee motivation and satisfaction.
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Figure 8: Motivational Theories
Source: Gemmy Allen
79
Frederick Herzberg developed a two-factor theory of motivation that makes clear what
the employer can bring to the motivation partnership. According to Herzberg, two factors
affect employee motivation: dissatisfiers (sometimes referred to as Hygiene) and
motivators. While at work, the organization is in control of both factors (Erven and
Milligan 2001). Dissatisfaction (hygiene) or extrinsic factors, excessive hours, unsafe
working conditions, job security, and low wages, produce job dissatisfaction. Motivator
or intrinsic factors, such as increased responsibility, adequate training and development
opportunities, recognition, and satisfying work, produce job satisfaction (Fig.9).
Figure 9: Motivation & Satisfaction Levels
Source: Ohio State University
The implications for the employers side of the motivation partnership are clear. The
dissatisfiers must be removed before motivators can work. Employees working in unsafe
conditions with unfair pay will not be motivated by recognition and delegation of
additional responsibility. However, if improvements in both safety and pay are made,
employees may still not become motivated. Instead, if all else remains the same the
employees will become satisfied but not motivated (Erven and Milligan 2001).
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The second of the two psychological theories of motivation, and probably the most
widely recognized, was first introduced by Abraham Maslow and is known as Maslows
Hierarchy of Needs.
Figure 10: Maslows Hierarchy of Needs (illustration)
Source: Gemmy Allen
Maslows Hierarchy of Needs identifies five levels of needs, which are best seen as a
hierarchy with the most basic need emerging first and the most sophisticated need last
(Fig. 10). People move up the hierarchy one level at a time. Gratified needs lose their
strength and the next level of needs is activated. As basic or lower-level needs are
satisfied, higher level needs become operative. Therefore, a satisfied need is not a
motivator (Allen 1998). The basic human needs, according to Maslow are: physiological
needs (lowest), safety needs, love needs, esteem needs, and self-actualization needs
(highest). This theory indicates that mans behavior is therefore dominated by his
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unsatisfied needs. As each need is satisfied, another is created, making the cycle a
perpetual, ongoing activity of searching for perfection through self-development (Accel
2006).
Motivating employees is a constant task that requires an understanding of employee

psychology, as well as an understanding of individual motivators. The key to motivation
unlocks human potential. To be effective, managers need to understand what motivates
employees within the context of the roles they perform. Of all the functions a manager
performs, employee motivation is one of the most complex management issues they face.
As employees find an outlet for their creativity and satisfaction with their work, the work
they perform becomes a more important part of their life. As a result, employees become
more productive and experience higher rates of satisfaction with their employment
(Erven and Milligan 2001). In the past, managers assumed incorrectly, that all it would
take to motivate employees is to pay them more. It is conceivable for an organization to
have more employees than a competitor yet produce less and have disgruntled, lowoutput employees even though the organization is paying their employees more than the
competitor. The research has clearly shown that increased motivation and satisfaction can
increase worker output. Organizations are beginning to understand that they are able to
motivate increased productivity and employee satisfaction by means other than financial
incentives (Increasing Productivity 2005).
The foundation of good human relations, the interaction between employer and
employees and their attitudes toward one another, is a satisfied work force. Job
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satisfaction is the degree of enjoyment that people derive from performing their jobs.
Satisfied and motivated employees are more likely to have high morale, loyalty and
commitment. As a result, they tend to be more dedicated and make larger contributions to
the initiatives and goals of the organization (Allen 1998). An organizations level of
understanding of how to motivate its employees can be considered directly related to the
level of productivity and employee satisfaction realized at the organization.
Chapter 3
Increased Employee Satisfaction Leads to Increased Creativity and Innovation
One of the more beneficial results of increased employee satisfaction is the potential for
employees to exhibit more creativity and innovation. It has been found that increased
levels of creativity and innovation in employees have a positive effect on the corporate
profitability of an organization. It is important to note however, that creativity and
innovation are positive by-products of satisfied employees, therefore making it important
for management to focus on the previously discussed elements of employee satisfaction.
This section will consider the important elements and factors typically associated with
employee idea creation and innovation, as well as give examples from one of the most
innovative companies in the world, Apple Computer Corporation.
The term creativity has many different definitions, depending on the context in which it is
used. However, a commonly accepted definition of the word is: inventing something new,
or previously unconsidered. The generally accepted definition of innovation is: making
changes to, or modifying something that is existing or established. Innovation must add
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value either through a new product, a new process, a new market for an existing product,
and so forth (Pech 2003). Both creativity and innovation have played major roles in the
success of many companies around the world. This happens when an organizations
employees are put in the position of being able to think outside of the box or
encouraged by management to find better ways of doing things.
Organizations are learning that their employees are a great source of previously untapped
knowledge and potential solutions to problems. Learning organizations find ways to
encourage their employees to openly think about new processes by challenging the old
ones. A common practice in companies today is the use of brainstorming as a tool by
which to collectively create new ideas and perspectives. Brainstorming occurs when a
group of people in the same forum, offer ideas and suggestions without much
forethought. Everyone is encouraged to offer as many ideas as possible without fear of
retribution, and with the understanding that no idea is too ridiculous for consideration.
After the initial session, the members of the group go back to all of the ideas and evaluate
them in more depth and detail. Surprisingly, many great ideas and new innovations have
been spawned using brainstorming sessions.
More and more organizations are realizing that innovation will be the key to future
success for them. According to one of the worlds foremost authorities on innovation, Dr.
W. Edwards Deming, Innovation, the foundation of the future, cannot thrive unless the
top management has declared an unshakeable commitment to it (Deming 1986).
Organizations that have satisfied the basic needs of their employees, then allow them the
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freedom and latitude to me creative and innovative, are quite often times the beneficiaries
of profitable results. Companies such as Apple Computer Corporation, 3M, and IBM
have built massive global businesses on the abilities of their employees to be creative and
innovative. It is important to note that innovation and creativity can be actively
discouraged by the management of an organization, just as they can easily be encouraged
as well.
Innovation Process Examples to Learn From

The following examples stem from issues that were faced by the 101st Air Lift Wing
located at the Bangor International Airport, in Bangor, Maine. The first issue is in regard
to the desire for a flexible cup holder to be installed in the cockpit of the Wings KC-135
Stratotanker airplanes. Because of the increasing amount of hours the pilots were being
asked to fly, as well as the need for them to have to use both of their hands, it was
decided that cup holders should be installed in the cockpits of the aircraft. Rather than
ask the pilots, crew chiefs, or maintenance staff about a solution, the Commanders of the
base decided to retain an engineering firm from another state.
After spending more than six months and more than $100,000 for a design-build solution,
the engineering firm came back to the Commanders of the Squadron with a $1,000,000
proposal for a complex cup holder that contained a computerized gyro. In addition to the
exorbitant costs, this solution would have taken more than eighteen months to implement.
It was eventually decided that due to the costs and time requirements that nothing could
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be done to address the problem at the time. Therefore, the engineering firm was paid their
$100,000 for the design and the project was terminated.
Shortly thereafter, a group of pilots was sitting at lunch discussing the issue. Each would
offer an idea that was subsequently written down by one of their counterparts. After an
hour, and more than fifty viable ideas, the pilots began to analyze each idea on its merits.
In the end, a viable solution was found. One of the pilots had a boat with cup holders in
it. The line of thinking was that an airplane has similar motion to a boat most of the time.
In the end, cup holders with swivels were purchased from a local boat dealer for less than
$5 a piece and subsequently installed on all of the aircraft. This is a good example of
informal brainstorming producing an innovative idea that proved to be both efficient and
cost effective for an organization.
Another example from the 101st did not have the same results, but should serve as a
learning tool for organizations that attempt to introduce idea creation and innovation
initiatives into their culture. In this case, The Logistics Squadron had been experiencing
issues with the scheduling and movement of certain aircraft maintenance kits used for
deployment activities. In an effort to find a suitable solution to the issue, a Process Action
Team (PAT) was formed and a schedule of meeting times was set. The members of the
team were a cross sectional representation from many other organizations on the base,
including the Wing Commander, a Brigadier General.
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In the first meeting the issue was discussed and it was decided that the group should
engage in a brainstorming session to introduce alternative ideas and solutions to the
problem. As the brainstorming began, group members would make their comments as
someone wrote them down in front of the group. In a short period of time, the General
began making disparaging remarks about the ideas that were offered. This quickly
resulted in members of the group becoming silent and unwilling to offer any further
ideas. In the end, because the process was not supported and encouraged at the top, the
initiative was left unresolved. The group was disbanded and the problem persisted
without resolution
Suggestions for Improving the Innovation Process

The previous two examples highlight the importance and necessity for management to
encourage employees to be innovative and creative. Creativity is most likely to occur
when people have the freedom to pursue their ideas, and this pursuit must be
accompanied by the encouragement of management and the support of the corporate
culture in which it operates (Gryskiewicz 1999). For this reason, organizations that seek
to enhance the creative and innovative thinking of their employees must show public
support for the idea and take steps to actively encourage employee creativity and
innovation. Because of the success and terrific example of employee creativity and
innovation at Apple Computer, the next section will highlight some of the initiatives at
the company.
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Apple: An Example of Creativity and Innovation

It is no secret to most people on the planet that Apple Computer Corporation is very
successful and known for their many innovative products. The creativity and innovation
that the company is known for however, did not occur by accident or happenstance. It
was however, because of corporate leadership that understood the value and benefits that
could be derived by encouraging employees to be creative and innovative. Apple has not
always been successful, and in fact was close to insolvency before Steve Jobs was
appointed Interim CEO in 1998. At the time Jobs rejoined the company in 1998 the stock
price was $13 per share and just two short years later, it was $118 per share.
Understanding that innovative products and services were the key to building Apple,
Steve Jobs said in 1998, the cure for Apple is not cost-cutting. The cure for Apple is to
innovate its way out of its current predicament (Linzmayer 1999).
Due to the belief that innovation and creativity are the foundation of success, the
Executive Management team at Apple takes many proactive steps to ensure the
innovation and creativity are encouraged. The process at Apple begins with the hiring
process. Apple has access to some of the brightest minds in the technology industry, but
the company is seeking creative and innovative people as well as just smart people. Once
the innovative employees have been hired, Apple has many incentive and reward
programs in place that encourage and foster an atmosphere conducive to entrepreneurial
behavior.
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From the invention of the iMac computer, to the invention of the iPod, and now to
innovations like iTunes, Apple can thank their encouragement of creativity and
innovation. Other, newer high tech companies are examining the successes at Apple and
adopting many of the innovation strategies that made Apple such a success. One of these
companies is Google. The similarities between the two are striking, to say the least. The
game is changing. It isnt just about math and science anymore. Its about creativity,
imagination, and above all, innovation (Berner and Brady 2005). Apple should serve as
a good example of the benefits that can be derived from an organization that actively
encourages its employees to be creative and innovative.
Chapter 4
Customer Service, Loyalty, and Retention
The first part of this paper concentrated on the employee satisfaction element of the
Service-Profit Chain. The paper will now consider the elements of Customer
Satisfaction. Obviously, continued commerce requires a customer in order to maintain a
perpetual business cycle. A customer is the conduit between the employee and any profit
potential that an organization may realize. It is now widely accepted that profitable
customer experiences are no longer transaction based, but rather relationship based. For
an organization to maximize the Service-Profit chain strategy, they must not only
concentrate on employee satisfaction, but they must also become customer-centric.
Being truly customer-centric requires that everyone in the organization be aligned to have
contact, or the opportunity to affect customers (Mitchell 2003).
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The topic of customer satisfaction/retention has grown immensely in recent history. It is

not enough anymore for an organization to just provide good customer service; they must
ensure that they are engendering customer loyalty. At the heart of customer-centricity is
the concept of the customer value equation. This equation suggests that the value of
goods and services delivered to customers is equivalent to the results created for them as
well as the quality of the processes used to deliver the results, all in relation to the price
of a service to the customer and other costs incurred by the customer in the acquiring the
service (Heskett, Sasser, and Schlesinger 1997). This relationship will be the basis for
the analysis presented in the next section of this paper. The elements of customer
satisfaction, retention, and loyalty will be analyzed comprehensively in order to better
understand their impact on employee satisfaction and corporate profitability. Many
elements of customer service will be considered, as well as several concepts regarding
customer loyalty and retention. Evidence will be presented to support the hypothesis that
loyal customers effect employee satisfaction and contribute to corporate profitability.
The Customer-Centric Organization

Market conditions are driving organizations to become more customer-centric. In order to
provide the best possible customer service experience possible and differentiate ones self
from the competition, organizations are beginning to transition from being productcentric to being customer-centric (IBM 2006). Organizations are realizing that the
common denominator between product or service delivery and corporate profitability is
the customer. Because of this, many organizations are redesigning their current business
strategies around the customer-centric philosophy. Organizations are recognizing that just
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like employees, inventory, or cash, customers are a valuable asset that should be managed
accordingly. Not only do customers generate revenue for an organization, what they say
and how they feel can influence future revenue. Customer-centric organizations listen to
their customers and react accordingly. They view their business strategy from the point of
view of the customer, and thus reduce expenditures on unwanted processes, and at the
same time create new business opportunities as a result of customer feedback.
The definition of a customer-centric organization is: an organization that defines,

markets and sells its products and services from the customers point of view. The term
itself has become overused, as many organizations say they are customer-centric, but few
really are. It is important for organizations that claim to be customer-centric to deliver on
the proclamation or risk alienating customers who rely on the statement. If customers
have a reasonable expectation that they will be the focus of the organization, it is
imperative that they are. Organizations that fail to deliver on the promise of focusing on
the customer, often suffer the consequences in the form of economic loss (Gomolski
2005). Becoming customer-centric involves many of the elements that this paper will
now consider such as: branding, marketing, service, measurement, and customer service
management (CSM) programs. Actually becoming a customer focused and driven
organization requires more than just deciding it is a good idea in order to boost sales. As
the analysis in this paper will show, becoming a real customer focused organization
requires dedication, time, commitment, and a great deal of effort.
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In their quests to become customer-centric, organizations must consider that it is not

enough just to take care of the customer today, they must think beyond today and plan for
what the customer will desire tomorrow. Organizations must do more than anticipate
customers stated needs. They need to go beyond stated needs and become proficient at
anticipating unarticulated needs and desires (Hamel and Prahalad 1994). This is not
always an easy thing to do, especially when technology is involved. However,
organizations that make the investment required to change their whole way of thinking
often find that the process is made easier. At the heart of becoming a true customercentric organization is the ability to create value for the customer whenever they come
into contact with an organization. What drives this new model is not profit but the
creation of value for the customer, a process that lies at the core of all successful
enterprises. Value creation generates the energy that holds these businesses together, and
their very existence depends on it (Reichheld 1996).
Organizations that become customer-centric understand that their business is no longer

about the product or service that they once provided; it is now about the customer that
uses the product or service provided by the organization. Customers dont buy products
or services; they buy results. The attitudes and quality of the service provided to
customers is an important consideration (Heskett, Sasser, and Schlesinger). Customercentric organizations ask questions differently. Their values, mission, and organizational
structures exist for the customer, not the organization or its owners.
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Customer acquisition and branding are also important elements of the ability of an
organization to attract and retain customers. This is important for several reasons that
include acquisition expense, the message being sent to potential customers, and the
ability of the brand to attract customers. Organizations need to consider whether they
will advertise themselves as lowest cost, highest quality, or having the best possible
service available. All of these considerations play into the ability of an organization to
attract new customers and then keep them.
The way organizations make themselves known to potential customers is by creating a

brand. A brand is an asset and should be marketed and accounted for accordingly. A
strong brand is highly recognized and in many cases, specifically sought after by
consumers. Some brands such as Coke and FedEx are even used to describe a whole line
of products in a certain market segment. Although this is an unrealistic expectation for
most companies, they should still be aware that a brand is what identifies an organization
to customers. Brands over time are able to engender customer loyalty. Consumers that are
loyal to brands seek out and will only purchase those brands, no matter what the cost
(Kaplan and Norton 1996).
Organizations should design identifiable brands that a diversified customer base will
recognize and find attractive. Developing a strong brand not only creates loyal customers,
but also gives an organization better pricing power and economies of scale when
advertising. The goal of an effective brand should be to become synonymous with the
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products and services of the organization. Good brands receive word of mouth
advertising and strong consumer recognition. Brands should be treated as assets and
accounted for accordingly. Because good brands can distinguish an organization from its
competition, protecting and strengthening them should be a priority.
Customer Acquisition and the Internet

One of the major changes in marketing for customer acquisition in recent years has been
the proliferation of the Internet. Many customers only shop online, and the numbers are
growing exponentially every year. For this reason, customer acquisition and marketing
via the Internet deserves a more in-depth analysis. Once a company makes the decision to
enter into an e-commerce strategy, the implementation of this strategy is only the first
step. When an organization does decide to attract customers online, it must take the steps
necessary to identify whom it is they will conduct business with online, how they will
attract that business, identify who their customers are, and identify ways to keep their
customers. In short, the Company must develop an Online Marketing strategy. Sometimes
attracting customers in an online environment can be more difficult than drawing them
into a traditional customer business interaction. However, there is now a much larger
pool of potential customers from which to draw. Once a definitive marketing strategy has
been developed, the organization will be able to better identify, attract and keep the new
customers they attract to their website.
Internet marketing is not just comprised of a website presence online; it is a discipline

that requires several steps in order to be successful. As organizations attempt to develop
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marketing strategies, they must consider the intended audience that they are seeking to
have as customers. Being able to identify and understand potential customers is a very
important consideration for Internet marketing (Warholic 2005). Even though the Internet
can seem like an endless number of customer prospects, it is just as important to identify
who the target customer is as it is in a traditional marketing environment. Firms must
understand that e-commerce isnt strictly a numbers game; its a people-serving activity.
To be successful at e-commerce marketing you need to see the vast number of people on
the Internet as real individuals, each with needs, desires, and preferences (ISM 2006). It
is important and invaluable to understand the customer in order to be an effective
marketer. It is also important to target the customer. Without this understanding and
failing to have a targeted marketing plan geared toward the customer, the probability of
failure exists in an online environment.
Business-to-business (B2B) e-commerce the area that encompasses electronic buying

and selling transactions between organizations, has become central to doing business
effectively. If B2B strategies are well developed and executed, they can provide an
organization with improvements in productivity and cost savings (Neef 2001). According
to the latest statistics compiled by the U.S. Department of Commerce, B2B activity
accounted for the majority of all e-commerce (93%). Customer acquisition, sales, brand
awareness, and customer retention will need to be a major focus of the firms marketing
plan. B2B marketing must be concise and task specific to the potential customer.
Efficiency and speed must be highlighted as benefits of using a specific organizations
B2B platform, rather than that of a competitor. Targeting B2B customers means that an
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organization is marketing to the busy employees of other companies. It is important not to

inundate them with elaborate messages and flashy branding graphics (McHale 2002).
Effective B2B marketing messages should resonate a feeling of ease, expediency, choice,
and security. In the end, it is the relevance of a sites content to its business audience that
drives adoption and usage from that audience.
The more a company can offer to a potential business customer, the more attractive the
product or service. Once a relationship is established, both companies can benefit from
shared information and economies of scale. Many business-to-business relationships
evolve into strategic partnerships between organizations. These relationships entail very
high levels of information sharing, strategic planning, and unprecedented communication
(Greenberg and Greenberg 2006). The relationship often evolves into strategic alliances
between business partners. Before this can happen, the potential business customer must
be able to see the advantages of doing business with an online platform. In order to be
effective and relevant to the business audience, B2B marketing efforts should be targeted.
A major factor to the success of B2B commerce solutions is the ability of an organization
to understand fully to whom they are marketing, and what it is they are able to provide in
terms of added value for the customer (Horn 2005). This highlights the importance of an
effective online marketing strategy that will accurately depict and describe the B2B
solutions that an organization has to offer.
Business-to-consumer (B2C) electronic commerce is a form of electronic commerce in

which products or services are sold from a firm to a consumer, as opposed to a business.
An organizations goal should be to grow its online business platform and be able to offer
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expanded products and services to its customers via the Internet. The average online
customer today is not what they used to be. They are more educated, savvy, and searching
for pertinent information. To succeed in this environment, companies must recognize
that the growth of the channel is coming from the mainstream consumer, and that this
shopper has different expectations and priorities than the early adopter (Levitan 2001).
An effective online marketing strategy must emphasize the ability to respond and adapt to
rapidly shifting consumer expectations.
Successful consumer focused e-commerce requires that attention still be focused on the
service aspect of the transaction. Although the transaction may take place in an online
environment, the individual consumer will still require that a level of perceived service
be delivered. Conventional as well as B2C services face challenges of
maintaining high service quality. A McKinsey study of best practices of successful ebusiness firms (2001) found that successful companies consciously or unconsciously saw
themselves as service companies and took pains to find out and deliver what their
customers wanted (Dholakia and Pandya 2002).
A prerequisite for attracting potential customers to an organizations website is having an

effective communication strategy in place to attract potential customers to the site
(Chaffey 2002). The two different techniques used to accomplish this can be
characterized as traditional offline marketing communications or new online
communications. Offline marketing is attracting potential customers to the website using
means other than online advertising or marketing. This is typically achieved through
using traditional print, radio, and television media for the purpose of driving offline
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business online. Online communication strategies can take many different forms and be
delivered differently. Many online advertising strategies incorporate some or all of the
following in order to attract customers: Internet market research, e-mail marketing,
promotion and e-business advertising, banner ads, and search engines. This is by no
means a comprehensive list, but a compilation of the most frequently used.
Target Marketing
Customer acquisition is only the first step to customer retention and loyalty, but an
obviously important step for the customer relationship with an organization on the whole
(Fig 11).
Figure 11: Customer Acquisition/Experience Model
Source: Suzanne Taylor
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Targeted marketing is a critical component of any marketing success. Attracting and

retaining profitable customers and turning potential customers into actual customers can
prove to be a huge challenge. By understanding the demographic characteristics,
lifestyle behaviors and purchase preferences that drive your audiences, you can
successfully tailor your marketing strategies to reach those most likely to purchase your
product or service, increase your customer loyalty and improve customer profitability
(Claritas 2006). The marketing concept teaches us that were all in the business of
acquiring new customers and retaining existing ones, and that success in business is
largely the measure of our ability to carry out these functions effectively. Every
organization should develop a marketing mission with the end goal of acquiring and
retaining new customers (Falkson 2004). As a result, the marketing of a companys
product or service is imperative to new customer acquisition, and subsequent customer
retention.
Adding to the practice of treating potential customers as being more than just one-time
events is the consideration of the customers life cycle. Customers are rightfully regarded
as markets. But this is a gross definition. A more appropriate definition may be to
consider the customers life-cycle events as the markets themselves. This is where the
opportunity to grow customers will be found (Hanan 1987). An organization should begin
by developing a strategy for both the customer base and the potential target market
segment to identify the highest value customer segments and best customer acquisition
opportunities. The link between internal data and marketplace indicators provides
powerful information in regard to possible purchasing preferences. The result of the
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information derived from this link helps to reveal which products and services certain
customers are likely to want (Claritas 2006). To better illustrate the importance of
understanding the value of a potential customers purchasing behavior, consider the
following example: In 2003, the annual expenditure of an average new customer was
$250.00. That same customer spent $500 in 2004 and $1,000 in 2005. Therefore, the lifecycle value (assuming a 3 year retention rate) would have been $1,750.00 per customer.
Assuming an organization had 1,000 new customers in 2003, and a life-cycle value of
$1,750 per customer, this translates into $1,750,000 in sales over the three years.
As previously identified, the key to effective customer acquisition is having a defined

market for an organizations product or service. A problem that many organizations
encounter is a market that is too broadly defined. In this case, the organization will realize
higher advertising and marketing costs which result in lost opportunities that even a fully
integrated marketing campaign cant rectify (Gartner 2005). The key for an organization
is to properly define the potential customer, then market to them with the long-term
benefits in mind. The importance of measuring the long-term effects of marketing has
been emphasized by managers and academics alike. Managers should refrain from the
propensity to focus on short-term profitability initiatives at the expense of long-term
profitability (Villanueva et al. 2006). It is imperative that organizations overcome this
tendency when marketing for customer acquisition.
The process of customer acquisition is an important step in cultivating a loyal customer

base. It is also an expensive business function that must show a payback in the form of
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added revenues for an organization. Marketing investments need to show demonstrable

impact on revenue. This has caused marketing professionals to seek new ways to grow
their customer bases that include lead acquisition, message communication, and
appropriate target market identification (Sutker 2006). Despite the costs of doing so,
acquiring new customers is the lifeblood of any organization or business. An organization
should ensure that this initiative is part of their current marketing plan and ensure that it
is a primary initiative. Keeping an eye on new customer acquisition trends is essential for
keeping an organizations finger on the pulse of its business. This is important because
customer acquisition initiatives are the most expensive part of an organizations
marketing efforts. (Waugh 2000).
Successful organizations are rethinking the way they advertise and market to their
potential customer base. Instead of viewing a customer as a one-time transaction, they are
instead taking the long-term outlook and viewing the potential customer as a lifelong
event. Service-profit chain management is changing the face of marketing. Market share
quality, defined primarily in terms of the share of loyal customers served, is becoming the
primary goal instead of simply having the largest market share (Heskett, Sasser and
Schlesinger 1997).
Delivering World-Class Customer Service

Once an organization has been able to acquire a customer, they must do whatever it takes
to keep them as a repetitive customer. Because so many products have become
commodities, and because competition has become so fierce globally, companies need a
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way to set themselves apart from the competition. The best way to accomplish this is
through delivering great and memorable customer service. Most customers exhibit
similar traits and qualities they are self-absorbed, they expect organizations to meet
their needs immediately, and to attend to their every need with a smile. Customers do not
care about other priorities employees may have. They expect to be the employees
priority and be attended to when they are ready (Evenson 2000). Because customer
service is such an integral part of customer retention and loyalty, this paper will devote a
great deal of time and analysis to the topic. Providing superior customer service is just
good business, and may be the only thing that sets an organization apart from the
competition.
The lack of appropriate service is one of the most common complaints of all consumers.
The simple fact is that most of our service businesses dont serve very well. Many
businesses are renowned for their lack of service, although they are in service providing
businesses. Some examples include airlines that are constantly overbooked and lose
luggage, restaurants that employ poorly trained people, and hospitals that employ nurses
too overworked to provide attentive service. Because these situations are so
commonplace, many consumers do not even recognize these lapses in proper service
delivery when they happen (Senge 1990). Customer service is one of those often-talked
about and promoted issues, but rarely delivered in a consistent fashion. Successful
organizations have one common central focus: customers. It doesnt matter if its a
business, a professional practice, a hospital, or a government agency, success comes to
those, and only those, who are obsessed with looking after customers(Blanchard and
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Bowles 1993). Walls throughout corporate America are plastered with mission, vision,
and values statements that state how important customer service is. It is not enough to
talk about customer service; it must be delivered time and time again.
Customers everywhere have some common expectations when they are engaged in a
purchasing situation. The following list is by no means comprehensive, but yet has
universal applicability:
Value
I want to know that what I am buying is at a fair price, and will be supported
throughout the length of my ownership.
Communication
Let me know what I need to know, when I need to know it.
Attitude
Happy, eager, willing prepared to meet my needs.
Reliability
Consistent be there when I need you.
Tangibility
Quality of product and performance professional image
Assurance
Deliver when you promised total product knowledge.
Empathy
Understand me and my needs. Give me your commitment.
Exceptional Service
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I vote with my money, and an election is held every time I want to

re-order or tell a friend (Gitomer, 1998).
This paper has already discussed the fact that consistency is the key to building a repeat
customer base that will provide economic benefit to an organization into the future.
Consistency is especially important for organizations with more than one location.
Standardization of service has become an expectation of customers. Multisite services
likely to be accessed at more than one location present a strong case for standardization,
especially in the quality of products and services delivered. This is especially true for
personal services. For example, the Holiday Inn chain of hotels has used standardization
as a major theme in its marketing programs to frequent travelers who appreciate
consistency away from home (Heskett, Sasser, and Schlesinger 1997). Some customers
may forgive inconsistent service, but most will not.
Many times customer expectations are set by the organization, not the customer. This is
done through advertising and marketing certain promises or results. The key for an
organization is to promise reality and refrain from instilling unrealistic expectations in
customers. The messages that are contained in advertising communications are almost
always crafted with the objective of driving customers to a business and most often
theyre targeted toward new customers. But these communications can sometimes do
long-term damage if they set unrealistic or inappropriate expectations. These messages
may serve to attract customers to the business, but in doing so, they may serve to
disappoint and undermine the ability of the organization to meet the customers
expectations (Colombo 2003). Most customers do not expect perfection anyway; they are
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quite satisfied with goods and services that perform adequately. Yet there is now an
advertising campaign from a hotel company promising that a stay with them will be
perfect. This establishes an unrealistic expectation in the customers mind for a level of
service that in the long run is impossible to attain (Francese 2002).
Advances in technology and a recent focus by organizations on customer service have led
to ever increasing customer expectations. Successful service efforts of the past contribute
to customers attitudes, raising their expectations with each new technology, and each
new approach. Customers expectations continue to rise as every business strives to
surprise and delight their customers. As a result, customers are predisposed to look for
bigger and better service delivery from organizations. If these ever-rising expectations are
not met, customers then defect to a competitor (Colombo 2003). This is a difficult
situation for organizations to manage, as often it is out of their direct control.
Expectations are constantly evolving because improvements in service shift customer
demands. While customers initially appreciate better services, they quickly get used to,
expect and demand them. This does not mean that companies should slow their attempt to
deliver ever better service that leads to rising customer expectations. Customers judge
customer service levels and service delivery by comparing different experiences at
different organizations, not just one (Cleveland 2003).
Unfortunately, customer expectations are often not set based on your organization, but are
judged against the best organizations in the world. Customers do not do this on purpose,
with high expectations in mind, but rather because they have been conditioned to do this
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based on their many associated experiences (Hitt 2003). This is where understanding the
customer can lead to a set of realistic customer service expectations. When a customer is
engaged in your organization, it is imperative to completely understand his/her wants,
needs and expectations. This will better allow you to deliver the expected product or
service in a manner consistent with the expectations of the customer.
The Internet effect has been discussed in this paper on several occasions. Even so, it
must be discussed here again because of the overwhelming effect that the Internet has had
on customer expectations and service. As new technologies and channels for
communication become established, distance is eliminated or minimized, and information
is often available immediately. Todays consumers are the beneficiaries (and sometimes
victims) of the information explosion. There are volumes of information available to
consumers on the Internet and it is able to be delivered at warp speed (Duncan-Poitier
2001). This speed and access to technology has created an expectation in consumers that
all of their transactions be completed in record time and with minimal complication.
Evolving customer expectations present an enormous opportunity for organizations to

differentiate services. The uncertain economy and incessant customer demands have put
the spotlight on what organizations everywhere must deliver. Rather than being a
negative, this can provide tremendous opportunities for organizations with adept
leadership and solid management (Cleveland 2003). Managing customer expectations is
as much an internal marketing matter as an external one; although there is no doubt that
external pressures exist. Fostering an internal culture of constant incremental
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improvement almost guarantees that the level of customer satisfaction will rise. The idea
is to set and achieve some measure of service quality internally before promising it to
customers (Francese 2002).
Customer expectations should be addressed in an organizations strategic business plan,

and should include and be driven by business goals that allows them to be more
responsive to customer expectations. A comprehensive customer service strategy should
include metrics that proactively address the issue of customer expectations, to include an
ongoing review of their effectiveness. To be successful today, organizations must go
beyond just meeting customer expectations and work to exceed expectations.
Organizations that take an approach to exceeding customer expectations focus on
defining and executing very specific, proactive customer service strategies. Organizations
that exhibit customer responsiveness focus on service metrics that are driven by business
goals (Tambellini and Liu 2005). Exceeding customer expectations requires extensive
planning and implementation of customer service strategies across all levels of the
organization.
An organization that is able to constantly and accurately identify customer expectations

will be in a more competitive position to gain and retain customers. No matter what the
business is, customers expectations will rise over time. The expected speed at which
products will be delivered, for example, is much shorter today than it was ten years ago.
In order to stay competitive, organizations must understand and keep up with customer
expectations. However, organizations walk a fine line in trying not to get too far out in
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front of what customers expect (Francese 2002). Successful organizations will have to
become adept at coping with change. Effective organizations are flexible and able to
evolve as necessary. These organizations are able to interface with customers differently,
manage customer relationships more dynamically, and adjust staffing as needed for the
purpose of meeting changing customer expectations (Colombo 2006).
An organization does not have to rely on intuition alone, as there are ways to elicit
customer expectations directly from the customer. There are many ways to do this that
include: customer surveys, focus groups, polling, and secret shopper programs. Employee
customer training, that is the focus of the next section of this paper, can be used to
effectively help employees understand and identify customer expectations. Spending
money and time on employee training is always a good investment, but it becomes an
even better investment when it is combined with an ongoing program that measures how
an organizations customers level of satisfaction has improved, if it has. One of the better
tools to assess whether or not an organization is meeting or exceeding its customers
expectations is the customer survey (Francese 2002). Organizations need to assure that if
they are using customer satisfaction surveys they are worded correctly and elicit an
actionable response from the customer.
An issue to be considered when using customer satisfaction surveys is that there may not
be a direct correlation to the results shown on the surveys and actual effects on customer
service. Satisfaction surveys are a far less accurate test of satisfaction than behavior. In
business after business, research has shown that 60 to 80 percent of customers who
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defected from an organization had said on a survey just prior to defecting that they were
satisfied or very satisfied (Reichheld 1996). This has caused many organizations to
respond with different, more highly technological approaches to gauging customer
expectations and satisfaction. Although many organizations have invested a great deal of
time and money in more technologically advanced customer feedback systems, the results
are still rather dismal in reality. A good example of this exists within the auto industry.
Although 90 percent of automobile customers claim to be satisfied, only 40 percent come
back for another purchase.
The obvious goal of an organization is to receive valuable and actionable feedback from
the customer so that expectations can be met in the future. Another way that this can be
accomplished is when a customer complains about an element of service or the
experience they are dissatisfied with. This is not as easy as it may seem either because of
the psychology of the customer that is at play. A study of customer behavior conducted by
the Technical Assistance Research Programs Institute (TARP) for the U.S. Office of
Consumer Affairs has been quoted so often that its impact has been blown out of
proportion to the research and its findings. The results of the TARP researchers
concluded, that in many cases, customers dont register their dissatisfaction with products
or services because it requires too much effort for too little potential payoff (Heskett,
Sasser and Schlesinger 1997). In order to overcome this type of thinking, organizations
must create an easy to use, welcoming method for customers to express their
dissatisfaction with the products or services provided by the organization.
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Although customer satisfaction polling has its flaws, it is still a large industry and a very
widely used technique by many organizations around the world. Customer satisfaction
surveys have now become one of the most active areas for market research firms, with
current billings of nearly $200 million and annual growth of 25%. These specialized
services may consist of elements concerned with consumer psychology, market research,
statistical data, and interviewing techniques (Kaplan and Norton 1996). As long as
organizations are able to translate the results of customer satisfaction surveys into
measurable results and customer retention, they should continue to use customer
satisfaction surveys to measure, at least to some degree, customer expectations.
Training for Customer Service

In order for organizations to realize the best possible interaction between their employees
and the customer, they must ensure that employees are trained adequately in customer
service, and also be empowered to make decisions that enhance customer service.
Customers will continue to show strong favoritism to organizations that offer personal,
custom, just-for-you service, whether using the technology of the Internet or in face-toface transactions. Customers expect to have issues resolved by contacting an empowered
employee who will follow through appropriately. The more customer expectations
increase, the more expedient customers require their issues to be dealt with. Because of
this, employees are increasingly having to deal with hostile and angry customers and will
be required to have the skills and abilities necessary to deal with them (Colombo 2006).
Providing well-trained and informed employees continues to challenge many
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organizations. With multiple channels of contact and better-informed consumers, this is

as important as ever.
Identifying high-impact behaviors that can positively affect customer service is critical to
the customer service function. However, this is not enough; these behaviors must be
constantly trained and reinforced to ensure the desired results. In service-successful
organizations, training and development of employees is a never-ending process. It starts
on an employees first day on the job and continues until the gold watch is presented. It
includes formal and on-the-job training, guided experience, effective coaching, targeted
performance review, and strong support for learning from the organization as a whole.
Organizations must pursue the development of their employees at all costs. If businesses
fail at preparing their employees to deliver proper customer service, the employees will
not be prepared to meet ever-increasing levels of service quality (Connellan and Zemke
1993). Customer service training must be integrated into the overall training plan of the
organization.
Although there are certain employees that exhibit innate traits that are beneficial to
providing great customer service such as a great smile, an empathetic attitude, or having a
positive attitude, there is no substitute for continued customer service training. Another
issue that is important for organizations to keep in mind is that customer service training
should be provided to everyone in the organization, regardless of their position. A big
mistake that many companies make is training only a small percentage of their staff,
usually those who work directly with the customers, such as the customer service
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department. Doing so is ineffective and dangerous because it promotes the message that
customer service is the specific responsibility of a limited group of people. Service needs
to be a way of life for everyone in the organization. Organizations that provide customer
training to all employees of the company, no matter what their position or title, send the
message to the employees of the organization that service is important and is the
responsibility of everyone (Leland and Bailey 2006).
Customer service training is as important as any other training. Many times it is assumed
that employees know how to provide excellent service. In actuality, some are better than
others, but all employees benefit from customer service training. Like all skills, customer
service improves with training and practice. Just like any other training for the job is
considered to provide tools necessary to perform effectively, so too is customer service
training. A companys employees provide a window for the customer to look into its
organization. The big question is does the customer like what they see? Impressions are
powerful, and perceptions are reality, whether actually correct or not. For example, the
employee looks sharp, is pleasant, and meets all of the customers needs and
expectations, therefore this is a great organization and all of their employees must be like
this. The opposite can also be true. Employees with a bad professional image and that
convey negative attitudes leave customers dissatisfied and looking to other organizations
for satisfactory experiences (Colombo 2003).
Good customer service is not only geared to external customers but internal customers as
well. Learning how to communicate effectively, maintain a positive attitude in the face of
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dissention, and proactively provide positive solutions to problems, are skills that will
enhance not only the external customers experience, but also lead to a more congenial
work environment. Organizations that are noted for their customer service view customer
service as an ongoing process that must be fully integrated into the maturation of any
employee in a comprehensive manner; as is the case with the Disney organization. The
characteristic that distinguishes companies like Disney isnt found in the bits and pieces
of what it does, but in the thoroughness of what it does. When it comes to providing
customer service-training, quantity of training should not be confused with quality of
training. Relevance counts as much, maybe more, than minutes. To be effective, training
should support serving customers better, working smarter, and creating a better outcome
for the organization (Connellan and Zemke 1993).
Customer Service Training at the Disney Organization

The Disney organization is known around the world for providing excellent customer
service and catering to the needs and desires of its guests. This can be directly attributed
to the high level of customer service training that is received by every employee on a
constant basis. Employees at Disney are referred to as cast members, an indication that
they all play a role in providing the Disney experience to their customers/guests. All
new cast members at Disney parks, hotels, and resorts-regardless of level-begin with a
two-day orientation seminar called Traditions. The purpose of the seminar is twofold.
First, it provides cast members with a firm understanding of the Disney Corporations
traditions and values, and inculcates the Disney lore, language, and culture. Second, it
provides generic skills essential for job performance (Connellan and Zemke 1993). To
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understand the Disney tradition, is to understand that customer service is paramount to

every employee and is the Disney way.
Service excellence, which it is referred to at Disney, begins with quality training. In fact,
screening for service-oriented employees begins even before the first interview at Disney.
Before Casting (the interview), potential employees are informed of the company
standards, policies, practices and expectations of its cast members. It is made quite clear
exactly what is expected of cast members, and what type of person would fit the part. The
next step involves a thorough orientation, a behind the scenes tour of the park, and
participation in a full-day training session at Disney University. This sets the tone for the
work environment, welcoming all potential cast members and stimulating passion for the
expected roles and responsibilities. Disneys management believes that good customer
care is an acquired talent that has to be constantly practiced and reinforced. As a cast
member, cross training is accomplished on-the-job. From the start, the training received
by cast members prepares them for several roles in the organization. The organization
places the highest priority on guest services, and trains this until it becomes second nature
to all cast members (Wheeler 2006).
A major element of the customer service training initiative at Disney is Disney

University. Walt Disney established the Disney University after opening Disneyland
when he realized the need for a structured learning environment to teach the unique skills
that are required of Disney cast members. It was the first corporate university and
remains one of the largest corporate training facilities in the world. In addition to world-
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class customer service training, Disney University provides Walt Disney Worlds cast
members with world-class training in diverse skills ranging from computer applications
to culinary arts to regulatory training (Paton 1997). Capitalizing on the success of training
their own employees in delivering world-class customer service, Disney opened the
Disney Institute, which trains employees from companies all over the world every year.
At the Disney Institute they teach organizations from around the world the keys to
delivering unsurpassed customer service. The seminars cover areas that include: the
service theme, service standards, training service-oriented employees, setting
expectations, and delivering consistent customer service.
Disney has been able to effectively make customer service the first and foremost job of
everyone in the organization through training. Disney has been cited as the epitome of
customer service and empowerment. Employees are thoroughly trained and then told that
they have the authority to do whatever is necessary to deal with problems on the spot in
order to make customers happy. Because of their trust in the customer service training
process, management at Disney places the responsibility for the satisfaction of all
customers in the hands of their employees, no matter what level the employee may be at
within the organization. Disney World believes that front-line employees should be the
first, and the last, contact for customers (Tschohl 2006). For this reason, the Disney
organization has come to exemplify the best in customer service training.
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The Important Elements of Delivering Great Customer Service

This paper has considered the benefits associated with providing good customer service
on an aggregate basis. This section of the paper will focus on several specific areas of
customer service that should be considered by any organization attempting to raise
customer service standards. It almost goes without saying that good customer service is
essential to sustaining any business. No matter how wonderful a job you do of attracting
new customers, you wont be profitable for long unless you have a solid customer
retention strategy in place that includes delivering great customer service. Customers are
not concerned with a policy statement or the promise of exceptional service. They
remember how they have been treated by the organizations employees and what actions
were taken to satisfy their needs (Clark 2006). As to this point, there are several specific
considerations for those employees of the organization that come into contact with
customers. Most consumers have a desire to receive good customer service. Quite often,
they desire the little things like common courtesies, efficient service, and appropriate
attention (Wheelihan 2002). The following sections are concerned with essential elements
of providing great customer service, including examples and definitions.
Engaging Customers It is tough to exaggerate the importance of customer

engagement. Fully engaged customers deliver a 23% premium over average customers in
share of wallet, profitability, revenue, and relationship growth, according to Gallup
Research, while actively disengaged customers represent a 13% discount on the same
measures. Furthermore, workgroups that are in the top 25% based on their levels of
customer engagement outperform the rest on measures of profit, sales, and growth by a
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factor of two to one (Rieger 2006). Engaging the customer is one of the first steps to
providing customer service that will make a lasting impression on the customer.
Be Accessible Customers expect, justifiably so, that they will have access to employees
for questions and concerns, whether on the phone or in person. This element of customer
service should be addressed in an organizations customer service strategy. An effective
strategy will set the stage and define minimum levels of accessibility for customer access.
The expectations of accessibility should be defined and taught to all employees of the
organization. Employees should never be too busy to be accessible to customers. An
organization should consider investments in the infrastructure that are necessary to
provide accessible customer service. This may mean the addition of more people,
redesigning physical facilities, or changing the hours of operation for the organization.
Whatever the initiative, the goal should be to allow for the maximum accessibility
possible for the customer.
Be Reliable Reliability means keeping the promise you made to the customer and
doing what you say you will do for the customer. It is important to keep in mind that
promises are not only made directly and verbally, but through a myriad of delivery paths
in various forms. Organizations make direct promises to customers through advertising
and marketing materials, in company correspondence and contracts, and in service
guarantees and policies published for everyone to see. In addition, customers will hold
the company to indirect commitments promises that customers believe are implied in
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the way the company talks about itself, its products, and its services (Zemke 2003). Not
keeping promises is one of the quickest ways to create disgruntled, former customers.
Display the Right Attitude A persons attitude colors the way they react to customers
because it has a direct effect on what they hear and how they respond. There are people
who can find opportunity in any adversity. Outgoing and optimistic, they strive to make
customer engagements fun. They inspire a contagious enthusiasm and make others
around them better (Freiberg 2004). Customers sense this and react better to these types
of people. Displaying the right attitude is important for everyone in the organization in
pursuing an atmosphere that promotes great customer service. Manners count when
dealing with customers. Be polite and exhibit an empathetic attitude toward customers.
Accept Responsibility Everyone makes mistakes. The key to rectifying a mistake is to

be honest with the customer and to accept responsibility. The absolute best way to
establish a sterling reputation as an organization is to be prepared to take responsibility
for whatever decision you make. It is a matter of integrity, and it will earn you the respect
of both the employees and customers of the organization (Scott 2001). Accepting
responsibility also means being a team player and providing service to the customer on
behalf of the entire organization. There can be no its not my job. When a mistake has
been made, admit it and set things straight. When customers have a complaint listen,
truly listen. Then, apologize and take corrective action. In many instances, the very act of
listening (without interrupting) can be enough to diffuse the situation and make the
person feel worthy as a customer (Clark 2006).
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Be Responsive Timeliness has always been an important part of delivering great

customer service, but in todays hurried society, it has become even more important.
From fast food restaurants to one-hour photo finishing, customers are demanding faster
service than ever before. Companies that cater to time conscious customers are
everywhere you look. Their success affects your customers expectations of your
willingness and ability to do the same. When customers see other organizations
delivering faster and more efficient service, the will demand it of your organization as
well (Zemke 2003). If an organization is unable to be as responsive as their competitors,
they run the risk of delivering undesirable customer service, or at worst, losing customers
to the competition.
Be Empathetic Being empathetic toward customers shows them that you care about
their situation. Take time to listen to their concerns, and take actions that show you care.
We are used to thinking of compassion as an emotional state, based on our concern for
one another. But it is also grounded in a level of awareness. People see more of the
systems within which they operate, and as they understand more clearly the pressures
influencing one another, they naturally develop more compassion and empathy (Senge
1990). To be truly empathetic with a customer an employee should put himself/herself in
the position of the customer. Recognizing the customers emotional state helps an
organization figure out the best way to effectively provide them the service that they are
looking for.
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Be There For The Customer In many ways, being there is the culmination of all of
the previous elements mentioned. However, it is also a state of mind. It means that you
are present at that time, at that moment, for the customer and his or her needs take
precedents over any other function. How much do you actually get done when you are in
one place thinking about a different place? Why not commit to being in one place at one
time? When you are present, not dwelling on what happened in the past or worried about
what may happen in the future, you are fully attuned to opportunities that develop and to
the needs of the people you encounter. You gain a healthier perspective and the capacity
for greater focus and creativity (Lundin et al. 2002). Customers will easily recognize
when they are the sole focus of an employee.
Monitor Achievement Measurement is both the first and last step in producing
superior service. There is little sense in creating extensive measurement systems until all
the other elements of service are in place, or until there is something to measure. But
drafting an effective strategy, the first step toward better service, is difficult without some
measure of current service performance. Measuring service performance or quality is
quite different from measuring product quality because service is an experience. The
best measurement systems focus on the three aspects of service: process, product, and
customer satisfaction (Klein 1999). Measuring elements of the service profit chain
provides an overall indication of how an organization is doing, particularly on dimensions
important to the business such as customer service. It is important that the methods of
measurement be understood and consistent from period to period. Organizations that
have constructed elaborate measurements and methods often find that the cost of
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maintaining them and difficulty understanding them defeat their usefulness and guarantee
that they will fall into disuse. Such approaches often lead to the kind of tinkering that
changes measures from one period to the next, making it impossible to track progress
(Heskett, Sasser and Schlesinger 1997). Great service is much like a gift; it makes us
want to continue to do business with an organization on a repetitive basis into the future.
With so much competition in the marketplace, customer loyalty is at a premium. The best
way to ensure customer loyalty is by consistently delivering great customer service. You
achieve customer loyalty by doing the little things that make customers want to deal with
the organization again and again, and recommend the organization to others.
Satisfying customers can be a tricky endeavor when organizations are faced with multiple
complaints, demands, personalities, and angry customers. When these situations arise, the
best course of action is to honestly and expeditiously address them. Employees should
listen to the customers concern, empathize with their situation, and take actions to rectify
the situation (Selland 2006). One of the more important factors mentioned in this section
is to be present for the customer. Above all else, if customers really feel that you are
solely attending to their needs, they will experience a feeling of importance that will
translate into a positive customer service experience for them.
Before concluding this section of the paper, an analysis of customer service elements in
regard to Internet and telephone service should be done. With the hyper-expansion of the
virtual economy more and more customer transactions are taking place in a virtual
environment. These customers too expect great customer service. Just as in face-to-face
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transactions, customers expect virtual transactions to contain the essential elements of

customer service. A recent study done on Internet customer service found that satisfaction
with various elements of Internet customer service is not at the levels many would
expect. According to the respondents, only 43 percent were satisfied with e-mail as a
customer service vehicle. Thirty-four percent were satisfied with Web sites in general as a
mode of customer service (Rohrbacher 2001). These numbers indicate the need for
organizations that do business in an online environment to better adhere to desired
customer service principles.
A recent study, commissioned by several Internet organizations and conducted by

Modalis Research technologies, took a look at customer service elements, their use, and
the satisfaction they provide. According to the study, 98 percent of U.S. consumers have
used some element of online customer service. Though almost all people have used
online customer service, 86 percent of U.S. customers have visited a Web site to find a
companys customer service phone number (Selland 2006). This statistic points to the
desire of a majority of customers to speak to someone in an expedient manner. Many
online organizations provide e-mail addresses for customers to remit questions to.
Receiving e-mails is only half of the task; customers expect a response in a short amount
of time. Good online customer service is possible; an organization just has to have the
desire to deliver it (Rohrbacher 2001).
Exceptional Customer Service at the Ritz-Carlton
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Very few organizations are identified solely based on the exceptional customer service
that they provide. A notable exception however, is the Ritz-Carlton Hotel organization.
The Ritz-Carlton organization is in the business of luxury hotels and was established in
Atlanta, Georgia in 1983. It is one of only a handful of American companies that has
earned the coveted Malcolm Baldridge National Quality Award multiple times, and the
only hotel company to earn the award more than once. The reason for this is simple;
employees at the Ritz-Carlton understand that they are not in the business of renting hotel
rooms, or providing five star meals, but rather their sole purpose is to provide an
unforgettable customer service experience for guests at their hotels. The organization has
been able to achieve this inordinate success in part, because of the way they view their
employees; not as employees, but as customers too. Everyone in the organization from
the President to the cleaning staff understands this and operates accordingly.
The companys customer service strategies focus first on employees and then on the
hotels customers. Our most important customers are employees, explains RitzCarltons Marketing Director Jennifer Blackman. A culture of openness, clearly defined
expectations and constant circular feedback create an environment where employees are
engaged, empowered and valued for their contributions to the hotels success (Piper
2006). This treatment of employees coupled with extensive customer service training, has
translated into what is considered by many to be an elite customer service experience.
The renowned customer service that is delivered at the organizations properties has
prompted many of the hotels guests to remark that they felt pampered, respected,
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treated like royalty, and spoiled. This sort of reputation has led to the Ritz-Carlton
brand being ranked fourth among the strongest brands in the world.
Service delivery at the Ritz-Carlton begins even before their guests arrive. Because the
organization uses a custom database to track their customers, preferences can be tracked
and catered to. The guest profiling goes into great detail. For example, a question about
wine might lead to a welcome gift of a bottle of chardonnay as opposed to merlot. This
attention to detail and customization of the service experience is in stark contrast to other
hotels that may have a standard welcome gift (like chocolates) for frequent guests that
may not be appealing to everyone. Staff members are able to use this database to capture
a plethora of different customer preference information. This capability can be viewed
and used by employees located throughout the chain (Davis 2005). This treatment leads
customers to feel special and attain a sense of importance, which in turn translates to a
high rate of customer satisfaction and subsequently, customer loyalty.
At the Ritz-Carlton, employees are not referred to as employees, but rather ladies and
gentlemen. The corporate motto is ladies and gentlemen serving ladies and gentlemen.
To provide superior service, Ritz-Carlton trains employees with a thorough orientation,
followed by on-the-job training, then job certification. Ritz-Carlton values are reinforced
continuously by daily line-ups, frequent recognition for extraordinary achievement, and
a performance appraisal based on expectations explained during the orientation, training,
and certification processes (Lampton 2003). The management of the organization
emphasizes service at all costs. The employees of the organization are empowered to do
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whatever it takes to satisfy the guest. To ensure problems are resolved quickly, workers
are required to act at first notice, regardless of the type of problem or customer
complaint. All employees are empowered to do whatever it takes to provide instant
pacification. No matter what their normal duties are, other employees must assist if aid
is requested by a fellow worker who is responding to a guests complaint or wish (Quality
2001). The company goes to great lengths to instill and reinforce the philosophy and
values in all employees. Everyone receives a wallet-sized copy of the Gold Standards,
which consist of the companys Motto, Credo, Employee Promise, Three Steps of
Service, and the Ritz-Carlton Basics. These are reinforced in training, which totals 250
hours for first-year front-line employees (Mene 2000).
The Ritz-Carlton name has not become synonymous with exceptional customer service
by accident, but rather by making customer service the main focus of the organization.
Even after winning the 1992 Malcolm Baldridge National Quality Award, Company
management raised the threshold for customer service delivery throughout the
organization. Goals for customer satisfaction were raised to the top of the box. Earning
ratings of very or extremely satisfied became a top priority as well as a key element of
the Ritz-Carlton strategy to achieve 100 percent customer loyalty. In its operations, the
company set the target of defect-free experiences for guests, implementing a
measurement system to chart progress toward elimination of all customer problems, no
matter how minor (Mene 2000). As a demonstration of the importance and focus by the
organization on this initiative, it can be found in the annual business plan of the company.
The companys business plan demonstrates the value it places on goals for quality
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products and services. Quality goals draw heavily on consumer requirements derived
from extensive research by the travel industry and the companys customer reaction data,
focus groups, and surveys. The plan relies upon a management system designed to avoid
the variability of service delivery traditionally associated with hotels. Uniform processes
are well defined and documented at all levels of the company (Quality 2001).
The Ritz-Carlton name has become so synonymous with exceptional customer service
that in 1999 they opened the Ritz-Carlton Leadership Center. Just like the Disney
organization, Ritz-Carlton began the center as a way to train managers and leaders of
business how to benchmark many of the organizations own best practices. Since opening
its doors in 1999, more than 10,000 senior executives and mid-managers have benefited
from the diverse mix of benchmarking seminars and leadership development workshops
at the Ritz-Carlton Leadership Center (Dardenne 2005). The organization did not actually
seek to begin the center as a profit generating entity, but was prompted to do so by many
of its business-managing guests. The company agreed to start the center because of its
strong belief in creating a world class culture that promotes knowledge and sustainable
change (Ritz-Carlton 2005).
Maintaining an intense focus on service delivery at the Ritz-Carlton organization has

proven to be good for customers, employees and corporate profitability. At the RitzCarlton organization, a focus on service criteria has resulted in higher employee and
customer satisfaction, increased productivity and market share. Perhaps most significant
is increased profitability. Research shows that the stock price of companies with effective
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Total Quality Management implementation outperformed the S&P 500 Index by

approximately 34% over a five-year period (Platt 2000). The organization is a shining
example of a company that has recognized the link between employee satisfaction,
customer retention and corporate profitability.
The Employee Customer Relationship

There have been numerous empirical studies that have shown a strong positive
relationship between employees and customer satisfaction (e.g., Band, 1988; George,
1990; Reynierse & Harker 1992, et.). Some investigations have provided explicit
measures of this relationship. For example, a study at Sears Roebuck & Co. showed that a
five-point improvement in employee attitudes led to a 1.3 rise in customer satisfaction,
which in turn, generated a .5 percent increase in revenues (Bulgarella 2005). In other
studies, results have shown that upwards of 80 percent of customer satisfaction can be
attributed to the relationship between the employee and the customer. These results
indicate the importance of the employee to engendering a feeling of satisfaction in the
customer. This section considers the elements involved between the employee and the
customer that help to cultivate customer service and lead to customer loyalty.
Although it may seem to be an intuitive concept, it deserves mention that before an

employee can affect the satisfaction of a customer, the employee must be satisfied. The
elements of employee satisfaction have been discussed earlier in this paper. This is an
important consideration, as satisfied employees can make satisfied customers, which in
turn can positively affect the profitability of an organization. The strength of a customers
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relationship with the salesperson affects repeat business, recommendations, and the
probability of paying a premium price for products and services. Not all employeecustomer relationships are the same, and trust is critical in building those that endure.
Salespeople are also important in reducing customer desertion to competitors. Customers
that experience high quality customer-employee encounters maintain a positive
assessment of a relationship with an organization (Johnson 2006). This makes the
relationship between employees and customers all that more important to organizations
seeking to create customer loyalty and translate customer loyalty into added corporate
profitability.
Many initial customer interfaces today have been automated. For a while, the automation
of customer service and support functions was seen as a legitimate way to improve
customer satisfaction. Many organizations invested heavily in service automation at the
expense of the human element. Customer satisfaction and loyalty invariably are earned
by delivering excellent customer service, and the human touch is often the key
differentiator. Additionally, customers with higher lifetime value have learned to expect
more. Gold customers often bypass automation and directly deal with support staff to
get their problems resolved (Uckun and Matan 2007). Ultimately, the customers
relations with an organization comes down to their relationship with the employees of the
organization. A problem or need that is addressed quickly, efficiently, and with care and
concern for the customer can lead to strong customer loyalty (Borland 2006).
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Customer server relationships can be so powerful that in some cases, the customer may
choose to leave an organization if the employee leaves. Customer server relationships
may be valued so highly that customers may be willing to follow servers, even if they
change employers. This can be found in businesses that require a high level of personal
service. Thus, patients follow doctors from one hospital affiliation to another. And
investors follow brokers from one brokerage firm to another (Heskett, Sasser and
Schlesinger 1997). These examples serve to highlight the magnitude of the influence the
customer employee relationship can have on an organization. If an organization has an
employee or employees that are involved in many relationships like this, it is easy to
begin to understand the potential financial impact it may have on the organization.
It has been found that customers with good customer employee relationships will
continue to do business with an organization that may provide an inferior product versus
the competition, if a good relationship exists with an employee. When interviews were
conducted with customers to find out why they were especially loyal to local repair
garages, an interesting contradiction was found. On the one hand, people believed that
mechanics at chain outlets and auto dealers had better and more sophisticated training.
On the other, they put more faith in the local mechanics judgment and believed hed give
them better service. In a word, people simply felt more comfortable doing repeat
business with the same individual, regardless of technical finesse (Reichheld 1996). To
add to this finding, it has also been discovered that employee loyalty adds to new
customer acquisition as well as retention. Research has also shown time and time again
that satisfied customers are the number one source of new customer referrals. Once again,
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the employee customer relationship proves to have an affect on customer

retention/loyalty, and corporate profitability.
Many cynics contend that it may not be rational to correlate employee satisfaction with
customer satisfaction. Real corporations, they argue, need profits and return-on-capital,
not just happy employees and satisfied customers. It is possible for an organization to
have highly paid loyal employees, as well as satisfied customers that enjoy low prices
and a high degree of service delivery (Kaplan and Norton 1996). The statistics however,
prove the cynics incorrect. A recent survey of 55,000 employees matched employees
positive attitudes toward customers, and a correlation to higher profits. It is important for
employees to feel that they are fairly compensated, but beyond that, they want to feel like
they are an important part of the organization and are valued by their leadership. In
addition, employees derive satisfaction from knowing that they bring value to customer
relationships that translate into growth and profitability for the organization (Greenberg
2006).
Customer satisfaction really comes down to the level of employee satisfaction being
experienced by the organizations employees. An organization must understand the factors
that facilitate the development of the core values and key motivators of their employees.
A system should be put in place to constantly identify the level of employee commitment
to customer focus. The system can then be extended to create a statistical model that
represents the linkages between employee attitudes, feelings and behaviors that are
important outcomes such as customer satisfaction, customer loyalty and even
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organizational profitability. Research indicates that an organizations internal service

orientation and customer service climate have a significant impact on the satisfaction and
loyalty of the customer (BAI 2005).
The Customer Employee Relationship at Pike Place Fish Market

Pike Place Fish market was a humble, quiet and unassuming little fish market located on
the Seattle, Washington waterfront in 1965 when it was purchased by one of its
employees, John Yokoyama. For the next twenty years John ran the fish market with a
modicum of success. In 1985, in an effort to expand the operation, John started a
wholesale fish operation. In the spring of 1986, Pike Place Fish Company in Seattles
Public Market was on the verge of bankruptcy. The seafood market where he had once
been an employee but was now the owner, was more than $300,000 in debt and sinking
deeper fast (Fine 2000). About that time, an old friend, Karen Bergquist, introduced him
to her husband, Jim Bergquist, who happened to be owner of bizFutures a company that
offered business coaching. Mr. Bergquist proposed that he use his service to get Johns
business back on track and beyond that, to create an extraordinary future. John accepted
and the rest is history (Bergquist 2005).
The first step for Pike Place Fish was to decide who they wanted to be. In the words of
John Yokoyama: In one of our early meetings with Jim, we began an inquiry into who
do we want to be? We wanted to create a new future for ourselves. One of the young kids
working for me said, hey! Lets be World Famous! I initially though that was a stupid
thing to say. The more they talked about it, the more the entire team became excited
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about being World Famous (Pike Place 2006). As a result of this meeting, John added
World Famous to the logo and had it printed on all of the company materials. The next
step for the team at Pikes was to figure out how to translate the term World Famous
into something tangible that would improve their business and set them apart from the
competition.
It did not take long for the company to realize that for them, being considered World
Famous meant being present for their customers. They believed that being present
exceeded providing just outstanding customer service, it meant being there and relating to
the customer as a human being. They take all of the attention off of themselves to be only
with the customer, and they actively look for ways to serve them. With each customer,
they seek a new way to make their day. They have made a commitment to have their
customers leave with the experience of having been served. The customer experiences
being known and appreciated whether they buy fish or not. Theyve discovered what it
really means to make a difference for the people they serve. Theyve also learned what it
takes to break records and to go beyond what everyone thought was possible (Bergquist
2005).
What John and his employees ended up creating was an entirely new customer service
philosophy commonly known as FISH! The philosophy is centered on the following
four guiding principles:
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Play Work made fun gets done, especially when we choose to do serious tasks in a
lighthearted, spontaneous way. Play is not just an activity; its a state of mind that brings
new energy to the tasks at hand and sparks creative solutions.
Make Their Day When you make someones day (or moment) through a small
kindness or unforgettable engagement, you can turn even routine encounters into special
memories.
Be There The glue in our humanity is in being fully present for one another. Being
there also is a great way to practice wholeheartedness and fight burnout, for it is those
halfhearted tasks you perform while juggling other things that wear you out.
Choose Your Attitude When you look for the worst you will find it everywhere. When
you learn you have the power to choose your response to what life brings, you can look
for the best and find opportunities you never imagined possible. If you find yourself with
a negative attitude, you have the power to change it (Fine 2000). By instituting and living
these four principles, the employees at Pike Place Fish market have been able to deliver
an unmatched customer service experience that has become renowned world-wide.
Pike Place Fish market is a workplace where everyone chooses to bring energy, passion
and a positive attitude with him or her each day. It is an environment in which people are
truly connected to their work, to their colleagues, and to their customers. People from all
over the world now come to Pikes to see the employees throwing fish and engaging
customers (Bergquist 2005). The employees at Pike Place are the example of what
employees can do to effectuate the ideal customer employee relationship. The flying
fish, shouts, chants, teasing of customers, and antics are entertaining. But one soon comes
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to realize that they have walked onto a stage and have become a member of the cast. The
fish guys are sizing you up and just waiting for the opportunity to throw you a line. They
are committed to recreating their vision of the market each day. But that can only happen
if they find a way to make a memory for you so that when you leave, whether carrying a
fish or not, you leave with something you will want to share with others (Lundin et al.
2000).
The customer employee relationship that exists at Pike Place is so successful that it has
spawned a consulting business that helps organizations recreate the success of Pike Place
at their own companies. The FISH! Philosophy has also led to a series of customer
service and employee involvement videos, as well as several books about the concept.
For the past several years, through the films and the books, The FISH! Philosophy has
spread into organizations around the world. People are reinventing what their time at
work can be about, and the passion, energy, and accountability they are discovering that
lead to surprising business improvements (Lundin et al. 2000). John Yokoyama and his
employees have tapped into something special that has led to the overwhelming financial
success of their organization. That something is how to serve the customer uniquely,
personally, and leaving them feeling appreciated. These are traits that many have copied
in order to bring that success to their organizations.

Recent studies provide empirical evidence of something we already know intuitively:
customer loyalty is a key driver of profitability. Creating customer loyalty must be an
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integral part of an organizations strategy, particularly in a time of industry consolidation.

The ability to accurately assess and understand the customers requirements and
expectations is fundamental to business success. Furthermore, the ability to comprehend
customer loyalty drivers should be the foundation for an organizations strategy
development (Teegarden and Krok 2006). A common mistake that many organizations
make is assuming that satisfied customers are loyal customers. This section of the paper
will analyze the elements of a loyal customer and examine the benefits of loyal
customers to an organization. Although customer satisfaction is a key element in
determining customer loyalty, the two are by no means synonymous with each other.
The first thing necessary in order to accurately analyze the benefits of customer loyalty is
to define the term. The first problem is that its not that easy to do. The term customer
loyalty actually has many definitions, ranging from volume purchase rewards programs
to emotional bonds between customer and supplier. Some say customer loyalty is the
same as customer retention when measured from the sellers point of view (Swaddling
and Miller 2002). Research by The Gallup Organization has shown that there is an
essential ingredient in the customer relationship; an ingredient that companies typically
overlook when they assess the strength of their customer relationships. This critical
component is the emotional attachment felt by the customer. The emotional attachment
possessed by loyal customers can be translated into an organizations profit performance
(McEwen 2001).
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Several researchers have even offered hypotheses that suggest customer loyalty can be
calculated by applying a mathematical equation. This method applies to the entire
customer base, rather than with one particular customer, which may be valuable
information if used correctly by an organization. These researchers suggest that the
simplest way to approximate average customer tenure is by calculating the overall
defection rate and inverting the fraction. This is easily done. First, count the number of
customers that defect over a period of several months, then annualize this figure and
express it as a fraction of the customer base you began with. If you lose 50 out of 1,000
customers over a three-month period, this equals 200 customers per year, or one-fifth of
the customer base. The second step is to invert the fraction. In this case it would result in
5 over 1, meaning that the average customer stays with the organization for five years
(Reichheld 1996). Organizations can use this information to understand the rate at which
they are losing customers, and hopefully be able to take actions that will lower the
number of defecting customers.
A satisfied customer is a good customer, but may not be loyal at all. A satisfied customer
may feel that their needs were met, the product was satisfactory, and the service was
alright. A satisfied customer may not have been ecstatic with their experience with you,
and may choose to go to a competitor next time, despite their satisfactory experience with
your organization. What is a loyal customer? One who feels great about dealing with your
organization. Their needs have been met and/or exceeded, they thought the delivery was
great, the service was great, and the experience was great. These customers have been so
satisfied with their experience that they will tell others. They will retain feelings of
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satisfaction and remember their experience (Gitomer 1998). A loyal customer experiences
a positive emotional event that they want to share with others, and have a desire to
experience over and over again. In order to dazzle customers and turn them into loyal
customers, an organization must tap into the customers needs, which is not an easy task.
Customers are more informed and more demanding than ever before. They tend to ask
more in depth questions, they research prospective purchase in greater detail, and they
look for organizations that will provide high levels of satisfaction and quality (Kindinger
2005).
An analysis of loyal customers will yield the result that they all have a level of customer
perceived value with the organization that they are loyal to. Customer perceived value
(CPV) is defined as the prospective customers evaluation of all the benefits and all the
costs of an offering as compared to that customers perceived alternatives (Swaddling
and Miller 2001).
Figure 12: Customer Perceived Value
Source: National Taiwan University of Science & Technology
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As the graph above depicts (Fig. 12), CPV measurement differs from customer
satisfaction in each of the characteristics. The sample includes both customers and
prospective customers. Asking only current customers of the organization about their
experiences usually will produce biased results because those customers can be
predetermined to be favorably inclined on the part of the organization (Swaddling and
Miller 2002). This analysis indicates a strong need to also assess the desires of potential
customers in order to adequately assess the organizational factors that may lead to
customer loyalty.
Many organizations tout high resulting customer satisfaction surveys, while at the same
time experiencing equally high customer defection rates. Organizations need to realize
that satisfaction is no longer an accurate measure of customer loyalty. Customer
satisfaction can be delivered in a single contact with the organization, whereas, customer
loyalty evolves over time and is based on many emotional elements that stem from
different experiences with an organization. Even if organizations feel that they have loyal
customers, it is important to understand why the customer is perceived to be loyal. Is it
price, brand, convenience, service, or a mix of all of these elements? If it is just one of
these elements, and the customer lacks an emotional connection to the organization, there
probably is no real loyalty that exists in the relationship. If the customer is loyal because
of low price, for example, the second a competitor offers a lower price, the customer
defects and becomes loyal to the new low price. This points to the fact that there is more
to loyalty than just money. Money is typically used initially to pique the interest of a
customer, but the extent to which it will work depends on their satisfaction level with
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their current organization (Gitomer 1998). Because of this, an organization should be

focused on the whole relationship with a customer from every perspective, not just
concentrated on one element.
American companies have become very proficient at monitoring and measuring customer
satisfaction. Companies know they need to pay attention to their customers. They know
the financial benefits that come from keeping their customers happy. And theyve done
their best to put satisfaction programs in place. Yet monitoring of various U.S.
industries reveals that relatively few companies (17%) have improved their customer
satisfaction index measures after six years. Fewer still, only one in twenty, show any
consistent improvement on these scores (McEwen 2005). This is not to say that
measuring customer satisfaction is not a worthwhile initiative by organizations, but that
the information must then be used to determine how specific elements of satisfaction can
be translated into loyalty. Customer loyalty relates to probable behaviors. To measure
customer loyalty, an organization must develop specific dimensions of customer loyalty
to determine the description and intensity of customer loyalty in aggregate and within
each core segment of key customers served. It is essential to have a solid grasp of which
factors in your business relationship with your customers are most important to them
(Teegarden and Krok 2006).
Providing customer satisfaction is typically associated with front-line employees that

come into direct contact with the customer. However, in order to create customer loyalty,
every part of the organization needs to be engaged in the act of serving the needs and
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desires of the customer. By meeting basic requirements, employees of the organization

can prevent customer complaints and dissatisfaction. By reaching beyond basic
requirements to anticipate and satisfy the customers unstated needs, they also develop
customer confidence. To earn customer loyalty, however, all parts of the organization
(not just those which interact directly with external customers) must work together to
provide the uncommon, unexpected dimensions of quality and service that delight, rather
than merely satisfy your organizations customers (ODI 2006) (Fig. 13). Now that it has
been made clearer exactly what a loyal customer is, the paper will consider the benefits
to an organization of having loyal customers.
Figure 13: Customer Loyalty Pyramid
Source: ODI
For many years managers have believed that the key driver of profitability is share of
market. However, Earl Sasser, working with former student and Bain Company Principal,
Fred Reichheld, found this not to be true. Based on the collection of factual experiences
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of a number of organizations, they identified a factor more often associated with high
profits and rapid growth customer loyalty (Heskett, Sasser and Schlesinger 1997).
Therefore, it is essential that organizations be able to identify loyal customers in order to
ascertain their contribution to profitability, and ultimately, their value to the organization
in terms of revenue. Whereas satisfied customers may contribute to organizational
profitability, this cannot be relied on and is most likely not constant or stable. At the same
time, the income stream from a loyal customer is constant and can be relied on to
continue to contribute to organizational profitability.
Calculations can be made to assess the value of each customer, especially today, with
access to more sophisticated customer tracking systems. Once you have an accurate
picture of the true value of a customer, youre in a position to calculate what it would be
worth to increase your customer retention rate which is the only realistic way of
evaluating investments in customer acquisition and customer loyalty. Retention
economics lets companies make rational, dollars-and-cents decisions about the value of
increased customer loyalty and tells them accurately, which loyalty-enhancing
investments will meet their rates of return (Reichheld 1996). It is important for
organizations to understand that not all customers are profitable. Being able to calculate
the profitability of a customer keeps a customer-focused organization from becoming
customer obsessed. The customer profitability measure may reveal that certain targeted
customers are unprofitable. Because initial customer acquisition is expensive, newer
customers will usually prove to be unprofitable because they have not yet had the
opportunity to build a buying relationship with the organization. This makes the
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calculation of lifetime profitability important as the basis for retaining or discouraging

currently unprofitable customers (Kaplan and Norton 1996).
We are now poised to enter a new era of loyalty management in which winning
companies will move beyond measuring customer satisfaction and defection only to
approaches based on a broader understanding of customer migration and attitudes.
Organizations can capture this significant loyalty opportunity and influence migration
and churn by as much as 20 to 30 percent by addressing three key opportunities: manage
customer migration, not defection, integrate attitudes, needs, and satisfaction to
understand drivers of migration, and tailor investments and loyalty approaches to the
most critical parts of the opportunity (Gokey and Coyles 2001). This is being made easier
through the access of Customer Relationship Management (CRM) programs, which will
be discussed in greater depth later in this paper. The key for organizations is to identify
satisfied customers that they can, in turn, make loyal customers in order to add to
ongoing organizational profitability.

This paper previously discussed conducting customer satisfaction surveys as a tool to be
used in assessing the perceived service received by an organizations customers. There
are however, other methods that can be used to assess the level of customer satisfaction in
addition to customer surveys. Research has shown that it takes up to six times the
investment to acquire a new customer as to keep an existing customer. Therefore, it
would make sense to measure what your customers think so that you can work to
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maximize your investment. If customer service is the only thing separating you from
your competition, wouldnt it make sense to measure the level of service your
organization provides (Saxby 2006)? The last section of this paper analyzed the
difference between satisfied customers and loyal customers. This section of the paper
will examine the different techniques available to assess the organizations customer base
level of satisfaction, so that this satisfaction may be turned into customer loyalty, and
subsequently, organizational profitability.
Every organization is lucky, or good enough, to have at least a few accounts that they feel
are loyal and resist the temptation to defect to the competition. Upon closer examination,
organizations realize that when they look at why those certain customers are loyal, it is
because the organization comes through for them, no matter the circumstances. However,
the competition understands this and is constantly finding new ways to lure these loyal
customers away from other organizations. Because of this, it is necessary to constantly
assess the customers level of satisfaction. An important element to consider is that an
organization is not susceptible to abandonment by their customers. Fortunately, there are
many different and effective ways to measure customer satisfaction (Castiglione 2006).
One of the ways that many organizations measure customer satisfaction is by the success
of their sales numbers. This method however, totally overlooks the satisfaction level of
the customer. It may only indicate that an organization is selling more goods or services,
but not that these customers will ever return, or give a referral.
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The first and most widely used instrument that this paper will examine is the customer
satisfaction survey. The term survey is a very broad reference that may entail many
different types of instruments. In order for the survey to be valuable to the organization, it
must be designed and administered correctly. Too many customer satisfaction surveys
contain the wrong questions, are given in the wrong circumstances, or omit important
considerations for the customer. Conducting a customer satisfaction-surveying program is
a burden on the organization and its customers in terms of time and resources. There is
no point in engaging in this work unless it has been thoughtfully designed so that only
relevant and important information is gathered. This information must allow the
organization to take direct action (Cacioppo 2000). Many organizations do not set out to
create errant customer satisfaction surveys; it is just a product of self-fulfilling prophecy
in most cases. Too many companies have settled into a comfortable rut of changing their
approaches to get the results they want. Ironically, the more critical renewal business is in
an organization, the greater emphasis on inflating customer satisfaction metrics, and the
greater the tendency to design research programs that deliver results that are expected.
This should serve as a point of caution, as this may not happen on purpose and gradually
evolves over time (Columbusn 2005).
If an organization takes the time to design a customer satisfaction survey the right way, it
can be an effective tool for improving customer satisfaction. An effective survey must
consider that certain elements of the organizations service delivery may be satisfactory
to customers, but this may not matter, as they may also be unimportant to them. If an
organization is assessing the satisfaction of a group of people (customer satisfaction,
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employee satisfaction, etc.), they are probably interested in knowing how important the
different elements are to the group that is being polled. The information is critical to
understanding exactly what needs to be fixed or adjusted. It is important to assess the
factors that customers are dissatisfied with and that are important to them. There may be
things that customers experience dissatisfaction with, but that are still unimportant to
them. Knowing this allows an organization to concentrate on the expectations that are
important to customers (Measuring 2006). On the converse, an organization may find that
customers are just moderately satisfied with an aspect of service, but yet it is the most
important thing to them. This should be the first priority for the organization in order to
ensure immediate results for improving their customer satisfaction.
Customer satisfaction surveys, even if they are designed correctly, are not always
appropriate for every organization. For instance, customer satisfaction surveys are better
suited for organizations in the service sector or other non-manufacturing fields. Unlike
the manufacturing industry, in which quality can be assessed by an objective index like
the size of produced parts, the service sector offers little in the way of objective quality
measures. Even hard measures (for example, time) used in the non-manufacturing
environment might not reflect the true quality of service. Because quality is determined,
in part, by the extent to which goods meet the customers requirements, the measurement
of quality in non-manufacturing settings is probably best indexed by customers
perceptions of the service they received(Hayes 1998). Customer opinions and feedback
are necessary in striving to improve customer service. However, an organization must
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ensure that the instrument is pertinent, as well as constructed properly, in order to elicit
correct and actionable responses.
As this paper has stated, the customer satisfaction survey is more suited for a serviceoriented organization. Surveys tend to ask questions that only reinforce what
organizations perceive to be the important elements of service and satisfaction. Because
service quality is intangible, there is a strong tendency to manage service businesses by
focusing on what is most tangible: such as numbers of customers served, cost of
providing the service, and revenues generated. Organizations should be cautious of
measuring only service components that are easy to measure. Often times these factors
give a false impression of how well the organization is actually performing relative to
customers actual perceptions. This results in an outcome of work getting done but at
steadily declining standards, by employees who are unaware of their declining
performance (Senge 1990).
Another more controversial way of measuring customer satisfaction is to actually

calculate the lifetime profitability of each customer. Although this may sound like a
daunting task, today there are many software programs that can track all customer
statistics of an organization (CRM systems will be discussed comprehensively in the next
section of this paper). This concept, often referred to as calculating the Net Present Value
(NPV) of a customer, was previously discussed here. The concept equates lifetime value
and profitability to satisfaction. Customers wallets are the source of all life-giving cash
flows. Remember too, that the only way to maximize the present value of a customer
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base is to earn the loyalty of its most profitable members, which means giving them
superior value. Organizations should remember that only by orienting decisions and
investments toward superior customer value can an organization ensure that there will be
plenty of value left over for employees and the owners of the organization (Reichheld
1996). Although this method does have merit, it is an internal measure that does not
consider the input or opinions of the customer. It is highly recommended that this method
be used in conjunction with customer surveys in order to ensure a more comprehensive
set of variables by which to measure the satisfaction levels of the organization.
A good example of where organizations are effectively using ROI (return on investment)
and NPV (net present value) methods, coupled with customer satisfaction surveys, can be
found at online businesses that transact a high rate of commerce over the Internet. Any
organization wants to understand how they can better serve the customers that provide the
best return on investment, and also how to turn not so profitable customers into higher
ROI customers. Often, different stakeholder organizations that contribute to a website
focus on different end-user goals and needs. When surveys are able to provide data that
benefit the performance of employees, enhance customer satisfaction, and improve
organizational operations, continuous and accurate improvement can be attained (Acme
2006). In an online environment, trends can easily be tracked to better understand
customer habits, trends, and dollars spent. Access to customers is generally easier in an
online environment. For these reasons, organizations can tailor surveys to specific
customers, with specific buying habits, in order to improve customer satisfaction on
many different levels.
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The issue of actionable outcomes has also been discussed previously. This point cannot
be stressed enough. If customers take the time and effort to answer a survey, and give
relative feedback, they expect to see action taken on their input. The purpose of customer
satisfaction research is to improve customer satisfaction and yet so often surveys sit
collecting dust. Worse than that, customers have generously given their time to assist in
the survey believing that some positive action will take place. Because of this, their
expectations will be raised. It is important for organizations to take into account all of the
data in order to avoid overlooking an element of customer feedback that requires needed
attention (Full Service 2006). The organization will most likely be able to act on many of
the suggestions in a relatively short period of time. It is the longer-term issues that will
require more discipline and focus, and may well affect the way the organization currently
conducts business.
Other, less commonly used methods of ascertaining customer satisfaction levels include:
mystery shopping for experiential input, follow-up with personalized feedback request
after a purchase, and a personal phone call from a representative of the organization.
Although these methods are used far less than the standard customer satisfaction survey,
in many ways, they can be far more effective. For example, a call to a customer after he
or she has purchased a good or service from your organization allows them to be more
honest and objective about the experience, without asking for a major time and effort
commitment. People typically react very favorably to personal contact, especially in a
proactive manner. Unfortunately, many organizations only resort to personal contact with
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their customers when an obvious problem arises. Customers that feel a personal bond
with organizations are most often, loyal customers.
Organizations should ensure that they have a system in place to review all negative
responses to survey questions and answer them in a timely fashion. Likewise, it is a good
idea for organizations to share the results of the feedback with their customer base, as
well as the steps being taken to respond effectively to customer input and suggestions.
Prevention of customer loss or the erosion of customer satisfaction begins with a solid
understanding of where the organization stands with its customer base and their actual
level of satisfaction with the organization. The more comprehensive and successful the
measurement process is, the better opportunity an organization will have to correct
identified problems and solidify relationships with customers (Castiglione 2006).
Obviously, effectively measuring customer satisfaction is an integral part of being able to
deliver better customer service and engender greater customer satisfaction. Organizations
that have been able to do this with success have been able to experience a more engaged
and loyal customer base.
Chapter 5
Knowledge Management & Customer Relationship Management Systems
With ever increasing improvements and technologies comes the ability to better manage
and control organizational information and data. Two topics that deal with this are
knowledge management systems (KMS) and customer relationship management systems
(CRM). Although the two are different, they both leverage technology and the ability to
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aggregate data for the purposes of enhancing organizational abilities. This section will
briefly examine the definitions of both terms, explain the benefits of each, and cite
relevant examples for the implementation of both. The objective of this section of the
paper is to highlight the applicability of new technologies to new customer sales
platforms and increasingly changing customer demands in regard to customer service.
What is Knowledge Management?

The term knowledge management is a broad term, without a distinct definition. However,
it is commonly accepted that the term refers to an organizations ability to acquire, store,
manipulate, and share data and information for the purpose of gaining a competitive
advantage. The tangible and intangible knowledge possessed by organizations and their
employees is rapidly being viewed as an important, valuable asset. The flood of
management interest in knowledge reflects not just an awareness of the value of
intangible assets but also that organizational innovation perhaps more than product or
process innovation is vital to sustainable competitiveness (Starkey, Tempest and
McKinlay 2004).
Although implementing a knowledge management system can be expensive in terms of

both human capital and money, many organizations are finding that the benefits far
outweigh the drawbacks. There are many different reasons that organizations choose to
implement KM systems (Fig. 14) (Appendix 6). Not the least of which is the ability of an
organization to capture and contain important and valuable knowledge, experience, and
abilities that the organization has been built on. The knowledge can come in the form of
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data, personal experience, process documentation, or a myriad of other organizational

sources. The overall objective of the system is to build a resource for employees of the
organization that can effectively help them do their jobs and leverage the existing
knowledge, experience, and relevant documentation that already exists within the
company.
Figure 14: Adoption Factors for Knowledge Management Systems
Source: California Management Review
As competition for organizations increases, knowledge management systems are being

used at increasing rates as a way for implementing organizations to keep and leverage
existing corporate knowledge in order to gain a competitive edge (Fig. 15).
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Figure 15: Purposes for Knowledge Management
Companies are beginning to realize that there are vast and valuable knowledge resources
that exist within their organizations that are not being accounted for, saved, or used.
There is a realization that vast amounts of intellectual resources exist that are not being
shared, and therefore cannot be used as a foundation for collaboration (Liu 2005). As
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organizations come to realize this, they are increasingly taking the steps necessary to
harness and control this knowledge asset. They are doing this by establishing knowledge
management systems in their organizations.
In order to better understand how knowledge management systems can be established and
used, it is beneficial to examine the different types of knowledge management that exist
within organizations today (Fig. 16 & Fig. 17).
Figure 16: Static Knowledge Management
Figure 17: Automated Knowledge Management
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Many organizations have less sophisticated forms of knowledge management and may
not even realize it. Some of these take the form of notebooks, policies, procedures, or
project notes. Although some employees of the organization may use these resources
from time to time, most employees do not have access to them or even know that they
exist. When this happens, employees either recreate existing knowledge or use a myriad
of other resources. This results in inefficiencies, as well as the lost opportunity to
capitalize on the intellectual property that has already been created.
Organizations today are increasingly implementing more sophisticated forms of

knowledge management systems that are supported by state of the art technology. These
new systems give employees from all areas of the organization the ability to access data,
information, and ideas that have been stored in a knowledge management system. These
systems generate value in the form of the new knowledge that is created when accessed,
disseminated, an internalized by the employees of the company (Marwick 2001).
Organizations such as Siemens and Bayer that have made the financial and time
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investments necessary to implement a robust knowledge management system are now

reaping the rewards of having done so.
Customer Relationship Management Systems

Due to rapidly changing consumer purchasing habits, that include Internet purchasing and
other automated forms of relationships, customer relationship management is becoming
increasingly more important. Customer Relationship Management (CRM) systems have
rapidly gained recognition as a powerful set of tools to drive customer loyalty. CRM
systems offer a comprehensive approach to the way customer information is gathered and
disseminated, such as purchasing and service history and buyer preferences, to help the
organization and its employees better anticipate and meet customer needs. By developing
a sense of customer loyalty, CRM offers the promise of maximizing the lifetime value of
each and every customer for the organization (McIntyre 2006). Although CRM systems
can prove to be beneficial to an organization, they may also prove to be expensive and
require a complete organizational priority change in order to implement. Having said this,
in most cases, the expense as well as the necessary operational changes are well worth
implementing such a system. True CRM requires a complete behavioral shift for
everyone in the organization. It requires an organization to become truly customercentric. Research has indicated that in the future, long-term success will be governed
solely by each companys ability to develop relationships with its customers on an
ongoing basis. This section will comprehensively analyze the many elements associated
with the need, implementation, management, and advantages of CRM systems.
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The Need and Benefits of CRM Systems

Customers have more power than ever before. Enterprises must compete based on
relationships, not just the basic products and services customers have come to expect. In
addition to traditional direct channels, businesses are moving to the Web and also
working with channel and alliance partners to meet customer needs (Business Week
2006). Because of this, organizations must now communicate with and understand the
customer better than ever before. The best method by which to accomplish this is by
implementing a fully integrated CRM system. Organizations that are considering a CRM
strategy must understand that CRM is more than just an initiative undertaken in order to
improve customer service, but rather, it is a new business strategy that requires the
organization to truly become a customer-centric organization. CRM implementation
requires the organization to focus on the customer and customer interaction at every stage
of the system. In a word, CRM leverages technology to coordinate business-customer
interactions with the objective of building long-term loyalty (Fig.18).
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Figure 18: Reasons to Implement CRM
Source: ISACA Surveys
Technological developments over the past decade have transformed business-to-customer

relationships. The emergence of electronic commerce and virtual supply chains has
defined a competitive environment characterized by a greater variety of alternatives
among products (that are actually becoming less differentiated), services, channels, and
communication vehicles (Schultz 2000). On the customer side, the result of this
transformation has been declining customer loyalty and increased expectations in terms
of customer service. A study conducted by Bain & Co, reports that corporations in the
Unites States, on average, can expect to lose half of their customers within a five-year
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period. At the same time, technological developments in the capture, storage, and use of
customer information have created tremendous opportunities for companies to better
serve their customers (Dyke 2001). Due to rapid defection rates and the high costs of
customer acquisition, coupled with the advances in technology, organizations have
recognized the need to become more customer-centric in order to better compete in the
marketplace today.
Many organizations today treat all of their customers the same way. Few organizations
today really know who among their customers are the ones to focus on. Although it is
known that not all customers are created equally, many systems and services provided by
different organizations tend to make exactly this assumption (Meltzer 2003). All
customers are not created equally, nor do they have the same spending habits, wants, or
desires. This is the reason many companies have turned to CRM systems to solve these
problems. CRM can be a powerful tool to understand customer needs and help derive
additional value from customers. Developing the right customer strategy, aligning the
organization to serve its customers, and establishing the supporting processes and tools
for the strategy are all integral components of CRM. Once an organization is effectively
able to implement a CRM strategy and begin to create added customer loyalty, they are
then in a position to transition into customer value management.
Probably the biggest advantage to an organization of implementing a CRM system is the

ability to personally deal with each customer based on his or her buying habits.
Maintaining control of customer relationships is possible only through consistent
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implementation of classic, well-proven customer bonding techniques, such as

individualized customer care and communications, rewards for customer value and
loyalty, special consideration for high-value customers and customized products and
services (Ferruzza 1999). All of this is possible with the implementation of a
comprehensive CRM system. Customer analysis applications that are part of CRM
systems can provide utilities with useful customer segmentation, groupings, message
personalization capability, event monitoring, what-if scenario modeling, and even
predictive modeling showing customer propensity to buy additional products or services.
Many CRM vendors cite the multitude of CRM benefits, which seem to be naturally
appealing (Cohen 2005).
As previously mentioned, CRM implementation requires a totally new business strategy,

coupled with a new way of thinking. The reasons for this are firmly entrenched in the
traditional business model of most organizations. Every organization wants to retain their
existing customers. Few organizations, however, are implementing positive strategies
aimed at retention. Most companies are organized and geared toward customer
acquisition. Their advertising and sales programs are designed to find and promote their
products and services to new customers. The organizations are organized on a product or
brand basis, not on a customer segment basis (Hughes 2006). Though many of these
organizations claim to focus on customer service and satisfaction, they are still not totally
focused on the customer as the center of their business. This is the reason that it is
necessary for organizations that implement a CRM system to become operationally
focused on the customer, rather than their products or services.
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CRM systems allow organizations to build comprehensive data bases that collect
information relative to their customers unique behaviors and tastes. The word profiling
has come to have a negative connotation in todays society, but that is exactly what a
good CRM system allows an organization to do in order to track, predict, and influence
customer behavior. Earlier, this paper examined customer data collection at the RitzCarlton organization. Having collected a great deal of information about its best
customers through its guests requests and complaints, all of which are captured in their
vast guest history data base, the Ritz-Carlton hotel organization has created the potential
for delivering customized service to literally tens of thousands of guests (Heskett,
Sasser, and Schlesinger 1997). Although this paper has referenced the example of the
Ritz-Carlton hotel organization, many other well-known companies such as: Amazon,
Ebay, Apple, Microsoft, and the like, are using CRM to deliver a unique experience to the
customer.
Web-based businesses have primarily been the front-runners in the utilization of CRM
systems. Many consumers who choose to do business via the Internet have no doubt
experienced some sort of customized service that is a product of a CRM system. Many Ebusinesses have been early and aggressive adopters of CRM technology. CRM models
have been proposed and implemented in a variety of E-business contexts, including
providers of electronic product catalogues, retail services, and financial services. It is
estimated that approximately 40% of on-line organizations have invested in CRM
solutions that link together multiple channels of communication with customers (Tweney
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2000). These E-businesses that have fully integrated CRM systems are able to track every
piece of data related to a customer transaction from the very first contact. This allows
them the opportunity to track a myriad of categories that can help them assess the value
of a customer to their organization.
As many online organizations have realized, the implementation of a fully integrated

CRM system allows them to mine and extract data at its lowest level of granularity. This
allows for a 360-degree look at all transactions based on the type of information the
organization is trying to assess. An organization can store actual customer transactions
and relate tem back to the costs that are imposed. They can measure by changing volume,
changing value of the transaction, distribution channels used, changing patterns of
expenditure, different services used, and so on (Meltzer 2003). With this information,
organizations can customize their offerings, concentrate on profitable customers, and
manage their business more efficiently from an overall prospective. Although CRM
applications are found in higher density in online service organizations, any organization
that has a sizeable customer base can realize synergies and customer service
improvements as a result of having one.
Now that some of the major benefits of implementing a CRM system have been
discussed and analyzed, some of the goals of CRM implementation will now be
considered, such as: lower costs, identification of customer desires/habits, improved
customer service, customer-centric marketing, a calculation of ROI for each customer,
and creating a comprehensive customer database. In addition to these goals, the concept
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of value chain management (VCM), which is a comprehensive business strategy that

incorporates CRM, will be discussed in relation to CRM. Value chain management
enables companies to maximize customer value at the overall lowest cost. Resources are
aligned to cost-efficiently service customer segments in a manner that boosts the overall
value derived by customers from their relationships with suppliers. Through strategic
relationships and collaborative management, organizations develop capabilities and
engage resources within the value chain to meet their customer value creation and
resource optimization objectives (Van de Lanotte 2003).
The aim of any organization should be to leverage technologies in order to increase

efficiencies and lower costs. CRM systems do just that. Although they are initially quite
expensive to initiate, over the long run they can prove to be quite effective at creating
cost saving economies of scale and other associated efficiencies. CRM systems helps
organizations lower costs by reducing vendor costs, eliminating costs associated with
mass marketing, eliminating costs associated with manually tracking customer
information, automating customer contact and follow-up, and targeting the most
profitable customers. Organizations also realize cost savings by utilizing the CRM
software to emulate their star salespeople. By extending intelligence solutions to their
customer base, organizations can function like their star performers, building increased
trust and loyalty by using the collected information responsibly in an effective manner.
Businesses can simultaneously compile and learn from customer data on all customers,
hardly a realistic goal for even the most talented sales individual or teams. Organizations
that capitalize on the potential of integrated customer intelligence can gain substantial
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tactical, strategic and competitive advantages that result in cost savings and increased
profitability (IBM 2006).
The cost savings stemming from the implementation of a CRM system should not be
measured solely on the expense savings realized, but also by an increase in revenues as a
result of the system implementation. If revenue has not been optimized or increased by
the organizations CRM initiative, it has failed. The entire basis of the initiative is to
gather knowledge of your customers, to gain intelligence that can be leveraged in the
marketplace. The basis and the mainstay of Customer Relationship Management is
knowledge driven and information intensive, so if dollar signs cannot be attributed to
loyalty, satisfaction and improved service and communications, a CRM system is a failed
initiative (Tanoury 2006). Organizations should do an upfront cost analysis of the
proposed system to ensure that the anticipated efficiencies will be realized after
implementation of the system.
Because so much business, both from the consumers standpoint as well as the
organizations is conducted via e-mail, the subject deserves some analysis. E-mail is used
in many CRM systems in order to support and facilitate customer transactions. Because
of its easy to use format and worldwide access, e-mail is used more and more as a vehicle
to service customers. Organizations can offer customers two ways of sending e-mail
messages to the company: unstructured (free-form) e-mail messages and structures (Webform) e-mail messages. Unstructured e-mail messages are messages that customers send
directly to a companys public e-mail address. Structured e-mail messages are messages
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that are generated by interacting with a companys Web site (Lakhanker 2006). Both of
these methods are then made part of the organizations CRM system, and subsequently
acted upon in a customized way. One of the biggest customer complaints today is that
organizations take too long to respond to e-mails, or dont even respond at all. A CRM
system with integrated e-mail functionality can help to alleviate this issue.
CRM Systems Implementation

Before an organization implements a CRM strategy of any kind, they should take the time
and effort to ensure that there are proper policies and procedures in place so that the
system will be used as intended. A major factor in these considerations is the issue of
standardization, especially at organizations with multi-sites or customer access points.
Standardization breeds familiarity among customers. And familiarity fosters usage,
particularly for services involving high-perceived risk. Multisite services likely to be
accessed at more than one location present a strong case for standardization, especially in
the quality of products and services delivered. Standardization is often driven by the need
to establish policies resulting in consistent service that leads to a set of expectations for
service that doesnt vary greatly from one customer to another (Heskett, Sasser, and
Schlesinger 1997). This is especially true of business that is conducted on the Internet.
Customers expect that the protocol for conducting business at a particular site will remain
constant and that they can expect the same kind of service every time they visit the site.
In addition to the implementation of any system itself, there is the need to understand the
related technologies and flow of information that will be created by the new system. In
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fact, the shift to a fully integrated customer information system is so dramatic that even
companies experienced in customer-intelligence technologies can be baffled by the
business processes, system architectures and other demands involved, including the need
to support emerging technologies such as wireless communication and smart devices,
which transmit an ever-growing amount of useful information (IBM 2006). Even though
CRM implementation is a major strategic decision and not a technological solution, it can
be a highly capital-intensive endeavor due to heavy investments in CRM technologies.
Regardless of technologies used for CRM, system integration is almost always the initial
step for its implementation. Integration and interoperability among all the front office as
well as back-office information systems including legacy systems is essential so that a
single version of the truth about each customer can be obtained (Azani 2005).
When implementing a comprehensive CRM system, it is also important for organizations

to define identifiable and realistic parameters. Although the systems should store most of
the data related to a customer transaction, be able to report the data in meaningful form,
and prompt the organization based on certain customer triggers, it will still be used by
employees of the organization. When defining the scope of the knowledge base, the most
common mistake is to try to include too much. Overly ambitious deployments almost
always result in whats called the Swiss cheese problem, a knowledge base that is solid
in places, but full of holes. This is a recipe for failure, because if users cant find the
answers they want most of the time, or get the wrong answers, they will quickly stop
using the system (Egain 2004). It is essential that the new CRM system not be perceived
as too complex and thus, counter-productive to delivering improved customer service.
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Before implementing any sort of a CRM strategy, an organization should ensure that the
proposed CRM solution is scaleable and upgradeable for future growth and modification.
Most CRM systems are considered middleware, or in other words, the glue between a
business and its customers. Many CRM vendors claim to provide a comprehensive
solution to an organizations CRM needs. However, such claims are far from reality and
eventually an organization ends up acquiring various technologies from different vendors
to meet their original CRM requirements. As a result, a firm ends up with a mix of
various incompatible products. In such a heterogeneous environment there is a profound
need for innovative and integrated development strategies that are capable to address the
new business and technological paradigms, and develop CRM systems that are long
lasting, evolving, and have the capability to quickly and affordably adapt to technological
changes and growing needs (Azani 2005).
CRM technologies are not all the same, in fact, many work very differently from each
other. Organizations need to understand the proposed system and how it will operate from
an information standpoint, as well as from a hardware and systems standpoint. A good
example to prove this point can be found with Internet or call center based CRM systems.
These systems typically use a customer identifier (Name, SSN, account number, etc.) in
order to track customers and identify all of their information and buying habits. These
systems incorporate various intelligence agents in order to provide the ability to deliver
personalized service, or be prepared for certain customer desires and requests. This
requirement may be different, or required to function differently from a system that is
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being used by an OEM manufacturer to track multiple shipments to a single customer on

a repetitive basis. Integrating information systems throughout the organization is
absolutely essential so that a single view of customers and also a single version of truth
about each customer can be obtained on an any time, any-place basis (Swift 2001).
As this paper discussed previously, the importance of planning for a CRM

implementation cannot be stressed enough. One of the greatest mistakes a management
team can make is to force-feed new technology across the organization. This is
particularly true with a CRM implementation. As firm management prepares for a CRM
rollout, planning and patience are critical. Working with the implementation team from
the software developer, management should agree upon a plan of phasing software use
across the firm. Some organizations orchestrate a CRM rollout by location, others by
practice group or department. This type of rollout plan allows implementation teams the
opportunity to adjust strategies and exploit successes (Cowgill 2006). In addition to a
phased in approach, it is beneficial for employees of the organization at all levels, to
understand and be able to see for themselves, the support and enthusiasm of the executive
management team. Management should be honest about the amount of time and effort
necessary to implement such a system, but also tout the benefits of the system when it
does get implemented.
The challenges inherent in CRM implementation are equally daunting for companies that
have already begun the process and for those who are still contemplating whether to take
the leap. Regardless of where the company stands with regard to CRM, it is key that the
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organization has a market-driven customer strategy, along with a detailed understanding

of all the requirements of the new tool, not just its features and functionality (Rosenbleeth
et al. 2006). As this paper will show in following sections, CRM initiatives can fail if not
implemented in the right manner, and with errant planning and preparation. Planning is
an essential part of the equation, as organizations need to fully understand why they want
a CRM system and how they will use it. Any technology works the same way. All of the
fancy software and technological devices, no matter how pricey or complicated, are
merely tools to solve your business problems and improve the organizations ability to
please its customers. Nevertheless, there are many CRM implementations that court
disaster by purchasing technology with only a vague, sketchy idea of what tools are
actually needed (Business Week 2006).
Another major consideration for CRM implementation is the hardware and technology
deployed by an organization. This is always a challenge, as technology changes so
rapidly that there is a worry that planning too far ahead may actually cause the
organization to install hardware that will not meet the specifications necessary in the
future. The challenge is how to meet short-term business goals while devising
technological solutions that enable forward-thinking companies to gain a competitive
edge. Clearly, CRM requires innovative approaches to system design, data management
and complex data analytics. How organizations address these challenges will determine
the success of their online, interactive presences and, in many cases, the success of their
overall business strategies (IBM 2006). Therefore, in addition to customer service,
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marketing, and the like, it is imperative that the technological considerations associated
with a CRM system are incorporated into the strategic business plan as well.
Another very important aspect of CRM implementation is the ability of an organization to

determine the risk tolerance associated with implementing the CRM system. As is the
case with most software applications that handle customer information, risk tolerance and
risk management must be addressed in an appropriate manner. Now that risk management
has been established as important to organizations, which risks should be tolerated? The
methods and approaches to determining the organizations tolerance to CRM risks are as
varied as the organizations themselves. When asked how they determine risk tolerances,
32 percent of organizations indicated informal methods such as arbitrarily assigning risks
a high, medium or low rating based on common sense or their intuition. Surprisingly, 22
percent of the organizations did not determine or calculate their risk tolerance at all
(Erickson and McGlaughlin 2002). However, those organizations that do take a
methodical approach to assessing risk do so in varied ways and use many different risk
indicators as measures by which to measure the overall risk (Fig. 19).
Figure 19: CRM Risk Tolerance
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Because of the proliferation of online businesses over the past ten years, CRM
technologies have become a prolific element of the Internet based business model.
Organizations, while trying to maximize the power of the system, must still maintain a
keen eye on how the information is being used and by whom. The main goal of CRM
applications is to provide the right content from a database to its users. The right content
is defined in terms of satisfying a customers explicit and latent informational needs
while matching the mental abilities, context, and environment of the customer
(Calaminus et al. 2001). Because there are many different options available to
organizations, including the previously discussed open access option, in terms of defining
and allowing access to the system, these considerations must be determined during the
implementation phase. Once an organization allows access to or manipulation of data in
certain ways, it is a difficult process to change the data access protocols after CRM
implementation.
Potential CRM Pitfalls
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Although the previous sections outlined the need, benefits and implementation of CRM
systems, there are some cautionary points that should be noted on the subject. In the rush
to implement a CRM application, many potential problems and pitfalls are often
overlooked. Some involve the same considerations and principles that have been
important for years, but many of these have a new twist. One of the biggest mistakes that
organizations make is to implement a CRM system thinking that it will instantly solve all
of their customer tracking and satisfaction concerns and initiatives. The most significant
problem is the perception that CRM is a magic bullet, a panacea for all customer support
problems. This is simply not true. The perception and the expectations that follow from it
are potentially catastrophic. Overselling something as new and hot as CRM is likely to
occur and have serious consequences for the next new and hot project. Any future CRM
effort could be seriously compromised, not to mention the reputation of the IS
department. This, in turn, will continue to deprive the organization of the benefits that
should accrue from CRM (Shah 2007).
The fact of the matter is that CRM systems are viable and a very powerful customer
service tool. However, organizations continue to fail to prepare and design systems
adequately to be the effective tool that they are meant to be. Gartner Group studies
concluded that up to 51% of large CRM solutions implemented so far have failed to
perform up to expectations, primarily due to overly complex features and operation.
Nevertheless, the goal of seamless access to complete customer information is so
compelling that Gartner also expects worldwide CRM system sales to triple from $23.2
billion in 2000 to over $76 billion in 2005 (Inge 2001). The overwhelming reason that
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can be attributed to the failure of these implementations is due to an organizations failure

to understand that CRM is not just a computer related system, but a complete business
philosophy. This concept has been analyzed previously in this paper but cannot be
stressed enough, as it is a major factor in the success or failure of a CRM system solution.
Yet another issue regarding CRM systems is the belief that the system will act in real
time, and therefore contribute to accurate market segmentation and customer
communication. Although this is possible, it is not an easy task and requires a complete
understanding of the system by an organization. When an organization makes the
decision to go real time things do get more complicated. For example, personalization
and customization of content on a Web site is a real time process. A customer may be
assigned a segment code and initially presented with a page of content designed
specifically for this segment. But as a Web session continues and the customer moves
(behaves) in certain ways on the site, real time decisioning may change the content that is
presented to the customer based on his/her behavior and the content delivery strategy for
the Web site. This process will change the message, information or promotion offered to
the customer. Thus, he/her is treated differently from the other customers in his initial
segment (Feruzza 1999). This creates a problem for organizations in that they can no
longer determine what has driven the customer to behave in a certain way, and may
compromise future tracking of this customer accurately.
There are even some scholars who have extensively studied the subject of customer
satisfaction, loyalty and the effects of CRM systems and are against their implementation
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for such purposes. If you really want customers to keep coming back, then toss out those
glossy brochures from vendors looking to sell you the latest CRM software. Customer
loyalty does not stem from clever stratagems to collect every conceivable piece of data
from customers and then cross-sell them something they dont want, says Fred
Reichheld, Boston-based Bain & Co. Director Emeritus and Bain Fellow, who has
studied the topic extensively. The thought being that loyalty is not gained by the face time
an organization is able to produce with the customer, but instead, because of longstanding relationships that result over many transactions. CRM is manipulation in too
many cases. Companies are acting on information of customers against their interests,
calling them at home at night, charging them the highest price point [that the CRM
system shows they will pay] (Reichheld in Prewitt 2002).
A final element of CRM systems that should be discussed here is the human element.
Many organizations implement CRM systems with the false belief that the systems will
fully automate the customer satisfaction function and remove the human element
completely. This belief, if it comes to fruition, will actually accomplish the opposite of
the intended consequence of improved customer service. No system can replace
individual personal responsibility, either, in terms of taking ownership of a problem. If
you cant get to the information right away and tell the customer youll have to get back
to him/her, you have to make sure someone else does, or the organizations credibility is
shot (Inge 2001). This is a critical factor in the success or failure of a CRM operation that
needs to be addressed even before a particular solution is implemented. The key is to
effectively join the human element with the tremendous capability of the system and the
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data that it stores and manipulates. Due to the increasing importance of CRM systems
and their relation to an organizations ability to deliver customer service, as well as
engender greater customer loyalty, the CRM model at Amazon.com will be analyzed in
the next section.
CRM at Amazon.com
There is arguably no other company in the world that is more identified with CRM
technologies than Amazon.com. In many ways, Amazon.com is perhaps the company that
is most closely tied with the E-Commerce phenomenon. The Seattle, WA based company
has grown from a book seller to a virtual Wal-Mart of the Web selling products as diverse
as Music CDs, Cookware, Toys and Games and Tools and Hardware. The company has
also grown at a staggering rate with revenues rising from approximately $150 million in
1997 to $3.1 billion in 2001 (Krishnamurthy 2001). One element that can definitely be
attributed to the companys success is the delivery of great customer service, as well as its
efficient use of their CRM system. Amazon.com from the beginning has relentlessly
focused on providing good customer service, which in turn has generated a high degree
of trust and a high sales volume from its customers. The company has been able to
accomplish this by providing secure transactions, having reliable fulfillment and
shipping, offering a broad product selection, and emphasizing discounts. The company
has also been a pioneer in its relentless use of Web site design testing and optimization,
constantly evaluating everything including every facet of information associated with a
customer transaction (Perez 2005).
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Amazon.com is a Fortune 500 company that opened its doors on the World Wide Web in
July 1995 and today, considers itself as having the Earths Biggest Selection. Although
the company is known as a product sales portal, with literally thousands of products
available for sale, the company itself considers themselves in business to serve their
customers. A major part of this customer experience is the ability to maintain software
systems that will track and focus on the elements of the Amazon.com experience that
leads to increased customer satisfaction. Amazon states that their software engineers,
computer scientists, and management teams focus on continuous innovation to provide
further convenience for their customers. They work to earn repeat purchases by providing
easy-to-use functionality, fast and reliable fulfillment, timely customer service, featurerich content, and a trusted transaction environment (Amazon.com 2006). The key to their
timely customer service and feature-rich content available to each specific customer can
be found in their proprietary, highly robust CRM system.
Experts on customer relationship management attribute the success of Amazon to being

able to preserve the single face for each of their millions of customers. Because of a
robust CRM system, Amazon is able to treat each customer individually, as if they were
the only customer that the organization is focused on. An Amazon customer can log onto
Amazon.com, click on Your Account to see their entire history with the company. The
record of all of the customers transactions, listed credit cards, shipping and billing
addresses, the status of all orders from last year to five minutes ago is there. It is very
much like looking into a mirror for the customer. If a customer talks to anybody from
Amazon at any time, they can swiftly deal with concerns because they see the total of all
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customer dealings with the company (Business WeekA 2006). This is what is meant by
single face, and there is no better organization at delivering this kind of personalized
service every time than Amazon.com.
This paper has mentioned the growing use of e-mail and the function of e-mail
management in providing customer service. Amazon recognized this fact very early on
and incorporated e-mail customer service strategies into their CRM and strategic business
plans. To take best advantage of the Web, companies must proactively engage and
motivate website visitors. Organizations can now segment web visitors using their
expressed interests, behavioral patterns, past purchases, responses to promotional
campaigns and more (Sterne 2006). Because Amazon recognized the value and
importance of e-mail early on, they have been able to enjoy a competitive advantage over
their competition. Amazon is so recognized for its customer service and competitive
advantage that many think it was the first major online retailer. However, this is not the
case. E-Tailers such as CDNow were already in place before Amazon.com appeared in
the music category. In many cases, established players in the brick and mortar space had
also established a presence in the online arena. Moreover, shortly after Amazon started to
become a recognized commodity on the Internet, traditional stores such as JC Penney and
Circuit City expanded to the online arena (Krishnamurthy 2002). In order to thwart many
of the competitive threats the company faced, Amazon turned to its CRM system to set
itself apart from other online retailers.
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Another CRM strategy that sets Amazon apart from its competitors is their relentless
pursuit of finding new ways to exploit personal information to increase sales and
customer service. The company is not satisfied with its current CRM system and is
constantly seeking to improve upon what it has already built. For years, Amazon has
collected detailed information about what its customers buy, considered buying, browsed
for but never bought, recommended to others or even wished someone would buy them.
It has built ever-more sophisticated tools to recommend more purchases, direct customer
searches toward products it thinks the customer is most likely to want, or in some cases,
stop the forgetful customer from buying the same book they purchased five years ago
(Associated Press 2005). Amazon has been able to effectively use this information to
build a personal relationship with their customers that has translated into not only
exponential sales growth but also, an overwhelming level of customer loyalty and
satisfaction.
An interesting element of Amazons successful use of CRM technologies is their entrance

into affiliate marketing agreements and programs. In the bricks and mortar world,
referrals are a recognized source of sales leads. In online applications this is called
affiliate marketing. Affiliate marketing is the online application of this marketing
method, where one Web site agrees to pay another Web site a commission for new
business opportunities it refers to the site. Amazon.com has a strong affiliate program
consisting of more than 900,000 participant sites, called Associates, which receive up to
15% on sales their referrals generate (Laudon and Traver 2003). Ironically, Amazon is
able to capture even more customer information and track customers that it may have
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never seen as a result of programs like this. As is the case with all other information at the
company, these referrals are also tracked, noting where the customer was referred from,
time of day, and particular banner add that was of interest to the customer. Because of the
strength of Amazons CRM system, they have been able to effectively track the customer
migration and profitability associated with affiliate programs, not to mention the value of
the added customer information garnered as a result of the program.
Conducting business in an online environment requires a level of trust that is necessary in

order to build relationships and a loyal customer base. Most consumers are aware that
online purchasing carries with it added risks due to potential confidential information
being compromised. Amazon has been able to use its CRM system to track the
confidentiality and security of their customers information. Amazon.com has been put
forward as a model for the way to deal with security and for the reassurance they give
their customers. They start from the good position of being both a well-known brand and
the best-known e-commerce brand (Whitely 2000). Their web page has a section on ecommerce security that explains all of the elements of security and the steps that the
company takes to ensure the continued security of the information of its customers. In
addition, the company utilizes its CRM system to track customer information as an added
precaution against fraud or information compromise.
Some of the ways that Amazon collects customer information has been criticized, such as
its prolific use of cookies to ascertain customer information. Cookies are chunks of
data which are stored on the computer running the Web browser and which can be
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accessed by the browser throughout their interaction with a particular Web site. Such
cookies can, for example, store the data associated with a shopping cart (Ince 2002).
Although critics of Amazon point to the companys use of cookies as a negative aspect of
collecting customer information, the practice is prevalent among most businesses that
have a web presence. The Company has been able to convince its customers that any
information that is collected about them is being used to ultimately benefit the customer
and their personal choices. According to survey after survey, the company is doing a
commendable job, as they continuously attain the highest customer satisfaction and
customer loyalty scores on surveys.
Amazon.coms entire business model has come to personify customer service and
meeting the known, as well as, unknown needs of its customers. This fact can be directly
attributed to its reliance on and very effective use of its CRM system. Amazon realized
early on that amazon.com was more than just a book site, more in fact than just an ecommerce site; it realized that it was in the business of giving customers what they
wanted and providing exceptional customer service in the process. Through its fixation
on delivering world-class customer service coupled with its CRM systems and data
capture programs; Amazon has created its own architecture of participation. Amazon has
very successfully been able to understand and leverage customer level data, and
subsequently build critical decision models in order to analyze the data. The company has
excelled in using past purchasing data to personalize customers shopping experience,
modifying pages on the fly to adjust them to individuals preferences and interests.
Amazon.com has managed to do this in a way that most customers perceive as useful and
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not as a creepy surveillance practice (Perez 2005). Any way that Amazon is analyzed, it is
easy to see that a majority of the companys success can be attributed to the use and
management of its CRM systems.
Chapter 6
The Effects of Employee Satisfaction- Customer Retention on Profitability
This paper has comprehensively analyzed the elements that lead to the creation of
employee satisfaction and customer retention. The basis for the analysis is the hypothesis
that employee satisfaction and customer retention have important implications for
corporate profitability. The different elements of each of these areas has been discussed in
relation to improving employee satisfaction and customer retention respectively, but also
their individual implications on the increased profitability of the organization. This
section of the paper will consider the effects, together, on corporate profitability in order
to convey a complete understanding of the link between employee satisfaction and its
relationship to customer retention and corporate profitability. After reading this section,
the reader should understand the direct correlation and strong relationships between
corporate profitability, employee satisfaction, and customer retention.
The service-profit chain theory establishes relationships between profitability, customer

retention/loyalty, and employee satisfaction. The links in the chain are as follows: 1)
Profit and growth are stimulated primarily by customer loyalty; 2) Loyalty is a direct
result of customer satisfaction; 3) Value is created by satisfied, loyal and productive
employees; 4) Employee satisfaction, in turn, results primarily from high-quality support
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services and policies that enable employees to deliver results to customers (Dandrade and
Jones 1995). The remainder of this section will examine these four main areas, as they
relate to and are derived from the analysis contained in this paper. A synopsis will be
given of the research pertaining to each of these links in the chain as they relate to
enhancing corporate profitability. Because each of these elements has been previously
analyzed comprehensively, only a summary of their relationship to profitability will be
examined.
The Effects of Customer Loyalty on Corporate Profitability

As this paper has stated and which should be an obvious point, without customers, there
can be no profitability. Therefore, it is vital for an organization to concentrate on making
customers satisfied, and more importantly, create a sense of loyalty that will lead to a
long-time customer. Customers may be satisfied with a one-time sales experience, but yet
not be loyal customers that will lead to profit enhancement for the organization.
Therefore, it is vital for companies to focus on the elements that turn satisfied customers
into loyal customers. Understanding the key drivers involved in creating customer loyalty
is to understand the underlying facets of what makes an organization profitable. Loyal
customers maintain an emotional connection to the organizations that they consider
themselves loyal to. It is no longer enough to rely on customer satisfaction. In order to
grow and improve corporate profitability, organizations must now concentrate on turning
satisfied customers into loyal customers.
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There is no doubt that an organization can be successful and even profitable by just
satisfying customers. However, satisfied customers may be a on-time event, whereas
loyal customers can be relied on to be part of the organizations income stream far into
the future. Because of the long-term relationship, loyal customers are far more profitable
than one-time, satisfied customers. As the analysis has shown, many organizations are
very adept at measuring customer service, but have very little insight into how to measure
or even quantify their customer loyalty. Companies that set out to create a loyal customer
base must do so as an entire organization with one goal; to be a customer centric
organization. In their seminal work analyzing the service profit chain, Heskett, Sasser and
Schlesinger (1997) stated, Based on the collection of factual experiences of a number of
organizations, an element was identified that is more often associated with high profits
and rapid growth that being customer loyalty. The analysis and research cited in this
paper overwhelmingly supports the hypothesis that organizations that focus on creating
customer loyalty will enjoy a higher level of profitability than those that choose not to.
Customer Loyalty is a Direct Result of Customer Satisfaction

This paper has already concluded that organizations may increase profitability by creating
loyal customers. Creating loyal customers does not happen with a one-time transaction,
but rather over time. In order to turn customer satisfaction into customer loyalty, an
organization must focus on understanding the needs and requirements of the customer. As
previously stated, A satisfied customer is a good customer, but may not be loyal at all. A
satisfied customer may feel that their needs were met, the product was satisfactory, and
the service was acceptable. The key is that a previously satisfied customer may choose a
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competitor the next time for a variety of reasons. A loyal customer that has had many
satisfactory experiences will come back because they are loyal and feel some emotional
connection with the organization. In addition, they will tell others of their experiences
and tout the organization to whoever will listen. Loyal customers have their needs met
continually by the organization and do not think of going to a competitor for superficial
reasons, such as a one-time savings.
An organization must become customer-centric in order to deliver customer satisfaction

over and over again that can be translated into customer loyalty. Organizations that focus
on the customer as an asset and the central element to their business, and that maintain
this focus at every level of the organization are considered to be customer-centric.
Customer-centric organizations focus on the customers needs constantly in order to
maximize customer satisfaction. By doing this on a continual basis, they are able to create
customer loyalty in a faster and more consistent manner. Customer centricity is not just
about delivering quality service at the point of sale, but rather, it is an entire business
strategy and philosophy. Organizations that are creating customer loyalty by being
customer-centric organizations are focusing on the customers needs beyond today. As
Hamel and Prahalad (1994) have stated, The objective is to amaze customers by
anticipating and fulfilling their unarticulated needs. By becoming adept at this quality,
organizations can turn satisfied customers into loyal customers and therefore, positively
affect corporate profitability.
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The analysis contained in this paper has sufficiently established the positive correlation
between employee satisfaction and customer satisfaction and loyalty. The final area that
should be examined is the link between customer loyalty and profits. Customer loyalty
analyses have shown that a significant increase in profits can be attained when a company
retention rate is shifted from 90 percent to 95 percent per year. Improving customer
loyalty is a solid strategy that should be part of every business plan (Lenskold 2004).
Loyal customers tend to be the more valuable customers for an organization and
therefore, should be protected and communicated to. Because loyal customers are more
profitable, organizations should have a strategy in place that has the maximum impact
possible on these customers and that provides the highest level of rewards to the most
valuable customers. It is now widely accepted that organizations that concentrate their
efforts on managing profitable and loyal customers, rather than expending all of their
resources on new customer acquisition, enjoy bigger returns on their investment.
Managing ROI at the customer level is far superior than managing the ROI for
acquisition, retention, and all other campaigns independently (Lenskold 2004).
Organizations that realize this and put strategies in place that leverage the relationship of
the loyal customer are in the enviable position of securing a competitive advantage that
others seek to emulate.
Creating Value Through Satisfied, Loyal & Productive Employees

The elements involved in creating satisfied, loyal and productive employees has been
thoroughly analyzed and discussed in earlier sections of this paper. What will be
considered in this section is how to leverage those employees for the purpose of creating
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value in order to improve corporate profitability. This paper previously analyzed the
many elements that contribute to employee satisfaction comprehensively. In order for
organizations to capitalize on these elements that create employee satisfaction, they must
consider employees important and essential assets of the organization, rather than just
part of the operations process. Organizations that concentrate on creating value in their
employees are able to realize a positive correlation in customer loyalty, and subsequently
in added profitability, as seen by the previously cited examples. As was previously stated,
establishing an organizational culture that promotes the elements necessary to enhance
employee satisfaction would prove to have a positive affect on both customer retention
and corporate profitability. The next section will examine specific benefits and results
that can be realized from this concept.
Satisfied Employees Impact on Customer Loyalty and Corporate Profitability

In depth research on the topic of the service profit chain indicates that there are three
important elements that make up the chain; employee satisfaction, customer
retention/loyalty, and corporate profitability. Although each is reliant on each other to
form the chain, the process begins with employee satisfaction. In essence, the
employee is a conduit between customer loyalty and the resultant positive impact on
corporate profits. 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 (Oakley 2004). This employee satisfaction is in turn, translated into the
ability and willingness to provide the best customer service, and consequently customer
satisfaction, as possible. An organization that is able to constantly perpetuate this
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synergistic relationship will benefit by realizing greater customer loyalty that will be
translated into increased corporate profitability.
When the service profit chain is implemented correctly and effectively, it operates as a
constant and consistently moving process with one element of the chain enhancing the
next. When a company consistently delivers superior value and wins customer loyalty,
market share and revenues go up. The better economics mean the company can pay
workers better, which sets off a whole chain of events. Increased pay boosts employee
morale and commitment; as employees stay longer, their productivity rises and training
costs fall; employees overall job satisfaction, combined with their knowledge and
experience, leads to better service to customers (Reichheld 1993). When customers
receive repeated excellent customer service from motivated, knowledgeable, and loyal
employees, they too become loyal and contribute to the service profit chain of an
organization. Although the employees are reliant on the organization for a job, the
organization in turn, is reliant on the employee to create a loyal relationship with the
organizations customer so that maximum profitability can be achieved and result in an
ever-larger investment in the employees of the organization. This investment helps to
ensure the ongoing inertia of the service profit chain within an organization.
Through thorough analysis of this subject, it can be proven that there is a direct link
between employee satisfaction and customer satisfaction that leads to an improved
financial performance. This paper comprehensively analyzes the elements associated with
employee satisfaction and include areas such as: leadership, work environment, training,
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employee development, employee recognition, organizational goals, communication,

teamwork, employee empowerment, social interaction, organizational culture, benefits,
and employee motivation, all of which are integral and important to creating a satisfied
workforce. 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 organizations employees who influence the behavior and attitudes of
customers, and it is customers who drive an organizations profitability through the
purchase and use of its products (Oakley 2004).
Chapter 7
An Analysis/Evaluation of the Service Profit Chain at Maine Savings
This section of the paper will consider the different elements of the Service Profit Chain
(Employees, Customers, & Corporate Profitability) at Maine Savings, the employer of the
author of this paper, Anthony Emerson. The analysis will be in the form of examples
from his own work experience and attempt to demonstrate the effectiveness or
ineffectiveness of academic theory relative to providing satisfactory business solutions, or
contributions to the decision making processes at Maine Savings. The format of this
analysis will be the same as the previous analysis contained in this paper. First, employee
satisfaction and its elements will be examined, second, the elements of customer
satisfaction will be analyzed, and finally, these will be examined in relation to corporate
profitability at Maine Savings. Some of these topics have already been discussed in this
paper and will be noted when appropriate, in order to avoid redundancy.
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Anthony L. Emerson is the Vice President of Finance/Accounting/Operations for Maine

Savings and has been employed at the organization for four years (at the time of this
writing). In his capacity at the institution he is responsible for the finance department, the
accounting department, the IT department, a credit card portfolio, retail product pricing,
commercial pricing, purchasing, and also acts as the institutions Bank Secrecy Officer
and Compliance Officer. Reporting directly to him are two Assistant Vice Presidents
(Accounting and Operations), a Card Services Supervisor, and a supporting staff of ten
employees from these different functional areas. His main responsibilities include the
daily management of approximately $175 million in financial assets, the IT related
infrastructure, a $7 million Visa portfolio, the pricing of consumer/commercial loan
products, and the human resources in his charge. Anthony is a member of the institutions
Senior Management team and reports directly to the President and CEO of the firm, John
C. Reed.
Maine Savings History

Maine Savings began as BARCO Federal Credit Union in Millinocket, Maine in 1961 for
the benefit of the employees of the Bangor & Aroostook Railroad Company. In the fortyfive years since, it has grown to be the largest credit union in Maine as measured by
membership with over 25,000 members, 500 Select Employee Groups, $170 million in
assets, and nine branches throughout Eastern and Central Maine in Hampden, Milo, Jax
Lab, Corinth, Vassalboro, Brewer, Hampden, Ellsworth, and two branches in Bangor. In
2001, BARCOs Directors made the strategic decision to change the name to Maine
Savings, to more accurately reflect their diverse customer base, allow for further
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geographic expansion, and garner better name recognition. Much of Maine Savings
growth has occurred under the direction of John Reed, the current President and CEO,
who was hired in 1990. The Boards Executive Committee is an instrumental group and is
comprised of four long time Directors, each having more than thirty years of affiliation
with the organization (BARCO 1990).
In 1993, Maine Savings, along with six other Maine financial institutions and the Maine
Credit Union League, founded CUSO Mortgage Corporation. A little more than a decade
later, CUSO is one of the largest Maine based mortgage lenders in the state and the fourth
largest multi-owned CUSO in the country. As of 2006, CUSO Mortgage employed more
than twenty-five people, had a servicing portfolio in excess of $500 million, and had a
capital position of more than $5 million (CUSO 2006). The success of CUSO Mortgage
has contributed to Maine Savings success and has allowed the institution to grow into a
full-service financial institution. Maine Savings now offers a full menu of products and
services, while at the same time, providing superior customer service. The company now
employs more than eighty people and offers a diverse and competitive line of traditional,
as well as non-traditional (e-commerce) financial products and solutions.
Leadership at Maine Savings

Maine Savings is very fortunate to have one of the most experienced and professional
Senior Management teams in the industry. In addition to Anthony L. Emerson, the Vice
President of Finance/Accounting/Operations, there are four other members of the Senior
Staff at Maine Savings. John C. Reed is the President and CEO. John brings with him
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more than twenty-five years of professional banking experience, with the last sixteen
leading Maine Savings as its CEO. Robert G. Carmichael is the Vice President of Human
Resources & Training, a retired United States Army Brigadier General, and brings with
him more than twenty-five years of HR, training and development experience. Rick
Moore is the Vice President of Lending. Rick has been with Maine Savings for more than
twenty years and has occupied various positions, beginning as a Teller in the Milo branch
in 1986. Dave Sayers is the new Vice President of Retail Operations. Dave joined Maine
Savings in January of 2007 and brings with him more than twenty years of professional
banking experience. The Maine Savings Senior Staff is recognized by its peers and the
industry as educated, conscientious and professional. Members of the Senior Staff serve
on a variety of state and national boards and are contacted for their professional input
regularly on a myriad of issues.
Employee Satisfaction at Maine Savings

The management at Maine Savings understands that they have a major influence on
employees and their behaviors and attitudes. For this reason, the management team
operates as transparently as possible, and strives to communicate frequently and honestly
with its employees. Management strives to take responsibility for their actions and
deliver on promises and commitments to employees. There are several methods used to
convey information and strategy to the employees at Maine Savings. Among them are:
regular departmental staff meetings, regular communication to all employees by the CEO,
an employee newsletter (Appendix 7), and the use of working groups to solve problems
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or address operational issues at the company. Management at the firm truly has an open
door policy and are available and approachable by the employees in not only theory, but
practice as well. The Senior Staff of the institution strives to engage employees at every
level for input and opinions that may affect them or their work.
Things have not always worked this well from a management perspective, and the current
management team uses these lessons as a barometer for current behavior and attitude. In
the past, the organization has had to deal with senior management ineptness, Senior Staff
infighting, and the perception that management was a closed society. Shortly before
John Reed was hired as the CEO, the institution had to deal with a CEO that ran the firm
for his own interests, with no regard for employees or customers. For a short period of
time, members of the Senior Staff would visibly air their grievances in front of
employees and openly take sides and play favorites between each others employees. This
proved to be counterproductive and had a devastating effect on employee productivity
and morale. When Anthony Emerson arrived in 2003, several long time employees
informed him that the situation had gotten so bad that they were literally weeks away
from leaving the company. The current Senior Staff has addressed these issues, and the
changes have been recognized and happily accepted by the employees of the institution.
Today, leadership and selflessness is promoted over self-interests and turf wars.
Leadership at Maine Savings is not to be exhibited by just those in senior management.

Employees are empowered to make decisions regarding their jobs, and are asked for input
on their own development and leadership potential. The Senior Staff at Maine Savings
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uses the same approach that Jack Welch used at General Electric, the 70, 20, 10 employee
rating system. Each year, the Senior Staff goes on a secluded retreat for the purpose of
conducting a strategic planning session and rating every employee in the company as a
ten-percenter, twenty-percenter, or a seventy-percenter. Each member of executive
management is asked to give their input based on the employees performance and
proclivity for advancement. Those employees that are identified in the bottom ten percent
of performing employees are evaluated to see whether or not they can improve their
performance, or have to be terminated. Those employees that rank in the top twenty
percent are identified and slated for added responsibilities and potential leadership
positions within the company.
Work Environment
The management at Maine Savings understands that one of the single most important
contributing factors to employee satisfaction is their work environment. As a result, the
organization operates as a flat organization for operations purposes. Everyone and
every job are respected and a sense of community has been created by management and
the Board of Directors. Employees are given the tools necessary to excel at their jobs,
including adequate workspace and an open, inviting physical work area. Employees have
access to the best that modern technology has to offer from new computers at every
workstation, to new fax machines and copiers, to new VOIP (Voice Over Internet
Protocol) phones, to a brand new state of the art data processing system. Managers and
supervisors are very quick to respond to work environment issues and concerns that
employees may voice, as these issues are commonly given top priority. Departmental and
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branch budgets at the firm include financial provisions for items that may be needed
throughout the year to improve an employees work environment.
Maine Savings goes to great lengths to ensure a proper work environment for their
employees, and includes such considerations as: adequate lighting, ergonomic work
stations, anti-fatigue mats for the Tellers, and the use of professional design concept
teams. The organization invests much planning and attention to any employee workplace,
in order to ensure that it will lead to a satisfactory work environment for the employee.
As this paper has previously stated, the company is required to have a third party auditor
workplace review on an annual basis as part of its yearly renewal of the disability
insurance. Auditors from Maine Mutual Insurance Company engage in employee
interviews and physical inspections as part of the auditing process. At the current time,
the company is adding new staff at a rapid rate and finding it necessary to be innovative
with space for employees to work. However, management recognizes the importance of
physical workspace to employees and strives to provide one, under even the most
difficult of situations.
Maine Savings is a very sought after employer in any geographic region that they operate
in. The main reasons for this are that the organization is known for its professional,
supportive, and collaborative attitudes towards its employees. The firm offers peak time
employment opportunities where applicable, and exhibits an attitude of flexibility with its
employees whenever appropriate to do so. The company recently initiated a PTO (Paid
Time Off) plan to allow for more employee flexibility with their earned personal time.
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Now, instead of having separate pools for sick, vacation, and personal time, it is all in one
category and the employee is free to use it however and whenever they would like (based
on the prior approval of management). Because the organization currently has three retail
branches that require being open on Saturdays, a flexible workforce is necessary in order
to adequately staff these operations. The Branch Managers of these facilities are
empowered to be creative and flexible with their schedules in order to provide adequate
coverage at all times. Because of this, employees have the opportunity for more time off
in one short period and get added flexibility with their regular schedules.
Hostile work environments that include: offensive language, lude acts, suggestive
remarks, racially motivated comments, gossip, and the like, are completely forbidden at
Maine Savings. This directive comes from the top and is understood by every employee
and is constantly monitored by management. If a situation occurs where an employee has
created a hostile environment, the issue will be resolved immediately. As an example, in
2004 Anthony Emerson had an administrative employee that was spoken to several times
in regard to demeaning gossip that they were overheard spreading. Mr. Emerson spoke to
this persons supervisor and directed that a personal counseling session take place
regarding the matter. Shortly thereafter, a second incident involving the same employee
took place. Mr. Emerson personally met with this employee and their supervisor and
issued a written warning to the employee. In less than three weeks, another similar
incident occurred with the same employee. At that time, Mr. Emerson terminated the
employment of this employee from Maine Savings. This is an example of the attitudes, as
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well as actions, toward those that contribute to a hostile work environment at the
organization.
Overall, Maine Savings does an admirable job of providing a productive, tolerant, and
supportive work environment for its employees. The one area of improvement the
company could focus on is in their branches. Because the senior management team is
based at the corporate office in Hampden, Maine, less attention is sometimes paid to
outlying branches. In some cases, employees at the branches may be working with
slightly older technology, have poorer lighting, older furniture, and have older facilities.
The Senior Staff has recognized this and has recently begun to formulate a plan to
improve the work environments at some of the branches. Management has recently
authorized computer upgrades, provided new telephones, installed new carpets and paint,
and even provided branch employees with exercise equipment (the main office has a
fitness facility that branches do not). With this current focus on the employees of its
branches, the company will soon be able to upgrade the work environments of all of its
employees, no matter their location.
Employee training and formal training programs are an area that Maine Savings has
improved upon drastically in the past three years. Prior to 2004, the company had no
formalized training program and offered training to its employees in a sporadic and
diffused manner. Because there was no formal process or procedure in place, many
employees were trained differently and to different standards, based on what branch they
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were working in at the time they were hired. In January of 2004 however, the CEO John
Reed, hired Brigadier General Robert G. Carmichael as the Vice President of Human
Resources & Training, a newly created position. Rob quickly put his many years of
professional training and development experience to work by formalizing a companywide training program and creating a mini Maine Savings University. In addition to
creating formalized training programs, Rob completed an analysis of every position at the
company and ascertained the job requirements and knowledge required for each position.
In addition to creating targeted training for specific jobs, Rob also created a wowservice training program for every employee at the organization.
In the past three years, under the direct guidance of Rob Carmichael, the institution has
created a myriad of formal training programs, much along the lines of what Jack Welch
created at General Electric. When an employee starts at Maine Savings, no matter their
position within the company, they are introduced to a WOW service training as part of
their in processing. Each employee watches the Give em the Pickle video about
catering to customers, watches a video about the Phish philosophy that was cultivated
at Pike Place Fish market, and is given reading material about Knock your socks off
service. By doing this, every employee receives a uniform induction into the customercentric methods and ideas of the organization. This helps the employee to understand the
importance of customer service at Maine Savings, and that the company puts top priority
on delivering world-class customer service. This initial training is followed up on
regularly throughout the year when employees attend refresher training on customer
service, by attending seminars at the main office. These seminars are designed by the
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Vice President of Human Resources & Training and are conducted by him and the CEO,
John Reed. By doing this the company is sending the powerful message that this is an
important consideration, and also that the very highest of management believes in the
philosophy and expects that great customer service will be delivered.
Above and beyond the initial customer service training that every employee receives,
formal training programs have been designed for each functional area of the company.
For example, an employee hired as a Teller would go through the WOW customer
service training, then receive one-on-one teller training (in a training environment) from
an experienced & knowledgeable trainer, then be put into a live training environment
with a training coach by their side, and finally, they would be assigned to their work
station with a name tag delineating them as a Trainee, until such time that they could
perform the job with adequate and acceptable competence. By doing this, the
organization has been able to standardize the performance of many of its employees, and
as a consequence, improve organizational performance.
Before the company had any formal training or hiring, the task of hiring and training was
a decentralized process that led to a diffusion of standardization, as well as many
different practices being done for the same task on a company-wide basis. In the past, an
employee was hired into one of the branches and subsequently trained by that branch.
This resulted in a lack of best practices and the main office having to deal with and
understand the many different methods being deployed on an issue by the many outlying
branches. During this time, there were no standardized training standards, no formal
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training procedures, and no verifiable documentation of training on a company-wide

basis. This proved to cause problems when employees needed to work in other branches
for one reason or another. In many cases, it was soon learned that certain procedures were
totally different from one branch to another, albeit within the same company. A
formalized training program, with regular feedback and documentation has been a
welcomed solution to this former problem.
Any important and worthwhile endeavor in an organization must be both publicly

supported by the executive management team and be adequately funded in order to have
the slightest chance of success. At Maine Savings, HR & Training now has a robust and
ample budget that is used to continue to improve training and development issues at the
company. As proof of this, in order to show a commitment to continued training and
feedback to employees, one of the largest single organizational expenses in the budget is
for training. It is a large five-figure budget expense for the service shopping program.
This initiative is very much like the standard mystery shopping programs that take
place at many retailers, with the exception that Maine Savings management sets the
scoring criteria. This program provides a good, objective critique of how the training at
Maine Savings is being manifest in its employees when they actually interact with a
customer. This is only one concrete example of the financial commitment that the
organization has made in order to ensure the success of its training programs.
Maine Savings training programs have recently been put to the test, as it prepares to
open two new branches that require approximately twenty new employees. Because of
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the processes and procedures that have been established, the training of all new
employees was an overwhelming success. After these new employees made their way to a
Training Coach at an established branch and had the opportunity to perform for a short
period of time, the resultant feedback was overwhelmingly positive. In the words of the
Milo Branch Manager Jeff Gahagan (a 30 year industry professional), I cannot believe
how well prepared and informed the new employees are to do their jobs well and provide
top notch customer service. This feedback is one of many measuring tools that the
organization can use to gauge the effectiveness of its training programs. In addition to the
feedback received by the existing employees and their supervisors and managers, the new
employees also gave the training department resoundingly positive feedback in regard to
their level of preparedness after they had been in the job for a few weeks.
The training methods used at Maine Savings have also changed over the last three years.
In the past, employees may have been sent off-site to attend a generic training program
with a general description. Now, the company uses webinars, videos, onsite consultants,
professional seminars, and if necessary, travel to another destination for appropriate and
pertinent training. With continued improvements in technology, the company tries to take
advantage of as much cost effective, easy-delivery training content as possible. If an
employee is permitted to travel off-site for training, it is required that they write a
synopsis of the training that they received and review it with both their immediate
supervisor and the V.P. of Human Resources & Training, in order to assess the benefits of
the training. This sort of assessment and constant evaluation of training programs is
leading the company to develop best practices in the area of training. This will allow
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the company to maximize its efficiency in delivering training to its employees in the
future.
The last topic that deserves to be mentioned in regard to Maine Savings training
programs is the relationship between effective training and employee satisfaction and
turnover. The organization has one of the lowest turnover ratios in the country (for its
peer group), much of which can be attributed to the investment in training the company
has made in its people. Employees are encouraged to ask for more training when they feel
that it is necessary. The company realizes that training is an investment, and looks upon
the endeavor as actively investing in the betterment of its workforce. As this paper
previously stated, Unless an organization aligns their corporate training to organizational
goals, any returns that are realized from the training investment will be by chance alone.
Maine Savings definitely understands this concept and has made training part of its
strategic business plan, and has funded it accordingly.

In addition to training its employees for their specific jobs and initiating them all into the
customer-centric atmosphere at Maine Savings, the company also strives to develop
future managers and leaders. As this paper discussed in the Leadership Management
Attitude/Response section, the Senior Staff of the organization routinely rates its
employees on the basis of 70%, 20%, or 10%, adopting the rating scheme used by Jack
Welch at General Electric. The 20% category is where the top performing employees are
in terms of their ability to be mentored and groomed for future leadership opportunities.
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Although the Senior Staff discusses everyone in the company once per year as a group,
each senior Staff person is responsible for evaluating the employees in their departments
on an ongoing basis throughout the year.
In the past, when someone in a supervisory position left the company, management
would either promote the next person in line within the department, or was forced to hire
an outsider for the position. With its new leadership development strategy, the
organization has pre-identified people from all over the company that are capable of
being promoted into many different positions as the need arises. As an example, when the
organization announced the opening of its two new branches, it received interest from
many current employees, several of which were previously identified as having the
potential for leadership positions. As a result, the company was able to promote qualified
people into supervisory positions that had experience with the institution already.
Because of this, the company is able to promote deserving people, instill a greater sense
of employee satisfaction, and prevent the brain drain experienced so often by other
institutions in the same geographic area.
As a result of its recent successes with leadership development, the company has added a
section to its annual employee appraisal form (Appendix 8) so that the topic can be
discussed with every employee in the organization. This serves a two-fold purpose. First,
it allows an employee to be proactive in discussing their wishes or desires in receiving
further development toward a position of greater responsibility. Second, it allows
members of Senior Staff the opportunity to assess whether or not an employee possesses
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the desire or intention to progress into a position of leadership. Because of the importance
of promoting leadership qualities in all of its employees, whether or not the employee has
any intention of ever ascending to management, the company uses other methods to allow
leadership qualities to be honed. For example, Maine Savings has many informal
committees (annual party, Christmas party, employee newsletter, etc.) that are made up of
employees from many areas of the company. Everyone is given an opportunity to lead
these committees and take on added responsibilities as a result of the initiatives created
by the participants. This method has proven invaluable at giving most employees in the
organization the opportunity to experience leadership at some level.

Employee satisfaction and recognition is an area that Maine Savings has placed a special
emphasis on in the past two years, and continues to make a priority. The results of
Hawthorne Studies that were conducted by Elton Mayo from 1924 to 1932 are still valid
today. These studies concluded, in part, that money was not solely responsible for
employee motivation and satisfaction, but rather employer behaviors and attitudes toward
employees played a large role in this. In addition to this study, is the hierarchy of needs
theory presented by A.H. Maslow, that says that as basic needs are satisfied, higher levels
of needs emerge and motivates an employees behavior. Maine Savings management
understands these hypotheses, which is exhibited by the offering of a very robust benefits
package (Appendix 9) to every employee, that consists of fully paid employee health
benefits, dental coverage, life insurance, a 401K plan with employer matching and profit
sharing bonus, a Christmas bonus, Thanksgiving turkey, and a longevity bonus, just to
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name a few. Maine Savings is well recognized in the industry and geographic area for its
generous employee benefits.
One new, never before achieved initiative that management recently concluded was the
completion of an employee survey (Appendix 10). The survey was totally confidential
and asked employees to rate items such as: work environment, benefits packages, their
immediate supervisors, the executive management team, the equity of their compensation
package, and their overall attitudes toward the organization. In addition to the fifty or so
stated questions, employees were provided the opportunity to give any other feedback, or
comments that they may deem appropriate. The results of the survey were tallied and
reviewed by the Senior Staff of Maine Savings. The next step management took was to
address some of the concerns noted in the survey by making any changes that were
appropriate, based on the employee feedback and recommendations. After this step was
taken, all of the employees in the organization were provided with the results of the
survey (Appendix 11), including the comments, and managements answer to any
concerns or recommended changes. This step alone has engendered a large volume of
employee satisfaction. There were numerous comments from the employees in the vein
that it was nice to see that management cared about what they thought and actually made
changes based upon their direct input.
An element of employee satisfaction that was waning until the current management team
was installed was a formal employee recognition program. Prior to the establishment of
the current recognition program, employees were lauded on a sporadic basis, at best. In
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the past two years, the company has taken the steps necessary to establish a formal
recognition program that include: recognition in the quarterly employee newsletter (The
Quarterly Compass), honorable mention in the monthly Maine Savings Customer
newsletter (Appendix 12), the Cecil C. Porter award for outstanding achievement
(Appendix 13), and formal recognition for training program completion. Management has
seen a very positive result from these initiatives, and garnered an overwhelming amount
of positive feedback from employees and customers alike. The recognition programs are
working as desired by building employee esteem, reinforcing desired behaviors,
motivating performance, and supporting the mission and values of the company. Because
of these positive results, management will continue to find new ways to bolster and
improve the current recognition program.
Another important step the company has taken is to highlight their employees in industrywide or trade publications whenever possible. Not only does this improve employee
morale and satisfaction, but also highlights Maine Savings as a desirable place to work.
This hypothesis was proven correct just recently when the organization advertised for the
many new positions at its two new branches. The company was literally inundated with
applications and resumes from the local competition. During the interview process, most
prospective candidates told the company that they were familiar with the great working
conditions at the firm and had seen at least one article touting the accomplishments of the
organizations employees. In almost every case, the candidates expressed dissatisfaction
with their current work environment and employer. The candidates voiced their desire to
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work for a company like Maine Savings that has invested in their employees and
highlights their successes whenever possible.
As is the case for all of the items in the companys strategic business plan that
management feels are necessary to the success of the company, so too is the recognition
program adequately funded and budgeted for each year. For the fiscal year 2007, the
recognition budget is larger than ever before in the history of the company (Maine
Savings Budget 2007). The Senior Staff has made the decision to begin formally
recognizing an employee for their accomplishments at most company events. For
example, the organization has an annual company party and an annual meeting. At the
company party, an award will be given to the employee who most supported the effort to
open the companys two newest branches. At the annual meeting, the Cecil C. Porter
award for outstanding service will be awarded to the employee who best exemplified
WOW customer service. In both cases, the employee receives a plaque and is
recognized both at the event and also in the newsletter. Awards such as these have
become very competitive and also very desirable, as well as being looked upon by all
employees with respect and admiration. With very few exceptions, most of the
organizations employees will tell you that garnering an award and being recognized
publicly for their work is a major motivating factor in their performance and level of
satisfaction with the company itself.
In addition to the corporate-wide, more formal and recognized programs, management is

also in the process of encouraging informal recognition at lower levels in the company,
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such as the departmental or branch levels. For example, in the institutions Brewer branch,
every Friday afternoon the Branch Manager buys an ice cream sundae for the employee
who has gone above and beyond in their performance for that week. Although it seems
like a small gesture, the Branch Manager indicates that the program is very competitive
and that employees work hard all week to be the winner. This sort of friendly competition
has served to raise the level of awareness in job performance, customer service, and
overall satisfaction with the employees jobs at the company. The organization has many
of these informal recognition programs that help perpetuate the morale and productivity
of its employees, and because of this, will continue the practice and look for more ways
to accomplish this.

Over the past three years, Maine Savings has been able to effectively transform itself
from a vertically integrated, top-down, information flow process to a more flat,
horizontally integrated organization, for the purposes of information sharing with
employees. For example, in the past, rather than explaining to employees what the goals
were, how they were to be achieved and why, a manager would simply give employees
tasks without explaining the reasons behind them. This type of management behavior
results in the employee only concentrating on the task itself, without having an
understanding of how it may fit into the larger, more strategic plan. For this reason,
management now actively shares elements of the strategic plan or other endeavors with
its employees, fully stating the goals, purposes, and processes by which to accomplish
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them. By doing this, the employee understands why they are doing what they are doing,
and can also take ownership of their process toward accomplishing the desired end result.
The Senior Staff firmly believes that everyone in the organization should understand
what the goals of the organization are, and what measures will be taken to accomplish
them. Staff meetings in all departments are frequent and one-on-one meetings with midlevel managers and supervisors and a member of Senior Staff are expected. These
meetings serve to maintain an open line of communication between executive
management and employees, as well as serve to allow employees to offer their feedback
to management. To this end, many members of the Senior Staff have trained their
managers and supervisors on the best ways to conduct meetings. Rather than be
unilateral, the meetings should be bilateral and take on a participative quality. This will
engender more open and honest input from employees and allow them to feel that they
are part of the solution and a valued asset to the company.
One way that the company has been able to use this strategy in order to accomplish a
strategic goal, is by allowing employees at all levels the opportunity to have input during
the implementation and planning stages. For example, in January of 2006, the
organization underwent a very arduous demand processing conversion. Knowing that
there was a goal of implementing this within a certain time frame, management asked for
volunteers to join an implementation committee to solicit employee input and feedback.
The Committee was comprised of employees from many different functional areas and
included all levels of employees, from a Teller to a member of Senior Staff. During the
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implementation-planning phase, the employees were integral in helping to design a

successful implementation strategy. According to the software vendor that coordinated
the conversion, they had never before seen the kind of cooperation and understanding of
the process than they did at Maine Savings. As a result of employee involvement from the
beginning, the conversion went smoothly and was considered to have been very
successful, by any standard.
Employees at Maine Savings are not seen by management as robots employed there only
to perform assigned tasks, but as valuable assets with important opinions and ideas. The
organization stresses a collaborative work environment and constantly looks for ways to
promote and facilitate this initiative. When there are issues to be solved, status or level of
position does not matter. Every employee must work with each other to solve the problem
and ultimately make the banking experience better for the customer. Management
constantly stresses the fact that employees need to focus on two different types of
customers, the internal customer and the external customer. The concept that the
organization exists solely because of external customers is reinforced on a daily basis. So
too is the concept of the internal customer, or all of the other fellow employees that rely
on each other to do their jobs effectively. When problems between employees do arise,
they are addressed in an expedient manner, and with the understanding that internal
customer service is just as important as external customer service.
The Board of directors and the executive management team at Maine Savings truly feel
that all of the employees at the organization are important stakeholders in the company.
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As is the case in most organizations, the employees at Maine Savings are one of the
largest groups of stakeholders in the organization. For this reason, it is essential that the
employees understand the goals, purpose, mission, and objectives of the organization. To
this end, when executive management sought to create new mission and vision statements
in 2005, the input of employees was sought. The process began with Senior Staff
members drafting an outline of what these statements should contain, then roughing up
a first draft statement for each. Then, the statements were given to employee groups to
critique and offer input and feedback on the statements. The statements were then refined
based on the employees feedback and made final. These statements are now prominently
displayed in every public and employee area throughout the company.
Communicating with Employees

There is no greater concern at Maine Savings than effective communication. This means
with customers, vendors, co-workers, and employees alike. The organization goes to
great lengths to promote accurate and effective communication, including providing
employees specific training on effective communication techniques. Management of the
organization believes firmly that the success of the institution rests on the ability of its
employees and management team to communicate effectively. Employees are trained that
communication is not just verbal, but can include gestures, tones, body language, e-mail,
and physical barriers. Employees expect communication from Senior Management, as
well as the opportunity to communicate with Senior Management. The management
realizes that effective communication is necessary for a positive and productive work
environment, and work toward that goal accordingly.
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The company experienced periods of turmoil in the past that the current management
team has attributed to a lack of appropriate communication. Specifically, employees felt
as though that when they were spoken to by certain members of management that they
were not getting the whole story, or that things were being blamed on someone else. This
left many employees lacking trust or credibility in their management team. In addition, as
was the case with a certain member of Senior Staff that is no longer at the organization,
there was a deep seeded feeling that this person would often take credit for the positive
actions and ideas of their employees, but deflect any responsibility for negative actions or
results. As Jack Welch stated in his book Winning, leaders also establish trust by giving
credit where credit is due. They never score off their own people by stealing an idea and
claiming it as their own. Trust happens when leaders are transparent, candid, and keep
their word. Its that simple (Welch 2005). The current management team at Maine
Savings has seen how this type of errant behavior can eat at the fabric of trust and ruin
communication at an organization. Therefore, they maintain a constant line of open and
honest communication with all of their employees.
Often times in an organization the size of Maine Savings, employees will have differing
opinions, or in some cases air strong opinions to one another that create animosity and
have to be addressed by a member of management. More often than not, the management
of the company finds that it is not necessarily the message itself, but rather how the
message was communicated and subsequently received. In a majority of the instances, email is the culprit. For example, a Branch Manager e-mailed the A.V.P. of Operations in
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regard to a compliance issue that the A.V.P. of Operations had sent a memo out on two
days prior. The Branch Managers e-mail was all in caps, bolded, and was a statement
that ended with a question mark. When the message was received by the A.V.P., she took
it to be a challenge to her directive, as well as an inference that she was wrong. Because
of this, she responded back to the Branch Manager with a scolding e-mail asking why this
was being questioned. In the end, it was learned that the Branch Manager only wanted to
make sure that he was communicating the right message to his employees.
The current management team at Maine Savings is dealing very effectively with
communication issues by addressing them immediately, honestly, and comprehensively.
The management at the organization conveys to its employees the need to solve their
problems at the lowest possible level, but to use the correct organizational
communications path when necessary. In many cases, employees are able to solve their
own communication issues if given the opportunity and empowered to do so.
Management at Maine Savings reinforces the belief that their employees are capable of
solving their own problems if they communicate with one another. When an issue is
elevated to a member of management, one of the first strategies is to analyze the steps
that were taken in the process prior to elevating the issue to a member of management.
By doing this, the employees learn what steps may have been taken in order to solve the
problem at the lowest possible level. Management is able to encourage this behavior by
not punishing or criticizing responsible, proactive communication. This promotes healthy
communication and allows for an open, positive environment for the employees to
communicate in.
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A point that Maine Savings management stresses on a continual basis is the fact that
communication, whether it is between co-workers, management, or customers, is the
foundation for the companys success. In meeting after meeting, the management of the
organization talks about the need to effectively communicate in order to grow and
prosper as an organization. When the Senior Staff meets at its regularly scheduled
Wednesday staff meeting, the CEO makes it a priority to ask each Senior Staff member
about the communication in their departments and if there are any issues that need to be
addressed. By the top levels of management making communication within the
organization an important priority, attention to this priority flows down and permeates the
entire work force. Because every employee in the organization understands the
importance and attention of effective communication to the top-level management, they
know they are enabled to provide input and feedback when they deem it necessary.
Specific examples of the successes that open and effective communication has at the
organization will be highlighted in more detail in the next section of the paper that
considers effectiveness of teamwork at Maine Savings.
Employee Satisfaction and Teamwork at Maine Savings

Maine Savings has made great strides and improved in many of the areas associated with
employee satisfaction but arguably, their most notable improvement is in the area of
teamwork. Much of this success can be attributed to the facilitation skills and abilities of
its Vice President of Human resources & Training, Robert Carmichael. Rob has
introduced team building and a team problem solving approach to the employees of the
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organization. This has proven to instill a sense of camaraderie and team spirit between
employees in different departments from around the organization. Those employees who
have had the opportunity to work in teams, not only find themselves more motivated to
work toward a resolution, but also find satisfaction in working side by side with a coworker from another part of the company. Maine Savings now uses teams extensively for
trouble-shooting, problem resolution, and project planning initiatives.
Before the installation of the current management team, team formation within the
organization was rare to non-existent. However, in the recent past, team resolution has
had a very positive effect on several different areas of the organization. One example in
particular, relates to the management of the companys Visa portfolio. Shortly after the
arrival of Anthony Emerson, the Vice President of Finance/Accounting/Operations, who
is responsible for the Cards Services Department, he began to notice the high volume of
negatively toned e-mails between the supervisor of the department and the branches.
With the help of Rob Carmichael and the Card Services Supervisor, Jan Rollins, a crossfunctional team including Jan, the A.V.P. of Operations, Rob, and a representative from
each branch was convened. It was soon learned that the branches did not understand the
compliance issues related to managing the portfolio, and Jan did not realize the
magnitude of the customer impact and the issues the branch had to deal with when faceto-face with a customer demanding that their card issue be dealt with. After meeting for
three months on a regular basis, the members of the team all had a much better
understanding of each others concerns, but also came up with some new operating
procedures that were helpful to all parties involved. The results of the work of this team
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have been totally positive! Communication has improved, the branches routinely involve
Jan in their decisions and any issues that may arise are quickly dealt with to the
satisfaction of all parties.
The organization faces many different issues such as product offerings, systems
implementation, and compliance issues that have a wholesale effect on many different
areas of the company. The standard operating procedure of the company now is to
convene a team from the different affected areas so that everyone has an opportunity to
give input and feedback on an issue that may affect them and their respective
departments. This has recently been done with the following company initiatives: DP
conversion, telephone conversion, courtesy pay program, ATM deployment, product
implementation, and exam and audit preparation. In each of these cases, the initiatives
were implemented successfully and with the support of every department in the company.
When an announcement goes out now for volunteers to sit on a cross-functional team,
more employees respond than can be accommodated on the team.
There is no doubt that the implementation of teamwork at Maine Savings has proven
successful in improving employee satisfaction and left team members feeling more
empowered as a result of the experience (empowerment will be discussed in the next
section of this paper). The company has realized an increased level of employee
motivation and productivity as a result of using teamwork on a regular basis. The biggest
improvement the company has seen as a result of teamwork has been the increased
cooperation between employees in the organization. This cooperation has translated into
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better working relationships between both employees and departments. A beneficial byproduct of teamwork at Maine Savings has been the improved ability by many of the
companys employees to generally work and associate better with other employees.
In the previous analysis regarding employee empowerment in this paper, it was stated
Empowerment in the workplace is an often misunderstood concept. Employee
empowerment is a term that many managers and organizations think they understand, but
few actually do, and even fewer really put into practice. Many managers feel that by
empowering employees, they relinquish the responsibility to lead and control the
organization. This statement aptly describes the general feeling of Maine Savings
management before the installation of its current management team. Prior to the assembly
of the organizations current senior management team, most, if not all, decisions of any
significance had to be made by a senior manager. Employees were conditioned not to
make decisions and therefore, not to act on anything without the prior consent of
someone in management that was duly authorized to make the decision. This created an
atmosphere of uncertainty and contributed to a lack of self-assuredness among employees
at the organization.
Maine Savings current senior management team has reversed this prior belief that allimportant decisions should be made by a member of management. In fact, the Senior
Staff reinforces their belief that problems should be solved at the lowest possible level of
the organization, whenever possible. As was previously stated, from an operational
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standpoint, the company operates as a flat organization. This means that decisions are
made at the level that they occur and not based on a hierarchal structure. By doing this,
the company has urged their employees to take more ownership of their duties and
responsibilities, as well as encouraged employees to become more entrepreneurial in
nature. As this new concept has been permeated all ranks of employees at the company,
Maine Savings has seen a marked improvement in employee satisfaction, customer
retention, and employee retention alike.
As is the case with employees at the Ritz-Carlton organization, the employees at Maine
Savings are empowered to solve customer issues whenever appropriate, keeping in mind
that there are certain restrictions due to government compliance regulations. That
notwithstanding, employees learn as they go, that they are able to reach outside of their
paradigm at times in order to facilitate better customer service or solve an issue for a
customer. This process is not instantaneous right after the employee is hired, but rather is
a process of maturation and learning the appropriate boundaries in which to operate. In
addition, employees are encouraged to bounce ideas off of fellow co-workers as a
solution, rather than going right to management. Collective reasoning as part of the
empowerment process is encouraged, and even rewarded by the Senior Staff of the
organization. Management understands the concept of corporate entrepreneurship and
also understands the necessity to constantly encourage it and reward it.
There are many examples of employee empowerment present at Maine Savings.

However, a good illustrative example exists in regard to fees. Like any other financial
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institution, Maine Savings has a very detailed fee structure that applies to things like an
overdrawn account to an ACH wire fee. These fees have been established, published, and
are applied in the appropriate and relevant circumstances. From time to time though, a
Maine Savings employee will refund the fee to the customer because they feel that the
circumstances surrounding the fee assessment was not appropriate, or they felt it needed
to be reversed for some reason. As long as these situations are appropriate and do not
occur on a regular basis, they are encouraged, both from a customer service standpoint,
but also an employee empowerment standpoint. As an illustration of past practice, a fee
could not be refunded without prior management approval. Today, employees that are
working directly with the customer can make the instant decision to reverse the fee.
Customers are happy that they are working with an employee that can make decisions
and employees are motivated and satisfied because they have been empowered to make
decisions.
For the past three years, the results of the organizations employee satisfaction survey
indicated that employee empowerment was very important to both employee satisfaction
and also employee productivity. The employees indicated that they take pride in their
work and would like to have more autonomy in making decisions that effect their
department or specific job. In employee appraisal sessions employees voice their support
for added decision-making capability. When employees are empowered to make their
own decisions, they have a sense of being trusted, which in turn results in more trust of
the management of the organization. This has been the result at Maine Savings as well.
Employees voice their increased levels of trust in management in appraisal sessions and
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on the employee satisfaction survey. The feedback from the mid-level managers is also
very strong and indicates the increased employee satisfaction level with the growing
ability of employees to make empowered decisions.
A by-product of actively promoting employee empowerment at the organization is the

more efficient use of time by department managers and supervisors. The company has
found that the more empowered employees become, the more productive they are and the
more proactive they will work. In addition, the managers and supervisors are realizing
that they too can be more productive because they do not have to involve themselves in
decisions that the front line employees are now empowered to deal with. Effective
empowerment means that all parties are winning, the employees, the management, and
most important of all, the customers. This is important to note because in customer
satisfaction surveys, customers continually voice their desire to deal with an employee
that can take care of their issue without having to make them wait for a decision from
someone higher up in the company.
The Senior Staff has seen a marked improvement in employee development as

empowerment has been made a priority. Empowerment has created learning opportunities
for many employees that have led them to want to learn more so that they may be better
prepared to make similar decisions in the future. Likewise, senior management now
promotes empowerment on a regular basis as a source of knowledge and experience.
Once in awhile an employee will not make the right decision. When this happens,
management understands the importance of using the situation as a training opportunity,
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rather than a platform for punitive action. Maine Savings Senior Staff teaches managers
and supervisors that the quickest way to cease innovation and creativity is to punish it.
They know that people will make mistakes, but that should be the time to review the
situation and make sure it does not happen again rather than punish an employee that is
trying to do the right thing.

An issue that the current management team identified in the first employee satisfaction
survey was that an inordinate number of employees felt they were spoken to by members
of management in a disrespectful way. There was an overall tone in a couple of
departments that management was unapproachable because of the way that they spoke to
employees. This feeling was manifesting itself in a distrust of management, as well as
lowered employee satisfaction and motivation. Employees gave examples that included
offering their input on an issue and then being chided or spoken to in a demeaning manor
regarding their input. This kind of behavior by management was eating at the fabric
employee trust and morale. When the current management team realized that this was in
fact an issue, they took immediate steps to engage employees in productive discussions
on the topic and put a stop to the behavior immediately.
At Maine Savings today, all employees are spoken to and treated with respect and dignity.
Employees are frequently asked for their input and encouraged to give management open
and honest feedback, without the fear of retribution. As is the case in any organization,
situations do arise where someone speaks to another in less than a respectful manner.
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When these situations arise, they are dealt with expediently and addressed at the highest
levels of the company. It is also understood that everyone is allowed to have a bad day.
As long as those bad days do not become consistent and have an adverse effect on the
other employees of the organization, there are usually no problems. The Senior
Management team at Maine Savings stresses the importance of being empathetic when
communicating.
An example of the limits management will go to in order to ensure a truly interactive

working environment for its employees can be found in the following example: in May of
2005, the A.V.P. of Operations informed Anthony Emerson, the V.P. of
Finance/Accounting/Operations, that an employee had called from one of the branches to
say that an Operations Clerk had hung up on him. Mr. Emerson subsequently spoke to the
Operations Clerk to ascertain what had happened. The clerk informed Mr. Emerson that
she indeed hung up on the branch employee because she did not like what he said,
although she admitted he was not at all rude. She was told that her behavior was not
acceptable and that it was not to occur again. Within approximately 45 days, the same
situation occurred again. Mr. Emerson, along with the clerks direct supervisor, spoke to
her again and this time put her on probation. Less than fourteen days later, the same
complaint came from a different branch. When Mr. Emerson was informed of this, he
promptly terminated the employment of the clerk and asked her to leave the building.
Management stresses the necessity for all employees to interact with one another in a
respectful manner, and those that dont must be prepared to work somewhere else.
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A different example in regard to empathetic interaction at Maine Savings can be found in

the following example: An Accounting Clerk, who had been employed with the
organization for eleven years and who had an acceptable performance history began to
show up late for work and make excessive errors in her work. After identifying these
issues and tracking them for a period of approximately two months, without the behavior
changing, the employee was asked to sit down with their direct supervisor to discuss the
matter. In the meeting the employee just stated that they had some personal problems and
would work to resolve them so that they could improve their work. The employee
apologized for their performance and was summarily dismissed back to her work area.
Another month went by and her work did not get better; it actually got worse. At this
point, Mr. Emerson asked to speak to the employee and her direct supervisor. Initially the
employee was reluctant to divulge the real issue, but after being assured by Mr. Emerson
that they were all there to solve the problem, she did talk. In her case, her daughters day
care hours were changed to 8:00 a.m., the time she had to be at work. Therefore, she was
always late because she could not drop her child off before eight. This caused her to
worry about getting in trouble and led to a degradation in her work quality. As a solution
to the problem, Mr. Emerson changed the employees work hours to begin at 8:30,
instead of the normal 8:00. By doing this, the company was able to address the emotional
needs of the employee, while at the same time gaining a satisfied and more productive
employee in the process.
Because Maine Savings is a retail financial institution, it must maintain certain hours and
be accessible to the public at stated times. Because of this, flexibility is not always an
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option. When it is though, the company will do what it can to address the needs of its
employees. Another program that the company offers to address the emotional needs of
its employees is a very robust ERP (Employee Response Program). This program
provides for 24-hour phone contact for the purposes of crisis management or
psychological help of any kind. This benefit is paid for at the companys expense and is
available to all employees upon their hiring at the organization. The service is completely
anonymous and the companys management never knows how many employees are using
it, let alone who is using it. The management however, has received feedback from
certain employees that this is an invaluable benefit that has been able to address certain
employee needs.
Whenever there are a great number of people working in one area for many hours at a
time, there is bound to be conflict at some point or another. At Maine Savings, these
conflicts are addressed and facilitated by Rob Carmichael, the V.P. of Human Resources
& Training. Rob is a Certified Facilitator and has dealt with conflict resolution
professionally for more than twenty years. If a situation cannot be solved at the lowest
possible level between the employees, Rob gets involved and holds a formal conflict
resolution session. In this session he addresses the issue, confronts the parties, and finds
an equitable and fair solution to the conflict. This procedure has worked for the past three
years and has proven to be effective at settling conflict once and for all. Rob will also be
called upon from time to time to act as a mediator between parties, whether it is between
two staff employees or between a member of management and a staff employee.
Sometimes the issue is not even between employees; it may be an interpretation of a
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procedure that different parties are unable to agree on. Rob is able to bring the parties
together and have them effectively come to an agreement on the correct mode of action to
take in order to resolve the issue.
The Senior Staff at Maine Savings is a proponent of smooth and efficient employee
interaction and they go to great lengths to ensure that this is the case. Although the
organization communicates as a flat organization, boundaries are still observed and
respected. Employees are encouraged to interact with one another, but also be mindful of
their respective situations and deal with each other respectfully. As part of the companys
ongoing training, interpersonal skills and employee interaction in general, are covered
with all employees. Those employees at the supervisory and management levels of the
company receive more in-depth training and even mentoring on the subject of employee
interaction. Because this topic receives so much attention from the Senior Staff and is
publicly addressed frequently, the organization can boast of having and maintaining good
interaction between employees.

Many of the elements that contribute to employee satisfaction at Maine Savings have
been discussed previously in this paper. However, none of the elements would be able to
exist and work at maximum expectation without a fertile and congenial organizational
culture in which to thrive. An abundance of research on this topic has identified the fact
that organizational culture is directly linked to service quality and employee performance.
It makes no difference if such elements as communication, interaction, training, and
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service are talked about in an organization unless there exists a culture that allows these
elements to be cultivated and nurtured. The Senior Management team at Maine Savings
understands this and works tirelessly to ensure that such a culture exists. There are
numerous examples, several of which have already been discussed, that show how
serious management is about maintaining an organizational culture that allows for
maximum employee satisfaction, maximum customer satisfaction, and subsequent
organizational profitability.
It is not enough to talk about creating an employee culture; it requires actions on behalf
of the management team in order to set the example and prove a commitment to the
initiative. Some of the challenges that have recently faced the management team at Maine
Savings in regard to organizational culture are directly related to the organizations recent
expansion. Two challenging results of this expansion included hiring 25% more
employees, and the quick assimilation into the Maine Savings organizational culture.
These new employees make up one in every four of the companys current employee
base, and therefore have quite an effect on the attitudes and temperament of the
organization. Management addressed these issues by ensuring a comprehensive induction
into the organizational culture climate before the employees were assigned to their final
work areas. In addition, the new employees were assigned to long-time employees, acting
as trainers that could help reinforce the important elements of the companys culture to
the new employees. This has resulted in a very good initial understanding by the newer
employees of the kind of culture that exists at the company.
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The Senior Staff at Maine Savings is keenly aware that an appropriate and conducive
culture is the responsibility of an organizations leaders and results start at the top. The
company devotes a great deal of time, energy, and money to the development of its
employees, as well as to the promotion of its ideals in order to ensure their workforce is
engaged and receptive to the desired culture. The CEO of Maine Savings has stated that it
is not enough to focus just on the operational issues of the company alone. Employees
must be considered in any operational issue. Employees at Maine Savings are considered
an integral part of the machine that powers the company forward, and the culture that is
being created takes this into consideration. The Management knows that without good
leadership and an appropriate example, a culture that promotes employee satisfaction is
realistically unattainable. It is for this reason that leadership by example and constantly
putting attention on elements that create the appropriate culture are stressed.
Although establishing an organizational culture that is conducive to employee satisfaction

is most effective when exhibited by the leadership, it does not mean that employees
should not have input into the process. This paper has discussed several of the ways that
Maine Savings has been able to effectively collect and implement the ideas of its
employees. An important element of creating this culture of satisfaction for the managers
of the company is to do what they promise to do. In addition, as with the employee
survey, it is important for managers to address issues that are brought to their attention by
employees. By doing this, management establishes a sense of trust and commitment from
the employees that is an integral part of establishing, maintaining, and growing employee
satisfaction. As is the case at Maine Savings, if employees see that management is taking
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a proactive approach to creating an organizational culture that promotes employee

satisfaction, they will be more motivated to contribute and support these endeavors.
Maintaining high morale is a key factor in creating an atmosphere of employee

satisfaction at most organizations and Maine Savings is no different. Managers are tasked
with the responsibility to constantly assess the level of morale that exists in their
departments. Low morale can cause many problems that include low productivity, poor
customer service, bad attitudes, and a general sense of malaise in the organization. When
a situation like this occurs at Maine Savings, it is quickly dealt with, rather than left to
work itself out. Management at the organization is very proactive in this area and
enlists the help of all employees in order to monitor employee morale. Department level
management is empowered to rectify any situation that is having an adverse effect on
morale and ensure that they do what they can so that the situation will not re-occur in the
future.
Maine Savings is currently in the process of identifying operational functions that have
traditionally needed prior higher-level management in order to accomplish. Management
recognizes that in many cases, the organizations productivity has suffered due to
employees having to seek the approval of senior management in order to act. Even
though management has been able to identify several areas in which employees can now,
through empowerment, act in order to save time and improve customer service, it is
proving to be more difficult than first thought. The reason for this is that employees are
reluctant to switch from a culture that was controlled by dominant managers that would
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insist on being notified every time a decision needed to be made. The employees are
having a difficult time making these decisions even though they have been told that they
are now empowered to do so, knowing that mistakes will be made in the process and
current management will not impugn them for doing so.
This last example highlights a point that deserves further attention, and is also relevant to
the organizational culture at Maine Savings. Establishing an appropriate organizational
culture that promotes employee satisfaction is neither an easy process, nor an expedient
process, as Maine Savings has learned. Sometimes, it may take years to establish the right
culture and have all of the employees understand and buy into it. Just because the senior
management of an organization makes a decree of some kind or dictates that this will
happen immediately, does not mean that it will happen. Establishing an organizational
culture takes time and is something that lasts, whether it is good or bad. When Jack
Welch, the former CEO of General Electric, was asked about the most important aspects
of the many mergers and buy-outs he led while at the helm of GE, he stated very simply,
the organizational culture considerations. In Mr. Welchs opinion, any operations,
finances, or other business challenges could be overcome, but organizational culture
could not. Citing the few failed takeovers that he was involved with, he specifically said
that the initiatives failed because of a clash in organizational culture.
These experiences help to highlight not only the importance of establishing the desired
organizational culture, but also the fact that organizational cultures can be entrenched and
very difficult to change, even with a proactive management team driving the change. At
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Maine Savings, the initiative to change the organizational culture began more than three
years ago. However, management admits today that the desired changes are still in their
embryonic stages and will take much more time to solidify and be accepted by all of the
employees. Ironically, as Maine Savings has realized, it is the long-time, more
experienced employees that are proving to be the impediment to change in many cases.
Even though the recommended changes have come as a result of employee feedback and
would result in added employee satisfaction, it is proving a daunting task to actually
change the behavior of seasoned and experienced employees. An element that is
compounding this for Maine Savings is the fact that the tenure for their average employee
exceeds more than ten years of experience with the organization. Because the company
has very little turnover, and has had since its inception in the early sixties, it has an
established, experienced employee base. While this proves to be helpful operationally, it
also is proving to be an impediment to change.
Before the arrival of Rob Carmichael as the Vice President of Human Resources &
Training in 2004, there was no formalized and centralized human resources function
within the organization. This made it very hard to consider, as well as act like, a human
resource focused organization. The absence of this very important Senior Staff position
left Maine Savings without the important structural support for the advocacy of human
resources & training functions within the company. With the establishment of this very
visible position, coupled with the hiring of such a well-recognized professional in the
industry, the organization was able to finally establish the formal distribution of work
roles and functions that are a necessary element for establishing the desired
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organizational culture. Maine Savings has definitely seen an improvement in the

satisfaction of its employees, and also continued progress in its goal to make their
organizational culture one that promotes added employee satisfaction.
The company has made a commitment to constantly improving their organizational

culture, but at the same time, management understands the necessity to constantly
monitor the situation and be an example of the desired result. The Senior Staff
understands the importance of setting the appropriate example for their employees and
constantly being the example for what they are striving to attain. The last thing that
management wants to be identified with is hypocrisy. Trust is an important element in
any corporate initiative, but especially important in establishing an appropriate
organizational culture. Although the organizations management is constantly assessing
the progress of this initiative, they understand that this initiative is ongoing and have
planned for another twenty-four months until all of the desired results have been attained.
Employee Benefits
Many of the benefits that Maine Savings offers have been discussed previously in this
paper. In this section however, a more comprehensive analysis of the benefits and their
corresponding contribution to increased employee satisfaction will be considered.
Because Maine Savings is a full-service financial institution located in very heavily
banked areas, competition for experienced, quality employees is very high. It is not
uncommon for qualified financial institution employees to change institutions every
twelve to twenty-four months because of a better offer from a competitor. For this reason,
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a competitive, robust, and comprehensive employee benefits package is a necessity in

order to compete in the employment market place. Maine Savings is recognized by its
competitors and prospective employees alike, as having a very good benefits package that
is oriented to and for the employees of the organization. Management has continued to
offer this kind of robust benefits package even as costs and expenses associated with
benefits have continued to rise. A strategic decision has been made by the organization to
continue to support the current levels of benefits offered, rather than cut expenses and
increase profitability at the expense of employee benefits.
The management of Maine Savings understands that lower level employees in particular,
may have to sustain an inordinate financial burden while trying to provide themselves
and their families with adequate healthcare, for example. In addition to healthcare, there
are other benefits such as life insurance, retirement benefits, vacation time, sick time,
flextime, and other employee benefits. Each year, management accomplishes a
comprehensive review of its benefits package that includes a cost analysis, a competitor
analysis, and a content analysis in order to ensure that the organization is providing the
most comprehensive benefits possible to its employees, at a reasonable price, and that the
benefits exceed those of its competitors. In addition to this review, the company also asks
prospective employees about their current benefits packages during the interview process.
They also do an exit interview when an employee leaves the company that includes
questions about the benefits package. All of this is done in order to effectively understand
how the organizations benefits package is affecting employee satisfaction.
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The company has been able to differentiate itself from the competition in several different
areas regarding employee benefits. The first of which, and probably the most
recognizable, is the fact that the company provides healthcare benefits to the employee at
no cost. Beyond that, there is a small premium to cover the employee and children and a
somewhat higher premium for the employee and their entire family. To point out the
magnitude of this benefit, the cost of covering the employee alone is approximately $900
per month. The cost of covering an employee and their family is approximately $1,900
per month, of which Maine Savings pays $1,300, a sizeable benefit by any organizational
standard. Many of the organizations main competitors in the local area have recently
increased the employees portion of healthcare expense, while at the same time, reducing
benefits available to the employees. For instance, there are currently no competitors in
the area that pay the entire cost of healthcare benefits for the employee like Maine
Savings does.
Although this paper made mention of the importance of the organizations benefits
package in a previous section, it bears repeating here. Recently the company needed to
hire approximately twenty-five new employees for its two new branches. During the
interview process, the prospective candidates all stated that their current organization was
in the process of cutting available benefits, while at the same time increasing costs for the
employees. They all expressed interests in attaining benefits offered by Maine Savings
and could not believe the extent to which management at the organization went to in
order to provide affordable and comprehensive benefits to its employees. In almost every
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case, these candidates expressed their feeling that Maine Savings was their employer of
choice in large part because of the benefits package that employees received.
For the reasons stated in this, as well as other sections of this paper, Maine Savings
management understands that its benefits package is important for employee motivation,
retention, and overall satisfaction. The Senior Staff has made a commitment to keep the
current benefit offerings available to employees as long as it remains financially viable to
do so. As costs rise and insurance companies continue to modify plans and discontinue
certain benefits, this commitment is becoming more difficult to uphold. However, the
company will continue to devote the time and effort necessary to ensure that the best
benefits package possible continues to be offered to its employees. This year (2007) for
example, the companys current medical insurer Aetna, offered a 10% premium increase.
Management was able to modify some of the coverages in the plan that would have little
or no effect on the employees and realize a cost savings of 1%. This kind of attention and
negotiation allows the organization to continue to offer their menu of benefits and not
have to increase employee premiums. This is communicated to the employees of Maine
Savings and results in increased loyalty, appreciation and overall employee satisfaction.
Employee Motivation
Motivation is one way of explaining why people behave the way they do in organizations.
A persons motivation can come from intrinsic or extrinsic sources. Intrinsically
motivated behaviors are actions performed for their own sake, doing something because
its believed to be important. Extrinsically motivated behavior includes actions that are
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performed to acquire material or social rewards or to avoid punishment; the source of the
motivation is the consequences of the behavior (Daniel and Metcalf 2005). Maine
Savings management team strives to promote both intrinsic and extrinsic motivational
behavior in its employees. They do this by hiring people that have a level of intrinsic
motivation, like a person that enjoys helping customers, and by providing an atmosphere,
benefits, and other motivators, in order to promote extrinsic motivation. Because there
are many factors associated with both forms of motivation, the management team must
take into consideration and constantly monitor such things as personal characteristics, the
type of job the employee is being asked to do, the organizational culture, and the
organizations support system. Many of these motivators have been discussed in previous
sections. This section will consider more specific ways being used at Maine Savings in
order to ensure intrinsic motivation, and at the same time, encourage extrinsic motivation.
In general, the Senior Staff at Maine Savings understands that before certain behaviors
can be motivated externally, there are basic needs that need to be met first. This line of
thinking would mirror the findings and research of Abraham Maslow, commonly referred
to as Maslows Hierarchy of Needs, and whose works and research have been covered
previously in this paper. This hierarchy of needs identifies five levels of need that include
physiological needs, the lowest, to self-actualization needs, the highest priority. Because
of these beliefs and an understanding of Maslows theories, Maine Savings management
provides benefits that include medical, dental, retirement, flextime schedules, and above
average pay that address an employees basic physiological needs. As these needs are
met, only then can bonuses, raises, and other motivational tools be effective at attaining
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desired behaviors from employees. By applying this logic to the basic fundamentals of
psychological motivation, Maine Savings management has been able to design effective
motivation programs that deliver desired results.
An example of how Maine Savings used motivation in order to achieve an increase in

loans can be found in their NASCAR auto loan program that began in 2006. Before this
program was launched, the company averaged approximately $1,000,000 in auto loans
per month. The promotion contained certain bonuses and incentives based on volume,
that would be paid to the lenders generating the most business (Appendix 14). In the first
month of the promotion, auto loan production doubled and continued to increase from
that point for the following six months. In one day at the companys Brewer branch, more
than $1,000,000 in auto loans was done as part of the promotion and grand opening of the
branch. The promotion surpassed the goals set for the special and resulted in increased
employee productivity and exponential motivation because of the incentives and bonuses
that were paid as a result of the promotion.
Maine Savings management realizes that it is because they have met their employees
most basic physiological needs that they are able to use added compensation as an
effective motivator. Above and beyond using monetary forms of motivation, management
strives to maintain a very high level of morale and camaraderie in order to maintain a
high level of motivation. The organization does this in many ways including constant
informal recognition, buying lunch for the staff, spending time with employees where
they work, and by members of management being approachable and available to every
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employee, no matter what their title or job function is. Employee surveys indicate that
managements methods are working. Especially noteworthy are the comments from longtime employees that indicate a total shift (for the positive) in the levels of motivation that
they feel. In almost every case, the employees at Maine Savings say that they feel both
challenged and positively motivated. The Senior Staff recognizes this and takes constant,
proactive steps to ensure that it stays that way.
Chapter 8
Customer Service, Loyalty and Retention at Maine Savings
This section of the paper will follow the same format as previous sections and will
consider the elements of customer satisfaction that are being addressed at Maine Savings.
Each element related to customer satisfaction and loyalty will be comprehensively
examined and analyzed through the Maine Savings lens. One of the organizations main
goals has been to become a truly customer-centric company. To this end, they have
taken many steps and started many new initiatives that will be analyzed here in relation to
their customer service strategy. In addition to analyzing the operational endeavors of the
organization as they relate to customer service initiatives, many examples will be cited in
order highlight certain strategies and methods the company has used. The Senior Staff of
the organization understands completely that Maine Savings is a service business that
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without satisfied and loyal customers would cease to exist. Therefore, customer-centricity
is stressed and even mandated by management of the company.
Maine Savings as a Customer-Centric Organization

Being customer-centric is not only a goal for Maine Savings, but also an actual necessity
to continue as a going concern in business. The commidization of money has for all
practical purposes, served to make almost all financial institutions generic in most cases.
That is to say, money costs or is paid for at a standardized rate that is available at any
financial institution. What can make an institution stick out and result in added market
share is the degree to which they provide an unforgettable service experience to their
customer base. In todays market, consumers that do not even care about face-to-face
customer service can do their banking on the Internet. This used to be a small niche
market reserved for the technologically adept. However, today banking via the Internet
accounts for a large percentage of all financial transactions. That having been said, there
are elements of customer service associated with online banking products, of which most
lead right back to a friendly, knowledgeable, and responsive employee. Maine Savings
has been able to be the fastest growing institution of its kind in the state of Maine because
it recognizes the importance of being a customer-centric organization.
Not unlike many businesses today, Maine Savings has had to re-examine the way it does
business in every respect. Rather than the traditional method of focusing on profitability
and operations first, the organization has examined every one of its processes from the
perspective of its customers. Many times, this has resulted in wholesale and costly
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changes, but met the needs and expectations of the customers that use the service. A good
example of this can be found in the organizations weekend hours available at three of its
branches. Many competitors are not open on weekends, but a few have half-day hours on
Saturday. Maine Savings received a great deal of feedback from their customers that all
day Saturday hours were a desire. Recognizing this, as well as responding to the desires
of their customers, the organization established all day, full-service hours at three of its
centrally located branches. By no means will this be a moneymaking proposition for quite
awhile, but the positive response from its customer base has been overwhelming. In the
minds of the companys Senior Staff, being customer-centric means not always making
decisions that result in immediate profitability, but rather what is good from the
customers point of view.
It is not enough for an organization to just say they will become customer-centric; they
must have a plan that includes funding, a strategy, and a timetable for implementation.
One of the first initiatives Maine Savings invested in, as a method of benchmarking and
measurement was a service-shopping program. This program uses actual Maine Savings
customers to secretly shop each branch and the organizations electronic services in order
to rate different categories related to serving the customer. Such items as reliability,
responsiveness, assurance, and empathy are all evaluated using a scale of one to five
(Appendix 15). These items are further broken down into customer service elements such
as customer name use, product offerings, action, and alternative choice. The company
began this initiative in 2005 and took the entire year of 2006 in order to establish a solid
baseline from which to measure in the future. The report not only measures performance
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specific to Maine Savings, but also for geographic peers and national peers. By seeing the
peer performance, the organization can seek out best practices if they notice a lagging
indicator for any prolonged period of time.
Part of becoming a truly customer-centric organization is the ability to think like a

customer and anticipate their needs and wants. Maine Savings has created a customer
users group in order to constantly assess the needs of their customers. In many cases,
customers may not even know they would benefit from a certain financial product. This
users group helps to identify these issues and proactively informs the organizations
customers of products that may be of benefit to them. The company also is constantly
assessing the service channels of the organization and striving to improve the speed,
efficiency, and overall quality in order to bolster customer satisfaction. Maine Savings
strives to create value in every customer interaction no matter how brief or insignificant it
may seem. Management understands the necessity to literally exist for the customer in
order to truly be customer-centric.

Customer acquisition and brand management are particularly important to Maine Savings
because of the high level of competition in the financial services industry that exists in
their marketplace. Not only does competition exist in the form of a physical competitor,
but also from financial services organizations on the Internet. This inordinately high level
of competition has resulted in a constant barrage of advertising and promotions that has
left the consumer almost immune to effective acquisition and branding attempts. This has
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caused Maine Savings to become very strategic in the way that they market their services
and products to potential customers in the marketplace. The organization has stayed away
from the traditional white wash methods of advertising that include such mediums as
television, radio, and newspapers. Although the company does use these outlets from
time to time, it relies more on strategic alliances with well-known entities and robust
promotions that create brand recognition. Some of these alliances and promotions will be
examined in the following section of this paper.
One of the more stark and important examples of a Maine Savings initiative in regard to
branding can be found in the organizations name change that took effect in 2001. Maine
Savings was originally founded for the employees of the Bangor & Aroostook Railroad
Company and was given the acronym name of BARCO (Bangor & Aroostook Co.). This
name served the organization well until the 1990s when a number of better-known
competitors moved into the market. It was apparent to the CEO John Reed, that most
people did not associate the name BARCO with a financial institution. To make matters
worse, the Bangor & Aroostook Railroad Company went bankrupt and was not an
existing business entity any longer. Because of this, Mr. Reed recommended to the Board
of Directors that the name be changed to Maine Savings, which was shortly thereafter
executed. The organization now enjoys statewide recognition as a top performing
financial institution. The Maine Savings brand is well know throughout the state and
often sought after because of reputation and name recognition.
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Maine Savings is attempting to set itself apart from the competition by aligning itself
with other well-known, highly recognized brands that already enjoy customer recognition
and engender a spirit of loyalty. The best example of this can be found in the
organizations recent marketing agreement with the University of Maine athletics
department. Maine Savings just recently signed a multi-year marketing agreement with
the athletics department that makes it the preferred financial institution of Black Bear
sports. In a state like Maine, where there are no professional sports teams, university
athletics is a very visible and viable marketing tool. The Maine hockey team is a
perennial national powerhouse that sells out every home game and garners a high rate of
national television coverage, which in turn results in a great deal of exposure. In an effort
to capitalize on this exposure, the organization, through its newly signed marketing
agreement, is able to prominently display its logo, in conjunction with the Black Bear
logo, in many highly populated areas. Maine Savings has signage on their skybox at
Alfond Arena, signage behind each goal at the Alfond, signage behind both benches at the
Alfond, an ATM in the lobby of the Alfond, and markets University of Maine clothing
and merchandise at many of their branches. This effort has resulted in high visibility and
added exposure for the organization, which in turn is resulting in customer growth.
The primary reason for Maine Savings signing the marketing agreement is to increase the
organizations exposure, and thereby increase its brand identity and awareness to current
and potential customers. This strategic decision by the organization is proving successful
in this regard. Every time the Maine Black Bear hockey team plays, a sold out arena of
6,000 plus fans and a television audience potentially numbering in the hundreds of
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thousands is able to see the Maine Savings logo numerous times during the game. In
addition, the company sponsors different segments of the game so that in addition to
seeing the companys logo, a person also hears the company name. In terms of raw
statistics, the alliance with the University should prove to be very lucrative. The
University has more than 12,000 current students, but has hundreds of thousands of
alumni. In the state of Maine, alumni and students alike are fiercely loyal to the
University and its affiliate products. This was the primary reason that management
decided the strategic marketing agreement would prove to be beneficial for the
organization.
The management of Maine Savings strives to create a unique brand recognition

experience for the customer that distinguishes itself from the rest of the competition in
the financial services industry. Many of the organizations competitors spend literally
hundreds of thousands of dollars per year touting their services, rates, accessibility, and
products. However, they all sound the same and none of them offer anything of distinct
value or benefit. Maine Savings Senior Staff invests much time and effort to ensure that
their organization does not fall into the same trap. The customer acquisition and brand
management endeavors that the organization undertakes need to be unique in nature and
in some way, differentiate the company from its competitors. The agreement with the
University of Maine athletics department is a good example of this. Another example can
be found in the proprietary products that Maine Savings is able to offer to their
customers. For example, the organization recently developed a proprietary municipal
banking product as a result of many inquiries from municipalities in the geographic area.
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The product, Maine Savings Municipal Banking Services Program, is unique to Maine
Savings and is rapidly becoming recognized by municipalities as a product of choice for
them. Although many other financial institutions in the area offer banking services to
municipalities, none have bundled an attractive, convenient, and cost effective set of
products and services as Maine Savings has done. This uniqueness and ability to
customize proprietary products and services is quickly resulting in added brand
recognition and increased customer acquisition.
In the very recent past, it was not uncommon to find a customer that maintained several
accounts at several different institutions for a variety of reasons. In these cases, brand
identity is quickly eroded, as the customer feels the need to maintain these different
accounts in order to satisfy different and particular needs. Maine Savings is aggressively
attempting to establish their brand as being synonymous with full-service
comprehensive banking products and services. This branding effort is proving successful
at acquiring customers who had previously maintained different accounts at many
different institutions. The organization is doing this by building its brand around
consumer, business, and electronic product and service offerings. The name Maine
Savings is rapidly coming to be known in the financial services marketplace as a one
stop, full service financial institution of choice.
Maine Savings Customer Acquisition and the Internet

Typically, customer acquisition via the use of the Internet is reserved for national or large
regional companies that can be accessed and viewed by large populations accessing a
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well known website. In the case of Maine Savings, it would be of no use to attempt
acquiring customers by advertising on such websites as Amazon.com or Ebay. This does
not mean however, that the organization cannot effectively use the Internet as a customer
acquisition tool. The organization has been able to accomplish by advertising and
maintaining a strong presence on the websites of large, well known, local organizations.
The University of Maine website is the most important example of this. In addition to the
University website, the company also maintains a presence on the websites of Liberty
Check Systems and CUSO Mortgage Corporation. These are related vendor sites that
serve to provide Maine Savings with exposure, but that also point potential customers to
Maine Savings own website for the purpose of procuring products and services.
Another area where the company has been successful at customer acquisition by using
the Internet is with business customers. Business customers are a market unto themselves
with specific and many times, unique requirements. For this reason, they are always
looking for better services and products. Recognizing this, Maine Savings has created a
Commercial (business) section on its website. This section is tailored specifically for
business and commercial customers. This section of the website delineates the
organizations commercial products and services, as well as the pricing and benefits of
using Maine Savings for these services. Maine Savings has been able to realize an
increase in commercial customer acquisition as a result of this comprehensive
information available on its website. Management has taken the time to listen to the
needs and desires of its commercial customers and as a result, been able to address these
on the companys website in a comprehensive manner. The organization is constantly
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updating this section of its website in order to be proactive to the wishes of its
commercial customer base, as well as potential commercial customers.
Target Marketing at Maine Savings

Maine Savings engages in a variety of target marketing activities, of which the
aforementioned commercial services initiative is one of them. The organization is
fortunate enough to have many large SEGs (Select Employee Groups) from large
companies in its operating area that provide a target marketing opportunity. A good
example of this is the institutions relationship with the Jackson Laboratories in Bar
Harbor, Maine. The JAX Lab, as it is commonly referred to, employs approximately
2,000 people, most of which are not from Maine and many of which have unique
financial needs. Some of these needs include customized student loans, foreign wire
services, flexible card services, and non-standard loan parameters. Because of these
needs, Maine Savings designed a program for the JAX Lab employees and markets these
services and products directly to them. The offerings are so specifically tailored that they
would not apply to any other potential customer base. This target marketing has resulted
in the acquisition of greater than ninety percent of the entire JAX Lab employee base.
An area that the organization has focused on in regard to target marketing for customer
acquisition is related to acquisition through product differentiation, rather than through
customer differentiation. Traditionally, target marketing refers to identifying a potential
customer base and marketing to them accordingly. In the case of Maine Savings, they
have identified certain product groups such as mortgages, insurance, and financial
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planning as the apex for target marketing. That is to say, potential customers seeking
these products create a target marketing opportunity because of their specific product
needs. As the potential customer contacts the organization in relation to one of these
products or services, they are then marketed to based upon their need at the time. This
type of target marketing has resulted in customer and product growth for Maine Savings.
Once the specific need of the customer has been met, an entire relationship encompassing
all of their financial service needs can then be established.
Delivering World-Class Customer Service at Maine Savings
As this paper has addressed previously, money and the services associated with managing
money and finance has become a commodity. In essence, there are very few differences
that exist between products and services offered by most financial services companies
today. What is different however, is the level of service provided by these institutions
while delivering the products and services required by the customer. Delivering worldclass customer service is no longer a choice, but a determining factor in the going
concern of a business, especially an industry so inundated with competition as the
financial services industry. This fact is especially pertinent in the case of Maine Savings.
The overall levels of competition have been discussed previously, but the companys
Ellsworth branch provides a stark and pertinent example of just how crowded the
marketplace for financial services companies is. Within one mile of Maine Savings
Ellsworth branch, there are nine other financial institutions, many of them far more
established with a longer tenure in the area than Maine Savings, that all provide savings
accounts, checking accounts, mortgages, commercial services, credit cards, and a variety
of other financial services. What is it then that can set Maine Savings apart from these
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other institutions in order to become the customers PFI (Primary Financial Institution)?
Maine Savings management understands that this differentiator must be the delivery of
world-class service.
Providing world-class customer service is at the nexus of everything that is done at Maine
Savings. Every employee understands that the only way for Maine Savings to effectively
compete in the marketplace and continue to grow is by providing its customers with the
best possible customer service. In order to continue to provide world-class service, the
management of the organization is continually looking for industry best practices to
implement in order to bolster their level of customer service delivery. This is exhibited by
the attendance of the CEO, John Reed and the Vice President of Human Resources &
Training, Robert Carmichael at the Disney Customer Service Training Institute in
February 2007. There are several steps involved in delivering world-class service that
include defining world-class, training, setting expectations, follow-up, and constantly
reviewing a customer service program. These steps will be examined in greater detail in
the following analysis. It should be noted however, that Maine Savings Senior Executive
Staff has made a commitment to world-class service delivery and continues to invest both
time and money toward ensuring the success of this endeavor.
Training for Customer Service at Maine Savings

The financial services industry is much like any other service industry, whereas in most
cases, it is the lowest paid, least experienced employees that are an organizations direct
interface to the customer. Maine Savings is no exception. Their Tellers, who are the least
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experienced as a whole, as well as the lowest compensated employees, are the face of the
company to customers of the organization. For this reason, it is vital that these employees
especially, be adequately trained on the different ways to deliver proper and meaningful
customer service. To ensure that all employees receive proper customer service training, a
formalized customer service-training program has been established at the company.
Every employee, no matter what their position within the organization, is required to
attend the initial customer service training as part of their employment orientation. Frontline employees like Tellers and Customer Service Representatives are required to attend
more progressive customer service training classes on a regular basis throughout the year.
These training sessions are designed by Robert Carmichael, the Vice President of Human
Resources & Training and incorporate many industry best practices theories and
methods.
Maine Savings management constantly reinforces their belief that there is no substitute
for lifelong, ongoing customer service training. Many employees come to the
organization with ample amounts of previous customer service training, but Maine
Savings insists on continuing customer service training in any case. In addition to their
proprietary training programs, the organization uses other resources such as the state
trade organization or customer service training programs sponsored by the national trade
association. The company also participates in professional development seminars from
time to time, as they are warranted. The biggest difference the company has made in
recent years is to highlight the importance and priority of customer service training.
Management has set training expectations and follows up on the results to ensure that the
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expected outcome of the training has taken place. Because employees know this, they
take the initiative to strive to enhance their customer service skills through training and
development opportunities whenever possible.
A recent initiative in regard to customer service training at the organization that has
proven very successful is the use of a customer service-training employee. This model
leverages the particular customer service skills of an employee who has routinely
excelled at delivering customer service by using them to teach other employees. In one
particular case, a former Teller that constantly exceeded the expectations for customer
service is now used to teach customer service skills in a one-on-one setting. This strategy
has proven to be very effective, as well as cost efficient. Many employees that have had
the benefit of this training offer positive feedback as to the effectiveness of this training.
The Managers in the branches also provide positive feedback in regard to the employees
performance after they assimilate back into the branches after having received this
particular training. Because of the success of this training model, the organization is
currently designing similar training programs in regard to other topics.
Important Elements of Customer Service That are Highlighted at Maine Savings

Maine Savings management attempts to take a comprehensive view of the customer
service experience. However, certain very important elements are highlighted as part of
the process. Together, these elements provide for a solid foundation for delivering the
best possible customer service at Maine Savings. The organization has received a large
volume of feedback from new customers that indicates positive word of mouth in regard
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to certain elements of customer service delivery are responsible for their patronage at the
organization. Although this is not a comprehensive list, these elements do represent the
major elements that are important to a customer that perceives a satisfying customer
service experience.
Be Accessible Maine Savings customers expect, justifiably so, that they will have
access to employees for questions and concerns, whether on the phone or in person. This
element of customer service is constantly emphasized at Maine Savings. An effective
strategy will set the stage and define minimum levels of accessibility for customer access.
The expectations of accessibility are defined and taught to all employees of the
organization. Employees understand that they can never be too busy to be accessible to
customers. Maine Savings management considers and makes investments in the
infrastructure that are necessary to provide accessible customer service. This may mean
the addition of more people, redesigning physical facilities, or changing the hours of
operation for the organization. It is understood by everyone in the organization, from the
CEO on down, that whatever the initiative, the goal should be to allow for the maximum
accessibility possible for the customer.
Be Reliable Reliability means keeping the promise you made to the customer and
doing what you say you will do for the customer. Where this is concerned at Maine
Savings, there is no higher priority than doing what one says they will do. Employees
understand that promises are not only made directly and verbally, but through a myriad of
delivery paths in various forms. The organization may make direct promises to customers
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through advertising and marketing materials, in company correspondence and contracts,

and in service guarantees and policies published for everyone to see. In addition to these,
customers of the organization hold the company to indirect commitments promises that
customers believe are implied in the way the company talks about itself, its products, and
its services. The Senior Staff at Maine Savings constantly reinforces the belief that not
keeping promises is one of the quickest ways to create a disgruntled, former customer.
Display the Right Attitude The training that employees at Maine Savings receive
teach them that a persons attitude colors the way they react to customers because it has a
direct effect on what they hear and how they respond. It is not realistic to believe that
everyone will be enthusiastic and have a great attitude all of the time, but employees at
the organization are given that as a goal. Management reinforces the concept that if there
are factors at work that are affecting an employees attitude, they should be discussed and
resolved as soon as possible. Customers can and will sense this and will react and form
opinions based on the attitudes of the employees that they encounter. Displaying the right
attitude is important for everyone in the organization in pursuing an atmosphere that
promotes great customer service.
Accept Responsibility Everyone makes mistakes. Mistakes by Maine Savings

employees will happen. The key to rectifying a mistake is to be honest with the customer
and to accept responsibility. Employees are taught that a mistake that is dealt with in a
responsible manner, with a positive outcome, is nothing more than a good learning
experience. The absolute best way to establish a sterling reputation as an organization is
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to be prepared to take responsibility for whatever decision you make. It is a matter of

integrity, and it will earn you the respect of both the employees and customers of the
organization (Scott 2001). Accepting responsibility also means being a team player and
providing service to the customer on behalf of the entire organization. There can be no
its not my job. The key to accepting responsibility at Maine Savings is that all
employees must view themselves as being part of a bigger team, and all working toward
the common goal of serving the customer. Pointing fingers or laying blame on another
department or person is not tolerated, for any reason.
Be Responsive Employees at Maine Savings understand that timeliness is always an

important part of delivering great customer service. The organizations customers expect
expedient resolutions to their questions and problems. A great example of the
responsiveness of Maine Savings employees can be found in the companys cards
services department. On a regular basis, VISA sends the organization alerts that a certain
string of cards has potentially been compromised. In this case, Maine Savings takes the
proactive approach of personally calling each customer to discuss the issue and the
resolution to the potential problem. Over and over again, customers respond very
favorably to this proactive response and send letters of thank to the organizations
management staff. The company sees their responsiveness as a competitive advantage,
where they can react more expediently than their competition. If Maine Savings is unable
to be as responsive as their competitors, they understand that they run the risk of
delivering undesirable customer service, or at worst, losing customers to the competition.
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Be Empathetic Employees at Maine Savings are taught to deal with each customer and
their particular situation as distinct and separate from another. Being empathetic toward
customers shows them that the organization cares about their situation and is willing to
take the steps necessary to resolve their problem. Employees are encouraged to take time
to listen to customer concerns, and take actions that shows the company cares.
Employees are taught that to be truly empathetic with a customer an employee should put
himself/herself in the position of the customer. Recognizing the customers emotional
state helps an organization figure out the best way to effectively provide them the service
that they are looking for. This is the ultimate goal of each Maine Savings employee when
dealing with a customer
Be There For The Customer Being there for the customer is a phrase that is
borrowed from the FISH philosophy and the customer service experience at Pike Place
Fish Market in Seattle, Washington. Maine Savings believes in the FISH philosophy and
uses many of the experiences from Pikes in their training. In many ways, being there is
the culmination of all of the previous elements mentioned. However, it is also a state of
mind. It means that you are present at that time, at that moment, for the customer and his
or her needs take precedents over any other function. How much do you actually get done
when you are in one place thinking about a different place? Why not commit to being in
one place at one time? When you are present, not dwelling on what happened in the past
or worried about what may happen in the future, you are fully attuned to opportunities
that develop and to the needs of the people you encounter. Customers react positively
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when they are fully engaged by the employees of an organization that they feel are there
for them.
Monitor Achievement Measuring the effectiveness of Maine Savings customer service

delivery initiatives is a major priority of the Senior Staff of the organization.
Measurement is both the last and first step in producing superior service. Measuring
elements of the service profit chain provides an overall indication of how an organization
is doing, particularly on dimensions important to the business such as customer service. It
is important that the methods of measurement be understood and consistent from period
to period. Maine Savings has instituted several new measurement tools to constantly
assess their achievement in regard to customer service delivery. Among these tools are
customer surveys, service shopping results, comment cards, and new customer referrals.
An important element of monitoring achievement is the ability to effectively share the
results with all of the organizations employees. Maine Savings compiles reports and
statistics regarding customer service levels on a monthly basis. Each month, the Senior
Staff of the company analyzes the results and examines the overall performance of the
organization. The information is then shared with department managers and reviewed
with the departmental employees.
The Employee-Customer Relationship at Maine Savings

As this paper previously addressed and analyzed, an abundance of research has shown a
positive correlation between employee attitudes and customer satisfaction. When
employees and customers connect, beyond just a superficial transaction, customers gain a
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sense of importance and caring that leads to enhanced customer satisfaction and longtime customer loyalty. Maine Savings takes several important steps in order to ensure the
best possible employee-customer relationship. Among these are ensuring that employees
that interact with customers are themselves satisfied and display the best attitude
possible, using the customers name when addressing the customer, and conversing with
the customer about more than just their transaction when possible. Employees at the
company are taught that each and every customer interface is an opportunity to build a
relationship that will be beneficial to both the customer and the company. In many cases,
customers request certain employees and will only conduct business with the employees
that they have known for a long time and have built a mutual trust in. Customers like this
tend to be loyal, long-term, and profitable customers for the organization.
One area that Maine Savings must always be cautious about in regard to the employeecustomer relationship is in the realm of e-services. The institutions e-services provide
convenient and automated financial services to its customers. However, in doing this,
many former personal relationships have been replaced by more informal electronic
processes that some customers may find impersonal and may even distrust. This has
proven to be the case with many of the institutions older customers. At times, for the
greater good of its customer base, certain applications must be automated in order to
provide more cost effective and expedient services. When this happens, there are several
customers that complain that they are being denied the opportunity to speak to a real
employee and to interact with the employee of their choice. Maine Savings management
has been sensitive to this feedback and has been able to ensure that these customers have
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access to the employees of the organization and are not forced into using electronic
services against their will.
A very good example of how effective employee-customer relationships can prove to be

beneficial for Maine Savings can be found in their Retail Operations division. This
department is responsible for the pricing and management of the institutions CD
portfolio, which accounts for a full 30% of the organizations deposit base. Because of
this, it is a very important area that requires constant contact with the customers that have
placed these CDs for investment in the institution. Although the deposits in this portfolio
account for greater than 30% of the deposit base, the portfolio only accounts for less than
5% of the organizations customer base. Therefore, if only a few customers are
unsatisfied or elect to take their deposits elsewhere, the portfolio could suffer a sizeable
decrease in assets in a short amount of time. However, the Operations Specialist
managing this area, Evelyn Smith, has built relationships with most of the holders of
these deposits, and has been able to translate this into their trust of her, and consequently
Maine Savings. Because of this trust and the relationship that exists, Evelyn is able to
keep more than 98% of the deposits that mature. She is able to accomplish this even
when Maine Savings may not be able to offer the best rate and terms available in the open
market. Many customers have offered feedback indicating that they are more than willing
to keep their money at Maine Savings no matter what the terms and conditions are, as
long as they are able to deal with Evelyn.
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The development of personal relationships is especially important in an industry with a

very high rate of competition, as is the case with Maine Savings. Relationship building
between employees and customers gives the institution the ability to have access to new
or return business without having to compete aggressively with the local competition.
Management at the organization constantly addresses the issue of building relationships
with customers and the value and benefit derived from such relationships. The
management at Maine Savings understands that the basis for a productive and trusting
employee-customer relationship is a satisfied and loyal employee. If employees do not
believe in the products or services that they are selling and representing, they will not be
willing to engage customers in the sale of those same products and services. For this
reason, Maine Savings management strives to involve all employees in the introduction
of new products and services and garner their feedback whenever possible. If employees
have buy-in to the process and believe in the products and services, this attitude will be
evident to the customers they serve.
Maine Savings recent implementation of a courtesy pay program serves as a good

example of employee involvement in the product development initiatives at the
organization. Before just mandating the implementation of this product, management
surveyed a large cross-section of employees to get their views of the proposed program
and to solicit employee feedback and attitude toward the product. Surprisingly, the
feedback on the product was predominantly negative and the comments revealed a
complete misunderstanding of the product itself, as well as any benefit to the customer. In
this case, had management gone ahead with the product implementation, it is evident that
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the employees would not have promoted the product to customers and the product would
have failed. Employees represent the company and customers trust employees and quite
often, act upon employee input or suggestion. In order to build strong employee-customer
relationships it is vital to instill a trust in the employee, as well as the customer for the
purposes of a mutually beneficial relationship for the customer and the company.
The Fish Philosophy at Maine Savings

The FISH philosophy of delivering world-class customer service was previously
discussed comprehensively in this paper. In 2005, Maine Savings made the decision to
adopt the FISH philosophy of delivering customer service. Initial training sessions
were held with all of the companys employees that included an introduction to the
FISH philosophy, a video about Pike Fish Market, and the receipt of a book about the
philosophy and how to adopt it. In addition to the training, management made the
decision to make certain changes within the organization that were synonymous with the
philosophy. First, the organization adopted a business dress policy to allow for a more
relaxed atmosphere. Second, management asked that an employee party committee be
established for the purpose of creating fun events for the employees. Third, employees
were given the opportunity to choose their own music, rather than having to continue to
listen to the piped in elevator music that had been the standard. And lastly, employees
were given the latitude to come up with a catch phrase to signify the delivery of great
customer service. By instituting these steps, management showed their commitment to
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the FISH philosophy and proved to the employees their resolve in taking actions that
would prove the theories successful.
Rather than try to recreate the proverbial wheel, Maine Savings Senior Staff decided that
the FISH philosophy was a proven way to improve customer service and decided to
implement it at the organization. As was previously discussed, the philosophy is centered
on four guiding principles that Maine Savings was able to customize for their own use.
Although some of these elements are very similar to those discussed in the previous
customer service delivery section of this paper, they have their foundation and are
integral parts of the FISH customer service strategy.
Play Maine Savings has worked very hard to stress to its employees that their work can
be fun. As the FISH philosophy states, work made fun gets done, especially when we
choose to do serious tasks in a lighthearted, spontaneous way. Play is not just an activity;
its a state of mind that brings new energy to the tasks at hand and sparks creative
solutions. Management has taken many different steps to promote work as fun that
include giving employees the latitude to design their own work areas, allowing
employees the opportunity to change certain processes, and empowering employees to
come up with different ways to make their work more fun.
Make Their Day This element is closely related to information discussed in the
employee-customer relationship section of this paper. Make their day is similar to the
point that the organizations management makes when they instruct their employees to
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look at every customer interaction as a unique event. When the organizations employees
make someones day (or moment) through a small kindness or unforgettable
engagement, they turn even routine encounters into special memories.
Be There This element is the key to customer service delivery at Maine Savings.
Again, this element is akin to making every customer interaction a unique and memorable
event. When the organizations employees are present for the customers, they feel as
though they are unique and special, which in turn is translated into satisfaction and
loyalty. Being there also is a great way to practice wholeheartedness and fight burnout,
for it is those halfhearted tasks employees perform while juggling other things that wear
them out.
Choose Your Attitude Attitude was also discussed previously, but in terms of the
necessity to have a good attitude when dealing with customers. The difference between
the necessity of a good attitude and the FISH philosophy is that the FISH philosophy
teaches that employees can choose their attitude. This concept is talked about constantly
with Maine Savings employees. Managers remind employees that they have the power to
choose their attitude when at work. The FISH philosophy teaches, that when you look
for the worst you will find it everywhere. When you learn you have the power to choose
your response to what life brings, you can look for the best and find opportunities you
never imagined possible. If you find yourself with an attitude that is not what you want it
to be, you can choose a new one (Fine 2000).
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Maine Savings has been able to effectively implement the FISH philosophy with very
positive results. Employees are motivated by the freedom to make their jobs fun,
customers enjoy having the employees be there for just them, and management enjoys
having a motivated, satisfied workforce that enjoys being at work. As was the case at
Pike Place Fish market, by instituting and living these four principles, the employees at
Maine Savings have been able to deliver an unmatched customer service experience that
has become recognized and emulated in the financial services industry throughout Maine.
The organizations customers have taken notice of the FISH initiatives at the company,
and the competition has begun similar initiatives in order to bolster their own customer
service delivery in an attempt to keep up with Maine Savings.
Transforming Customer Satisfaction Into Customer Loyalty at Maine Savings

Maine Savings is fortunate enough to be able to at least approximate the value of a loyal
customer, and can therefore prove that loyal customers are their most profitable. The
Maine Savings management understands fully that just because customers claim to be
satisfied customers, they are not necessarily loyal customers. In many instances, the
organization learns of customers that are satisfied with their most recent transaction, but
that would defect to a competitor if even a slightly better deal came along. Although the
research indicates that there is an element of emotion involved in gauging whether or not
a customer is loyal, Maine Savings chooses to measure customer loyalty based on
longevity, volume of business, repeat business, and whether or not the customer considers
Maine Savings their PFI (Primary Financial Institution). Loyal customers translate into
the most profitable customers for several different reasons that include the need for little
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or no marketing/advertising, the ability to offer market pricing without the need for deep
discounts, and the ability to retain customer deposits over a long period of time. The
organization is able to use mathematical calculations to arrive at a profitability measure
for every loyal customer.
Although Maine Savings strives everyday to create satisfactory experiences for their
customers, the real goal is to create a loyal, long-term customer. Satisfied customers tell
the organization that they are satisfied, but loyal customers tell everyone that they are
satisfied and tell them why. A loyal customer is the best advertising that an organization
can have. Loyal customers at Maine Savings indicate that they do have an emotional
connection to the institution and that they feel as though they have a stake in the success
of the organization. Management is aware of the trap of believing that customer
satisfaction surveys are an indicator of customer loyalty, as they are not. Management
relies on time data more than anything else in order to determine the number of loyal
customers and their financial impact on the organization. Loyal customers come as a
result of a culmination of positive experiences over time, not just one interaction with the
organization. Loyal customers view the relationship with the organization as just more
than a financial one.
As is the case with many financial services companies, Maine Savings has become very
proficient at collecting, monitoring, and translating customer satisfaction related data.
However, management is careful not to use this data to infer any kind of customer loyalty
quotient. Because Maine Savings does use time related data in conjunction with product
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data to effectively identify loyal customers, the company is able to create products
tailored for their loyal customer base. The organization has several bundled products
that have been created for truly loyal customers that allow these customers the
opportunity to take advantage of certain discounts and earnings credits. The organization
feels strongly that loyal customers should be rewarded for their loyalty and takes the
steps necessary to accomplish this. Maine Savings has been able to ascertain that their
customer loyalty programs have instilled a further sense of loyalty in this particular
customer base, and has further served to solidify these relationships.
Measuring Customer Satisfaction at Maine Savings

As previously discussed a number of times, the end goal of customer satisfaction should
be the creation of customer loyalty in order to have the maximum possible positive effect
on the service-profit chain of an organization. However, loyal customers are not
necessarily loyal customers from their first transaction; it usually takes many positive
experiences for customers to become loyal. It is for this reason that it is necessary to track
and monitor customer satisfaction so that an organization can ensure that it is doing what
is necessary to create loyal customers. As this paper previously touched on, Maine
Savings has begun the transformation into a customer-centric organization. They
understand that being a truly customer-centric organization means putting the satisfaction
of the customer at the center of every decision. Many loyal customers in organizations are
there because someone in the organization went the extra mile for them or performed
above and beyond normal expectations. At Maine Savings, employees are urged and
coached to go the extra mile for every customer in an effort to turn every customer into a
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loyal customer. The remainder of this section will examine several of the techniques that
Maine Savings uses to ascertain the level of satisfaction of their customers. In addition,
examples will be cited that will highlight the effect of the organizations efforts in
measuring customer satisfaction.
The most commonly used method of gauging customer satisfaction in most organizations
is through the use of the traditional customer satisfaction survey. In this regard Maine
Savings is no different. However, because of the importance of asking the right questions
and allowing appropriate space and time for the customers response, the proper design
and administration of a survey tool is vital. It is for this reason that Maine Savings has
chosen to enlist the services of an outside, professional survey company that designs and
conducts the surveys on behalf of the organization. The Senior Staff works very closely
with the survey company to design the proper questions that will elicit valuable and
actionable feedback from the customer base. After the surveys have been conducted, the
outside survey firm compiles the information and reports it to Maine Savings
management in pre-arranged formats. Management then analyzes each category to ensure
a complete understanding of the customers response. Items are then given to the
appropriate department manager for action and response. The final phase of the customer
survey process is to fully analyze the feedback and the steps that were taken to address
the issues. The most important consideration in designing a customer satisfaction survey
for the Senior Staff is to ensure that every item is actionable in some way as to act to
improve the customer service delivery for the organization.
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Another form of customer service satisfaction measures that is discussed in the applicable
research on the subject is the use of profitability calculations to try to determine the level
of satisfaction for a particular customer. This method is very difficult to accurately apply
and is wrought with potential errors and misleading indicators. Maine Savings has
recently begun using customer profitability data to identify customer loyalty, but has
ruled out the method as being accurate enough to effectively measure and gauge customer
satisfaction. A major flaw in this method when trying to determine the satisfaction of
customers is the lack of input or feedback from the customers themselves. In essence, this
method is a very myopic and unilateral method of gauging customer satisfaction, as no
consideration is given to the opinions of the organizations customers. A tangent product
that is being introduced by the company is a product-tracking program
which allows an employee to see what products the customer has with the institution
instantaneously. This allows the employee to not only offer the customer products or
services they may not have, but also gives them an opportunity to personally assess the
customers level of satisfaction with the products and services that they do have. This
opportunity for personal and instant feedback has proven to be invaluable to the
organization.
On large products such as mortgages, Maine Savings sends a personal comment card to
the customer, and later makes a personal phone call to ask the customer about their
experience. Statistics show that customers have a high preference for keeping all of their
accounts at the institution that carries their mortgage if it is possible. Because the affinity
relationship is so strong where mortgages are concerned, the company goes to great
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lengths to ensure the customer has a very satisfactory experience when obtaining a
mortgage. During the follow-up phone call, the Mortgage Officer thanks the customer for
their business, but also asks them several questions in regard to their experience, in
addition to soliciting feedback on how the process could be made better for them. Based
on these follow-up phone calls, several changes to the mortgage application process have
been made over the past several years. The key to this process has been to ensure that the
questions asked are actionable in some form so that change is possible based on the
feedback of the customer. In the case of negative responses, management ensures that a
direct response to the customer in regard to the issue is made after the issue has been
resolved. This response comes from a member of management, addresses the issue, and
explains the resolution in detail to the customer. Customers of Maine Savings have
indicated that this candor and transparency has led to increased customer satisfaction and
loyalty.
Knowledge Management Strategies at Maine Savings

Although knowledge management at Maine Savings is just in its infancy, the initiative is
already beginning to produce benefits. Knowledge management at Maine Savings
actually began as an offshoot of attempting to streamline the training process within the
company. The concept of knowledge sharing was introduced to the IT department, as a
result of the need for IT infrastructure support. Shortly thereafter, a PAT (Process Action
Team) team was convened with cross section representation from the organization. This
led to the establishment of strategies for implementation, as well as the establishment of a
working budget for expected costs. Now that networked terminals and personal
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computers are a fixture on every front-office desktop, computers are mainly being used
directly by knowledge workers themselves. Due to the massive proliferation of computer
technology, the companys IT infrastructure is the ideal place to adopt knowledge
management principles (Haley 2005). Maine Savings realized this early on and made the
strategic decision to treat the implementation of a knowledge management system as an
IT strategic initiative.
The KM PAT team at Maine Savings developed a strategy for the implementation of a
robust and efficient KM system. This strategy was incorporated into the organizations
overall strategic business plan. The strategic plan included: a cultural/environmental
analysis, an implementation plan, an allowance for deviation, an evaluation strategy, and
a continuity strategy. Upon completion of the development of these strategies, they were
presented to the Board of Directors by the Senior Management team. Once the Board and
Senior Staff had completely bought into the initiative and pledged complete support, a
kick-off meeting with all company employees was held. Each and every employee in the
organization was given a hardcopy of the strategy, as well as an anonymous feedback
form that they could use to provide feedback on the process implementation. At Maine
Savings, weekly meeting are held to review the overall strategies, as well as the progress
of each individual initiative. The Board is subsequently informed of the progress and
content of these meetings on a monthly basis. Because the KM strategy has been rolled
into the general strategic business plan for the company, the Executives compensation is
directly tied to the implementation and effectiveness of the knowledge management
system at Maine Savings.
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Knowledge Management Instruments at Maine Savings

Harnessing and homogenizing knowledge management instruments at Maine Savings
proved to be a monumental task, and is still a work in process after more than eighteen
months. The first priority was to convert the many different existing instruments (binders,
tacit knowledge, notes, etc.) into one KM shared database. The instruments used were:
interviews, brainstorming sessions, repertory gridding, concept mapping, and functional
area process flow analysis (Haghirian 2006). After identifying the instruments to be used,
the most difficult part of the process was to define the instrument and the expected
output. This process involved educating everyone involved so that they had a full
understanding of the importance of the process, as well as an understanding of how to
maximize the KM instrument to realize its maximum effectiveness. During this initial
phase, two other important tasks were accomplished: mapping the sources of internal
expertise, and the creation of networks of knowledge workers.
The two most effective knowledge capture instruments that led to robust entries into the
KM database were the interviews and brainstorming sessions. Topic and departmental
questionnaires were created in order to uniformly collect data from the interview process.
Because the design of the questionnaire was accomplished in accordance with the KM
system format, the transfer of information was efficient and comprehensive. The
brainstorming sessions allowed the participants to collaborate on their knowledge and
experiences, which in turn, resulted in comprehensive knowledge transfers to the KM
database. Another important point is that the knowledge capture instruments were
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initially done based on specific department or expertise. This has allowed for a cleaner
foundation of information and knowledge that can be built upon by people further from
the core process.
Knowledge Management Barriers Identified at Maine Savings

The knowledge management barriers identified at Maine Savings are very similar to other
organizations that have undertaken the task of instituting a comprehensive knowledge
management system (Appendix 6). In a survey conducted of companies involved in
knowledge management initiatives, 56% identified the biggest impediment to knowledge
transfers in their organizations to be culture. While people issues may be endemic to
any change initiative, knowledge management activities seem to bring them out in
abundance (Ruggles 1998). In the beginning, the employees of Maine Savings seemed
to buy into the KM concept and were supportive. However, after the first round of
knowledge transfer activities, the visible resistance to change set in. people in the
organization began to make excuses that consisted of: I dont have time, others dont
understand, why do others need to know, and so on. Even today, it is a difficult task to
keep members of the organization motivated and committed to the knowledge
management process. Although Maine Savings believed that a culture open to KM had
been created, it has proved to be fleeting and lacks any lasting support from those
involved. Because of this, a barrier exists to further expanding the KM system in an
efficient manner.
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Another major barrier to the implementation of a viable KM system at Maine Savings is

the ongoing commitment to the initiative by those involved in the process. A key
challenge for managers in the forthcoming turbulent environment will be cultivating
commitment of knowledge workers to the organizational vision. As the progress of the
initiative moves forward it will be more difficult to define long-term goals and objectives.
This will require real-time planning and communication strategies to assure that
organizational goals and strategies are being adhered to (Malhotra 2004). Each day at
Maine Savings it is a struggle to keep the KM initiative a priority in the face of the
regular daily work that needs to be done. As a result, commitment is beginning to visibly
wane, and consequently, the progress of the initiative is beginning to stall. The once
dynamic strategy is quickly becoming a static vision of old, and is looked upon by
knowledge workers in that fashion.
The last barrier to be discussed in this section is by far, not the least important. Corporate
economic factors are beginning to prove to be barriers in the progress and corporate-wide
proliferation of the system. The initial budget established for the implementation of a KM
system at Maine Savings has been exceeded by more than 500%, with no end to
necessary spending in sight. Already, there is speculation about having to trim expenses
associated with the endeavor, or cutting corners to make the initiative more financially
viable. As margins shrink and yields trend downward, the financial pressures associated
with the knowledge management system will begin to magnify themselves. This
economic pressure does not even factor in the cost of human capital necessary to
effectively establish the system.
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In Managing in a Time of Great Change, Peter Drucker writes that knowledge has
become the key economic resource and the dominant and perhaps even the only
source of comparative advantage (Ruggles 1998). Many global companies such as
Toyota, Siemens, McKinsey & Co., and so on, have realized this and turned to
knowledge management systems in order to harness this resource known as knowledge.
In order to effectively capture this knowledge and use it for competitive advantage, one
must understand the difference between data, information and knowledge. As this paper
previously discussed, data can be broadly defined as a collection of facts, facts about
specific events and about an industry in general. These facts can originate from a variety
of sources and includes such items as raw statistics, demographics and marketing
information, and so forth. Data is the basis for creating knowledge (Haley 2005).
Companies that have successfully employed a knowledge management system have
realized the value of knowledge and have even begun to look upon this knowledge as a
tangible asset, much like any other on their balance sheet. Maine Savings is no different
in this regard. The Company recognized the value and benefit associated with a
comprehensive KM system and set out to create one.
As the information has suggested, the implementation of a viable knowledge

management system is not something that is accomplished overnight. Rather, it is a
process that involves much planning and foresight, as well as high-level support and a
steadfast financial commitment. In order for the KM process to be successful, it must be
engrained in the strategic plan of the organization and be monitored like any other
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corporate strategic initiative. Extensive planning and coordination must accompany the
organizational commitment, and must be based on the long-term and consider any
modifications that may need to be made along the way. In other words, the road to a
comprehensive, valuable KM system can be viewed as an arduous journey that requires
commitment, dedication, constant attention, and resources.
Customer Relationship Management at Maine Savings

CRM (Customer Relationship Management) is a relatively new concept to Maine
Savings, primarily due to the fact that the organizations long time data processing system
was not capable of handling such information, or integrating the appropriate software
necessary to track the desired information. The organization went through a very
comprehensive data processing conversion in January 2006 that resulted in a new, robust
software system capable of integrating the most sophisticated CRM software available.
As part of this package, the organization is now able to implement CRM capabilities that
include instant decisioning, customer product tracking, customer preference tracking,
automated customer offerings, and is able to provide the company with a picture of the
customers entire relationship with the organization. Not only has Maine Savings been
able to use this new technology to better provide products and services to its customers,
but also to automate more customer information and manage data processing costs more
efficiently.
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The best and most noticeable result of the embryonic CRM system at Maine Savings is
the ability for the organization to now treat each customer uniquely and distinctly based
on their relationship with the institution. In the past, everyone with a credit score of 650
would be offered the same rate on an auto loan, despite any other relationships they
maintained at the company. Now, however, the customers rate is based on the whole
relationship that they maintain with Maine Savings. For example, if a customer has a Visa
card, mortgage, and a checking account with the company, they will receive a better auto
loan rate than will a customer with just a savings account (all other credit considerations
being equal). This capability has led to the ability to reward customers that do larger
volumes of business with the company, but also acts as an incentive for customers who
do not to do more business with Maine Savings. The CRM system also allows customers
to be offered products that they need but are unaware of. For example, a customer may
have an auto loan, but not have GAP or disability insurance. The CRM system will
recognize this and automatically send a message to the customer offering them this
product. In this manner, the program has served to increase sales of certain products and
also increased customer satisfaction levels by ensuring that customers receive
information on products that may be of benefit to them.
In the past, Maine Savings was forced to do very expensive blanket advertising and
marketing covering their entire customer base in order to offer a product or service to
customers that may want or need them. This shotgun approach proved to be both costly
and ineffective. One of the biggest benefits of the organizations new CRM system is the
ability of the organization to target offerings directly to customers who would benefit
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from them. This in turn aids in building a unique relationship with the company. For
example, in 2004 (before the implementation of the companys CRM system) a decision
was made to promote the institutions student loan program. Subsequently, advertising
was purchased and space was used in the companys quarterly newsletter to promote the
product. As a result, there were approximately 150 responses to the advertising out of a
customer base of more than 25,000. With the new CRM system, the company is able to
target those customers that would benefit from student loan products and market directly
to them. This in turn saves both time and money, but more importantly from the
customers point of view, does away with unnecessary marketing and potential
information overload. The organization has received volumes of positive feedback from
many customers in regard to their satisfaction with the lowered amounts of marketing and
advertising materials they are receiving. Customers are now beginning to understand that
the materials they do receive from Maine Savings are relative to them and may be
important information they should act upon.
Chapter 9
A Summary of the Service-Profit Chain Initiative at Maine Savings
Because Maine Savings carefully picked and hired senior managers that have had
experience with the different elements involved in the service profit chain, they have
been able to realize a steady growth in corporate profitability as a result. These members
of executive management have extensive expertise in human resource management,
customer service, finance, and operations management. When these skill sets were
assembled and coordinated into working toward the goal of leveraging improved
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employee satisfaction and added customer retention/loyalty, the organization was able to
realize a growth in corporate profitability. This section will examine several of the
strategies that Maine Savings employed in order to increase profitability by improving
employee satisfaction and customer retention. Although each of these elements has been
comprehensively examined previously, this section will concentrate on the aggregate
implementation strategies used and the direct financial benefits derived by the
organization. A summary of the employee and customer elements involved in Maine
Savings results will be considered and reviewed in the following section as well.
The executive management team at Maine Savings challenges itself to constantly search
for new innovative ways in which to increase the profitability of the organization. As any
businessperson is aware, there are as many strategies in existence to accomplish this, as
there are books on the subject. Rather than succumb to the flavor of the day in
business, John Reed, Maine Savings CEO, decided to focus on the basics of the business.
This led the management team to analyze the most important elements of the business,
which they determined to be: employees, customers, and profits. This naturally led to the
adoption of a strategic plan that included all of the analytical elements of Heskett, Sasser,
and Schlesingers Service Profit Chain. These authors identified a strategy in which
successful companies can link profit and growth to loyalty, satisfaction, and value. Maine
Savings management team identified exactly these areas and began the process of
creating a working strategy by which to address the important elements involved in this
analysis. From 2004 through 2006, the organization implemented this strategy in a
methodical and purposeful manner, taking the time to evaluate every step involved in the
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process. The following section will address many of the positive outcomes that came as a
result of implementing this strategy.
The Resultant Benefits of Increased Employee Satisfaction at Maine Savings

Many organizations that seek to improve an area of their company such as employee
satisfaction take an outside-in approach to the issue. Maine Savings made a conscious
decision to do the opposite and take an inside-out approach that would lead to a more
comprehensive analysis and understanding of the subject. Rob Carmichael, the Vice
President of Human Resources & Training was tasked with planning and implementing
the phases of the strategy that were concerned with employee satisfaction. Robs plan was
very comprehensive and included every identifiable aspect that could be associated with
employee satisfaction and the workplace. One aspect of the plan that proved to be
insightful and helpful in prioritizing initiatives resulting from the plans implementation
was the assignment of a dollar value contribution to profitability as a result of any
change. No area or effect to employee satisfaction was left out of the plan and no topic
was off limits, including managements reaction to or support of employee satisfaction
initiatives. Everyone involved in the process understood that in order for the process to be
effective it must be conducted in an open and honest manner.
Probably the most noticeable result in terms of both increased productivity, as well as
return on investment, came as a result of the organization implementing a PTO (Paid
Time Off) program for its employees. While under the previous traditional sick and
vacation type plan, Maine Savings employees used more than 97% of all earned sick
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time, most of which was unscheduled and used on a sporadic basis. During just the first
year under the PTO plan, Maine Savings employees only used 8% of the PTO time for
unplanned and unscheduled sick call-outs. These percentages indicate that the
organization benefited from a much lower occurrence of unplanned absences and
increased productivity as a result of the employees increased attendance. In addition, the
organization benefited financially by not having to use replacement workers and upset the
balance of productivity as a result of having to cover an unplanned absence at the last
minute. Subsequent employee surveys indicate a much greater rate of employee
satisfaction with the new PTO program because of the flexibility to use time when
needed by the employee. In this case, both employees and the organization were able to
benefit from the change.
Another glaring example of a mutual benefit to both the organization and employees that
came as a result of implementing the service profit chain strategy at Maine Savings
concerns the implementation of a formal training program. As this paper discussed
previously, before the arrival of Rob Carmichael as the Vice President of Human
Resources/Training in 2004, the organization had no formal employee-training program.
This led to inadequately trained employees, lower productivity, operation inefficiencies,
and low employee morale. Before the formal training program, employees were hired
then, placed for on-the-job training in the area of the company that they were assigned to.
After the implementation of the formal training program, employees are hired, spend one
week in formal training acclimating the employees to the Maine Savings culture then, are
enrolled in a formalized training program designed for their specific position. After the
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successful completion of the formal training program, the new employee is assigned to a
job mentor for an unspecified period of time. This training process has served to
drastically improve employee longevity, productivity, accuracy, and overall operational
efficiency. The financial benefits of this element are too many to quantify, but since the
initial implementation of the program, return on assets has increased on average 30%
year-over-year (Maine Savings 2004, 2005, 2006).
Employee surveys that were administered during the period of 2004 through 2006
indicate an increasing level of overall employee satisfaction, as well as satisfaction with
the many elements associated with the service profit chain initiative. By striving to
enhance the service profit chain at Maine Savings, the management was able to create a
signature experience for its employees and set itself apart from the competition, while at
the same time gaining a competitive advantage. A signature experience is a visible,
distinctive element of an organizations overall employee experience. In and of itself, it
creates value for the firm, but also serves as a powerful and constant symbol of the
organizations culture and values (Erickson and Gratton 2007). After analyzing and
implementing all of the steps involved in the organizations plan to improve employee
satisfaction, the senior management team met to discuss the results during a weekend
management retreat meeting. At this meeting, every aspect of the plan were analyzed and
compared to ensure a resultant positive effect on the employees of the organization, but
also on the profitability of Maine Savings. In the end, management was satisfied that the
initiatives involved with improving employee satisfaction were successful and led to the
enhancement of corporate profitability.
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The Resultant Benefits of Increased Customer Satisfaction at Maine Savings

Maine Savings has always considered itself a customer focused organization, but had
never systematically evaluated the elements that lead to customer retention and loyalty.
This task was assigned to Mike Cust, the organizations Vice President of Retail
Operations and Anthony Emerson, the Vice President of Finance/Accounting/Operations.
Mikes primary responsibility was to assess the level of customer service and support at
every possible customer contact point. Anthonys primary responsibility was to assess the
financial impact of the different customer tiers in order to try to accurately assess ROI
levels based on customer loyalty. Just as Rob did with his analysis of the organizations
employee satisfaction, Mike and Anthony developed a comprehensive and detailed plan
that included and analysis and examination of every process involved in delivering
products and services to the customers of Maine Savings. The important aspects involved
in this analysis included assessing customer satisfaction, retention rates, and attributing
an ROI to loyal customers.
One of the first areas to be examined was related to the applications that customers filled
out to apply for the institutions products. A good example of the analysis and results of an
application process concerned the organizations Visa application. The company had been
using the same Visa application for more than ten years and was provided by a third-party
vendor. The application contained requests for more than thirty different pieces of
information related to the customer, and took approximately thirty minutes, on average,
to complete. Once the customer completed the application, it was forwarded to Loan
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Processing for approval. This process took on average, about six business days. An
important aspect of the application process was that in order to even apply for a Maine
Savings Visa, the customer must have already had a current account number and be a
customer in good standing. After a rigorous analysis of the process and an assessment of
the essential information needed to process the request, a recommendation was made to
modify the Visa application. The end result was an application requesting only three
pieces of information; the customers name, account number, and income, and an average
time to complete of less than two minutes. These results were applied to many of the
organizations other applications as well.
The research concerning customer loyalty has shown that loyal customers have an
emotional connection to an organization that goes beyond just being satisfied. Maine
Savings management made a concerted effort to identify processes associated with
customer loyalty that could be enhanced in order to help create an emotional connection.
One item in particular that was identified through the organizations service shopping
program was the use of the customers name. Using the customers name is one of the
easiest ways to create an emotional and personal connection that can take the experience
beyond a simple transaction. In 2004 when the program began, only 50% of the
organizations employees were using the customers name during a transaction.
Management set a goal of 98% for customer name use. The service-shopping program for
December 2006 revealed that customer name use had exceeded 90% for the latest shop.
Although the financial results of this endeavor are very difficult to quantify, the fact that
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it leads to a greater emotional connection by customers is definitely a positive result for

Maine Savings.
In an attempt to quantify the number of truly loyal customers of Maine Savings, Anthony
Emerson created a spreadsheet in order to assess the ROI of this customer base. Before
this could be done however, a stratification of the more than 25,000 customers, coupled
with certain criteria, had to be assembled in order to adequately define a loyal
customer. Retention rates were calculated based on length of relationship, number of
products, and total dollar value of the relationship. The spreadsheet was set up to
calculate the profitability of a customer in two, four, eight, twelve, and fifteen-year
increments. As previous research has indicated, the longer the relationship, the more
profitable the customer is for Maine Savings. Now that Maine Savings management has
an accurate picture of the true value of their customer base, they are in a position to
calculate what it would be worth to increase their customer retention rate, which is the
only realistic way of evaluating investments in customer acquisition and customer loyalty
(Reichheld 1996). In addition to the benefit of being able to accurately identify the
organizations loyal customer base, the organization can know use this information for
other important purposes such as target marketing.
In an attempt to assess the importance of the employee customer relationship, Maine

Savings management undertook the very extensive and involved task of reviewing the
product records for the almost 5,000 customers that were previously identified as loyal
customers. The objective was to evaluate the different employees that interacted with the
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customers during the application process to assess whether or not employee consistency
at Maine Savings was a contributing factor in making these customers loyal. The results
were staggering to say the least. In just greater than 85% of the time, the same employee
interacted and processed the product applications for these 5,000 customers. This lends a
great amount of weight to the hypothesis that loyal customers become loyal because of
their satisfaction with an employee at the organization. One can easily infer that an
emotional connection has been established between the employee of Maine Savings and
these loyal customers. This employee customer relationship can therefore be considered
a major factor in the continued growth of corporate profitability as a result of continued
profitability from loyal customers.
Many times organizations assume that customers will become satisfied if prices and costs
are simply lowered. However, much research has indicated that customers are willing to
pay more for service and convenience. Convenience costs something and it has a value to
many customers. Marketing theorists for years have defined convenience in terms of
such things as place, time, and form utility. The value of convenience will vary among
customers, requiring that a service provider remain sensitive to the needs of various
customers (Heskett, Sasser and Schlessinger 1997). Recognizing this, Maine Savings
management conducted a series of customer surveys, both general and targeted. There
was an overwhelming response from customers that the institution needed to have more
branches in the greater Bangor, Maine area in order to facilitate customer convenience.
Based on this feedback, the organization built two new branches in Bangor. Since the
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branches have been constructed, management has received an inordinate amount of

positive feedback and has also realized a surge in new customers.
Although Maine Savings began the process of instituting a comprehensive CRM

(customer relationship management) system in early 2006, the organization had not yet
conducted a profitability analysis until this point. In an effort to ascertain the profitability
of the implementation of the CRM system, management directed that certain reports be
generated in order to gain an understanding of the impact and profitability of the
program. At the inception of the CRM implementation that began in January 2006,
different target marketing strategies were created that were to be directed at certain
customer segments. The reports that were generated to gauge the effectiveness of the
CRM system and target marketing initiatives were able to show the penetration rate and
resultant profitability as a result of increased sales. The reports indicate that the target
marketing initiative that is part of the CRM system is very effective. The new product
penetration rate exceeded 30% and profitability per customer increased more than 12%.
Because of these results, the organization has created a CRM Process Action Team to
assess new initiatives and monitor the results for maximum efficiency.
Although it is difficult to derive a specific financial contribution to profitability based on

the employee/customer satisfaction measure, it is clear from Maine Savings experience
that as employee satisfaction increased, so too did customer satisfaction. Among the first
to document the satisfaction mirror were Benjamin Schneider and David Bowen. In a
study reported in 1985, they established close links between customer and employee
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satisfaction levels in the branches of a banking organization. In a replication of the study

eight years later, they concluded, the degree to which employees believe their work is
facilitated [an expression of satisfaction] yields the most consistent information about
customer satisfaction (Heskett, Sasser and Schlesinger 1997). During the process
improvement initiatives, Maine Savings tracked both employee and customer satisfaction
measures on a constant basis. Both satisfaction measures tracked upward and parallel
with each other. Therefore, management at the organization can rationally conclude that
increased employee satisfaction has a valuable and measurable effect on increased
customer satisfaction levels at the organization.
Resultant Effects on Corporate Profitability at Maine Savings

During this process, Maine Savings undertook many different initiatives aimed at
improving employee satisfaction, customer satisfaction, and the organizations
profitability. Many of these initiatives were being executed simultaneously and required
different timetables and strategies in order to execute. Although each element involved in
the initiative was important to the overall process, a dollar amount or precise effect on
added profitability could not be determined. However, Maine Savings realized a yearover-year improvement in ROA of 30% for the periods from 2004 to 2006 (Maine
Savings 2004, 2005, 2006). In addition to the aggregate positive results, sales per
customer increased by more than 10% during the same period of time. Return on equity,
cash flows, and net income all improved markedly during this period of time as well.
Maine Savings executive management team has reviewed the process and results
completely, and feel collectively that the improvements in employee satisfaction and
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customer satisfaction are directly responsible for the improvements in corporate

profitability.
Chapter 10
ACADEMIC LITERATURE REVIEW
Overview
The following sources were consulted for the purpose of locating and identifying related
publications, books, and media sources in preparation for writing this paper: Proquest, the
Internet, The Harvard Review, The Economist, Marvel, and the URSUS Network. There
were many academic papers relating to employee satisfaction, customer satisfaction, and
strategies for increasing corporate profitability that were used as references. There were
also special searches for information on these and related topics conducted using
proprietary searches at the Libraries of Harvard University, Northeastern University,
Boston University, and the University of Maine. Searches were conducted for papers
related to the topics of leadership, management, work environment, employee training
programs, employee development, employee recognition, organizational goals,
communicating with employees, employees and teamwork, employee empowerment,
social interaction in the workplace, organizational culture, employee benefits, employee
motivation, customer-centric organizations, customer acquisition, branding, target
marketing, delivering world-class service, customer expectations, training for customer
service, the employee-customer relationship, measuring customer satisfaction, knowledge
management systems, customer relationship management, customer loyalty, and service
profit chain analysis.
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Although there were an ample amount of papers related to the individual elements that
make up the triad known as the service profit chain, there was only a small amount of
direct research available on the relationship between employee satisfaction, customer
service and corporate profitability. Some of the related papers found during the research
process were reviewed, incorporated into the paper, and summarized in the following
sections: employee satisfaction, customer service, customer loyalty, and corporate
profitability.
The research associated with the many different aspects involved in employee satisfaction
is plentiful. Focusing on employees, the study sought to understand the organizational
drivers of employee satisfaction and employee engagement (the degree of employee
motivation and sense of inspiration, personal involvement, and supportiveness), and the
downstream effects of these employee attitudes on customers and financial performance
(Klein et al. 1995). The foundation of good human relations the interaction between
employers and employees and their attitudes toward one another is a satisfied work
force. Job satisfaction is the degree of enjoyment that people derive from performing
their jobs (Chapter 11 2006). Many studies, including an in-depth study by the Unites
States Army conclude that organizations that focus on the human resource aspect of their
business will create a high performance work place that will result in satisfied employees,
satisfied customers, and allow the organization to capably adapt to change.
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Many articles, publications, and studies attempt to define the many elements associated
with employee satisfaction in the workplace (Adams 2006, Agnvall 2006, Butcher 2006,
Cascio 1998, Gray 2006, Levine 1995, Melamed 1996, Parham 2003, Pounds 2006,
Roche 2006, Smith 2006). One of the indicators that show achievement toward improved
employee satisfaction is success of the company and personal growth and development of
employees. Employees who feel as though they have ownership or power in their job,
not only prove to be a beneficial employee for their direct supervisor, but also to the
entire company (Hayes 2003). A study conducted at the University of Piraeus
acknowledges and discusses the dramatic changes that have taken place in organizations
around the world in the past decade. Traditional hierarchies and functional structures are
being reduced. Although re-engineering and downsizing initiatives are commonplace,
there is increasing emphasis on enhancing employee involvement, team decision-making,
and various partnership arrangements (Dimitriades 2001).
There are so many different elements associated with the components that are related to
the subject of employee satisfaction, that many different sources originating from
periodicals, books, white papers, and dissertations are used and referenced in this paper.
Literature provides various interpretations concerning the change organization
development strategies of management in generating desired outcomes. There is the
suggestion that many change initiatives have employee cooperation towards reaching
mutual interests (Ascigil 2003). Many studies attributed a majority of improvement in the
area of employee satisfaction as a by-product of improved communication within the
organization. Extensive research results show that people derive greater satisfaction from
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their jobs and perform to a higher standard when they are engaged in their workplace. An
integral and very important factor of engagement is the ability to effectively
communicate (MacGregor 2006). Another study that examined effective employee
communication in the workplace highlights the fact that without communication, nothing
could be accomplished. Communication involves three essential elements: a message,
someone to send the message and someone to receive the message. Effective
communication can only take place when the intended message reaches the intended
recipient, and the message was understood with the intended meaning of the sender
(Slagle 2006).
There is ample literature and research available that suggests employee recognition and
motivation programs have a great deal to do with improving employee satisfaction. The
main reason for providing an employee recognition program is to reap the benefits in
morale and greater productivity resulting from a program that is clearly defined and in
which the employees feel they can earn recognition for exceptional work (Roche 2006).
The implementation of effective award and recognition programs can create a positive
working environment that encourages employees to thrive. Recognition makes
employees feel valued and appreciated, it contributes to higher employee morale,
increases organizational productivity, and can aid in recruitment and retention (Brintnall
2005). Most of the literature made the connection between an increase in employee
satisfaction and the subsequent positive impact on customer satisfaction. Recognition
programs can help to define standards of performance, and establish guidelines for
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evaluation methods of employee behavior. Happy workers, high productivity and strong
customer satisfaction characterize high performance workplaces (Recognition 2006).
Customer Satisfaction
The literature available on the subject of improving customer satisfaction is just as
prevalent as the information available in regard to improving employee satisfaction.
Many different studies focused on the abilities of new technologies to drastically improve
customer service. Businesses are now able to personalize and improve interactions with
every customer, and across every point-of-contact, thanks to new technologies for
information capture and analysis. Customers receive precisely the information they need,
when they need it and how they need it, while businesses are able to manage relationships
more effectively, efficiently and profitably through all avenues of interaction (IBM 2006).
Many studies suggest the need for organizations to focus on their level of service delivery
to the customer. Increasingly, the only thing that separates one business from its
competitors is the level of service provided (Saxby 2006).
Most companies lose 45% to 50% of their customers every five years, winning new
customers can be up to 20 times more expensive than retaining existing customers (Full
2006). The higher the level of satisfaction that customers experience, the greater the trust
and confidence they show. As this trust and confidence grows, they will be less likely to
move their business for a few percentage points (Castiglione 2006). When it comes to
measuring their customers satisfaction, too many companies have settled into a
comfortable rut of changing their approaches to get the results they want (Columbusn
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2005). Competitors that are prospering in the new global economy recognize that
measuring customer satisfaction is key. Only by doing so can they hold on to the
customers they have and understand how to better attract new customers (Cacioppo
2000).
A good amount of the literature regarding the improvement of customer satisfaction

considered the importance of measuring what matters to customers. This information is
critical to understanding exactly what you need to fix. For example, if the customers are
particularly dissatisfied with some aspect of the organizations service, but it is
discovered that the thing they are unhappy with is not important to them, then the
organization can focus on what is important for increasing customer satisfaction
(Measuring 2006). An effective way to measure and gauge customer expectations and
satisfaction is through the use of Customer Relationship Management tools. Maintaining
control of customer relationships is possible only through consistent implementation of
classic, well-proven customer bonding techniques, such as individualized customer care
and communications, rewards for customer value and loyalty, special consideration for
high-value customers and customized products and services (Ferruzza 1999). According
to the literature, implementing customer relationship management strategies is the most
effective way to accomplish this.
Numerous empirical studies show a strong positive relationship between employee

satisfaction and customer satisfaction. One study in particular, found that, depending on
market segment and industry, between 40 and 80 percent of customer satisfaction and
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customer loyalty was accounted for by the relationship between employees and
customers (Bulgarella 2005). A basic psychology switch in employees mirrors the
psychological changes in an organizations customers too. Most often, the customers
relationship with an organization comes down to their relationship with the organizations
employees (Borland 2006). Customer satisfaction and loyalty invariably are earned by
delivering excellent customer service, and the human touch is often the key differentiator.
Additionally, customers with higher lifetime value have learned to expect more. Gold
customers often bypass automation and directly deal with support staff to get their
problems resolved (Uckun and Matan 2007). Putting employee and customer satisfaction
in the spotlight when planning strategy is one of the priorities for organizations
committed to continuous improvement, both internally and externally (Greenberg 2006).
Customer Loyalty
Tracking customer satisfaction alone is no longer sufficient and is often misleading. But
when combined with two other factors loyalty attitudes, and needs and discretion it
can play an important role (Gokey and Coyles 2001). The real essence of customer
loyalty is finding ways to take advantage of opportunities for customer contact and
service. It is critical to tap as many as possible to create lasting loyalty (Kindinger 2005).
Many recent studies provide empirical evidence of something many in business already
know: customer loyalty is a key driver of profitability. The most important basis for
strategy development, however, is a comprehensive understanding of what drives
customer loyalty and how strong those drivers are (Teegarden and Krok 2006).
Companies know they need to pay attention to their customers. They know the financial
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benefits that come from keeping their customers happy. And theyve done their best to
put satisfaction programs in place. Yet regular monitoring of various U.S. industries
reveals that relatively few companies (17%, as of 2000) have improved their customer
satisfaction index measures after six years (McEwen 2005).
There is an abundance of literature that draws the connection between the attitudes of
employees and the attitudes toward the company of the customer. Numerous studies
support the claim that employees with favorable attitudes provide better customer service,
and in most cases, improve the quality of customers experience (Johnson 2006). The
research asserted that it is not enough to just deliver great customer service; it is
necessary to translate this great service into customer loyalty. The best way to engender a
greater degree of customer loyalty is to exceed customer expectations and anticipate their
needs. Expectations are constantly evolving because improvements in service shift
customer demands. While customers initially appreciate better services, they quickly get
used to, expect and demand them (Cleveland 2003). Customers will continue to favor
organizations that provide unique, one-on-one, personalized service, whether it is
delivered face-to-face or over the Internet (Colombo 2006).
Corporate Profitability and the Service Profit Chain

There were very few relevant papers available that incorporated the elements of
employee satisfaction, customer satisfaction/loyalty, and corporate profitability into one
theory known as the service profit chain. The pre-eminent work on this subject can be
found in the research of James L. Heskett, W. Earl Sasser, Jr., and Leonard A.
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Schlesinger, who together, coined the phrase service profit chain. Their book by the same
name connects the importance of the relationships that exist between employees,
customers, and corporate profitability. Simply stated, service profit chain thinking
maintains that there are direct and strong relationships between profit; growth; customer
loyalty; customer satisfaction; the value of goods and services delivered to customers;
and employee capability, satisfaction, loyalty, and productivity (Heskett, Sasser and
Schlesinger 1997).
Many papers set out to link either improved employee satisfaction to improved customer
satisfaction, or employee satisfaction to improved corporate profitability, or improved
customer satisfaction/loyalty to improved corporate profitability. There is also the
opportunity to move that marginally profitable customer into profit if an organization
understands the customer dynamics involved and are able to either find a way of lowering
the cost to serve or finding them more mutually profitable services to take (Meltzer
2006). You need to know how much it costs to service your existing customers and how
much profit they bring the organization. But who are the customers you want to retain
(and why) and what are the characteristics of customers you want to acquire (Meltzer
2003)? Very few papers made a comprehensive connection between the employee, the
customer, and corporate profitability. Either one are relating to one other area was
connected, or just one of the elements was analyzed.
Chapter 11
RESEARCH METHODOLOGY
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Objectives
The objective of this dissertation is to contribute to the existing knowledge base related to
employee satisfaction and customer satisfaction as important contributors to corporate
profitability. A comprehensive and in-depth literature search was conducted to assess the
level of existing research and knowledge base in order to assess areas that could benefit
from further analysis.
Research Approach
An initial assessment of existing research relating to the elements of employee
satisfaction, customer satisfaction/retention/loyalty, and the elements of corporate
profitability was conducted in order to identify and focus on essential elements that
would be beneficial for this dissertation. This was followed by a more comprehensive
analysis of existing research for the purpose of identifying those works that best
explained the concept of the service profit chain. This process included industry specific
literature searches using Proquest, URSUS, MARVEL, and college search sources at
Harvard University, Northeastern University, and the University of Maine. In addition to
these databases, searches for materials in many business periodicals such as Harvard
Business Review, The Economist, and HR Digest were conducted. The results of these
searches aided in identifying empirical research and published analysis related to
employee satisfaction, customer service, and corporate profitability.
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Surprisingly, with the innumerable literature available on employee satisfaction, customer

retention and corporate profitability, very little at all examines each in detail and analyzes
their effect on one another. Searches for literature pertaining to the service profit chain, or
similar works, produced only a handful of results, most of which are attributed to the
previously mentioned authors of the book The Service Profit Chain. Because of this,
extensive searches were conducted on the different elements of the service profit chain,
then compiled and analyzed in this paper.
The lack of congruity and continuity in the existing literature between the relationships of
the three main elements of the service profit chain are therefore the focus of this paper. In
order to enhance the application of the research found in the literature, structured, as well
as unstructured interviews were conducted with industry professionals on every facet of
the service profit chain.
Certain questions were provided to the interviewees in advance of the actual interview,
along with a brief description of the purpose of the interviews. During the actual
interview process, the respondents were given the latitude to expound on the subject
matter in an unguided fashion, as they are all considered to be expert professionals in
their respective disciplines. The objective of the interviews was not to elicit fixed
responses, but rather to garner additional information on the differing aspects of the
service profit chain that would enhance the current literature. The respondents all agreed
to allow their identities and comments to be disclosed in any appropriate manner that
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would allow the information they provided to enhance the body of knowledge associated
with the paper.
Method of Data Collection

Face-to-face interviews were conducted and notes taken to document the answers of the
interviewees for eleven of the fifteen interviews. The remaining four interviews were
conducted using e-mail in a question and answer format. Most interviews lasted no more
than thirty minutes at one time. However, more than a total of ten hours was spent
interviewing John Reed the CEO at Maine Savings and Robert Carmichael, the Vice
President of Human Resources & Training at Maine Savings. All of the respondents were
cordial, informative, and eager to answer questions in a comprehensive manner.
Selection and Description of Interviewees CEO, V.P., A.V.P., and R.V.P.

Because of the large amount of literature available in regard to the three elements of the
service profit chain, the interviews were used to help identify and confirm the
information found in the written analysis. There was no expectation that the interviews
would garner any previously unknown information. There was an expectation that the
interview process would reveal different methods of application of the information,
which it did. In order to garner the most comprehensive input possible and have the
ability to identify similar information that would be used to add to the body of knowledge
relating to the research in this paper, only recognized industry professionals were
interviewed. As part of this process, two CEOs, two Board members, four Vice
Presidents, an Assistant Vice President, and two Regional Vice Presidents were
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interviewed. Everyone in this group currently works professionally in Maine. However,

all of them have experience across the U.S., and two of them have extensive international
experience.
Selection and Description of Interviewees Chief Executive Officers

A total of two interviews with CEOs was conducted, both of which were conducted faceto-face. In the case of John Reed, the CEO at Maine Savings, several comprehensive
interviews were conducted.
Selection and Description of Interviewees Vice President of Human Resources &

Training
The person occupying this position at Maine Savings, Robert G. Carmichael has
extensive international human resources and training experience and is a retired Brigadier
General with the United States Army. In his capacity as the Assistant Adjutant General,
he was responsible for the training and development of thousands of soldiers. Rob has
written extensively about employee satisfaction and has designed many employee
development programs for several different organizations.
Selection and Description of Interviewees Vice Presidents (Lending, Operations,

Finance)
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A total of four Vice Presidents with extensive experience in Lending, Retail Operations,
Human Resources, Finance, and Logistics were interviewed. The interviews were all
face-to-face and were preceded by a list of five standard questions. The feedback of these
interviewees acted to verify many of the assertions found in the literature regarding
employee satisfaction, customer retention, and corporate profitability.
Selection and Distribution of Interviewees Regional Vice Presidents

Two Vice Presidents with extensive retail banking experience were interviewed. The
interviews were initially conducted via email and were followed up with phone calls.
These interviews centered on the operational application of human resource theory in the
workplace. The perspectives of these individuals was in line with the research conducted
in the literature.
Selection and Description of Interviewees Board of Directors

Two members of the Board of Directors at Maine Savings were interviewed. Each has
been a long-time member of the Board and both have seen the benefits of the
implementation of the service profit chain strategy at Maine Savings. These Board
members were able to give perspectives in regard to Board governance of such initiatives.
Selection of Description of Interviewees Assistant Vice President of Accounting

An A.V.P. of Accounting with more than twenty years of experience in all aspects of
banking was interviewed. The interviews were held face-to-face and occurred several
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times. This A.V.P. was able to give perspectives of both financial management and as an
employee working their way up through the organization.
Chapter 12
Interview Results
CEO, Vice Presidents, and Board Members
Service Profit Chain
Of the executives that were interviewed, one CEO had not implemented a strategy similar
to that of the service profit chain strategy, although he had extensive experience
managing the three main elements that make it up. The initial question was in regard to
the importance of the relationship in business of employee satisfaction, customer
satisfaction/retention, and corporate profitability. The responses for the most part, were
very similar to one another. All of the executives felt that each component was important
to the overall success of any organization and that attention should be paid to all of them.
The next interview question was in regard to which of the three components was the most
important. One of the executives responded that employee satisfaction was the most
important because without employees, there would be no business. Another executive
responded that customer satisfaction and retention was the most important because
without them there would be no income for the business to pay employees. Yet another
executive asserted that the money had to be available in order to hire and keep satisfied
employees which in turn, creates satisfied customers that add to an organizations
profitability.
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Most of the interviewees came back to the conclusion that all of the elements were
equally important to the business equation and necessary for organizations to grow and
prosper. The interviews however, took and aggregate or overall approach by the
respondents to the issue unless otherwise directed by the interviewer. Because of this, the
interview questions were designed to go into further detail with regard to the three main
elements of the service profit chain. As the following interview results will show, the
responses to the questions were heavily weighted based on the executives area of
responsibility within their respective organizations. For example, the human resource and
training executive tended to favor the elements associated with employee satisfaction,
while the executive responsible for retail operations tended to favor the elements
associated with customer satisfaction/retention.
The interviewees were asked to list, in order of importance, the elements associated with
employee satisfaction. The top five responses were fairly uniform between respondents
with such items as remuneration, sick/vacation time, hours, training, and advancement
opportunities being the most often cited. One executive was adamant about pay being the
most important because employees that do not feel adequately compensated are incapable
of further motivation. He cited an example of one of his long-time employees that did a
capable job at her assigned duties, but would do nothing extra, fretted when crosstraining was mentioned, and was not motivated to learn anything new. He added that her
favorite slogan was eight and out the gate, referring to working her eight hours and no
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more, then going home. He said that when the employee was finally confronted about this
attitude, she responded that she was only paid enough to perform the basic duties for
which she was hired.
The human resource executive cited many examples of different employees being
motivated by different motivating factors such as flexible hours, more time off, a
different work environment, a training opportunity, or a new position, just to name a few.
His assertion was that employees all have different motivators and it is up to the
supervisor, and ultimately the organization to identify those motivators in order to foster
an environment that the employee will be satisfied with and excel in. He gave numerous
examples of employees that seemed to be having an issue with one or more parts of their
performance and when the issue was discussed, it was found that there were varying
problems that were unique to the individual employee.
An executive from a much smaller institution offered a different opinion that was not
shared by any of the other interviewees. His opinion was that all lower level employees
should have a fixed pay rate, given to them up front, with a delineated set of tasks that
they were to perform. If they desired further training or motivation of any kind, it was up
to them to make a formal request to their immediate supervisor. He believed that if the
employee were informed of their rate of pay and expected duties up front, there would be
no gray area or opportunity for misunderstanding or miscommunication. When he was
asked if he thought that this would work in a larger organization, he admitted that a
variation of this style would have to be implemented in order to be effective.
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The Board members however, were on the other end of the spectrum with their responses.
Their responses were very liberal in regard to benefits that employees should receive.
One Board member even commented, what ever will ensure the satisfaction of the
employees is what we should do. Their responses to questions regarding employee
satisfaction were difficult to gauge in comparison to the other interviewees responses
because they were so skewed toward the employee. When asked about the costs of some
of these benefits, they tended to think that enough money could be found in the
organization to satisfy the requests. In their opinions, satisfied employees (at all costs)
made for satisfied customers, which in turn, made for a profitable organization.
The interviewees were asked if any of them had ever participated in a 360-degree review
of the elements associated with employee satisfaction in the past. The question was
subsequently revised to add, making employees a core part of organizational goals and
the strategic plan. Most of the interviewees had been involved in several aspects related
to the elements associated with employee satisfaction, with one, the human resource
executive actually being involved in the implementation of the service profit strategy in
the past. The HR executives past experience in relation to implementing employee
satisfaction into the strategic plan and organizational goals proved to be a positive one.
The executive made the determination that in order to correctly assess all aspects relating
to employee satisfaction, it was first necessary to start at the top with senior management.
Once there is a decision to incorporate employee satisfaction measures as part of
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organizational goals, then every aspect of the initiative can be examined and is open for
criticism and change, if necessary.
Interviewees were asked about communicating to employees. Specifically, what, when,

and how should employees be communicated to. The interviewees, on the whole, said
that open and honest communication was essential to the success of the organization. One
interviewee related an experience he had at a previous position in relation to employee
communication. He stated that the employee turnover rate was more than three times
higher than the peer average at this particular organization. He soon began instituting exit
interviews as part of the standard operating procedure for this company, which did not
previously exist. In almost every exit interview, employees made comments about the
lack of communication from management and indicated their frustration with the
communication process in general of the company. After further investigation, the
executive found that there was little to no communication between management and
employees and visa versa. This created an atmosphere of distrust, mystery, and
speculation. In order to remedy the situation, the executive instituted a daily management
e-mail to employees and created an employee newsletter to act as a bilateral
communication tool for the company. Within a year, the turnover rate was cut by more
than seventy-five percent.
Because most of the interviewees had only been involved in certain elements of
employee satisfaction, they were unable to relate their experiences to overall changes in
the organizational culture. Even still, some of the executives related certain experiences
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in regard to elements of enhancing employee satisfaction that were helpful illustrations

and examples of the process at work. Two of the executives had positive experiences that
were a result of additional employee empowerment. In one case, front-line employees
required the verbal and written approval of management in order to effectuate a decision
resulting in greater than five dollars. This was causing a tremendous amount of
contention with both employees and customers alike. The executive said that this
company was a privately held family company and that the policy had been this way
since the original owner established it in the late 1940s. With his input, the rest of the
senior management team decided to provide additional training to employees on certain
decision-making processes that they may encounter on the front lines. Shortly thereafter,
they amended the policy to read five hundred dollars rather than five dollars. The change
in attitude of the employees was almost immediate, and shortly thereafter, positive
comments from customers came pouring in.
There was an overall difference of opinion between the executives in regard to the extent
to which an organization should go in order to increase employee satisfaction. The human
resource executive and his colleagues that had dealt with human resource issues for a
long period of time tended to convey the attitude that an organization should do anything
in its power to ensure high levels of employee satisfaction. The executives that had little
or no exposure to human resources and were more geared toward logistics and operations
tended to have the opinion that once a good package was created and offered, it was up
to the employee to be satisfied with what was offered. The human resource executives
answer to this point of view was to insist that an organization must continually work with
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its employees to ensure an environment where employees have the ability to increase
their level of satisfaction.
Customer Satisfaction/Retention
The executives and Board members were given an initial question that read, what are the
most important elements of customer service? The majority of their responses were
much the same and included answers like: being friendly, approachable, knowledgeable,
convenient, and flexible. The next questions were based on the differences noted in the
responses to the first set of questions. The questions centered on the importance of
employees in delivering great customer service, as well as the impact on corporate
profitability as a result of satisfied customers. The interviewees were also asked if
satisfied customers were loyal and profitable customers. Their responses varied and were
wide-ranging, generally reflecting their positions within the company or on the Board of
Directors. All of the respondents did agree however, that satisfied customers were
essential to corporate profitability.
The human resource executive attributed much of the customer satisfaction measure to
the level of satisfaction the employee who engages the customer possesses. His opinion
was that the employee is the face of the organization and the initial contact point for the
customer. He added, if the store looks great, the product essential, and the price is right,
none of this matters if the employee engaging the customer fails to deliver the service and
support necessary in order to make the customer feel special. When asked if employee
satisfaction cannot only add to customer satisfaction, but also create customer loyalty, the
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executive initially replied, it depends. Upon further reflection, he did say that more
factors were involved in creating customer loyalty and retention than are involved in
customer satisfaction.
One of the retail operations executives was asked, what is meant by being considered a
customer-centric organization? He responded that when an organization is considered
to be customer-centric, it will go to any length possible to ensure customer satisfaction. In
his experience, a company deciding to become customer-centric must take action toward
this goal, not just make the statement. This executive actually had experience with this at
two different organizations in the past. One initiative succeeded, while the other failed. In
his first experience, the CEO called the executive team together and cited his concern that
he felt the organization was losing many of its customers to the competition. His idea was
to become a customer-centric organization, making decisions for the customer
whenever possible. His first order of business was to create a new mission statement
declaring that the organization was a customer-centric organization. He subsequently
called a special company meeting and gave a speech declaring that the company was now
a customer-centric organization and that the customer was the first priority. Everyone
seemed to leave the meeting feeling excited about the prospects of garnering more
business because of the new focus and mission statement. However, there was no
incorporation of the philosophy into the strategic plan, no additional training, no financial
commitment to the initiative, and no tangible effort put toward making the organization
any more customer-centric than it was before. Soon, the employees realized that they had
always tried to deliver great customer service and whenever possible, put the customer
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first and give them what they wanted. To them, it became evident in a very short amount
of time that nothing had really changed. Inevitably, the organization continued to lose
market share to the competition and the senior management team all left within twelve
months of the customer-centric proclamation by the CEO.
In his second experience with an organization attempting to become customer-centric,

the executive had quite a different experience from the one he had at his former company.
In this situation, The CEO assembled the executive management team for the purpose of
discussing the concept of the customer-centric organization. In this meeting, the CEO
passed out literature and examples in regard to companies that had successfully made the
conceptual change to a customer centric organization. The CEO gave the team two weeks
to read through the materials, write down their ideas, assemble suggestions, then they
would meet to discuss the results.
When the team met two weeks later, they drafted a budget to support the initiative that
included funding for additional training, marketing to customers, funding for customerbased initiatives, and funding for additional staff to support the initiative. In addition, the
team reworked the strategic plan to reflect the organizations new focus as a customercentric organization. The final task for the team was to create a priority list for
implementation. Once this was accomplished and the team had a plan of action, a
meeting was held with the employees of the company in order to present to them the plan
and how it would be carried out. The outcome of this initiative produced an increase in
customers for the organization of more than thirty-percent in just six months. In addition,
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the organizations profitability per customer ratio increased by just more than twenty-five
percent in the same time period.
Several of the executives discussed the issue of empowerment as being the key to
increased customer satisfaction/retention/loyalty. The executives were asked if their
comments in regard to empowerment were in reference to empowered employees being
able to provide better customer service. One of the executives answered that it was a
combination of both employee and customer empowerment. He stated that in a truly
customer-centric organization, customers are also empowered to make decisions that they
have not traditionally been able to make. He indicated that this ability to have more say in
the outcome of a transaction and experience equated to increased empowerment on the
part of the customer.
In many of the interviews regarding customer service, the executives spoke more about
employee satisfaction than they did about direct initiatives that could lead to increased
customer satisfaction. The interviewees would begin to relate certain initiatives that could
improve customer satisfaction, and soon be talking about the employee effect on that
element of customer satisfaction. The most prevalent sentiment was in regard to the
impact of employee empowerment on increased customer service. One executive
commented that most organizations recognize that at some level, customers are important
to their business and their satisfaction is important. His opinion was that many companies
fail at customer satisfaction when they install frustrating bureaucracies that act as a
barrier for the employee to deliver the best customer service possible. He noted that
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organizations that allow employees to break down these bureaucracies for the benefit of
the customer are organizations that tend to have a more loyal customer base. His
conclusion therefore, was that employee empowerment can be the element that has the
greatest effect on customer satisfaction.
The interviewees were asked about the importance of meeting customer expectations as a
part of enhancing customer satisfaction and loyalty. Many of the responses were to the
effect that they believed that their organization already understood their customers
expectations and worked to fulfill them. The interviewees were then asked if their
customers expectations were being met then why was their customer acquisition flat.
Many of them blamed the economy and the consumers hesitance to move from one
competitor to another under the uncertain circumstances. However, one interviewee did
comment on the fact that in many cases, organizations think they understand customer
expectations but dont and in most cases, they do not ask or endeavor to really find out.
This executive explained an experience he had while at another financial institution in

relation to customer expectations. The institution was opening a new branch and was
trying to decide what the hours should be for the branch. Subsequently, the management
team looked at the competitions hours and decided that they should have the same hours
because that is what their customers would want. After the new branch had been open for
six months, a transaction analysis was done on the new branch. This analysis revealed
that less than twenty customers per week were taking advantage of the extra hours
established at the branch. The management team decided to poll its customer base as to
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what their choice for hours at the new branch was. In the end, the customers
overwhelmingly decided on very different hours that would be convenient for them. The
institution changed the hours and within a week, they saw that more than five hundred
customers had used the new hours to perform some kind of transaction.
The Combination of the Three Elements That Form the Service Profit Chain
Directly after the first round of interviews, the executives were provided some excerpts
from the book The Service Profit Chain by Heskett, Sasser, and Schlesinger (1997), as
well as some other literature on combining the three elements in order to increase
corporate profitability. For executives that were interviewed a second time, they were
asked about their opinions of employee satisfaction, customer retention/loyalty, and
corporate profitability, after having the benefit of reading the associated materials that
were provided to them. Only one out of this group of executives had actual hands-on
experience implementing a service profit chain strategy. In order to allow for idea
building and brainstorming feedback, two senior executives were interviewed at the same
time while these particular questions were asked.
One of the executives who previously focused most of his attention on employee
satisfaction during previous questioning now said he believed that all three elements must
be considered equally if the initiative were to succeed. He agreed now that concentrating
so much on one element (employee satisfaction) is a myopic way to view things and does
not allow an organization to implement a balanced plan. He added that after being able to
read some of the literature, he now understands the importance of the relationship of one
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element to another and visa versa. This executive mentioned that although the
organization he was previously with considered itself to be customer-centric, because he
put so much focus on the employee aspect of the solution, the organization in truth was
probably employee-centric. The other executive agreed that too many times, one or
another element is highlighted or made a priority at the expense of the other two. Both
admitted that in order to maintain a balanced approach to the service profit chain strategy,
a complete view of the individual initiatives should be analyzed before acting.
One executive had an analogy of a misguided initiative from a previous place of

employment. In his story, the organization was striving to become more customer focused
by attempting to empower the customer in more ways. One of the ways that they tried to
do this was by introducing a new initiative that they publicized to the customer called
the customer empowerment program. This program stated that if a customer was
dissatisfied with their service or a decision from a particular employee, they could just go
to another employee and achieve what they were trying to get. The purpose was to try to
let customers know they have a choice in their service and with whom they deal with at
the employee level. This initiative backfired in a very short amount of time. The result
was that the employees did not feel empowered and it actually caused problems between
certain employees, and eventually entire departments within the organization. In
hindsight, the organization should have empowered the employees more to service the
customer better. However, in this case, one of the elements was given priority at the
expense of another very important consideration.
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The executives admitted that this experience had been eye opening and at the same time,
somewhat embarrassing. Each of them told of experiences they had where they pushed an
initiative they though was an important part of the solution that they now realize was at
the expense of another element in the service profit chain. The most senior executive
interviewee, a CEO of a large financial institution, related the experience he had in
making a decision he thought was beneficial to the customer, but in the end, negatively
affected the organizations profitability. The interviewee had received several complaints
from customers in regard to their credit card skymiles being stale dated and subsequently
canceled. Because he thought this was having an adverse impact on all customers, he
mandated that the stale dated skymiles for all customers be reinstated. The subsequent
bill from the credit card processor for this was $130,000 and ended up only affecting
twenty-two customers in an adverse manner. In the end, the executive realized that he
should have calculated the opportunity cost risk of the decision better.
Interview Results Summary

As was previously stated, the interviews for the analysis contained in this paper were not
the primary basis for the research, but rather they were used as additional sources of
information and observation. The primary research and foundation for the analysis
contained in the paper is from the literature.
The information ascertained from the interviews was valuable and helpful in gaining a
practical viewpoint of the theory presented in the literature research. The professional
experiences of the interviewees was invaluable at helping to understand the importance of
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considering all three main elements of the service profit chain equally and in a balanced
manner. The resounding consensus of this researcher and the interviewees is that although
improving one element at a time can be beneficial in many ways, it is far more important
and effective to consider all of the elements as part of an initiative.
Chapter 13
Summary, Discussion, Conclusions, and Limitations
Having and maintaining a highly satisfied workforce is a key factor in improving
corporate profitability. Organizations that understand the elements involved in employee
satisfaction maintain an important competitive advantage over their competition.
Addressing or improving employee satisfaction within an organization is a process that
deserves planning and commitment on the part of the senior management team and is not
something that will happen overnight. Many companies attempt to address specific
elements related to employee satisfaction, but very few actually analyze every component
to ensure a comprehensive approach to the issue. As this paper has shown, employee
satisfaction consists of more elements than just benefits, pay, or job description. In fact,
many elements related to employee satisfaction are often times overlooked or relegated to
areas totally unrelated to human resources. No organization with employees is exempt
from the responsibility to examine the elements necessary to improve employee
satisfaction. With the impending shortage of workers due to the upcoming retirement of
baby-boomers, attention to the satisfaction of employees is not only prudent but also
necessary to maintain a satisfied and motivated work force.
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Without a supportive and committed leadership team, employee satisfaction initiatives
are predestined for failure. Any employee satisfaction related initiative must be supported
and championed by the leadership team of an organization. The executive team must
adopt a well-thought out strategy to ensure that their best people will remain engaged and
ready to help lead the economic rebound. There must be a top-down vision that can be
articulated and shared by every member of the leadership team (OConnor 2004). In
order for employees to feel that initiatives will be successful, they need to see that the
leadership of the organization is supportive of the initiatives. Working with a leader who
does not provide support, show consideration, or engages in hostile behaviors can be
stressful for employees. Negative leader-employee interactions can result in decreased
pleasure with work, questioning ones skill on the job, reacting harshly to the leader, and
eventually leaving the organization (Chen and Spector 1991).
Considerate leaders, also known as expressive leaders because they show concern for
people, have been found to facilitate a group of employees with higher productivity and
higher performance (Singh 1998). The research is quite clear that a participative
leadership style that takes into account the input of employees and treats workers as
partners in the business, is far more effective at creating and maintaining real employee
satisfaction. On the other side of the coin, task structured leaders, also known as
instrumental leaders, show less concern for employees and are high on initiating
structure. Leader behavior characterized as high on initiating structure leads to greater
rates of grievances, absenteeism, and turnover and lower levels of job satisfaction
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(Robbins 1998). Although the relationship between concern for employees and job
satisfaction is not always clear, research in this area generally indicates that consideration
is more highly related to satisfaction than a task structured style of leadership (Wilkerson
and Wagner 1993).
Work Environment
Work environment considerations are quite often one of the overlooked aspects of
employee satisfaction. There are two primary categories that make up work environment;
physical, such as workspace and location, and interaction with other employees. These
two considerations are very important to both the physical well-being and the
emotional/psychological well being of the employee. In order to maintain a feeling of
satisfaction, employees must be given the opportunity to work in the most comfortable
and appealing physical setting as possible. Also, employees should be given the
opportunity to work in an environment with others that is respectful, amiable, and free
from hostility or abuse.
Organizations that pay attention to and realize that creating an inviting work area that is
open to productive collaboration with other employees often reap the rewards of greater
productivity and satisfied employees. Far too often offices and other work areas are
designed to facilitate the maximum use of space at the expense of what will encourage
worker productivity and increase worker satisfaction. The design of contemporary office
environments is often based largely on intuition derived from personal experience or
from highly simplified accounts of the academic literature applied without reference to
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this literatures underlying association of physical design with the nature of work
(Heerwagen 2004).
Organizations have a fiduciary duty to provide their employees with a workplace that is
free from hostility or threatening co-workers. An employer has a responsibility to provide
a safe and effective mechanism for reporting experiences. If there is a history of people
using that vehicle and being punished for doing so, it can be argued that the employer has
failed to provide such a mechanism (Parham 2003). Allowing or tolerating
psychologically or detrimental behavior in the workplace not only carries with it legal
ramifications, but also the negative implications for employee satisfaction. This negative
impact on employee satisfaction will soon manifest itself in the form of poor customer
service and consequently, negative ramifications for corporate profitability.
Employee Training
This paper has established that employees should be considered valuable assets that are
capable of continued earning capacity for the organization if invested in and cared for
properly. Many organizations have regular maintenance schedules for their machinery
that includes preventive care, and in many cases, upgrades in order to improve
efficiencies and streamline production processes. Organizations can benefit from
applying this methodology to their human workforce as well. The training an
organization provides its workforce should be planned, funded, and relative to the goals
of the organization and employee.
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Training has become a necessity in todays workplace due to rapidly changing

technologies, customer expectations, and the ever-changing business environment in
which we operate. Organizations can centralize and formalize their training programs in
order to provide a planned avenue for employees to increase their skill and knowledge
levels. Research in the area of corporate training has shown that companies that invest in
their employees through comprehensive and effective training programs have less
turnover, more productive employees, and consequently are more profitable. These
training programs also offer the organization the ability to identify those employees that
have the capability and desire to grow further and progress upward within the
organization.
Employee Development and Leadership Planning

Employee development and leadership planning is closely related to corporate training,
but is the next step in employee advancement. A major factor in engendering employee
satisfaction is the known ability by the employee that they have potential opportunities
for development and promotion at their organization. It is quite clear from the analysis in
this paper, as well as other empirical research on the subject, that employees who are
afforded the opportunity for continued development and leadership add to the success of
an organization. By retaining employees, the value of their development increases. They
will increase productivity and contribute to the over-all success of the organization. Their
expanded knowledge makes them valuable assets for the company. Over time, this added
value will more than cover the costs of their development (Garavan et al. 1998).
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Organizations should work with their employee base to create a development plan that
will truly enhance the leadership skills of the employees for future promotion.
Organizations that work with their staff to assess and provide feedback on their skills and
interests, assist in selecting development activities that match their career development
objectives and job needs, tend to have seasoned and satisfied leaders. The key function of
the development process should be to identify and cultivate leadership for the future of
the company. Although employee development initiatives are typically associated with
lower level employees, senior level executives can benefit from continued development
training as well. Executive development programs should enhance an executives
leadership abilities in terms of profits and reducing costs. Leadership models help to
define actions required by managers. This leadership emphasis is reinforced in the
organization through effective and responsible managerial staff (Mailliard 1997).
Employee Recognition
Employee recognition programs are an important part of creating and sustaining
employee satisfaction. However, these programs must be administered fairly, correctly,
and in the right quantity. Having too few employee recognition awards or too many is
another mistake to be avoided. Awards should be rare enough to be sought after, but
common enough that every employee believes they will earn recognition for exceptional
work performance. The higher level awards should be quite difficult to obtain to remain
truly meaningful (Roche 2006). Recognition programs are in integral part of continuous
employee motivation and act as positive behavior modification tools when administered
correctly.
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Someone who is commended for an achievement usually responds by producing even

better results. Ultimately, the employer can expect that the result will translate into cost
savings, quality improvements, and strengthened customer relationships (Recognition
2006). Managers can use recognition as a leadership tool. It can convey a strong message
to employees regarding the work performance and behavior that is valued by their
managers. By communicating these essential values, employees will understand how
their performance directly contributes to the organizations ability to achieve its goals
(Brintnall 2005). Not only do employees benefit from employee recognition programs,
but so too do their organizations. Employees receive recognition for their outstanding
achievement and organizations get more satisfied employees, as well as behaviors and
results they set out to enhance in the first place.

Far too often, employees are treated like pieces of machinery. They are selected, staged,
and programmed to operate the way that the organization wants them to in order to
achieve a certain predetermined goal or objective. The research has shown that
organizations that involve their employees in setting organizational goals and employee
expectations experience much higher rates of employee satisfaction than those
organizations that do not. Organizations that take into account the input of their
employees are often referred to as collaborative work communities in the research.
Collaborative work communities can be defined as a group in which people work
effectively together to achieve business results and sustain a positive work environment
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that includes work/life balance. In addition, collaborative organizations create structures

and practices, and express values that help groups work effectively across organizational
boundaries to achieve business results (Gewirtz 2005).
The Hawthorne studies that began in 1927 studied the effects of different environmental
inputs on employees and productivity. The studies eventually concluded that the
productivity of workers increased simply because the researchers were paying attention
to them and not because of an identifiable input or variable. There are many organizations
that share goal setting ad the creation of employee expectations with their workforce, but
arguably, none better than Southwest Airlines. Southwest Airlines has learned to
capitalize on the principles of the Hawthorne Effect. Since the companys inception in
1971, it has been committed to employee input. In an industry plagued with business
failures, it is staggering to reflect on how Southwest Airlines has consistently remained at
the top of its industry, while placing a dogmatic focus on its employees feedback needs
(Frazee 2004).
Organizations that are successful at including their employees in decisions and the goals
of the organization are typically flat in hierarchal structure. It is hard for employees to
be motivated to get the job done when they do not know how their job contributes to the
overall success of the organization. Research has shown that goals have a direct effect on
the morale of the staff in an organization. People gain high morale when they are
challenged by organizational goals and know that theyll be supported as they strive to
achieve them (Davis 2006). Organizational structure and employee involvement in setting
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organizational goals and employee expectations have been found to enhance employee
satisfaction and have positive effects on organizational profitability.

Effective communication in the workplace is one of the most important considerations for
both employees and the organization itself to consider. Ineffective communication in
organizations can have dire and immediate negative effects. Communication is a
powerful factor in organizational performance, in part because it is tangible evidence
about what the leadership believes the values for which the leadership stands (Harshman
1999). Research and case studies indicate that much of the communication in todays
bureaucratic organizations does the opposite of what is intended; that is, it contributes to
a growing sense of mistrust and erosion of credibility (and faith) in the organization and
its leadership (De Greene 1982).
Communication is not only an important part of every organization, it is affected and

shaped by the culture of a workplace and therefore demonstrates and transmits the
characteristics of a workplace culture (Communication 2006). Communication affects
every element of employee interaction and satisfaction. Communication is used to convey
attitudes of management, work to be done, the direction of the organization, and to share
information with co-workers and management. Because there are so many forms of
communication available to employees, it is essential that these methods be understood
and used in a responsible manner. Specifically important in organizations is the
communication that takes place between an employee and their supervisor. Studies have
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long shown that employees prefer to receive information from their supervisors. They
like to receive information from the organizations leaders, but they want to hear the
impact on their work-group directly from the people to whom they report (MacGregor
2006).
As this paper addressed comprehensively, there are three main elements involved in the
communication process a message, a sender, and a recipient of the message. However,
from these three main elements involved in the communication process, many different
issues can arise that corrupt or distort the process. For this reason, organizations need to
be vigilant at monitoring their internal communication processes. Communication is an
art, not a science and may differ from organization to organization. According to a study
conducted by the human resources consulting firm Watson Wyatt Worldwide,
organizations that communicated most effectively with employees experienced a return to
shareholders of twenty-six percent. In contrast, those organizations that communicated
least effectively produced a negative fifteen percent return. That is a forty-one percent
swing between companies that communicate well and those that dont (Holtz 2006).
An essential element of the communication process within an organization concerns the

ability of employees to provide actionable feedback to management. Leadership must be
open to feedback. Employees need to believe they have a voice in the company and that
their input matters. Leadership cant claim they have an open culture while discouraging
two-way communication (Varelas 2005). Just as important as respecting the employees
feedback, is actually listening to what employees are saying. Listening is just as
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important as speaking, when it comes to communication. Supervisors who are good

listeners are more likely to have employees who help identify and solve work-related
problems (Slagle 2006). In order to elicit positive feedback from employees, there must
be an avenue for this communication to occur. Employee surveys, if conducted correctly
can provide a good basis of upward communication about issues affecting employees that
management is not aware of. Employee surveys are an important tool used by
organizations to obtain the feedback of employees on a variety of critical issues (e.g.,
employee satisfaction, leadership effectiveness and practices, organizational culture and
climate, etc.) (Guidestar 2006).

Teamwork can be a source of employee satisfaction if it is managed correctly. On the
other hand, teamwork can also be the source of contention, employee conflict, and
counter productivity if not managed correctly. Teams do not automatically work well as
an entity. Effective teams require constant attention and managerial encouragement. The
strongest and most consistent factor that increases teamwork is managers encouraging
teamwork. When managers help employees work together as a team, resolve
disagreements and support team efforts, the groups as a whole exhibit greater
productivity and satisfaction (Special 2006). The research is clear that teams can be used
in organizations to help leverage knowledge and experience of the team members in order
to produce better results for the company. In addition, it has been shown that employees
are motivated when having the opportunity to work in effective team environments.
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An important factor in successful team strategies is the ability of management to allow

the team to reach its own conclusions and results without inserting itself unnecessarily
into the team forming process. Critics of teamwork practices argue that despite positive
images like empowerment, autonomy, increased discretion and psychological
involvement resulting from team based initiatives, such strategies need to be examined
closely for such practices are often used to mask the managerial intentions to control
(Sewell 1998). Management must realize that teams are their own entity and require
certain stages in order to operate efficiently and for the purpose intended. Employees
should be trained on the different aspects of team development and coached through the
process in order to have an understanding of the intent and purpose of teamwork.
An organization can realize many benefits from learning how to properly empower its
employees; not all of which are strictly monetary. An empowered employee helps a
company improve service delivery, continuously become more innovative, increase
productivity, and gain a competitive edge (Ten3 East-West 2003). Employee
empowerment comes from the individual. That is not to say that management ceases to
have the responsibility to lead the group and is not responsible for performance. In fact,
companies that seek to empower employees demand stronger leadership and
accountability (Smith 2003). Empowerment is a tool that must be used throughout the
organization and not just rest with certain employees on a random basis.
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Employee empowerment is the subject of many business articles and seminars today.
Most organizations think they understands the benefits of employee empowerment and
are interested in implementing it because they believe that empowered employees will
benefit the organization. Organizations often do not pursue true empowerment because
they are afraid of giving up too much control and decentralizing the decision-making
process. This notion could not be further from the truth, as empowerment is allowing
informed employees to act in the best interest of the organization. Employee
empowerment is a process whereby: a culture of empowerment is developed; information
in the form of a shared vision, clear goals, boundaries for decision-making, and the
results of efforts and their impact on the whole is shared (Savage 2006).
Employee empowerment is a concept that if implemented correctly, is a benefit to all

those involved in the service profit chain. Organizations that cultivate a culture that
consists of performance-based rewards and empowerment tend to be more nimble and
adaptable to change (Clark 2006). Empowerment initiatives also force organizations to
change the way they communicate with employees, as it is necessary to communicate
things in greater detail and at more expedient paces. Empowering employees to improve
the organization will require greater amounts of communication than ever thought
possible. Management will be required to spend more time both giving and receiving
information (Hildula 1996).
Empowerment is not a technique, but rather a philosophy. It is a philosophical method

implemented to achieve organizational goal accomplishment, requiring a deliberate and
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phased transformation in how organizations are designed and managed (Dimitriades

2001). Creating an environment in which employees are motivated and are able to have
some ownership in their job is not an easy task nor is it a duty that will happen overnight.
Empowering employees is not an overnight proposition. It begins with hiring the right
people and training/developing them into the role of empowered employees (Hayes
2003).

Interpersonal relations at work (and away) serve a critical role in the development and
maintenance of trust and positive feelings in an organization. The quality of interpersonal
relationships alone is not enough to produce worker productivity, but it can significantly
contribute to it (Billikopf 2006). Interaction in the workplace can include such issues as
workplace boundaries, co-worker relationships, management empathy, and conflict
resolution. Although management may not be the source of these issues, they must
understand how to identify them and subsequently, professionally address them so that
they do not negatively affect the productivity of employees.
Managers and supervisors can achieve greater trust from their employees by exhibiting
empathetic attitudes. Empathy requires that managers suspend judgment of anothers
actions or reactions, while they try to understand them. Showing empathy means
listening, listening, listening, asking the right questions, and suspending judgment of the
persons fears or concerns. By understanding employees during the change process, the
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manager should be able to reduce resistance, counter lower morale, and generally face
fewer problems (Bacal 2006). Conflict in the workplace will occur. The key for
management, in order to foster greater employee satisfaction, is to recognize the issue
early, listen to the employee or employees involved, and take quick and decisive action to
resolve the issue.
Employee Benefits
With the rising costs of healthcare and other employee related benefits, benefits offered to
employees is becoming one of the largest expenses incurred by most organizations.
Research shows that todays employees will move to another job just for a better benefits
package, even if the pay scale is lower. Benefits can include things like medical, dental,
supplemental insurances, flextime schedules, and retirement benefits. Organizations that
work with their employees to secure better benefits have a more motivated and loyal
workforce than those who dont. Organizations need to realize that employee benefits are
of high concern to their workforce and a very emotional subject. The management of an
organization should strive to provide the maximum benefits package as feasible to their
employees.
Employee Motivation
Motivated employees are needed in our rapidly changing workplace. Motivated
employees help organizations survive. Motivated employees are more productive. To be
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effective, managers need to understand what motivates employees within the context of
the roles they perform. The most complex function a manager must perform is motivating
employees. This is inherently difficult because of the many factors and personalities
involved in the process (Bowen and Radhakrishna 1991). Although there are many
common factors that exist between individual employees, employees are not all
motivated by the same factors.
As this paper and other published research has identified, employee motivation is rooted
in the field of psychology. One of the most recognized psychological theories of
motivation can be found in Maslows Hierarchy of Needs theory. Maslows Hierarchy of
Needs identifies five levels of needs, which are best seen as a hierarchy with the most
basic need emerging first and the most sophisticated need last. People move up the
hierarchy one level at a time. Gratified needs lose their strength and the next level of
needs is activated. As basic or lower-level needs are satisfied, higher level needs become
operative. Therefore, a satisfied need is not a motivator (Allen 1998). The basic human
needs, according to Maslow are: physiological needs (lowest), safety needs, love needs,
esteem needs, and self-actualization needs (highest). This is, therefore, seen as an
ongoing activity, in which the man is totally absorbed in order to attain perfection
through self-development (Accel 2006).
The important conclusion to understand in relation to employee motivation is that it is

vital for management to recognize employee motivators and work toward satisfying those
motivating factors. Employees must be encouraged and willing to let managers know
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what motivates them, and managers must be willing to design reward systems that
motivate employees (lindner 1998). In the past, managers assumed incorrectly, that all it
would take to motivate employees is to pay them more. It is conceivable for an
organization to have more employees than a competitor yet produce less and have
disgruntled, low-output employees even though the organization is paying their
employees more than the competitor. The research has clearly shown that increased
motivation and satisfaction can increase worker output. Progressive, innovative managers
can now achieve productivity gains with human resource management techniques that go
beyond pay incentives (Increasing Productivity 2005).
Customer Centricity
A truly customer-centric organization is one that defines, markets and sells its products
and services from the customers point of view. Many organizations would like to think
they are customer-centric, but few really are. The key to a customer-centric organization
is the ability to accurately assess customer expectations then, meet them. Many
organizations that consider themselves customer-centric are really just customer focused,
which is a big difference. A customer-focused organization outwardly meets customers
needs and provides great customer service. However, a truly customer-centric
organization is one that creates their strategic business plan around the customer. Rather
than management, employees, or profit driving the direction of the organization, the
customer and their expectations drive the organization in a customer-centric organization.
As is the case with many other deeply rooted theories, becoming customer-centric does
not happen overnight, but it is a philosophy that takes time and patience to implement.
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Organizations must continually acquire new customers in order to remain viable, ongoing
business concerns. How they do it and what they spend to do it are the keys to effective
customer acquisition strategies. Companies can acquire customers through costly, but
fast-acting marketing investments, or through slower but cheaper word-of-mouth
processes. The long-term success of the company depends critically on the contribution
that each acquired customer makes to overall customer equity (Villanueva et al. 2006).
Organizations should find effective ways to measure acquisition costs and determine the
profitability of an acquired customer by determining the costs associated with customer
acquisition. Whenever possible, acquisition effectiveness should be measured not by
soft metrics of communication effectiveness (e.g., brand awareness) but by hard
metrics of profitability (Greyser and Root 1999).
New customer acquisition is quite often the most expensive part of an organizations
marketing budget. It is therefore essential that management understand the effectiveness
of these dollars that are spent in order to assess the effectiveness of their acquisition
initiatives. Ad spend covers a wide range of media: TV, radio, newspaper, magazines,
outdoor, direct mail, trade shows, telemarketing, etc. All, with the exception of outdoor
advertising, are capable of cost-per-lead, or cost-per-customer, or cost-per-customer-persource accountability. It is a prudent task for managers to examine the marketing
expenditures that are related to new customer acquisition in order to assess the
effectiveness of the money spent on the initiative (Falkson 2004).
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For most companies today, the recognition that the brand is indeed the reason they exist is
more the norm than the exception. In fact, more and more companies today are thinking
about their brands in quantifiable terms. For many companies, the brand is seen as having
a measurable value and a direct correlation to the bottom line (Davis and Dunn 2002).
Brands today have realizable market value and are quite often the target of buyouts.
Brands are the profit generating entity that companies are willing to buy because of their
earnings potential. Unilever, one of the largest of global conglomerates, in its efforts to
increase profitability, has adopted a strategy of acquiring leading global and local brands.
Most recently it acquired Bestfoods, taking over such well-known brands as Knorr,
Skippy, and Hellmans. Earlier, Unilever acquired SlimFast and Ben & Jerrys (Gregory
2002). This example highlights the importance of brands to an organization and their
potential profitability as a result of brand awareness.
Marketing can take many forms and be directed at many segments of the consumer
population. Companies should target their customers based on their needs and
expectations rather than just blanket all consumers with the same message. Marketing
investments need to show demonstrable impact on revenue. Concepts such as relationship
marketing are more effective because the messages are more specific to the intended
consumer. Unlike traditional advertising and promotion, the relationship marketing
approach attempts to build lasting relationships by viewing customers for their long-term
income potential to the business, rather than their short-term potential (Commerce 2006).
Organizations that understand this and implement effective target marketing campaigns
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realize a greater return on each marketing dollar spent than those organizations that do
not.
World Class Customer Service

Every organization wants to deliver the best customer service possible, but it takes more
than just willing it to happen. There must be employee training, the establishment of
customer service standards, employee empowerment, and a method of measurement and
evaluation. A genuine service-oriented attitude is a prerequisite for delivering great
customer service (Selland 2006). Customer service is an essential element in being able
to sustain any business. No matter how wonderful a job an organization does of attracting
new customers, they wont be profitable long unless they have a solid customer retention
and service strategy in place and in action. Its the actions that count not what is said,
or what the policy may say. Customers will remember what the organizations employees
have done, or not done to deliver the best service experience possible (Clark 2006).
Organizations that pay attention to the basics of customer service earn their customers
respect. Customers can usually accept that problems and errors will occur from time to
time in any business relationship. What often matters more to customers than the mistake
itself is how these difficult situations are handled. Customers crave the common
courtesies, which is not to say that the common courtesies can make up for gross
negligence or repeated problems. However, attention to the everyday, common service
standards can go a long way to establish trust and rapport and create customer acceptance
of the organizations efforts to resolve problems when they arise (Wheelihan 2002).
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The first and most important step toward outstanding service is developing a service
strategy. Strategy sets the stage and defines the constraints from all the other steps.
Overlooking strategy and rushing headlong to improve is always a mistake (Klein 1999).
Organizations must then openly share the strategy with their employees and be willing to
train them if it is needed. One of the most important aspects of delivering great customer
service is the ability to monitor the achievement of customer service delivery goals.
Many organizations feel that as long as sales are growing, they must be delivering great
customer service. However, it has been shown that this may not be the case at all.
Research has shown that it takes up to six times the investment to acquire a new customer
as to keep an existing customer. Therefore, it makes sense to measure the level of
customer service the organization is delivering (Saxby 2006).
There are many reasons customers quite returning to a place of business. Four percent
move away, five percent change their purchasing habits, nine percent defect to the
competition, and fourteen percent leave because they are unhappy with the service they
receive. However, an overwhelming sixty-eight percent leave because they encounter an
attitude of indifference (Selland 2006). Organizations that go about strategically
improving their customer service delivery and follow-up to ensure that it is working will
realize greater customer retention over time.
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As technology improves and faster and more efficient methods of customer service
evolve, customer expectations rise. Successful service efforts of the past contribute to
customers attitudes, raising their expectations with each new technology, each new
approach. Even as customer expectations continue to rise, surveys find customers and
consumers find broadly based dissatisfaction with the general state of customer service
(Colombo 2006). Managing customer expectations is not a straightforward proposition,
as it can be a daunting task to assess what the customer wants ahead of the customer
service delivery. Managing customer expectations is a tricky business because it is those
very expectations that often provide a substantial competitive advantage. Customers often
make choices between two or more suppliers of goods and services based on what they
expect in the way of quality and service (Francese 2002).
A great deal has been written about becoming customer-centric, understanding customer
expectations, and operating with the customer as the focus. Whatever the customers
expectations; the challenge is to respond to those expectations in a way that aligns the
organizations business goals including controlling costs and increasing profitability
(Tambellini and Liu 2005). Many organizations unknowingly create expectations in their
customers because of certain marketing and advertising they have done in regard to a
product or service. For almost every business, a whole set of hidden or unconscious
expectations affect the quality of its customers experiences. If organizations only focus
on the most explicit of customer expectations, then the customers experiences will
almost always be much less satisfying than possible. Although all of the customers
expectations are important, an organization should be trying to tenaciously understand all
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of their customers expectations, especially the hidden ones, and then explore ways to
address them (Colombo 2003).
Customer Service Training

Almost every vocation or task requires training and practice in order to master; delivering
great customer service is no different. Teaching employees how to provide customer
service is just good business, as it has been proven to have a direct impact on the bottom
line of an organization. As this paper previously discussed, fully engaged customers
deliver a twenty-three percent premium over average customers in share of wallet, added
profitability, added revenue, and relationship growth, according to Gallup research, while
actively disengaged customers represent a thirteen percent discount on the same
measures. Organizations that teach their employees how to effectively provide customer
service and proactively engage customers are the beneficiaries of increases in
profitability, revenue, and relationship growth.
Customer service training is as important as any other training a company may undertake.
Many times it is assumed that employees know how to provide excellent service. In
actuality, some are better than others, but all employees can benefit from customer
service training (Customer 2006). A big mistake that many companies make is training
only a small percentage of their staff, usually those who work directly with the
customers, such as the customer service department. Doing so is ineffective and
dangerous because it promotes the message that customer service is the specific
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responsibility of a limited group of people within the organization (Leland and Bailey
2006).

Researchers have undertaken numerous studies to look at the connection between
customer and employee satisfaction. An overwhelming majority of these studies found a
direct correlation between employee satisfaction, customer satisfaction and profitability
(Greenberg 2006). In study after study, customers cite their interaction with employees as
one of the strongest factors in their continued patronage of a specific organization. The
strength of a customers relationship with the employee affects repeat business,
recommendations, and probability of paying a premium price for products. Not all
employee-customer relationships are the same, and trust is critical in building those that
endure. Employees are the single biggest factor in reducing customer desertion to
competitors. The quality of the employee-customer relationship positively affects
customers assessments of their relationship with the organization (Johnson 2006).
The relationship between employee satisfaction and customer satisfaction has received
further empirical confirmation from two methodologically strong studies. Specifically, a
recent meta-analytic investigation (Harter, Schmidt, and Hayes 2002), based on 7,939
business units in 36 companies, found generalizable relationships, large enough to have
substantial practical value, between employee satisfaction and business-unit outcomes
such as customer service, productivity, profit, and employee turnover. Customer
satisfaction and loyalty invariably are earned by delivering excellent customer service,
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and the human touch is often the key differentiator. Additionally, customers with higher
lifetime value have learned to expect more. The empirical literature on this subject
highlights the criticality of the relationship between employee attitudes and customer
satisfaction. How employees feel about their job has an impact on their work
experience, but also on tangible business outcomes such as customer satisfaction, sales,
and profit. Employees can strongly contribute to an organizations success by having a
customer-centric approach in their work and in their work-related interactions
(Bulgarella 2005).

Although most organizations strive to provide the best customer service possible in order
to create customer satisfaction, what they really need to do in order to maximize
customer value, is to create customer loyalty. Recent studies provide empirical evidence
of something we already know intuitively: customer loyalty is a key driver of
profitability. Creating customer loyalty must be an integral part of an organizations
strategy particularly in a time of industry consolidation (Teegarden and Krok 2006).
The literature is quite clear that satisfied customers are not necessarily loyal customers,
although all loyal customers are satisfied. Organizations that focus on making satisfied
customers into loyal customers can count on spurring business growth and profitability
into the future.
Many companies fail at customer loyalty initiatives because they are consumed with
measuring the wrong metrics. Instead of focusing on true customer loyalty metrics, most
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companies instead fixate on measuring customer satisfaction. Satisfaction reflects a

degree of stated happiness with a current choice, but says little or nothing about the
customers feelings about other alternatives. Brands that are often rated number one in
customer satisfaction, are not the number one brands in terms of customer loyalty and
repurchase rates (McEwen 2005). Single events or one-time interaction with customers,
although satisfactory, do not provide the lasting effect or potential profitability of an
ongoing, loyal relationship provides to an organization. We are now poised to enter a new
era of loyalty management in which winning companies will move beyond measuring
customer satisfaction and defection only to approaches based on a broader understanding
of customer migration and attitudes (Gokey and Coyles 2001).

Although the key for every organization should be to create loyal customers, customer
satisfaction still needs to be measured along the way to ensure that customer expectations
are being met. The key is to consistently measure customer satisfaction levels to be
certain that the organization is not susceptible to abandonment by their customer base.
There are several ways to measure customer satisfaction formally and informally that
include such tools as: person-to-person, quarterly meetings, feedback cards, and customer
satisfaction surveys. A solid understanding of the sentiments and feelings of an
organizations customer base can prevent customer loss or erosion in customer
satisfaction (Castiglione 2006).
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As markets shrink, companies are scrambling to boost customer satisfaction and keep
their current customers rather than devoting additional resources to chase potential new
customers. The claim that it costs five to eight times as much to get new customers than
to hold on to old ones is key to understanding the drive toward benchmarking and
tracking customer satisfaction (Cacioppo 2000). Organizations that succeed at accurately
measuring customer satisfaction take into account the concept of customer value, rather
than focusing on a one-time event to judge satisfaction levels. Any simplistic approach to
customer satisfaction measurement that fails to recognize the concept of value is likely to
fail. It can be useful to ask customers to express their satisfaction and many
organizations do this using simple questionnaires with equally simple scoring systems
(Evans 2002). However, this method provides the results of only a point in time and not
the value of an ongoing relationship or string of contacts with a particular customer.

Customer relationship management tools allow organizations to cater to the needs and
desires of individual customers, at the same time, across their entire customer base. Many
organizations today dont know who among their customers are the ones to really focus
on. Customers are not created equal, yet the services provided by many organizations
seem to make exactly this assumption. Although consistent customer service delivery is
important, providing high quality service to all customers is simply not economically
logical, especially when an organization does not know the individuals value to the
organization (Meltzer 2003). Customer relationship management strategies allow
organizations to develop economies of scale in providing the appropriate level of service
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and product management to their customers. For a small business servicing less than a
thousand or so customers, it is feasible to build and maintain customer relationships
entirely through face-to-face interactions between staff and the customers. But, as a
business grows in size and number of customers, building and maintaining customer
relationships and managing customer information quickly become complicated tasks
(Ferruzza 1999).
By Definition, CRM (Customer Relationship Management) analytics comprises all

programming that analyzes data about an organizations customers and presents this data
in such a way that better and quicker decisions can be made (Cohen 2005). CRM systems
offer a comprehensive approach to the way customer information is gathered and
disseminated, such as purchasing and service history and buyer preferences, to help the
organization and its employees better anticipate and meet customer needs (McIntyre
2006). CRM is ultimately a business strategy to select and manage customer relationships
in order to optimize long-term value to an enterprise. CRM requires a customer-centric
business philosophy and culture to support effective marketing, sales and service
processes across all direct and indirect customer interaction channels (Business Week
2006).
Although powerful, and in many cases an excellent tool, there are companies that do not
use CRM technologies in the ways intended. CRM is manipulation in too many cases.
Companies are acting on information of customers against their interests calling them at
home at night, and charging them at the highest price point that the software shows they
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will pay (Reichheld in Prewitt 2002). As this paper previously discussed, the most
significant problem can be the perception that CRM is a magic bullet, a panacea for all
customer support problems. This is simply not true (Shah 2007). Gartner Group studies
concluded that up to fifty-one percent of large CRM solutions implemented so far have
failed to perform up to expectations, primarily due to overly complex features and
operation (Inge 2001).
As organizations use customer service to differentiate themselves, customer service

management has gained prominence as a strategic initiative. A key enabler, it allows
businesses to use their knowledge assets to provide better customer service (Egain 2004).
Such an information-rich environment enables businesses to foster solid loyalty while
optimizing their own sales and marketing goals. Not incidentally, businesses also can
influence choices and actions at the most pivotal moment: when interactions are under
way (IBM 2006). Customer relationship management, whether formalized or not, is
something all organizations do each time they communicate with their customers and
provide them with products and services. From there on out, it is pretty much a question
of scale which drives companies to more or less automate that process in order to costeffectively achieve their objectives and their position in the marketplace (Van de Lanotte
2003).
The Effects of Employee Satisfaction and Customer Retention on Corporate

Profitability
Creating Value Through Satisfied, Loyal & Productive Employees
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What drives the new business model is not profit itself, but the creation of value for the
customer, a process that lies at the core of all successful enterprises (Reichheld 1996). A
key component in driving this customer value, and ultimately greater earning capacity for
the organization, are the organizations employees. As his paper and other empirical
research has shown, organizations can realize substantial value in many respects, by
creating and maintaining a satisfied workforce. The employee satisfaction objective
recognizes that employee morale and overall job satisfaction is now considered highly
important by most organizations. Satisfied employees are a precondition for increasing
productivity, responsiveness, quality, and customer service (Kaplan and Norton 1996).
Loyal long-term employees learn how to reduce costs and improve quality, which further
enriches the customer value proposition and generates superior productivity. These
surpluses in productivity can be used to fund improved compensation and better tools for
training, which further reinforce employee productivity, compensation growth, and
loyalty (Reichheld 1996).
Employees create value for their organizations through the profitable relationships they
create with the organizations customers. As the research has shown, loyal customers are
profitable customers and loyal customers have an emotional connection with the
organization, most often because of the employees at the organization. In order for
employee value creation to even be a consideration, the employee must be satisfied with
his or her employment situation. Satisfied and loyal employees deliver better customer
service, make fewer mistakes, and maintain an emotional connection to the organization
for which they work. A series of service encounters between an employee and a
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customer will lead to a productive and profitable relationship only if the employee is able
to achieve consistently high quality in the encounter (Heskett, Sasser, and Schlessinger
1997).
This paper highlighted many of the components related to creating satisfied, loyal and
productive employees. The bottom line is that in order to enhance the capabilities that
will lead to addressing these components, organizations must be able to view their
employees as valuable assets that are integral parts being able to create value for the
organization. Successful companies position themselves for the future and create
strategies to align people, systems, and resources. Leaders good at capitalizing on
customer relationship management and supply chain processes still leave gold in their
backyards by not providing organizational environments in which people thrive and
positively impact the bottom line (Gewirtz 2005).
Customer Loyalty Effects on Corporate Profitability

The research leaves absolutely no doubt that customer loyalty can have a positive impact
on corporate profitability. Customer loyalty relates to probable behaviors. To measure
customer loyalty, an organization must develop specific dimensions of customer loyalty
to determine the description and intensity of customer loyalty in aggregate and within
each core segment of key customer served (Teegarden and Krok 2006). The importance
of creating and maintaining customer loyalty is not new. Most corporate leaders
understand that it costs more to find a new customer than to keep an existing one.
However, despite heavy investments in customer satisfaction efforts, rewards programs,
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and CRM initiatives and infrastructure, loyalty remains an elusive goal in almost every
industry (Gokey and Coyles 2001).
This paper has discussed the concept of focusing on profitable customers. The reason this
is important for organizations to understand is that its most profitable customers are more
than likely going to be its most loyal customers as well. Organizations must be able to
analyze their customer base and ask important questions like: how much is it costing us
to service this customer? How much profit is this customer contributing to the
organization? Who are the customers we should concentrate on for retention? And, what
are the characteristics of customers we want to acquire (Maltzer 2003)? The lifetime
value of a customer can and should be computed and analyzed by the organization.
Estimates of the lifetime value of existing customers under various assumptions
regarding their loyalty helps the organization calibrate expenses to retain customers
(Heskett, Sasser, and Schlessinger 1997). All companies seek more profitable customers,
some spending a great deal of time and money to do so. But few realize that some
customers are inherently more loyal than others (Reichheld 1996).
In order for organizations to maximize the value and subsequent profitability of their
loyal customers, they must find a way to analyze the lifetime profitability of the
customer. The lifetime value analysis is used to test the validity of loyalty building
strategies before serious money is spent on them. In the past, companies have had to bull
ahead and try new ideas without any really good way of measuring the effectiveness.
Lifetime value gives them a valuable tool (Hughes 2006). Far too often, organizations
343
attempt to target all customers with advertising and marketing efforts, believing that all
customers will lead to added profitability for the organization. This however, is not the
case and will prove to be a very expensive proposition for the company. Customer
profitability strategies may reveal that certain targeted customers are unprofitable. This is
particularly likely to occur with newly acquired customers, where a considerable
acquisition effort has yet to be offset from the margins earned by selling products and
services to the customers (Kaplan and Norton 1996).
The Service Profit Chain at Maine Savings Discussion & Analysis

It is clear from the analysis in this paper that Maine Savings has a firm grasp on the
concept of improving its organization through the effective implementation of the service
profit chain strategy. The leadership of the organization has worked collaboratively in
order to ensure every possible aspect of employee satisfaction and customer retention has
been addressed. A very important conclusion is that because the organization regularly
analyzes the progress of the initiative, as well as monitoring achievement to an
established benchmark, they understand where they are in terms of progress, but more
importantly, where they need to go. By all accounts, the employees are more satisfied, the
customers are more satisfied, and consequently, profitability is at its highest point in the
organizations history. Maine Savings is proof that if addressed properly and
comprehensively, employee satisfaction can have a major and lasting effect on customer
retention, and subsequently on corporate profitability.
344
Limitations
Although there is a vast and diverse array of materials available on the individual topics
of employee satisfaction or, customer retention or, corporate profitability, very little
literature exists on incorporating the three into one strategy. There is a modest amount of
literature and research that exists on two of the three areas, but still does not address the
interrelationship of the three elements that together, are know as the service profit chain.
Therefore, the majority of the research conducted in this paper was the result of
gathering, analyzing, and combining theories related to the individual topics into one
cohesive and relevant analysis.
Chapter 14
Recommendations & Where, When, How, and Why
Employees as Assets
Recommendation: Employees should be considered valuable assets that are integral
parts of an organizations success and future.
Reasons: The literature and professional input is clear that without satisfied and
supportive employees, an organization cannot realize improvements in operations,
customer service, or any other profit generating initiative. The costs of neglecting
employees as valuable assets and an integral part of an organizations core strategy means
losing talent and any competitive edge an organization may have.
Points of Caution: It is not enough for an organization to profess that they believe their
employees are invaluable assets, they must take actions to solidify this belief. Just as they
345
would with valuable machinery, an organization should invest in the maintenance and
upgrade of their employees as well.
Addressing Employee Satisfaction Comprehensively

Recommendation: All of the elements involved in employee satisfaction should be
analyzed and addressed in order to maximize the potential success and results of the
analysis.
Reasons: It is essential for organizations to comprehensively analyze all of the potential

elements that may have an effect on employee satisfaction. Every element is important
and some elements may affect some employees more than others. Only when all of the
factors involved in employee satisfaction have been analyzed, can an organization
implement an effective strategy designed to address them.
Points of Caution: Many organizations set out to improve employee satisfaction, only to
begin by targeting what are thought to be the major problems or issues. In fact, all
elements should be analyzed, whether or not an issue is believed to exist. No element is
more important than any other element, even though it may have a greater effect on
employee satisfaction.
Organizational Leadership
Recommendation: The leadership of the organization must be supportive of any service
profit chain initiative, and publicly acknowledge support for the endeavor.
346
Reasons: Without visible support from the leadership of the organization, any employeeinvolved initiative will struggle to be successful. The leadership should outline the goals
to be attained, as well as the strategies that will be used to attain the goals to the
employees. At the same time, they should openly and outwardly show support for the
initiative and talk in a positive manner so that employees know that the initiative has the
full backing of the senior management team.
Points of Caution: Far too often organizations begin an initiative in strong fashion only
to have support from the senior leadership wane. In business there are many priorities.
However, a major undertaking such as the implementation of a service profit chain
strategy requires ongoing and constant attention from management. If the employee base
sees a lower priority being put on the initiative from management, they too will develop a
lower priority for the strategy.
Employee Involvement
Recommendation: Employees of the organization should be involved in the elements
related to their own satisfaction.
Reasons: Employee owned change is practical and functions as a discipline to focus

energy on specific tangible goals. The wants and needs of the individual are essential
input to the overall goal-setting process of the group (Carter-Scott 2006). Employees that
347
are empowered to provide input into their own satisfaction strategies will take ownership
of the new process and work to make it successful.
Point of Caution: The leadership of an organization really needs to allow their

employees to have meaningful input into a service profit chain strategy implementation.
Making it only look as if the employees will have superficial input will cause them to
become disinterested in the strategy, or rebel against the results.
Service profit Chain Initiatives Should be Adequately Funded

Recommendation: Organizations should ensure that expenses related to the
implementation of a service profit strategy are budgeted for and that adequate funding is
provided in order to ensure the success of the strategy.
Reasons: Initiatives that are not budgeted for or funded are typically very short lived.
Organizations should ensure that an appropriate budget exists for the implementation of a
comprehensive service profit strategy and that the funding for the initiative is available
when needed.
Points of Caution: With the speed and uncertainty of business today, it is very easy to
divert funds and cut funding for complex and comprehensive initiatives like the service
profit strategy initiative. Once an organization creates a budget for the implementation of
the strategy and sets aside funding, it is imperative that the funding necessary remains
348
available to finance the strategy. Once available funds disappear, it is extremely difficult
to keep the strategy going as planned.
Employee Feedback
Recommendation: Organizations should constantly assess employee attitudes through
the encouragement of proactive feedback and the guarantee of no retribution.
Reasons: All employees should have frequent opportunities to receive and give feedback
to the management of the company in regard to the progress of their work on a service
profit chain initiative. This allows employees to have an empowering voice that they
know will be heard, but also allows management to assess the attitudes and input of the
workforce.
Points of Caution: Feedback is important to both the employee and management of an

organization. Employees must know that their feedback will be listened to and considered
without the fear of retribution. Organizations that selectively punish employee feedback
or do not respond in any way, quickly stifle the process and create discontent among
workers.
Customer Centricity
Recommendation: Organizations that are contemplating instituting a service profit chain
strategy should first become a truly customer-centric organization.
349
Reasons: Successful organizations must go beyond meeting customer expectations and

work to exceed them. This requires a new type of business strategy where the customer is
the center of the strategy. This is known as customer-centricity. Metrics arise from the
customer service strategy as reference points to keep the entire organization focused, to
measure progress against business goals, which are now all focused on the customer and
the most efficient delivery of products and services to them.
Points of Caution: Organizations need to avoid just saying they are customer-centric
without actually changing their strategy and focus to become customer centric. Literally
all business processes must be retooled to work on behalf of or in the best interests of the
customers. Organizations that just pay lip service to being customer-centric will not have
the level of success as those organizations that actually adopt it as a working strategy.
Best in Class Customer Service Delivery

Recommendation: Organizations should analyze and implement best in class customer
service strategies.
Reasons: Many products and services have become nothing more than commodities and
what sets apart one company from another is the level of service used to deliver these
products and services. Many companies such as Disney, Ritz-Carlton, and Pikes Place
Fish Market have found the formula for delivering great customer service that is proven
to satisfy customers. Organizations should study companies like these to assess what they
are doing right and then adopt some of these successful strategies.
350
Points of Caution: Although there are companies that are known for their exceptional
delivery of customer service, every organization must customize or tailor their service
delivery to their own customers and situation. There is no exact template for best in
class service delivery that can be used in every organization in exactly the same way.
Customer Identification
Recommendation: Organizations should identify their most profitable customers.
Reasons: Many companies market and advertise the same way to all of their customers.
There are customers that are more profitable to organizations than others. In order to take
advantage of this and to maximize the profit potential of these customers, they should be
identified and marketed to on a target basis.
Points of Caution: Organizations should not operate on assumptions as to who they

think their most profitable customers are. Customers that use the most services or buy the
most products may not be the most profitable. Organizations should develop an accurate
tool to analyze the profitability of their customer base or risk wasting time, effort, and
money on a shotgun approach to economic growth.
Assessing Customer Expectations

Recommendation: In order to build customer retention and loyalty, organizations should
take the steps necessary to accurately assess customer expectations on an ongoing basis.
351
Reasons: Customer expectations are always rising, as well as changing. In order for
companies to effectively compete and gain a market edge, they need to be constantly
evaluating and analyzing customer expectations. An organization must understand its
customers hidden expectations as well as their most explicit expectations.
Points of Caution: Many times, organizations assume they understand their customers
expectations and address only the explicit or current expectations. In many cases,
customers may be satisfied with a transaction, but are looking for something else.
Effective organizations look to the future and anticipate their customers expectations. An
organization should never assume that they are fully aware of what their customers want.

Recommendation: Organizations should invest in comprehensive customer relationship
management strategies.
Reasons: CRM systems offer a comprehensive approach to the way customer

information is gathered and disseminated, such as purchasing and service history and
buyer preferences, to help the organization and its employees better anticipate and meet
customer needs (McIntyre 2006).
Points of Caution: The most significant problem is the perception that CRM is a magic
bullet, a panacea for all customer support problems, which is not true (Shah 2007). CRM
352
is a business process and must be an integral part of the organizations business strategy
in order to be effective. Customer loyalty is not automatically created with the
implementation of a new, dynamic software package. The software must be used in
conjunction with a philosophy and business strategy.
The Service Profit Chain

Recommendation: Constantly analyze the service profit chain at the organization in
order to maintain an accurate understanding of the interrelationship of all of the elements
involved.
Reasons: The three main components of the service profit chain: employee satisfaction,
customer retention (satisfaction), and corporate profitability, are all evolving and rapidly
changing elements. An organization should constantly analyze and understand the
evolution of change associated with each in order to be able to respond in an expedient
and efficient manner.
Points of Caution: Because the three main elements of the service profit chain can
change rapidly, and because they all have an effect on one another, an organization must
ensure constant analysis of the components involved. Changes that are only made to one
of the elements will have an effect on other elements as well. Organizations should be
cognizant of the entire strategy and be hesitant to make changes to an element without
first understanding the ramifications for the other two elements.
353
Integrating the Service Profit Strategy

Recommendation: Organizations should make the service profit strategy part of the
business plan.
Reasons: The service profit chain strategy is a method of doing business, not a
theoretical pick and choose business practice. Successful organizations incorporate the
strategy into the fabric of the organizations culture. The strategy becomes the roadmap
for the strategic direction of the organization and must be followed with discipline and
commitment in order to ensure success.
Points of Caution: If not incorporated into the business plan of an organization, a

leadership gap will most likely result. A leadership gap is the failure to incorporate
service profit chain thinking into the core beliefs and culture of the organization, a
tendency to confuse the organization with too many messages and too little focus, and an
inability to lead by word and example (Heskett et al. 1997).
Tools for Measuring Value

Recommendation: Organizations should identify the value propositions to be created by
implementing the service profit chain strategy and establish benchmarks for measuring
progress toward the goals.
Reasons: No initiative can be graded unless goals are set for attainment and benchmarks
are established to mark progress. Organizations should have attainable goals and periodic
354
benchmarks established in order to ascertain their level of progress toward the end goal.
If the strategy is not measured, it cannot be assessed for success.
Points of Caution: The benchmarks need to be verifiable and based on solid data. The
goals for the strategy need to be realistic and attainable. Every functional area within the
organization needs to be involved with the goal setting for their departments, rather than
have goals dictated to them by management.
Where, When, and How

The questions of where, when, and how are the easier questions to answer. The hardest
question would be why? Why arent more organizations focusing on the relationship
between employee satisfaction, customer retention (satisfaction), and corporate
profitability? It is clear from the successes at companies such as Wal-Mart, Nordstrom,
Marriott, and Southwest Airlines, that if the strategy is implemented correctly it can have
phenomenally positive effects. One could conclude that many organizations are just too
complex and bureaucratic, or so unfocused or disorganized that they are unable to
implement the strategy. However, comprehensive analysis of the tenets involved, coupled
with the potential results, indicate promising results for the organizations that do
undertake and successfully implement the service profit chain strategy.
355
Where: The literature, as well as the input from the interviewees, indicate that the service
profit chain strategy can be implemented effectively in any size organization. Almost all
organizations have employees, have customers, and are in the business of generating as
much profit or income as possible. Therefore, the answer to where is anywhere.
Although the literature discusses the successes of larger, better-known companies such as
Wal-Mart, the strategy is really applicable to any size organization with employees,
customers, and a profit motive.
When: The question of when is easily answered in this case. The proven results
stemming from improving employee satisfaction, customer retention, and corporate
profitability are too valuable to wait to implement. Organizations that have a desire to
improve all three elements of the service profit chain strategy should begin to research
and plan for the implementation of the strategy as soon as possible. Because there are
many various components associated with each element of the strategy, organizations
should take the appropriate time necessary to plan for and address each component.
According to the literature, as well as several of the interviewees, after organizations do
implement the strategy, they ask: why did we wait?
How: Because of the comprehensive nature of the service profit chain strategy and the
fact that it requires a cultural and strategic change, organizations would be well advised
to invest adequate time and energy in planning and training for the initiative. Therefore,
organizations should first invest in training the leadership and functional area managers
on the concept, goals, and methodology involved with all of the elements involved. After
356
the appropriate personnel have been adequately trained, documented planning, to include
goals, processes, and timelines, should be accomplished. In conjunction with the Board of
Directors, the senior management team should also adopt the strategy as part of the
organizations strategic business plan and ensure that appropriate funding and budgeting
exist in order to ensure the success of the initiative. Especially at the beginning, but
continually as well, management needs to reinforce the culture change to all of the
employees by publicly supporting and encouraging the endeavor.
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Appendices
Appendix 1
382
Source: Harvard Business Review
Appendix 2
383
384
385
386
Appendix 3
387
388
Source: Families and Work Institute
389
Appendix 4
390
391
392
Source: Navran Associates
393
Appendix 5
394
Appendix 6
395
Appendix 7
Source: Maine Savings
396
Appendix 8
MSFCU Employee Performance Review and Development Form
Employee: Jane Doe
Date: April 2006
Dept/Branch: Operations
Position: Employee
Supervisor: John Doe

Review Period: from 10/05 03/06
A. Review of Performance Factors:
(Place an X in the column which best indicates where this employee stands in relation
to what should be expected of him or her).
Rating Scale:
N/A-Unable to evaluate
5-Outstanding, far exceeds standard
4-High Performance, consistently exceeds standard
3-Average-Generally meets standards of performance
2-Usually below standard, needs improvement
1-Unacceptable, consistently below standard, must improve
N/A
Technical ability: Application of job knowledge

X
Acknowledge Members: Acknowledges members properly

X
Respect: Identifies Members needs and offers services

X
Knowledgeable: Knows their job and wants to learn

X
Accuracy/Consistency/Efficiency: Is precise and exact

X
Phone Service: Follows MSFC phone guidelines

X
397
Team Work: Works hard to be a valued team member

X
Courtesy: Is courteous to members and employees

X
Communication Skills: Communicates effectively

X
Exceed Expectations: Makes effort to exceed expectations

X
Confidentiality: Maintains confidentiality

X
Focus: Focuses 100% of their attention on members

X
Appearance: Maintains professional looking appearance

X
Motivation: High energy level with enthusiasm

X
Dependability: Gets job done, persistent, trustworthy

X
Attendance: On time, few unscheduled absences

X
Planning/Organization: Effective arrangement of work

X
Overall Rating:
X
B. Employees Major Strengths (Identify the top three attributes)

1. Works very autonomously and takes ownership of the cards dept.
2. Effectively supervises dept. subordinate
3. Understands the technical aspects of the cards dept.
398
C. Areas for Improvement/Development (Should be specific here)

1. Continue to improve communication skills (presentation)
2. Cultivate ideas for dept growth
D. Development Plans: Goals for Development/Timeframe (Measurable goals)
1. Clean up lingering issues left over from conversion
Development Strategy: (how will they achieve the goals above-include training
needed)
________________________________________________________________________
__
________________________________________________________________________
__
________________________________________________________________________
__
________________________________________________________________________
__
________________________________________________________________________
__
________________________________________________________________________
__
________________________________________________________________________
__
E. Employees Comments on This Review:
________________________________________
________________________________________________________________________
__
________________________________________________________________________
__
________________________________________________________________________
__
399
________________________________________________________________________
__
________________________________________________________________________
__
F. Supervisor Comments: Jan, continue on the path you are on. You are doing a
fabulous job and I look forward to the next 6 months.
Growth potential in present position and future growth potential for
increased
responsibilities: (should address potential)
________________________________________________________________________
__
________________________________________________________________________
__
________________________________________________________________________
__
Employees Signature: ____________________________ Date:

______________________
Raters Signature:
____________________________ Date:
________________________
**Attach separate sheet of paper if needed for additional comments. Specific
comments on appraisals for those in supervisor positions may be addressed here if
desired.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
400
________________________________________________________________________
________________________________________________________________________
________________________________________________________________
Appraisals are due twice per year. The dates are performance period up to September
30 with appraisal due not later than October 15 and the next performance period thru
March 30 with the appraisal due not later than April 15. Mentoring and coaching
should be taking place on an on-going basis.
Appendix 9
SECTION D
BENEFITS
EMPLOYEE BENEFITS
Eligible employees at MAINE SAVINGS are provided a wide range of benefits. A

number of the programs (such as Social Security, worker's compensation, and
unemployment insurance) cover all employees in the manner prescribed by law.
Benefits eligibility is dependent upon a variety of factors, including employment
category. Peak-time employees are eligible to earn vacation time, as described in
the policy section for Vacation Benefits. In addition, MAINE SAVINGS will pay for
the cost of the employee's health benefits for Peak-time employees.
The following benefit programs are currently available to eligible employees:
Medical Insurance
Family Leave
Holidays
Jury Duty Leave
Vacation Benefits
Bereavement Leave
Dental Insurance
Life Insurance
Long-Term Disability
401
Pension Plan
Educational Reimbursement
Flexible Spending Accounts (Medical and Dependent Care
Reimbursement "Section 125")
EDUCATIONAL OPPORTUNITIES
Employees are encouraged to engage in the educational activities that will

enhance their abilities to their fullest potential. To encourage and help
employees improve their on-the-job skills and knowledge by further education,
the following policy has been developed in regards to expense incurred for such
training:
When an employee attends a workshop, seminar, conferences, or a work-related
course, etc., approved by their supervisor, the Credit Union will pay for the costs
of the tuition. If an employee and his/her supervisor deems that a college course
would be beneficial to both the employee and the Credit Union, the supervisor
will make the recommendation to a member of Senior Management, who has the
authority to make the decision that MAINE SAVINGS will pay up to $500.00 for
the class. For an approved workshop, seminar, conference, or work-related
college course, the Credit Union will pay up to $500.00 toward the cost of tuition,
plus the cost of books. Maine Savings will only pay $500.00 for college courses
once per semester. Employees may keep the books purchased by MAINE
SAVINGS.
The Credit Union may pay up to $500.00 tuition plus the cost of books for any
management employee who has entered or desires to enter into a degree program.
Employees may keep the books purchased by Maine Savings. Maine Savings will only pay
a total of $500.00 per semester. A member of Senior Management must approve all
requests.
Tuition payments for college courses will not be paid until the course has been successfully
completed with at least a C average. Employees will provide a copy of their grade report and
receipts for reimbursement through their supervisor to the HR Department. HR will forward to
Accounting for payment.
402
BENEFITS CONTINUATION
The federal Consolidated Omnibus Budget Reconciliation Act (COBRA) gives

employees and their qualified beneficiaries the opportunity to continue health
insurance coverage under Maine Savings health plan when a "qualifying event"
would normally result in the loss of eligibility. Some common qualifying events
are resignation, termination of employment, or death of an employee; a reduction
in an employee's hours or a leave of absence; an employee's divorce or legal
separation; and a dependent child no longer meeting eligibility requirement.
Under COBRA, the employee or beneficiary pays the full cost of coverage at
Maine Savings group rate plus an administration fee.
MAINE SAVINGS provides each eligible employee with a written notice
describing rights granted under COBRA when the employee becomes eligible for
coverage under Maine Savings health insurance plan. The notice contains
important information about the employee's rights and obligations.
WORKERS' COMPENSATION INSURANCE
MAINE SAVINGS provides a comprehensive workers' compensation insurance

program at no cost to employees. This program covers any injury or illness
sustained in the course of employment that requires medical, surgical, or hospital
treatment. Subject to applicable legal requirements, worker's compensation
insurance provides benefits after a short waiting period or, if the employee is
hospitalized, immediately.
Employees who sustain work-related injuries or illness should inform their
supervisor in writing immediately. No matter how minor an on-the-job injury may
appear, it is important that it be reported immediately. This will enable an eligible
employee to qualify for coverage as quickly as possible.
Neither MAINE SAVINGS nor the insurance carrier will be liable for the payment
of workers' compensation benefits for injuries that occur during an employee's
voluntary participation in any off-duty recreational, social, or athletic activity
sponsored by MAINE SAVINGS.
EMPLOYEE RATE DISCOUNTS
As an added benefit of employment, full-time employees who have completed at

least one year of employment may receive a discount of 1.00% below the
present market loan rate for which they qualify. This rate discount applies to the
following Maine Savings Credit Union products: residential mortgages, consumer
loans, and credit cards. This discount requires on-time payment via automatic
transfer from a Maine Savings Federal Credit Union direct deposit account.
403
If, for any reason, the employee terminates employment or is placed on

probation, fails to maintain Credit Union accounts in a fully satisfactory manner,
or the on-time automatic payment is discontinued, any and all rate discounts will
be eliminated and adjusted back to the original note rate(s). Employees will not
receive rate discounts or fee waivers on loans for which they are only an
endorser or co-maker.
DELINQUINCY
Employees whose loans become past-due 30-days will lose their rate discount.
Any and all rate discounts will be immediately eliminated and adjusted back to
the original note rate(s). Upon request, a review showing at least 12 months
timely payment history may result in returning the 1.00% rate discount.
SENIOR STAFF
In addition to the discount above, members of the Senior Staff are eligible for up
to a 1% discount on their interest rate for the same credit union products. All
other criteria remain the same.
Appendix 10
Maine Savings Federal Credit Union Employee Survey
Please take a few minutes to complete this survey. Your specific answers will be completely
anonymous,
but your views, in combination with those of others, are extremely important. We will use the results
to help chart areas for improvement within our organization and in service to our members. Please
forward to Rob Carmichael when you have completed the survey.
1. Overall, how satisfied are you with MSFCU as an employer? (Please circle one number)
Very
Dissatisfied
Very
Satisfied
2. MSFCUs leadership and planning (Please circle one number for each statement)
I have confidence in the leadership of MSFCU

There is adequate planning of corporate objectives
Corporate goals and objectives are communicated
404
Disagree
Strongly
Disagree
Somewhat
Neutral
Agree
Somewhat
Agree
Strongly
1
1
1
2
2
2
3
3
3
4
4
4
5
5
5
clearly
Management solicits feedback from employees and
members on goals
Management empowers subordinates to do their jobs
Management does not play favorites
Management does not say one thing and do another
1
1
1
2
2
2
3
3
3
4
4
4
5
5
5
Disagree
Strongly
Disagree
Somewhat
Neutral
Agree
Somewhat
Agree
Strongly
1
1
2
2
3
3
4
4
5
5
1
1
2
2
3
3
4
4
5
5
3. Corporate Culture (Please circle one number for each statement)
Quality is a top priority with MSFCU

Outstanding member service is a value deemed
important by MSFCU
Individual initiative is encouraged at MSFCU
Nothing at MSFCU keeps me from doing my best every
day
Corporate values are known and reflected in the way
MSFCU does business
4. Communication (Please circle one number for each statement)
MSFCUs Corporate communications are frequent enough

MSFCUs policies and procedures are communicated well
I feel I can trust what MSFCU tells me
There is adequate communication between departments
Changes in procedures and policy are communicated
timely
Disagree
Strongly
Disagree
Somewhat
Neutral
Agree
Somewhat
Agree
Strongly
1
1
1
1
1
2
2
2
2
2
3
3
3
3
3
4
4
4
4
4
5
5
5
5
5
Disagree
Strongly
Disagree
Somewhat
Neutral
Agree
Somewhat
Agree
Strongly
1
1
1
1
2
2
2
2
3
3
3
3
4
4
4
4
5
5
5
5
5. Career Development (Please circle one number for each statement)
I have a clearly established career path at MSFCU

I have opportunities to learn and grow
Training for my job is appropriate and adequate
I have opportunities for training and education
If you have been here at least six months, please respond to these performance appraisal items
My performance counseling is timely and effective
My last performance appraisal accurately reflected my
performance
1
1
2
2
3
3
4
4
5
5
The performance appraisal system is fair
Disagree
Strongly
Disagree
Somewhat
Neutral
Agree
Somewhat
Agree
Strongly
6. Your Role (Please circle one number for each statement)
I have adequate authority to provide outstanding service to our

members
I am given enough authority to make decisions I need to make
405
I feel I am contributing to MSFCUs mission

I have the materials and equipment I need to do my job well
1
1
2
2
3
3
4
4
5
5
Disagree
Strongly
Disagree
Somewhat
Neutral
Agree
Somewhat
Agree
Strongly
1
1
1
1
2
2
2
2
3
3
3
3
4
4
4
4
5
5
5
5
1
1
2
2
3
3
4
4
5
5
Disagree
Strongly
Disagree
Somewhat
Neutral
Agree
Somewhat
Agree
Strongly
1
1
2
2
3
3
4
4
5
5
Disagree
Strongly
Disagree
Somewhat
Neutral
Agree
Somewhat
Agree
Strongly
1
1
1
1
1
2
2
2
2
2
3
3
3
3
3
4
4
4
4
4
5
5
5
5
5
Disagree
Strongly
Disagree
Somewhat
Neutral
Agree
Somewhat
Agree
Strongly
My supervisor treats me fairly

My supervisor treats me with respect
My supervisor handles my work-related issues satisfactorily
My supervisor counsels and mentors me
My supervisor communicates effectively with me
1
1
1
1
1
2
2
2
2
2
3
3
3
3
3
4
4
4
4
4
5
5
5
5
5
My supervisor is knowledgeable on what goes on in my area
7. Recognition and Rewards (Please circle one number for each statement)
If I do good work I can count on making more money

If I do good work I can count on being promoted
I feel I am valued at MSFCU
I am compensated appropriately for providing outstanding
service to our members
MSFCU gives enough recognition for work thats well done
My Salary is fair for my responsibilities
8. Teamwork and Cooperation (Please circle one number for each statement)
I feel part of a team working toward a shared goal

My co-workers understand the importance of working together
as a team to provide outstanding member service
Employees at MSFCU understand how teamwork impacts our
service
Politics at this company are kept to a minimum
9. Working Conditions (Please circle one number for each statement)
I believe my job is secure

My physical working conditions are good
Deadlines at MSFCU are realistic
My workload is reasonable
I can keep a reasonable balance between work and
personal life
10. Your Immediate Supervisor (Please circle one number for each statement)
406
My supervisor asks me for my input to help make decisions

My supervisor is an effective manager
1
1
2
2
3
3
4
4
5
5
Disagree
Strongly
Disagree
Somewhat
Neutral
Agree
Somewhat
Agree
Strongly
1
1
1
2
2
2
3
3
3
4
4
4
5
5
5
Disagree
Strongly
1
Disagree
Somewhat
2
Neutral
3
Agree
Somewhat
4
Agree
Strong
5
Amount of vacation
Sick leave policy
Amount of health care paid for
1
1
1
2
2
2
3
3
3
4
4
4
5
5
5
Dental Benefits
401k plan
Life insurances
Salary
Flexible Spending Accounts
Education Reimbursement
Holidays
1
1
1
1
1
1
1
2
2
2
2
2
2
2
3
3
3
3
3
3
3
4
4
4
4
4
4
4
5
5
5
5
5
5
5
11. MSFCUs Training Program (Please circle one number for each statement)
MSFCU provided as much initial training as I needed

MSFCU provides as much ongoing training as I need
MSFCU seeks my input as to what training I need
12. Benefits (Please circle one number for each statement)
Overall, Im satisfied with MSFCUs benefits package

Specifically, Im satisfied with the:
What, if any, changes would you like to make to MSFCUs benefits package?
13. How long do you plan to continue your career with MSFCU?
Less than a year
One to two years
Two to five years
14. Would recommend employment at MSFCU to a friend?
407
More than five

years
Dont know
Definitely not
Probably not
Maybe
Probably would
Definitely would
15. What can MSFCU do to increase your satisfaction as an employee?
The following questions are for analytic purposes only. They will not be used to try to identify any
individual. However, if you feel uncomfortable answering any of them do not do so. Whether or not you
leave any questions blank, please return your questionnaire.
16. How long have your worked for MSFCU?
Less than one year
One year to less than two years
Two years to less than five years
Five years to less than ten years
Ten years or more
17. What is your age?
Under 21
21 to 34
35 to 44
45 to 54
55 or older
18. What area do you work in?
Retail
Support
Thank you for answering this survey.

408
Appendix 11
To: All Maine Savings Federal Credit Union Employees

FR: John Reed
RE: Employee Survey
Thank you for your outstanding support in response to our employee surveys this
summer. We had a 89% response rate with the surveys. The information gained from the
survey will help to keep our organization on the continuous improvement journey.
As we continue to grow and evolve, your feedback is important to help us improve in
every area of our business. We used last years results to focus on a number of areas
including, training, communication, and recognition of employees. Hopefully you have
witnessed an increase in the scope of our training program, improved communication
flow with more emphasis on staff meetings, a quarterly newsletter, a suggestion program,
and the Cecil C. Porter Quality Award.
I will summarize the results of the surveys below, by briefly discussing areas we need to
improve on and areas to we must continue to sustain for peak performance. Our next step
is to convene a focus group made up of a cross section of employees to help clarify many
of the survey results and gather additional feedback. Rob Carmichael will be asking
some of you to participate in the focus group. This is a voluntary request, but I do urge
you to participate if asked. This is your opportunity to make MSFCU a better place to
work and grow. Rob will contact you in the very near future.
Again, I appreciate your support and participation in the survey process. Your
participation in this survey has been and remains, completely anonymous.
409
Thank you for being the catalyst toward continuous improvement, and for being a part of
the Maine Savings Federal Credit Union team.
John
410
Overview
PROCESS. The survey was conducted using a combination of computer and paper.
Some employees preferred to use the paper process out of a concern for confidentiality.
A total of 57 surveys were completed for a response rate of 89%.
RESULTS. Comparing 2004 with 2005 we increased score in 35 questions while
decreasing in 13 and staying the same in 9. The most significant increases (3 tenths or
more) came in the following questions:
--question 2d Management solicits feedback from employees and members on goals.
--3b Outstanding member service is a value deemed important by MSFCU
--3c Individual initiative is encouraged at MSFCU
--3e Corporate values are known and reflected in the way MSFCU does business
--4a MSFCUs Corporate communications are frequent enough
--4b MSFCUs policies and procedures are communicated well
--6d I have the materials and equipment I need to do my job well
--8c Employees at MSFCU understand how teamwork impacts our service
--11b MSFCU provides as much ongoing training as I need
The most significant decrease (more than 3 tenths decline) came in question 12h under
benefits. This question asks about the level of satisfaction with salary. The only other
question that decreased more than 3 tenths was question 7a If I do good work I can
count on making more money. The remaining questions that showed a decrease are as
follows:
--2a I have confidence in the leadership of MSFCU
--2b There is adequate planning of corporate objectives
--2f Management does not play favorites
(score 4.1)
(score 3.8)
(score 2.8)
--4c I feel I can trust what MSFCU tells me

(score 3.6)
--6a I have adequate authority to provide outstanding service
to our members
(score 4.1)
--6b I am given enough authority to make decisions I need to
make
(score 3.9)
--7a If I do good work I can count on making more money (score 2.9)
--7b If I do good work I can count on being promoted
(score 2.9)
--7d I am compensated appropriately for providing outstanding
service to our members
(score 3.3)
--8d Politics at this company are kept to a minimum
(score 2.8)
--12c Sick leave policy
(score 3.8)
--12h Salary
(score 3.3)
--12j Education reimbursement
(score 3.9)
411
SUMMARY OF SURVEY RESULTS

1. OVERALL SATISFACTION WITH MSFCU. This area showed an increase from
last year from an average of 3.9 to 4.2. Most of you responded on the positive end of the
scale with only 12 responses noted in the neutral or below position on the scale. The
majority of responses fell in the highest two responses (very satisfied) range on the scale.
Overall employee satisfaction with employment at MSFCU is quite good though
there is certainly room for improvement.
2. LEADERSHIP and PLANNING. This area indicates some degree of concern on
your part. Three out of the eight questions showed a decrease in favorable response.
This is troubling in that we spent significant time last fall attempting to communicate the
direction of Maine Savings to the entire company. The area of communications is clearly
a concern as reflected in the surveys. Consistency between what is said and what is
actually done is a concern. There continues to be a concern over the question,
Management does not play favorites. You did indicate much improvement in how
management solicits feedback from employees. This entire section will require more
analysis and discussion.
3. CORPORATE CULTURE. Once again this year, your responses made it very clear
that quality and outstanding member service are well understood as part of our cultural
ethic. The survey indicates improvement in 4 of the 5 questions. We will work to ensure
that our corporate values are shared and understood by all. This is a positive area that
we need to sustain.
4. COMMUNICATION. The results indicate small improvement in this area overall
though not significant. Four of the five questions did improve but question 2c decreased.
The question, I feel I can trust what MSFCU tells me showed a decrease. We need to
analyze and understand all the problems with communication. This is a big,
complex area that we will focus our efforts on.
5. CAREER DEVELOPMENT. Most responses fell in the positive side of the scale in
this area. There are however, clear opportunities to improve training and to better
communicate career path direction for each employee. This is an area that will
continue to receive significant focus over the next year.
6. YOUR ROLE. The responses in this section were mixed. This year you appear to be
pretty satisfied that you are contributing to MSFCUs Mission and have the materials,
equipment, and tools available to do the job well. Fewer of you feel empowered to do
your jobs well and have the authority to make decisions you need to make.
7. RECOGNITION & REWARDS. This continues to be an area of concern for many
employees. In about half of the categories the responses fell in the neutral and below
part of the scale. Three questions showed a decrease from last year. Focus groups will
412
be helpful to provide specific areas of concern, particularly where we added some

formal recognition programs this year.
8. TEAMWORK & COOPERATION. Most of you believe you understand the effects
of teamwork in providing outstanding member service, and that you feel a part of a team
working toward a shared goal. There was significant movement from the lowest
responses to the upper end of the scale. However, on question four, many of you suggest
that politics impacts the effectiveness of the teamwork and cooperation within
MSFCU. We will continue to explore the meaning of these results as part of the
focus group effort.
9. WORKING CONDITIONS. The responses to questions in this section were for the
most part, overwhelmingly positive and increased or stayed the same in all five questions.
Most are pleased with their physical environment, workload, and balance between work
and personal life. Unfortunately over 40% of you answered either neutral or less
positive about your job security. We need to explore that question more deeply to
better understand why those responses are as they are.
10. IMMEDIATE SUPERVISOR. The responses to these questions improved across
the board this year. The average response is above 4.0 on every question. (Agree
Somewhat-Agree Strongly) Fewer of you answered in the lowest portion of the scale this
year. Still, there is room for improvement, particularly in supervisor communication.
We need to continue the education and development process with a focus on
communication.
11. MSFCUs TRAINING PROGRAM. We showed improvement from last year
though there is room to get better. Most responses were positive. Nevertheless, your
feedback indicates there is room for improvement in the training program. We need to
solicit more input from employees on the type of training needed.
12. BENEFITS. 81% of you responded that you were satisfied with the MSFCUs
benefits package. The decreases this year came from the questions in the areas of salary,
sick days, and education reimbursement. We continue to search for opportunities to keep
health care costs down and maintain a competitive benefits package. This area will be
continually reviewed to provide the best benefits possible for all employees. The issue of
salary was clearly a concern as indicated in the written comments. Benefits will
continue to be reviewed in order to be as competitive in the market as possible.
413
Appendix 12
414
Appendix 13
RECOGNITION FOR EXTRAORDINARY SERVICE
March 10, 2005
Purpose: This document outlines the process for recognizing employees for
exceptional service.
Objective: Provide appropriate recognition to employees who provide exceptional
member service.
Reinforce behaviors that contribute to exceptional member service.
Recognize an employee with the Cecil C. Porter Annual award for
exceptional Service.
Discussion:
Employees or their Supervisors frequently receive letters or emails commending them
for their outstanding service either for a special act or for a period of time. These
commendations are generally shared with the immediate supervisor and some times
with the Senior Staff including the CEO. The rest of the organization does not hear
or see the great things that some of our employees are doing to provide the level of
service we desire and our members deserve. Our CEO reads those letters he receives
to the Board of Directors at our monthly meetings. Our Chairman asked the CEO to
find a way to recognize these exceptional employees. Additionally, we committed at
the last annual meeting to present the Cecil C. Porter award for exceptional member
service to a deserving employee.
Concept:
The recognition process should be a progressive one that increases to a point with
each letter of commendation. It is important that we keep track of the positive
letters/emails for each employee. Therefore, supervisors will need to provide the VP
of HR/TNG a notice each time an employee receives a commendation. HR will track
the number for each employee with back up at the supervisor level. We will
recognize employees for each award they receive. The level of recognition and type
of award will vary depending on the number of commendations. The information
tracked by HR will be one part of the criteria used to select the annual Cecil C. Porter
award winner.
Criteria and award level: These awards are for a letter or email thanking employees
for exceptional service beyond what is normally expected as part of their main role or
function. This is activity within a 12 month time period. The VP of HR will forward
these to the CEO to determine what level of recognition is warranted.
One (1) letter/email

415
Email notification to all employees

Letter from CEO
Recognition at a Board meeting
Two (2) letters/emails

Letter from CEO/Chairman
Mention in the newsletter
$10.00 Subway gift card
Three (3) or more Letters/Emails
WOW Service Certificate
Letter from CEO/Chairman
Mention in the newsletter
$25.00 Dinner Gift Certificate
Consideration for Annual Cecil C. Porter Award
Cecil C. Porter Employee Service Passion Award:
Provided for superior service passion and performance excellence
throughout the previous 12 months while providing the highest quality
service to MSFCU members/employees.
Nominees will come from Supervisors and Managers to the Senior Staff.
The Senior Staff will select the person whos performance best reflects the
legacy of Cecil Porter and the Mission, Values, Promise and Service
Standards of MSFCU.
The winner will receive:
o Name engraved on a plaque mounted outside the boardroom.
o A small plaque with name engraved
o A framed Certificate
o A letter from the CEO/Chairman
o A special article in the news letter
o $50.00 Gift Certificate for dinner.
o Recognition at the annual meeting.
Appendix 14
416
Credit Life & Credit

Disability Incentive
Programs
417
418
CECU
2004 PAYMENT PROTECTION RECOGNITION PROGRAM
The CECU 500 recognition program is your chance to start your
engines and get ready for the next adventure challenge!
2004 Individual Monthly Recognition Awards
During each month (January - December) all lenders who successfully
offer Protection Solutions, as part of the loan process, will have an
opportunity, based on policy categories, to earn per policy incentives
each month. (See below for policy tiers and awards).
NUMBER OF LIFE & DISABILITY POLICIES SOLD (monthly)*
(1 10 Policies) (11 16 Policies) (17 22 Policies) (23+ Policies)
$2.00 per policy
$3.00 per policy
$4.00 per policy $6.00 per
policy
*Each employee may qualify for only one of the above categories. Life
counts as one policy and disability counts as one policy.
The CECU 500 Adventure Challenge
There will be two adventures awarded at year-end 2004.
To be the first under this checkered flag you must average 30% for
Members Choice Disability and 35% in Members Choice Term Life from
January to June of 2003 and July to December 2003.
The adventures take place in July 2004 and January 2005.
Everyone who qualifies will attend.
419
Individual Year-End Grand Prize Awards:

There will be two Individual Grand Prizes awarded at year-end 2004.
Individual with the Highest # of Life + Disability Policies for the year (Jan- Dec 2004):
$250.00 Cash Award

Individual with the **Highest Average Combined CL/CD *Participation % for
the year (Jan Dec 2004). *Individual must achieve both credit union goals of 35%
Life and 30% Disability to qualify.
$250.00 Cash Award

**In addition, to qualify for this 2nd award, individuals must also meet the
following branch lending criteria:
All MSRs must close an annual average of 18 loans per month.
DISCLAIMERS FOR RECOGNITION PROGRAM

Qualified participants for this program include all lenders. This may
include Member Service Representatives or Loan Processors who
actively offer Protection Solutions to members.
Year-end award recipients must be employed by the credit union for
a minimum of three months in order to qualify for award.
Year-end award Only one cash award may be earned per
employee. If the same lender earns both awards, then the second
prize will be awarded to the next highest qualifying lender.
All awards are subject to applicable tax as defined by IRS incentive
parameters.
Recognition program parameters may change at any time without

prior notice.
Approved By: _______________

Date Approved ______________
420
GHI CREDIT UNION

PAYMENT PROTECTION INCENTIVES
PAYMENT PROTECTION SALES IN 2000 HAD SOME GOOD TIMES AND
NOT SO GOOD TIMES. LOAN VOLUME DOES HAVE AN IMPACT ON
SALES, HOWEVER
YOU HAVE THE GREATEST IMPACT!!! OUR RESULTS FOR 2000 ARE
DETAILED
BELOW:
L
1ST QUARTER
$ 751
2ND QUARTER
1315
3RD QUARTER
1422
4TH QUARTER
$ 1154
TOTAL
$ 4,642
358 =
139
608 =
240
674 =
296
605 =
317
2,245
14
205
30
338
27
PREMIUM RESULTS:
257
102
LIFE
351
31
992
PARTICIPATION RESULTS:
5.70%
BOTH
11.09%
1,151
DISABILITY
$40,368 MONTHLY
2001 TEAM GOALS!!!
PARTICIPATION GOALS:
LIFE: 20.00%
10.00%
PREMIUM GOAL FOR 2001: $44,626
DISABILITY:
2001 INDIVIDUAL REWARDS

GHI CREDIT UNION AND CUNA MUTUAL GROUP HAVE JOINED
TOGETHER
TO OFFER A MORE LUCRATIVE INCENTIVE PROGRAM TO REWARD YOU
FOR
PERFORMANCE:
PER SALE INCENTIVE:
$2.00
421
SINGLE LIFE/JT. LIFE

$3.00
DISABILITY
$5.00
BOTH
LOAN PROCESSORS/LOAN OFFICERS WILL BE REWARDED BASED ON

PER SALE PERFORMANCE. EACH EMPLOYEE HAS A GOAL OF 10 SALES
PER MONTH OR 30 SALES PER QUARTER.
ALL TOP PERFORMERS WILL BE ELIGIBLE FOR.
SURPRISE!!!
EACH QUARTER PERFORMANCE OF STAFF WILL BE EVALUATED BY
MANAGEMENT AND RECOGNIZED BASED ON ACCOMPLISHMENTS
DURING THAT QUARTER.
WILL YOU BE ONE?? ACCOMPLISHMENTS
COULD INCLUDE TOP SALES, TOP PERCENTAGE PROTECTED, OR MOST
IMPROVED.
422
MNO CREDIT UNION

Successful Incentive Examples
Since every credit union is individual and distinctive, these
examples are only a few of the many incentive programs that
have been implemented throughout the credit union industry.
These are actual examples from the states of Illinois, Iowa, and
Michigan (most of the verbiage is exactly as it was handed to
the staff).
As with any credit insurance program, there are a number of

factors that influence the actual premium results.
Some of these influencing factors include:
Rate of growth or shrinkage in the loan portfolio

Management Support/Accountability of staff
Consistency of Training
Rate/plan adjustments
Knowledge level of the loan staff
Attitudes of the staff towards the product
Tracking (individual/group)
Incentives (size, type, consistency, existing Vs new)
Source: Cuna Mutual
423
Appendix 15
424
425

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Emerson Ism Dissertation

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International School of Management

The Effects of Employee Satisfaction and Customer Retention on Corporate

Doctoral dissertation submitted for the International School of Managements Doctor of

Word Count: 91,611

Chapter 2 The Elements of Employee Satisfaction

Employee Development & Leadership Planning

Employee satisfaction and Recognition

Organizational Goals and Employee Expectations

Communicating With Employees

Employee Satisfaction and Teamwork

Interaction in the Workplace

Organizational Culture/Employee Focused

Chapter 3 Increased Employee Satisfaction Leads to Increased

Creativity and Innovation

Suggestions for Improving the Innovation Process

Apple: An Example of Creativity and Innovation

Chapter 4 Customer Service Loyalty and Retention

The Customer-Centric Organization

Customer Acquisition-Branding & Marketing

Customer Acquisition and the Internet

Delivering World-Class Customer Service

Training for Customer Service

Customer Service Training at the Disney Organization

The Important Elements of Delivering Great Customer Service

Exceptional Customer Service at the Ritz-Carleton

The Employee-Customer Relationship

The Customer-Employee Relationship at Pike Place Fish Market

Measuring Customer Satisfaction

Chapter 5 Knowledge Management & Customer Relationship

Customer Relationship Management Systems

The Need and Benefits of CRM Systems

CRM Systems Implementation

Potential CRM Pitfalls

Chapter 6 The Effects of Employee Satisfaction-Customer

Customer Loyalty is a Direct Result of Customer Satisfaction

Creating Value Through Satisfied, Loyal, & Productive Employees 183

Leadership at Maine Savings

Employee Development & Leadership Planning

Employee Satisfaction and Recognition

Organizational Goals and Employee Expectations

Communicating With Employees

Employee Satisfaction and Teamwork at Maine Savings

Interaction in the Workplace

Organizational Culture/Employee Focused

Chapter 8 Customer Service, Loyalty, and Retention at Maine

Maine Savings Customer Acquisition and the Internet

Target Marketing at Maine Savings

Delivering World-Class Customer Service at Maine Savings

Training for Customer Service at Maine Savings

Important Elements of Customer Service at Maine Savings

The Employee-Customer Relationship at Maine Savings

The FISH Philosophy at Maine Savings

Transforming Customer Satisfaction Into Customer Loyalty

Measuring Customer Satisfaction at Maine Savings

Knowledge Management Strategies at Maine Savings

Knowledge Management Instruments at Maine Savings

Knowledge Management Barriers Identified at Maine Savings

Customer Relationship Management at Maine Savings

Chapter 9 A Summary of the Service Profit Chain Initiative at

The Benefits of Increased Customer Satisfaction at Maine Savings 276

Corporate Profitability and the Service Profit Chain

Chapter 11 Research Methodology

Method & Data Collection