A GPS For Business Success
Have you ever been lost or unsure of which direction to take? In our technologically savvy world, we are less likely to find ourselves in this situation. We have cellular phones on which we can call and ask for directions or log on to the Internet and look up our destination on a map. Many vehicles and most smart phones are equipped with a Global Positioning System (GPS) that takes the guesswork out of finding our destination. We simply enter the address of the place we want to go and follow the verbal prompts of the computer. If we fail to obey the prompts, the system will announce “recalculating” and begin to give us new directions. The only way it could get any easier is if the GPS would drive the vehicle for us.
Wouldn’t it be great if we had a GPS for business success? If it existed, what kind of information would such a system provide? In an article published in the Journal of Service Research, Gary W. Loveman provides empirical evidence of the service profit chain in a retail setting. The service profit chain is a conceptual framework that links employee satisfaction to customer satisfaction and loyalty, and financial performance. This model has been widely used by practitioners however, prior to Loveman’s research it had not been rigorously tested by using data that spanned all of the components in the model. Loveman’s study provided this rigorous testing and found support for the service profit chain model. Since the financial success of any business depends on people, specifically employees and customers, a GPS for business success should give us vital information about these two groups.
Of course, Loveman’s findings represent only one study and in science we know that one study is never the final word on anything. Just as we would not want to try an experimental drug that had only been tested on one small group of people, we should be skeptical of any research findings that have not been replicated. So let’s look at a few other studies regarding the importance of employees and customers. While many studies have examined the relationship between job satisfaction, job attitudes, and job performance, few studies have investigated these relationships at an organizational level of analysis. One such groundbreaking study was conducted by C. Ostroff and published in the Journal of Applied Psychology. In this study Ostroff investigated the relationship between employee satisfaction, other job-related attitudes (commitment, adjustment, and psychological stress), and organizational performance. Organizational performance data were collected from almost 300 businesses; and employee satisfaction and attitude data were collected from 13,808 employees within these businesses. The data confirmed Ostroff’s hypothesis that employee satisfaction and attitudes have a strong impact on organizational performance, thus providing evidence that employee attitudes do affect the bottom line.
Customer attitudes are equally vital to business success. The average business loses between 10 and 30 percent of its customers each year. Nigel Hill and Jim Alexander in their Handbook of Customer Satisfaction and Loyalty Measurement, Second Edition, state that often businesses do not know which customers they have lost, when they were lost, why they were lost, or how much sales revenue and profit this customer decay has cost them. Their research has revealed that many of these companies do not even worry about the customers they are losing, but rather place more emphasis on winning new customers. The authors compare such companies to a bucket with a hole in the bottom: their customers drain away but the company managers, instead of concentrating on fixing the hole, devote resources to pouring more and more new customers into the top. Dissatisfaction is a fundamental reason for customer decay, but to address the problem you have to know why customers are dissatisfied. Specifically, you need knowledge of the service quality gap. This is the difference between customers’ expectations of a service and their perceptions of the actual service delivered by the organization. You also need to know what contributes to the satisfaction of your existing customers in order to keep them. Research has demonstrated that it is much more costly to win one new customer than it is to keep an existing customer. Now back to the question posed earlier:
Q: “Wouldn’t it be great if we had a GPS for business success?” A: Yes, and it does exist! It exists in the form of research. Just as navigational methods have evolved over time, research and statistical methods have evolved over time and today they can be used to clearly mark the path to business success. Several decades ago, we did not have cellular phones and GPS devices to help us find our way. We had to rely on getting directions ahead of time, either from a person or by studying a map. If we got lost along the way, we had to stop and ask for directions or use a pay phone (remember those?) to call someone for assistance. Alternatively, we could continue driving aimlessly about hoping to find our destination by happenstance. Similarly, there was a time when research methods and statistical techniques were quite primitive compared to the methods available today. Scientists relied heavily on observations and simple correlational techniques. We could determine if two phenomenons were related, but determining exactly how they were related was a different matter.
The research methods and statistical techniques available today have tremendous predictive power and can be used as a GPS for business success. These techniques allow organizational psychologists to identify the drivers of your employee’s and customer’s perceptions. This knowledge equals power. Once these drivers have been identified, you have clear directions regarding the road you should take to success. Let’s look at how one private club has used customer surveys to develop customer perceptions well above the national average and to operate a successful business.
A few years ago, a private club with a coastal location, hired the National Business Research Institute (NBRI) to begin conducting research on their very elite customer base. The management of this club was keenly cognizant of the importance of keeping their customers satisfied in order to decrease costs related to customer loss and the recruitment of new customers. NBRI developed a comprehensive customer survey to identify customer perceptions regarding the many products and services provided by the club including their inn and vacation rentals, marina facilities, restaurants, banquet and catering services, gift shop, golf operations, salon and spa, and many others.
When the most recent customer survey results were analyzed, this private club was provided with a topic analysis of the 29 topics their survey addressed. The analysis identified topics as either Best in Class, Strengths, Opportunities, Weaknesses, or Threats. A topic is considered Best in Class if it scores at or above the 90th percentile when compared to benchmarking data. The benchmarking data collected and used for comparison by NBRI includes billions of responses. The score for a topic is considered a Strength if it is at the 75th percentile up to the 89th percentile, and an Opportunity if it scores between the 50th and 74th percentiles, inclusive. Weaknesses include scores between the 25th and 49th percentiles and Threats fall from the 1st to 24th percentiles, inclusive. The club management was pleased to learn their surveying efforts over the past few years were paying off and that none of their topics scored in the Weakness or Threat ranges. Nine of the topics in the club’s survey scored in the Strengths category and 20 in the Opportunities category meaning that every single topic scored above the national average, which falls at the 50th percentile.
While these results are very good, they could be better. The club did not have any topics scoring in the Best in Class category. In addition, the club management would like to see many of the topics move from the Opportunities category to the Strengths category by the end of the next survey period.
Q: So how do they accomplish this? A: Rely on their GPS! Fortunately, the club management was provided with a list of drivers of their customer perceptions on two important items: Overall Guest Satisfaction and Intent to Return. These two items are the keys to business success. The NBRI analysis revealed two drivers for each of these items. For Overall Guest Satisfaction the two drivers were the customers’ overall satisfaction with the club’s restaurants and their perceived value of their membership relative to the cost of their membership and/or dues. The two drivers of Intent to Return included the customer’s perceptions of the professionalism of the club’s management and their perceptions regarding the overall friendliness and helpfulness of the club’s staff. The club management now has a clear path to continued improvement and success. They need only to take action to improve customer perceptions on those four items and they will see improvement in a majority of the items on their next survey. However, just as we have to heed the instructions of our vehicle’s GPS system to get to our destination, it is vital that the management at this club take quick action to address these drivers in order to see improvement in their next survey cycle. Just as the GPS will not drive the vehicle for us (at least not yet!), knowing the drivers will not help this club improve its scores if they do not take action to improve customer perceptions.
If you would like to learn more about how NBRI can provide your company with a GPS for business success call us today at 800-756-6168.
Cynthia K. S. Reed, Ph.D.
National Business Research Institute