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Employee Retention Efforts Drive Turnaround at Sears


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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.

About the Author

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 possiblity in your organization!


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Article Published/Sorted/Amended on Scopulus 2007-03-28 19:32:12 in Employee Articles

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