pbSmart™ for Small Business

The “happy employee” advantage



Do happy employees lead to happy customers who drive better company performance?  The answer is a resounding, but qualified, YES!

So here are my 2 big qualifiers.

1 – When I say “happy,” I’m speaking broadly, including “satisfied” and “engaged.” (But truthfully “happy” just makes for a catchier title.)

2 – There are lots of different ways to measure happiness, satisfaction, and performance. So everything is ultimately debatable. However… we’ll show in this article that there is some very strong evidence to support this assertion.

Here is what the research shows…

Way back in 1997, two years before Peter Merholz had even coined the term “blog,” a classic book, The Service Profit Chain: How Leading Companies Link Profit and Growth to Loyalty, Satisfaction, and Value, was written by Harvard researchers Heskett, Sasser, and Schlesinger. This book turned traditional management theory on its head. The book clearly demonstrates that workers are not mere inputs in a process, but rather they are one of the most critical components to a company’s success – in fact employee satisfaction ratings were directly related to organizational profitability.

This is supported by Wharton School professor, Alex Edman’s study of the “100 Best Companies to Work for in America.” He found that these companies between 1998 and 2005 returned 14% per year, compared to 6% a year for the overall market.

More recently, Hewitt Associates showed similar results in their report on employee engagement (including employee morale, confidence in the organization, career opportunities, rewards and recognition programs and trust in leadership). Courtney Rubin describes the staggering results of this 900 organization study in her September 20, 2010 article in Inc. magazine. It turns out that organizations with high levels of employee engagement (>65%) outperformed the total stock market index and posted shareholder returns 19% higher than average in 2009. Furthermore, companies with disinterested employees (<40% engagement) had a 44% lower than average total shareholder return.

But even without the fancy business school professors’ proven statistics and global studies, it just makes sense. When you treat your employees well, they are more satisfied with their jobs. When employees are more satisfied with their job, they are more motivated to serve their customers or produce better quality products, and even find more efficiencies in their work. Better products and better customer service lead to happier, more loyal customers and a better company reputation which leads to higher sales which leads to better company performance. Think about big companies like Southwest Airlines, Zappos, and Starbucks. They get this, and their bottom lines show it.

The logic is very easy to follow. So why don’t companies, big or small, pay more attention to their employees’ happiness/satisfaction/engagement, when they know there is a positive financial return (not to mention, it’s just the right thing to do).

So there are literally a million and one things you can do improve your relationship with your employees. Here are a few free or low cost ideas to get you started…

  • Start with a shared vision for your company – employees are happier, more motivated when they feel like they are working towards a higher goal, that they are part of something bigger than themselves.
  • Define individual roles – this can be very difficult in a small business, since everyone does everything, but it is important to understand where everyone’s focus should be and how each contributes to achieving the company’s vision.
  • Set SMART goals – SMART stands for Specific, Measurable, Attainable, Realistic and Timely. Well-established goals make it easy for individuals to measure their progress and to feel like their work makes a difference.
  • Celebrate your successes – Everybody likes a party. Everybody likes to win. So celebrating team success almost guarantees an increase employee happiness, satisfaction, and/or engagement.
  • Create a culture of open communication – Especially in small businesses, employees are much happier when they have a voice, a listener, and the hope that their ideas make a difference. Conversely, employees like to hear from management on how the business is doing and what changes are planned for the future.
  • Trust and empower your employees – First, you need to trust your employees. If you don’t trust them, you cannot empower them. But multiple studies show that employee happiness is tied to their feeling of empowerment. This is really a win-win situation because employees who feel empowered are happier AND employees who actually are empowered can make decisions or directly assist customers without the delays and hassles of multiple layers of decision-making.
  • Help employees grow both personally and professionally – This is one of the key tenants of the book Delivering Happiness by Zappos CEO Tony Hsieh and one of the ways that Zappos has turned a culture of happy employees into a billion-dollar business. Showing employees you genuinely care about them and their futures is sure to not only to decrease employee turnover costs but bring a little happiness to your company’s bank account.

What do you do if none of this works? Take the advice of Tony Hsieh and a New York Times blogger and fire those unhappy employees.



  • Emily Washington

    What feels right usually is right. But it’s supportive to have research and case studies to verify. If you are good to your employees they feel good and feeling good makes them smile and smiling makes customers happy. It all comes full circle.

    Well written article and most timely.

  • http://www.RatioConsultingInc.com Miriam Kendall

    Turns out Harvard Business Review agrees. The Jan/Feb 2012 edition is dedicated to “The Value of Happiness – How Employee Well-Being Drives Profits.” This is a great resource if anyone is interested in further research on this topic.

    • http://www.pbsmartessentials.com justinamendola

      You know what you’re talking about, Miriam. That’s one of the many reason we enjoy working with you. Stop by from time to time and share your thoughts!

  • Pingback: The disadvantage of disengagement | What A Vibe!

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