Financial Performance

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The Effects of Employee Satisfaction on Company Financial Performance “People are our most valuable asset.” “Our employees come first.” “We’re only as strong as our people.” These declarative statements have been a staple of the American workplace for decades. Yet judging by their routine growth strategies, countless senior management teams seem to be in denial of just how accurate those statements are. While most organizations typically emphasize generating new business and cutting costs, a rapidly growing body of evidence points to an indirect yet undeniable correlation between employee satisfaction and financial performance— a correlation that has significant ramifications on building profits most effectively. Applied properly, these learnings can also influence how organizations approach a variety of interrelated functions, such as business planning and development, employee rewards and recognition, and even the measurement of ROI. This white paper outlines the most current findings on the linkages between employee satisfaction and financial performance, including an overview of the latest research, case studies, best practices and source materials. Yet, as a rising number of astute companies have learned, American business has long overlooked and mismanaged one of its most critical assets: human capital. Ample research makes clear that satisfied employees generate demonstrably superior customer satisfaction and that, in turn, satisfied customers are more profitable ones. In other words, creating a work environment with satisfied and motivated employees has been proven critical to achieving profit goals, delivering on marketing promises and competing over the long term. This concept is gaining attention. Harvard Business Online editor Loren Gary writes: “As labor-related costs consume larger portions of shrinking corporate expenditure pies, companies are increasingly motivated to find ways to demonstrate the ROI of their human capital. And some are beginning to do just that.” Unfortunately, many stock analysts, business pundits and other arbiters of “all things ROI” tend to dismiss issues pertaining to human capital as the “soft stuff” of business. Quite the contrary: The connection between employees and profits is a very real one.

A New Game with New Rules
“There is one key to profitability and stability during either a boom or bust economy: employee morale.” —Herb Kelleher, founder of Southwest Airlines

Technology, the increasing global nature of business, regulatory shifts and numerous other factors have emerged over the past decade to change forever how companies compete with each other. Companies can no longer compete solely on the value of innovation, as products are increasingly commoditized across industry sectors in what is frequently called the Wal-Martizing of the marketplace. Most products and services are instantly replicable, making shelf life a fraction of what it once was. Patents are increasingly difficult to defend. It is also harder than ever to compete on manufacturing efficiency, especially when so many other areas of the world possess huge cost advantages when compared to the United States. In this environment, a key management challenge is to create long-term, sustainable, competitive advantage based on largely untapped points of differentiation. To many CEOs, the challenge feels weighty and unsolvable.

The Evidence: Compelling Research, Tangible Results
“The soft stuff is the hard stuff.”
—Jack Welch, former CEO of General Electric

Jack Welch, the legendary hard-nosed, results-driven, take-no-prisoners CEO, was also a famous believer that communications, human-capital management and other so-called soft issues were vital elements of a growthoriented business, and that employees are far more than a cost of production. An impressive body of evidence has accumulated in recent years to indicate that Welch and other CEOs of similar beliefs are correct. Professor Don E. Schultz, one of...
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