Employees First, Customers Second…Why It Works

What if your company announced that, moving forward, it would be place customers second on its list of priorities?

Sounds crazy. The customer is always right. Surely the customer is always first as well.

But that’s exactly what Vineet Nayar, CEO of HCL Technologies did over a decade ago. He announced that the company’s senior leaders would be placing the needs of employees first, and customers second. And the results have been spectacular.

How The Employees First Strategy Started

In 2006, Vineet Nayar, CEO of HCL, a digital engineering company based in India, boldly told his clients they were no longer the company’s top priority. Instead, the focus would be put on employees first. His belief was simple: happy employees make happy customers. Nayar labeled employees who actually interacted with customers as the “value zone,” where the real business magic happens—and any employee in the value zone received the dedicated focus of managers and support functions.

To bring this to life, he flipped the traditional management structure. He made the organizational chart look like an upside-down pyramid. Turning the hierarchy upside down required making managers accountable to frontline employees and ensuring that those in the support functions actually supported those frontline employees, instead of just insisting that they follow the hierarchy’s rigid systems.

Nayar focused his attention on two areas to ensure that the management and support functions served the frontline: reversing accountability and building transparency. Specifically, 360-degree feedback evaluations were expanded to include more frontline workers’ feedback for managers and senior level executives (that’s the accountability), and crucially those evaluations were made public so everyone who contributed to the survey could see the results (there’s your transparency). In addition, when problems occurred for frontline workers, they could create and own support tickets that their managers would have to address (usually, it’s the other way around in top to bottom organizations).

It’s important to note that HCL Technologies wasn’t a little start up in a garage or even a 50-person company. This was done at a 55,000-person, multinational organization. And, spoiler alert, it’s now grown to over 200,000 employees. Pulling off this flip was no small feat, but the results speak for themselves. Employee satisfaction soared, customer service improved, and revenues nearly tripled. By 2009, HCL was named India’s best employer.

Contrast this story with an example of what can go wrong when employee experience is overlooked. In 2001, Robert Nardelli was the newly minted CEO of Home Depot. Expectations were high given his track record at his old job at General Electric, where he had led several successful manufacturing operations.

At Home Depot, Nardelli noticed the stores were staffed with knowledgeable, full-time employees, and in his opinion, a bit too many. What do new leaders, wrongfully, do when they want to make waves and save money?

Yep, he downsized to optimize costs.

He decided to hire more part-timers, many of whom had less expertise in home improvement. The results were not what he expected. Customers quickly noticed the absence of their favorite employees and the decline in service quality. It turned out that managing a service organization like Home Depot was very different from managing a manufacturing operation.

This story underscores a critical point: leading a service organization requires a different approach—one that prioritizes employee engagement and expertise.

“Employees first, customers second” is still about serving the customer, but it’s about serving the customer through the employees whose job it is to serve the customer. Weird how that works, isn’t it? Understand that helping your employees helps your customers. These two parties are intrinsically tied together.

Research On Employees First

Nayar’s success story isn’t an isolated incidence of dumb luck. There’s research behind this. Researchers at Harvard University found a link between employee satisfaction and profitability. They took aim at a long-standing assumption in the business world that market share is the primary driver of profitability. If a company can increase market share, the thinking went, it will increase sales while taking advantage of economies of scale to lower costs and thus increase profits.

However, when they examined a variety of companies and the existing research, they found that market share is one factor in profitability. But that another factor better explains the most profitable companies: customer loyalty.

Based on their research, they estimated that a mere 5 percent increase in customer loyalty can yield a 25 to 85 percent increase in profitability.

Here’s how it works in practice: Profits are driven by customer loyalty. Customer loyalty is driven by employee satisfaction. And employee satisfaction is driven by putting employees first. They called this The Service-Profit Chain and managers who understand this can create a thriving cycle where employee and customer satisfaction drive each other, ultimately leading to greater business success.

In simple terms, if your business provides a service that your employees have frontline participation in, they are in essence an embodiment of the company, not you or the CEO. The entire brand, the experience, the service rests on those frontline employees. If they aren’t taken care of—if they aren’t satisfied—the customer tends to notice.

How Employees First Creates Customer Loyalty

Employee loyalty is a deep indicator of future performance for service organizations. It’s worth noting that there is a subtle difference between employee satisfaction and employee loyalty. Satisfaction derives from how happy employees are in their role. Loyalty comes from having a real stake in the success of the business. Without loyalty, employees leave for better opportunities, then high turnover rates drive up recruitment and training costs, disrupt productivity , and can negatively impact customer experiences. When employees stay longer, companies save on hiring costs, maintain productivity gains, and create a more positive environment for customers.

Simply put, loyal employees lead to loyal customers.

Great service leaders recognize that improving employee retention involves providing opportunities for growth and advancement. This approach keeps talented employees closer to the customer for longer periods, which directly impacts customer satisfaction and loyalty.

Take Whole Foods Market, for example. They have crafted their entire system—from their rigorous selection process to compensation methods—to encourage frontline employees to stay and thrive. Teams at Whole Foods are responsible for setting key metrics, making decisions on how to meet these targets, and even choosing what food items to buy locally. They’re rewarded with bonuses based on team performance, which often includes finding creative ways to boost sales to balance out labor costs. After three years on the job, employees receive stock options, which further incentivizes them to stay.

Additionally, Whole Foods allows employees to vote every three years on various aspects of the benefits package, from community service pay to health insurance provisions. All these factors contribute to Whole Foods’ remarkably low turnover rate of less than 10 percent for full-time employees after the probationary period—far below the industry average.

The results speak for themselves: Whole Foods is regularly rated as one of the best places to work, known for excellent customer service, and boasts some of the highest profits per square foot in the grocery retail industry.

This success is a testament to the power of employee loyalty in driving exceptional service. Great service leadership isn’t just about managing day-to-day operations—it’s about creating an environment where employees feel valued, empowered, and committed. By focusing on employee loyalty, service leaders can build stronger customer relationships and achieve sustainable success.

Employees First For All Leaders

You may not have the power in your organization to completely flip the hierarchy. But there’s still an important lesson for leaders at all levels: Flip the accountability. This can look like bringing in more feedback from frontline employees or just seeing the structure of your team differently. You work for your team. Don’t squeeze your team; foster them to do well.

In addition, give your employees real stakes and invest in them. Prioritize training and growth opportunities for your employees so they know you’re committed to not just their output, but their career. Parties, gift certificates, awards, summer Fridays, bonuses—all of these are great. Do those things. But those are more employee appreciation, not real development. Development looks like sending your rising stars to conferences, workshops, night school even, if you have the budget. Things you think will help them grow as employees, spark innovation, and create future leaders.

Conclusion

If I could put a message on a billboard in front of every Fortune 500 company, it would be this:

People don’t work for you.

Smart leaders know that employees work with them, and ultimately, leaders work for their people. Embracing the “employees first, customers second” philosophy means prioritizing the well-being and growth of employees, enabling them to deliver outstanding service. Happy, engaged employees create satisfied customers. When leaders invest in their teams’ success and happiness, they cultivate a culture where customers feel valued, leading to long-term loyalty and a thriving business.