Introduction
Together with many consultants and authors, I have long argued that if you (first) energize and excite your people, they will serve your clients well, and you'll (then) make lots of money. But is there any actual proof that this is the right sequence?
There is some. The Service Profit Chain by Heskett, Sasser and Schlesinger argues the case for this model convincingly. Kotter and Heskett, in Corporate Culture and Performance investigated the relationship between culture and profitability. In First, Break All the Rules, Buckingham and Coffman reported on the behaviors of successful managers in a way that supports the core proposition. In Built to Last, Collins and Porras described the characteristics of successful industrial corporations in detail and arrived at similar conclusions.
I present in this book the results of a study that assembles data and evidence on the factors that drive financial success. Surveying 139 offices of 29 firms in 15 countries in 15 different lines of business, I asked a simple question: are employee attitudes correlated with financial success?
The answer, as this book will show, is an unequivocal "yes!" The most financially successful businesses do better than the rest on virtually every aspect of employee attitudes, and those that do best on employee attitudes are measurably more profitable. What is even more powerful, as the book shows, it is attitudes that drive financial results, and not (predominantly) the other way round.
None of this should be taken to mean that client service, client relations and quality are not crucial. As we shall see, they are. Conventional wisdom is right in saying that quality and great client service gets results. (We will provide proof of that, too.) However, what conventional wisdom forgets is that great client service is itself a product of other things. To get great client service, it turns out, you must first energize your people to deliver it. And that brings us to what may be the prime mover of this entire chain of effects: the skills and behavior of the manager in creating and driving everything else.
Of all the goals that businesses say they have (make money, please clients, attract and develop talented staff), the least well done are those related to managing people. Yet not only are people a key link in the chain of activities that create profits, but we are also living through a war for talent — a people crisis — where every business is short of people. To be weak in this area (as so many firms are) is akin to shooting yourself in the foot.
The study produces very specific (and nontrivial) findings. We shall see that the most financially successful operations share a number of characteristics:
- Management is seen as operating in accordance with the firm's overall philosophy and values. They practice what they preach, and there are no disconnects between the walk and the talk.
- Management is trusted by those they manage. Individual managers act in the interests of their group, not just to advance the manager's personal interests.
- People's personal potential is being fulfilled and realized, according to the people being managed.
- There is a high degree of loyalty and commitment, again driven by individual managers.
- Compensation systems are equitably managed.
- Firms do not compromise their standards in hiring simply to meet a capacity need. People quality is seen as high.
The evidence shows that these are high standards that few managers (or management teams) reach consistently. They are not easy to achieve. They require courage, an ability to confront difficult situations, and an ability to take a long-term perspective when many pressures cry out for much earlier gratification.
The standards are not commonly achieved, but when they are, we can now show that they cause (yes, cause) a demonstrable, measurable improvement in financial performance (including growth rates as well as profits).
The standards are tough. They do not say, gently, "we encourage teamwork." They say things like "we have no room" for individualists. The message is that management must have the guts and courage to enforce the standards they frequently preach.
The list of key profit drivers revealed here represents a balanced package. There is no one secret to success. We shall see that you have to do well on a combination of client relationships, compensation system fairness, skill building, and other factors. Robert Kaplan and David Norton wrote a wonderful book, The Balanced Scorecard, about the importance of paying attention to a well-chosen mix of performance areas. This book can tell you precisely what that balanced scorecard needs to be.
Most of the findings confirm what other writers (and I) have been advocating for years. What's new here is that this study presents substantial evidence.
Some of the conclusions are new. Among the top factors predicting profitability are the issues of trust and respect. These were not introduced by my personal theories. They were the result of cold statistical analysis. The study shows that where trust and respect between management and employees are high, financial performance predictably goes up.
Surprising? Maybe. But we are rarely (if ever) taught how to win, earn, or give trust and respect in our formal education. This book will show you how. It reaffirms the importance of personal character in leading a firm to greatness.
On a related point, the book shows that success in management is less a property of firms (the systems of the business as a whole) but, instead, is mostly about the personality of the individual manager within the operating unit. Success is about personalities, not policies.
In spite of presenting extensive data and statistical analysis, the core of the book is not the numbers. It is the interviews, anecdotes, stories and personal experiences of the managers who got the best results in this survey. I report on who the paragons are that were able to achieve truly stellar financial results, while also energizing, enthusing and exciting their staff. What, precisely, do they do?
Although they asked to remain anonymous (a condition of doing the research), these superstar managers gave permission to reveal their concrete secrets. The findings will challenge you. How well, it will ask, do you pass the tests of trust, respect and integrity? Are you seen as practicing what you preach? I will show that if you can't pass these tests, you will make less money!
The Database
The data used in this book come from a survey of 139 offices in 29 firms owned by the same publicly held marketing communications company. Sixty-eight percent of the offices were in the United States, and 32 percent were in other countries, including Belgium, Brazil, Canada, China, England, France, Germany, Hong Kong, Ireland, Italy, Japan, Mexico, Netherlands, Scotland and Spain.
The businesses covered in this study include advertising, public relations, brand identity consulting, health-care consulting, direct mail, Internet (web) marketing, promotion, public affairs consulting, employee communications and many others.
All the firms have significant autonomy. Each of the firms (indeed, each of the offices) is free to choose its own management style and approach, thus allowing us to examine the implications of differing office cultures and management styles.
The range of firm sizes was from one office to twenty-four offices. The individual offices ranged in size from 10 to 351 employees. The average number of employees in any given office was 43.
The word "employee" in this survey covered everyone working in the firm, from top to bottom, from top managers to mailroom clerks. No distinction was made between partners and nonpartners, owners and employees, managers and staff. Similarly, employees in all roles were surveyed, including both fee-earning staff and those in support roles.
There were a total of 5,589 individual respondents (a 55 percent response rate), after eliminating offices with fewer than ten people and all employees earning less than U.S.$25,000 per year.
How Does All This Apply to You?
If you are not in the marketing communications business, I suspect that, throughout this book, you will ask yourself, "Does any or all of this apply to me?"
Let's start with the obvious: This study does not include accounting, law, architecture, financial services, executive search, engineering or a host of other businesses and professions. So, we don't have direct data here for those (or many other) businesses.
On the other hand, we do have a great deal of diversity here. We have businesses ranging from premium-fee consulting operations to low-fee, high-volume execution-intensive businesses. We have businesses with immensely high leverage and those staffed almost entirely with senior-level counselors. We have businesses that deal only with the client's executive suite, and others that have to work through purchasing directors.
Some of these businesses have ongoing relationships that last for decades, while others have to compete every time for every individual project. Some are large, global operations while still others are tiny, regional operations working far from major financial centers or other big cities. And many national differences are covered in the database.
As a result of all this diversity, any lessons we can glean that seem to apply across all these businesses have a good chance of being lessons that should be taken seriously by businesses not explicitly included here. That's my hypothesis, but you be the judge.
Copyright © 2001 by David H. Maister
