White Paper: Employee Loyalty

The Loyalty Research Center Approach to Employee Loyalty

WHAT IS EMPLOYEE LOYALTY?

Employees are a vital resource for nearly all organizations, especially since they represent a significant investment in terms of locating, acquiring, and training. The rationale for this investment is that the employee is pivotal in creating value to the customer by means of effectively implementing the organization’s business model. In fact, for many customers, their overall experience with the organization is based on experience with the employee they deal with on any particular transaction.

Employees have ongoing choices/decisions that impact their performance, the customer’s experience, and ultimately the organization’s performance. A sample of these choices/decisions include:

Whether to recommend the organization to prospective employees as a place to work
Whether to recommend the products/services of the organization to potential or existing customers;
Whether to encourage others within the organization to provide their best effort every day and to take pride in the organization;
Whether to continue working at the organization or to start searching for a new job;

Whether to work productively and adhere to the organization’s processes.

Organizations want employees to make these decisions in favor of the organization. Doing so defines a loyal employee.

Employee loyalty can be defined as employees being committed to the success of the organization and believing that working for the organization is their best option. Further, they do not actively search for alternative employment and are not responsive to offers that are relatively small in difference.

The extent to which employees are committed to the organization can dramatically impact both costs and revenues over time. This is confirmed by a multitude of independent quantitative studies over time and by the research experience of the Loyalty Research Center (LRC). Because of the impact that employees have on both costs and revenues, organizations take great actions to strengthen the relationships with employees. These actions can include such things as improving communications, training, rewards, and recognition.

The question for management teams is which actions produce the strongest result in terms of long term relationships with employees they desire? This assumes that the screening process has identified employees the organization desires and the employees are capable of performing the tasks required of the job.

WHAT IS EMPLOYEE LOYALTY ANALYSIS?

There are three key components to employee loyalty analysis:

Constructing the employee loyalty profile
Understanding why employees are in specific loyalty segments
Determining the extent to which the organization can enhance relationships with employees and move them to a more preferred employee loyalty segment

A loyalty profile assigns each employee to a segment based on the strength of their relationship with the organization. One segmentation scheme that is frequently used categorizes employees into Loyal, Neutral, and Vulnerable segments.

Employees in the Loyal segment exhibit behaviors that every organization values, while the Vulnerable employee can be disruptive to the team. Organizations want to either migrate or terminate Vulnerable employees as soon as they have the flexibility. Minimizing the employees classified as Vulnerable will improve overall employee satisfaction and productivity, which positively impacts the customer experience and the organization’s overall performance.

Since loyalty cannot be measured directly - imagine how difficult it would be to ask an employee directly if they are loyal - it must be indicated by variables that can be measured. Some of the attitudes and behaviors you would expect from a Loyal employee:

Likelihood to recommend your product or service to others

Likelihood to recommend your organization as a place to work

Likelihood to continue working at the organization

Relative job satisfaction

High-level job performance and productivity

Not actively searching for other jobs

These can be measured and represent the starting point for defining the employee loyalty segments.

Further, you would expect the Loyal employee to provide strong and consistent responses across each of these areas. You would not, for example, expect a Loyal employee to state a low likelihood to recommend your organization as a place to work, but be highly likely to continue working there themselves. This suggests that the employee might be “locked into” their job because of high switching costs or some other reason - not the attitude of a loyal employee but a captive one.

The Loyalty Research Center believes that employee loyalty segments should not be formed according to a rigid formula. The characteristics that delineate loyalty for one organization may be somewhat different than those in another. Because of each company’s unique situation, alternative loyalty segmentation schemes should be validated with information outside of the closed system. The Loyalty Research Center prefers to validate loyalty segments using measures provided by the organization and/or the actual behavior of employees.

An example of an employee loyalty profile is provided in the table below. Note that it breaks out the loyalty segments for the organization and for specific locations. In this example, the locations are geographic locations; however, organizations can segment by business unit or any other means for comparison.

	Loyal	Neutral	Vulnerable
Overall organization	42%	39%	19%

Location A	45%	50%	19%
Location B	34%	54%	12%
Location C	20%	45%	35%

Having formed the employee loyalty segments, a key question is why these segments exist and what produces the variation across locations. Why are some employees in the Loyal segment and others in the Vulnerable segment? Why are employee relationships in location A so much stronger than location C? Members of the different segments have real or perceived differences in their experiences with key aspects of the organization’s culture.

Their varied evaluation is typically due to one or more of the following:

Differences across employees and their individual needs;

Differences in how the culture is translated to them by their immediate co-workers and supervisor;

Differences in their expectations for the job market based on what they perceive the job market to be like in relation to their skills

Based on an exhaustive review of academic research and extensive primary research and testing, the Loyalty Research Center has produced the following conceptual model to help explain variation in employee loyalty:

Key components of this model are:

There is a set of measures of that indicates how committed the employee is to the job and organization. Examples of these measures include the likelihood to recommend the organization to customers and potential employees and the likelihood to stay with the organization.

There are measures of the employee's experience with key cultural areas within the organization. These key areas are:

Customer focus
Supervisor relationship
Co-worker relationships
Improvement focus by the organization
Processes and training
Communications
Rewards and recognition

There is a significant number of questions that correspond to each of these key areas which are customized for each organization; the issues relevant to a grocery chain are different than those for a technology company.

How do you use the information gleaned from this research to improve relationships with employees? Two key questions are asked:

What are the priorities of the segments?
How do the segments evaluate each area?

The Loyalty Research Center methodology determines the priorities for each segment. In the table below, the priorities for each segment are indicated by the bold percentages.

	Loyal	Neutral	Vulnerable
Overall organization	42%	39%	19%
	Top 2 Box Scores
Communication issues	78%	54%	31%
Supervision issues	82%	72%	38%
Customer focus issues	62%	55%	41%

The three cultural areas within the organization listed above indicate critical differences for the loyalty segments:

The Vulnerable employees' key concern relates to supervision issues. The relatively low evaluation in this area is a major factor prohibiting these employees from being in the Neutral or Loyal segments. Improvements in this area will have the greatest impact on improving these employees' commitment to the organization.
The Neutral employees' key concern relates to communication issues. This group of employees gave this area the lowest evaluation, which has the greatest impact on their overall commitment to the organization. Identifying specific communication issues and improving upon these issues will help generate more employee commitment and migrate these employees to the Loyal segment.
The Loyal employees' key concern relates to customer focus issues. Although the evaluations for the Loyal segment were generally higher than the other two segments, not all employees of this segment provided Top 2 Box scores, especially for customer focus issues. This finding provides direction to the organization as to what to focus on to protect this segment.

MIGRATION OF THE LOYALTY SEGMENTS

The final component of employee loyalty analysis is to determine how to migrate the employees from one segment to another. The most critical segment is the Vulnerable segment. Can they be saved? In the above example, supervision was identified as the Vulnerable segment's most critical aspect of the relationship with the organization. Few within this segment gave supervision a high evaluation.

Once the low performing critical area is identified, the next step is to determine in greater detail why this area is of significant importance and if and how it can be improved. Specific questions regarding this next step include:

Which aspect(s) of supervision are critical to this segment?
What types of issues is this segment experiencing with the supervisors?
What changes need to be made to improve their perception of this area?
Is the organization willing to make these changes?
If so, how much will the area of supervision have to change?
What will be required to make these changes:
- Different supervisors?
- Additional training?
- Refining some or all of the supervision processes?

If critical changes/improvements are made to the supervision area that are salient to the Vulnerable segment, then employees n this segment can be migrated to the Neutral or Loyal segments. Ultimately, by improving the critical areas for the Vulnerable segment, the organization can create greater employee commitment, which will decrease employee related costs and increase overall revenue over time.

This migration analysis is also used with the Neutral segment with the goal of migrating these employees into the Loyal segment. For the Loyal segment, the objective is to protect these employees and secure their commitment to the organization. Understanding what is important to the employees of each loyalty segment is critical to these efforts, and that requires in-depth information about the organization's employees.

CONCLUSION

Most organizations do not understand whether employees of a loyalty segment will respond to a change or an action-oriented investment. Further, most organization do not understand what type of change needs to be made to generate behavioral responses from employees; these behavioral changes should be both profitable and sustainable. Obtaining answers to these unknowns are paramount to a successful employee loyalty program.

Having over 30 years of experience with thousands of loyalty research programs, the Loyalty Research Center continues to be respected as an authority on loyalty research. The Loyalty Research Center has developed a world-class approach to helping organizations define, understand, and change the loyalty of their employees. The success of this approach is defined by the results - behavioral change on behalf of the organization's employees.

For more information contact:
Loyalty Research Center
931 East 86th Street, Suite 120
Indianapolis, IN 46240
Tel: (317) 465-1990
Fax: (317) 465-1991
Email: LSeibert@loyaltyresearch.com
web: www.loyaltyresearch.com