Good Business is Being Good to your People

One of the hallmarks of evolved economies is the shift in balance from primarily product-based industry towards service-based industry. Even those companies that are still selling consumer products tend to have outsourced manufacturing such that their business is now largely about branding, which takes them far closer to a service model than providing commodity goods. This means that the value in most of the businesses that we know is no longer driven by increasingly efficient machines and technology, but by people. Jersey typifies this shift, with almost 40% of Gross Value Added being attributed to the Financial Services sector alone, while Manufacturing contributes a mere 1%.[1]

The problem with this shift is that the tools, techniques and reporting that were developed to help managers cope in the world of manufacturing do not always translate, and certainly have not evolved as quickly as the economic landscape has changed. Given that the majority of the value in a professional services firm is locked into a combination of its people and its brand, it is telling that the meat of the annual report is still the financials, and talk about talent and people development is tacked on to the glossy pages at the front to provide a bit of visual contrast. If people are a service’s biggest asset, they are also its biggest risk, yet few companies really grapple with the reality of this.

It’s why I like the concept of ‘inside out branding.’ This idea holds that where there is dissonance between a company’s external brand and its internal one, the friction this creates requires such draconian levels of suppression and control, not to mention PR spend - that it is frankly risky: a company that has a seamless brand inside and out will never be ‘found out’ and so will be a more reliable driver of value over the longer term. Essentially, this means that the value of the brand is only as good as how loyal your employees are to your proposition. If after a few drinks in the bar they are wont to tell your key customers how much they hate working for you and that they are ashamed of the corners your cut, it’s likely that your brand will tarnish over time, which will cash out in the P&L or in your share price.

The research field in this area exploded into life in the 1990s. with work on the ‘employee-customer-profit chain’ at Sears and the famous Gallup 12 studies, generating metrics to forecast profitability based not only on customer behaviour but specifically on employee loyalty and feedback (see bibliography). Loyalty is an obvious metric in some ways, because both customer and employee loyalty reduces the cost of churn, but these studies went further, looking at the detail of employee attitudes as a driver of bottom-line value. For instance, at Sears it was found that a 5 point improvement in employee attitudes drove a 1.3 point improvement in customer satisfaction, which in turn generated a 0.5% improvement in revenue growth.[2] The Gallup studies added to this granularity by identifying 12 specific questions you could ask employees in order to predict levels of productivity, profit, retention, and customer satisfaction.

You may recognise some of them:

1. Do I know what is expected of me at work?

2. Do I have the materials and equipment I need to do my work right?

3. At work, do I have the opportunity to do what I do best every day?

4. In the last seven days, have I received recognition or praise for good work?

5. Does my supervisor, or someone at work, seem to care about me as a person?

6. Is there someone at work who encourages my development?

7. At work, do my opinions seem to count?

8. Does the mission/purpose of my company make me feel like my work is important?

9. Are my co-workers committed to doing quality work?

10. Do I have a best friend at work?

11. In the last six months, have I talked with someone about my progress?

12. At work, have I had opportunities to learn and grow?

In the research, employees who answered “Strongly Agree” to the 12 questions were 50% more likely to work in business units with lower employee turnover, 38% more likely to work in more-productive business units, and 56% more likely to work in business units with high customer loyalty. The original studies that produced the Gallup 12 were undertaken over a 25-year period, involving over 1 million employees and 80,000 managers from a broad range of companies, industries and countries. Initially written up by Buckingham and Coffman in 1999 (see bibliography), they have been regularly updated since, with the sample size now involving 2,708,538 employees drawn from 112,312 business units across 54 industry segments.[3] Versions of the 12 questions now appear in every organisation’s staff survey, and there is one large supermarket chain that uses them to predict store performance month by month.

The beauty of these simple questions is how practical they are. The sting in the tail is that most of them are in the manager’s gift, hence the title of the Gallup 12 launch in the print edition of Fast Company magazine in 2000: People Leave Managers Not Companies.[4] This means that if you have poor performing managers you really cannot afford not to tackle the problem now, given the clear evidence that their behaviour is likely to be a drain on the performance of the whole company, and thus to be costing you far more money that it would cost to move them on. More positively, how would you answer these questions for yourself? What could you do to improve your scores? And if when you try these out on your team you discover consistent discrepancies in some of them, how could you as a team work together to address the gap? Perhaps the Jersey Good Business Charter process can help you with that.

Dr Eve Poole writes on leadership following earlier careers at Deloitte, Ashridge, Gordonstoun, and as Third Church Estates Commissioner. She has a BA from Durham, an MBA from Edinburgh, and a PhD in theology and capitalism from Cambridge.

Bibliography

Buckingham, M & Coffman, C: First, Break All the Rules (New York: Simon & Schuster: 1999)

Heskett, JI, Sasser, WE & Schlesinger, LA: The Service Profit Chain (New York: The Free Press: 1997)

Poole, E: Leadersmithing (London: Bloomsbury: 2017)

Reichheld, FF: The Loyalty Effect (Boston: Harvard Business School Press: 1996)

Rucci AJ, Kirn, SP, & Quinn, RT: “The Employee-Customer-Profit Chain at Sears” Harvard Business Review January-February 1998

Footnotes

[1] See 2019 statistics at https://www.gov.je/Government/JerseyInFigures/BusinessEconomy/Pages/NationalAccounts.aspx [2] See Rucci Anthony J, Kirn, Steven P, and Quinn, Richard T: “The Employee-Customer-Profit Chain at Sears” Harvard Business Review January-February 1998 see https://hbr.org/1998/01/the-employee-customer-profit-chain-at-sears [3] See https://www.gallup.com/workplace/321032/employee-engagement-meta-analysis-brief.aspx [4] See text now at https://www.fastcompany.com/40847/life-work-issue-40