Proof there is no relationship between employee and customer satisfaction

This article is an update to my January article on the same subject. At the time, 2016 American Customer Satisfaction Index data for 71 companies was not yet available. I used 2015 data for those companies instead. All 2016 data is now available, and the new results should surprise readers even more than the original article.

It is obvious to everyone who works on customer experience that happy employees make happy customers. But… is there actually any evidence for this? Not much, though you would not know it at first. This research I am about to report uses a new method to study the relationship between the two, using public data sources. In short: happy employees don’t count for anything, on average. Nor do unhappy employees. Employee happiness explains about 1% of customer satisfaction variations across 336 businesses that sell to American consumers. I believe one reason for this is that many companies have no direct contact with their end customers. What this means for most businesses is simple: your customer experience investments should be concentrated on other things. To find out what things, ask your customers.

The pitiful state of research on the subject

Try an online search for ‘Employee and customer satisfaction.’ Most results are about employee engagement rather than satisfaction. As this is written, the top result is Employee engagement: the wonder drug for customer satisfaction, on the Forbes website. The author, Kevin Kruse, provides a link to a list of over 30 studies that are intended to be relevant. They make excellent points on employee engagement, which differs somewhat from employee satisfaction. However, only one of them contains multi-company deep research: the Northwestern University Forum for People Performance Management and Measurement report. It showed that 8% of the variability in customer satisfaction was explained by employee satisfaction. Other studies on the Forbes list cover individual companies, including one on Caterpillar, and one on an unnamed department store, for example. Most of the studies listed make no mention of customer experience at all, but focus on other business outcomes.

Yes, more engaged employees produce better financial outcomes. Employee engagement indices are calculated as an average of answers to multiple survey questions. When I worked for HP, it was an aggregate of eight answers, including questions about training, processes and procedures, and ongoing feedback from your manager. There is no standard measurement. The Temkin Employee Engagement Index asks three questions, none of which is about happiness. Employee satisfaction and employee engagement are different concepts.

I don’t exclude the existence of good research. I just have not been able to find it. Admittedly some research is only available for a fee, and I have not been willing to go that far.

American Quality Digest article from 1998 put me on the right track

H. James Harrington made a lot of people uncomfortable in 1998 when he published ‘Happy Employees Don’t Equal Happy Customers’ in the American Quality Digest. He used the American Customer Satisfaction Index (ACSI) numbers for as many of the Fortune ‘100 Best Companies to Work for’ as possible at the time. Only five of the Fortune list were in the top 100 of the ACSI list. Surely his results were a fluke, or were not logical in some other way?

My new data sources

At the time, Harrington used the American Customer Satisfaction Index benchmarks and compared them to the Fortune list of the best 100 companies to work for in America. The challenge is that the ACSI benchmarks cover consumer industries and a lot of the Fortune list are companies that are B2B, so are not covered by ACSI. I have therefore used a different, broader, and perhaps controversial source for employee satisfaction data: Glassdoor. We can debate the level of positive or negative bias that may be present in Glassdoor data. My working hypothesis is that the bias is equal for all companies. As the comparison being made depends on relative rather than absolute numbers, I don’t believe the bias has any significant effect.

Overall Results

In short, there is almost no relationship between employee satisfaction and customer satisfaction. I was able to match 336 ACSI ratings with corresponding Glassdoor ratings. Using linear regression, just 0.9% of the variability in customer satisfaction is due to employee satisfaction. For the stats experts, the number rises to 1.1% with quadratic regression. This graph shows the results and gives an idea of the variability.

High-touch and low-touch companies

I used my own judgement to define some industries, such as restaurants, as ‘relatively high-touch’. This gave a list of 117 such companies and these are in the first graph below. I call the remaining 219 companies ‘relatively low-touch’ and they are shown in the second graph.

• Using linear regression, employee satisfaction explains 3.4% of the variation in customer satisfaction, compared to 1.1% in the low-touch group.
• Using quadratic regression, the numbers rise to 6.1% and 3.9% respectively.
• Whichever regression method is used, the message should be clear: for two-thirds of companies, employee satisfaction does not matter at all. For the high-touch companies, it matters far less than you might expect.

ACSI and Glassdoor scores for 117 high-touch companies:

ACSI and Glassdoor scores for 229 low-touch companies:

Not really surprising

I don’t find these results surprising at all. If you were to start by brainstorming all possible things that could impact customer satisfaction, employee satisfaction would be on the list along with a lot of other potential factors, such as product quality and brand image.

Think about what can make employees happy, as distinct from engaged. A person can love the meals in the company restaurant and the short commute to work. Neither of these do anything for customers.

As far as employee satisfaction is concerned, my hypothesis is that it matters most in high-human-touch businesses. There is a major challenge in proving this. Many large companies outsource their service and sales call center operations, for example, so the ‘high human touch’ is not being handled by company employees at all.

Feel free to use the same data to find a different conclusion

Here is a link to my resources page that includes the Excel data file and a PowerPoint presentation. The Excel file includes simple instructions for changing the selection of ‘high-touch’ companies. Feel free to see if you can find a different result.

Read more

This article is an edited and shortened version of a chapter in my book Customer Experience Strategy – Design and Implementation, available in Kindle format in all Amazon stores worldwide now. A print version will follow at the end of April. To stay in touch, please sign up for my newsletter, and read my blog.

Thank you for reading.

Maurice