Employee Retention Efforts Drive Turnaround at Sears
By Chris Young
Employee satisfaction is essential to any effective employee retention strategy - any good HR manager knows that. However few managers think of the impact that employee satisfaction has on their customers and ultimately company profits.
One can assume that happier, more productive employees will make more sales, treat customers better, and ultimately make more money for the company, but few companies have analyzed this assumption to the extent that Sears, Roebuck and Company has. Sears has
put this common assumption to the numbers test and the results are intriguing to say the very least.
1992 was the worst year on record for Sears, losing almost 4
billion dollars on over 52 billion dollars in retail sales. The
early and mid 1990s were truly trying times for the retail giant
and tested the will and resolve of managers and employees alike.
During this time the company was in near shambles, morale was
low, revenues were suffering, and the bottom line was
hemorrhaging red ink. This was in stark contrast to nearly a
century of stellar results that Sears had comfortably enjoyed.
For Sears, something needed to be done, and fast!
Sears began their turnaround by identifying three key objectives: Creating a compelling place to work, a compelling place to shop, and lastly creating a compelling place to invest. One of the tools used to establish these objectives was the
employee-customer-profit chain.
The employee-customer-profit chain is essentially a flow chart that diagrams revenue creation starting with employee attitudes and satisfaction, followed by its effect on customer satisfaction, and ultimately the effect on revenue and bottom line profit
generation.
One thing Sears realized it needed to do was exert a greater
effort focusing on the customer. This is often times easier said
than done for many organizations. However Sears took an
innovative approach to increasing customer focus. Based on the
employee-customer-profit chain, it realized that it could not
better focus on the customer without first focusing on its
employees.
For Sears 70% of its workforce was part-time status and turnover
among its part-time workforce had become alarmingly high. Sears
suspected that low morale and poor employee attitudes towards
the company were to blame. Sears began a rigorous process of
measuring employee attitudes and satisfaction via a 70 question
employee survey. The results of this survey were then juxtaposed
to customer satisfaction surveys and ultimately compared to
revenue and profit trends for the company. The correlations
drawn from the data were greater than Sears could have ever
imagined.
Undoubtedly Sears expected to see some positive correlation
between employee and customer satisfaction and ultimately
revenue and profit generation; however they were amazed to see
just how great an impact employee satisfaction levels had on the
bottom line. The data revealed that for each five point
improvement on the employee attitude scale, there was a
subsequent 1.3% improvement in customer satisfaction, and a 0.5%
increase in revenue growth.
A 0.5% increase in revenue might sound miniscule, however when
it is based on revenues of over 50 billion dollars it adds up
quickly and significantly. For Sears this would equate to a 250
million dollar increase in revenues a year! This revenue
increase does not require investments into advertising, new
facilities, or improved operations, only an investment into the
satisfaction and happiness of employees.
There are also cost savings that can be attributed to improved levels of employee satisfaction. It should come as no surprise that happy employees stay in their jobs longer than unhappy employees.
By focusing on increasing employee satisfaction Sears was able to concurrently increase revenues and reduce the costs associated with employee turnover. Sears was also able to determine that employees with greater levels of satisfaction and a favorable
attitude towards the company were more likely to speak positively about the company and recommend shopping there to friends and family members.
By increasing employee satisfaction Sears was able to generate free word of mouth advertising spread by its employees, thus in a way reducing the reliance on paid advertising to generate revenue. Sears realized the importance of its employees and their levels
of satisfaction and made it a corporate goal to increase levels of employee satisfaction throughout the company.
Sears feels that employee satisfaction levels are so important
to the company's health and vitality that it treats attitude and
satisfaction numbers the same as "hard" financial numbers. Sears
is so committed to these numbers that it has them audited by an
accounting team to ensure validity and reliability just as it
does with all of its internal financial measures.
For Sears its turnaround did not take place overnight. It took
several years of hard work and dedication from managers and
employees at all levels. Improving levels of employee
satisfaction was not the sole contributing factor to Sears'
remarkable turnaround. However it is fair to assume that without
the focus on the employee as a base to better focus on the
customer the turnaround at Sears would not have been as quick or
amazing as it was.
As business leaders we should all pay careful attention to the approach that Sears took to improving its bottom line. The urge to drastically cut costs through outsourcing, layoffs, reducing benefits, and streamlining operations might well be overly complex
solutions to a relatively simple problem. In lieu of cost cutting initiatives to preserve profit margins, a customer focused approach might be a better solution.
As we can learn from Sears focusing on the customer ultimately begins by focusing on the employees who serve the customer. Give it a shot, your employees, your customers, and ultimately your shareholders will thank you for it!
For more information about Sears' remarkable turnaround in the
1990s check out the cover story of the January/February 1998
issue of The Harvard Business Review.
Chris Young is founder of The Rainmaker Group of Bismarck, ND.
Young and his team specialize in the selection and development
of human capital in organization of all sizes. Give Chris a
shout today and start maximizing possibility in your organization!
1-866-988-7246 http://www.therainmakergroupinc.com
info@therainmakergroupinc.com
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