In this provocative yet practical book, Fred Reichheld argues that loyalty provides the acid test for leadership in today's volatile business environment, and that most leaders deserve failing grades. In fact, the author is quick to highlight that less than half of today's employees believe their company deserves their loyalty. Reichheld's 1996 international bestseller, The Loyalty Effect, set out his theory and convincingly established the link between loyalty and bottom-line profits. In Loyalty Rules!, he moves from theory to practice, using vivid stories from many of today's most successful companies to illustrate how superior leaders create networks of mutually beneficial, trust-inspiring partnerships between customers, employees, suppliers, and investors. Reichheld's research demonstrates that effective leaders build relationships upon six bedrock principles of loyalty: Play to win/win: profiting at the expense of partners is a short cut to a dead end; Be picky: membership is a privilege; Keep it simple: complexity is the enemy of speed and flexibility; Reward the right results: worthy partners deserve worthy goals; Listen hard and talk straight: long-term relationships require honest, two-way communication and learning; and Preach what you practice: actions often speak louder than words but together, they are unbeatable.
|Publisher:||Harvard Business Review Press|
|Product dimensions:||6.50(w) x 9.50(h) x (d)|
About the Author
Frederick Reichheld is a director of Bain & Company in Boston. He is the author of The Loyalty Effect (over 125,000 copies sold), as well as several articles in the Harvard Business Review and The Wall Street Journal.
Read an Excerpt
Putting Principles into Practice
Who are the leaders worthy of becoming your role models as you trek the high road? Who has consistently and courageously put the principles of loyalty into practice in today's challenging environment? This chapter profiles several leaders who have built loyalty through their personal integrity, superior business strategies, and masterful implementation of the six principles of loyalty.
THE ENTERPRISE RENT-A-CAR STORY
When Andy Taylor returned home to St. Louis in 1973 to rejoin Enterprise Rent-A-Car, the small company his father had founded sixteen years earlier, he had no inkling that he was on a road that would lead to the top of the car rental industry. Leaving the West Coast company he had joined out of college meant taking a pay cut, but he had washed and shuttled cars for Enterprise as a teenager, and his fond recollection of the company's philosophy lured him back. Today, as CEO, he preaches the same simple philosophy his father, Jack Taylor, taught him: "Put customers first and employees second, and profit will take care of itself."
Through this formula of service to others, Taylor has built the most loyal group of employees and customers in the industry-and turned the car rental industry on its ear. Before the competition could say "maximize shareholder value," they found themselves staring at Enterprise's taillights in the distance. Click your way onto enterprise.com, the firm's Web site, and you will discover that Enterprise has become the largest car rental company in North America, bigger than Avis or Hertz, with a fleet exceeding half a million vehicles. While the rest of the industry languished through the 1990s with sluggish growth and sputtering profitability, Taylor steered Enterprise into the passing lane with growth rates exceeding 20 percent per year.
Even industry insiders find Taylor's track record extraordinary. Enterprise kept on growing at phenomenal rates without the bread-and-butter airport business and without the large advertising budgets of its major competitors. The firm defies the norm in other ways as well: Its prices are as much as 20 percent below typical airport rates; customers routinely get door-to-door service; and branch managers generally earn substantially more than they would at Hertz or Avis. Although this mix of lower pricing, superior customer service, and richer compensation is true to the Taylor credo, according to the standard bottom-line philosophy it would seem like a recipe for bankruptcy.
Nothing could be further from the truth. Somehow profit takes care of itself, as Jack promised it would. Experts estimate that Enterprise is the most profitable firm in its industry, so profitable that its rapid growth is funded through internally generated cash flow and privately placed debt. Despite the investment surge required to launch it to the top of the industry, Enterprise's profitability has enabled it to remain a privately held company.
What is going on here? Taylor admits that even he is a little overwhelmed by the sheer magnitude of Enterprise's numbers: over $5.6 billion in revenues, a fleet exceeding 500,000 cars, 46,000 employees, and more than 4,400 branch offices. The company continues to open branches at the rate of one a day and is the largest recruiter of college graduates, hiring over 5,000 per year, even though, to some, careers in car rental lack cachet. What's more, Enterprise is one of the largest single purchasers of new cars annually-4 percent of U.S. cars built-and the largest seller of used cars in the United States. What is the magic formula? Taylor describes it in terms of loyal relationships:
At Enterprise, loyalty is everything. If we don't satisfy customers so that they come back, we can't build the business. If we don't have happy, well-informed employees who feel bonded with the company's success, we won't deliver the kind of excellent service that satisfies customers. Loyalty has been the key to Enterprise's success.1
Enterprise's loyalty-based strategy is so successful precisely because it is unique. Taylor explains, "A major difference between Enterprise and our competitors is that their business is cars and ours is people. They focus on building their fleet of cars; we focus on building our employees' careers."2 But there are other important differences as well. Taylor's father, Jack Taylor, recognized early on that his small business could offer special value only if he focused on building leadership in a specific niche. The airport car rental business was then dominated by the big three-Hertz, Avis, and National-with combined market share in excess of 90 percent. In contrast, in the 1960s the home-market rental business, which consists primarily of replacement cars for customers whose cars are being repaired, was fragmented among dozens of local firms. The Taylors opted to serve this customer segment by focusing on customers' special home-market replacement car needs. By offering competitive rates and convenient service to insurance adjusters who needed replacement cars for clients when their cars were stolen or damaged, the Taylors grew their business and accumulated loyal partners.
Essential to the firm's growth has been the steadfast commitment of its leadership to the simple network of local branches that best serves the home market. In the words of Andy Taylor, "One key to our growth has been our ability to say no to revenue opportunities which don't fit our system."3 In this way, Enterprise provides service that offers truly special value to its target customers and that earns their loyalty.
Today 90 percent of the U.S. population lives within fifteen miles of an Enterprise Rent-A-Car branch. Andy Taylor learned long ago the value of organizing his business into small, stable teams with maximum responsibility, flexibility, and accountability. Enterprise can deliver superior service at a profit because employees at each branch have free rein to make the decisions that affect their own customers and the profitability of their unique branch. Although headquarters has initiated important system wide technology upgrades, Taylor relies primarily on local initiatives for service and cost improvements.
Each branch, though company-owned, is a separate profit center, structured to operate as an independent, entrepreneurial business. This structure, which Taylor calls a confederation of partnerships, simplifies the management of growth, and he acknowledges it as the most critical feature of his ongoing strategy. It does more than enable rapid growth and the flexibility to make rapid changes. It also provides better career development opportunity for employees, who get to run their own businesses much earlier in their careers than in most other companies. Branch managers are responsible for several million dollars' worth of assets. The high level of financial responsibility creates more rewarding jobs for them and keeps them focused on maximizing fleet utilization. Taylor believes that individual accountability is the basis for a good partnership, and his small, independent branch structure makes it impossible for managers to miss either subpar or outstanding performance.
This simple structure also accelerates the learning process. Enterprise openly shares the financial results and customer satisfaction scores of every branch office and every region. As a result, everybody can compare results and see which branches have developed winning practices, such as a van driver's practice of offering free soft drinks to customers during summer months and an assistant manager's allowing customers to return rental cars after hours. Because the compensation of branch and assistant branch managers is based on their branch's profits, the managers are eager to learn from their peers. Friendly rivalries are encouraged, and it is not unusual to see competing branches wager a dinner on monthly profit reports. Every employee is motivated to find innovative ways to increase customer retention and referrals in order to build enduring relationships with the right kind of customers.
High Tech and High Touch
You might not expect a company focused on maintaining relationships, a company that distinguishes itself by personal touches like picking customers up at their homes, to excel at technology as well. But Enterprise knows it must do both. The firm is an acknowledged leader in electronic commerce, noted particularly for its development of advanced technology that allows insurance companies to authorize reservations and billings electronically. In 1999, Enterprise was included (along with eBay, Amazon.com, and Dell Computer) in CIO magazine's list of the 100 companies most likely to win in the new economy. Taylor considers information technology to be such a strategic advantage for delivering exceptional customer service that he has Enterprise's technology division report directly to him.
The enterprise.com Web site is a worthy model for its simple, straightforward, and speedy interactions with customers and prospective employees. Furthermore, Enterprise is one of only a handful of companies that manage their own satellite networks, an enormous advantage when it comes to keeping track of its hundreds of thousands of vehicles, linking thousands of locations, and connecting electronically with its business partners.
At Enterprise, leaders look to hire people who can grow into general managers, people who within just a few years will essentially be running their own business at a branch office. This career track is appropriately compared to a real-world M.B.A. Everyone starts at the bottom, but no one is treated as a mere underling. All branch employees are accorded dignity and respect; they are expected to dress professionally, and they are paid as professionals. Starting pay is far above industry norms, from $25,000 to $35,000 depending on the location, but the expectations are also far above average. Like professionals, trainees are expected to grow and to produce results for their team. If they do, they can anticipate exciting futures because Enterprise is growing and promotes from within.
Everybody learns through personal experience exactly what it takes to succeed: serving customers well, being good team members, and contributing to the branch's bottom line. Within eighteen months management trainees can be promoted to assistant branch managers, sharing in branch profits. Continued success will give employees the opportunity to run their own branches, which can quickly bring their annual compensation to more than $50,000. In fact, compensation for highly successful employees will grow more than 20 percent per year and can top $200,000 within ten years of their college graduation.
Taylor never limits the number of executives who earn these substantial paychecks. On the contrary, he revels in their success and regularly monitors a report that shows how many achieve the top tier of compensation. Since he gauges his own accomplishment by the success of his partners, Taylor is gratified that his count is higher than at firms with revenues several times those of Enterprise. Leaders of those other firms likely feel compelled to minimize the number of highly paid executives; they consider such overcompensation unnecessary, even wasteful or unfair, for a non-headquarters job. Taylor, on the other hand, wants his talent to stay out in the field, where it can create the most value for customers and frontline employees.
Another reason Taylor and his leadership team want to see their employees earn outstanding paychecks is that Enterprise's system of partnership-based compensation aligns their interests financially. Every officer in the company, from the newest assistant branch manager to Andy Taylor himself, receives a base salary of no more than $35,000 and a share of profits from all the branches in his or her "lane," or region. So everyone wins when a manager figures out how to expand local branch profits. Even though this policy has led to some extraordinary levels of compensation, Taylor strongly believes that he should never change the deal and constrain the upside of his most successful people. It wouldn't be smart, because he would lose the commitment of his star performers and compromise his ability to attract exceptional talent into the firm. Moreover, it wouldn't be fair. The executives at Enterprise are committed to fairness and to being faithful to their customers, to their employees, and, above all, to the principles on which the company was founded as they continue their remarkable journey up the high road.
THE HARLEY-DAVIDSON STORY
Virtue is probably not the first thought that comes to mind when you picture a squadron of tattooed, leather-clad bikers cruising on their Harleys-but to the leaders of the Harley-Davidson Motor Company, these bikers embody principles of the highest order. The firm's annual report trumpets that it has "the world's most loyal customers."11 And who can argue? How many firms inspire customers to tattoo their bodies with the company logo? Were it not for the company's faithful customers, Harley-Davidson, the time-honored U.S. firm, would never have survived the onslaught of Japanese competition in the 1980s, when it was almost buried in the same scrap heap as the other 140 U.S. companies involved in the manufacture of motorcycles.
Instead, Harley's performance has made it one of the hottest growth stocks on the New York Stock Exchange. Fortune examined the performance of the top 1,000 public companies between 1987 and 1996 and discovered that only 17 had multiplied total shareholder return by 35 percent or more per year.12 Harley ranked ninth on that list, bracketed by companies such as Intel, Microsoft, Micron Technologies, and Home Depot. What is the secret formula for such remarkable returns to shareholders? Forbes offers one insight: "It's that loyalty, that intangible asset, that has convinced investors that Harley is a real growth stock."13
Out of the Dust
In 1981, the company was certainly not considered a growth stock, and loyalty was becoming a scarce commodity. Customer defections, coupled with the aggressive sales strategies of foreign competitors during the years from 1969 to 1981, when Harley was owned by entertainment conglomerate AMF, made Harley's leading market share in U.S. motorcycles plummet. When AMF finally put the firm up for sale, it looked like the end of the road for Harley until it was rescued by its management team in a last-minute leveraged buyout. Rich Teerlink joined the firm two months after the buyout as the chief financial officer. His primary role during the first four years on the job was to help stave off bankruptcy, which, in December 1985, loomed only a few hours away.
In those days, any pool of oil on the road would prompt the quip that someone must have parked a Harley there. In fact, the company's reputation for poor quality and poor reliability, combined with an economic recession and the onslaught of Japanese competition, gave management few degrees of freedom as it struggled to resuscitate the once-proud company. Teerlink, whose down-to-earth style belies his financial sophistication and University of Chicago M.B.A., eventually rose to become CEO from 1989 to 1997. Although he stepped down as chairman in 1998, he remains on the board. He describes the situation during the turnaround:
If it were not for a core of unbelievably loyal customers who stuck with us through the tough times, Harley-Davidson would not exist today as an independent company. Somehow, they kept the faith and gave us the chance to repair and rebuild our relationships with the rest of our stakeholders, including our unions, salaried employees, suppliers, dealers, and investors.14
Learning from the HOGs
Teerlink prized loyal customers and wanted to be sure his organization would never take them for granted. Searching for ways to keep leaders hardwired into customer concerns, Harley-Davidson's leadership team came up with a program called the Harley Owners Groups, or HOGs. Harley headquarters helped its dealers organize associations of riders as well as rallies, tours, and parties that continually fueled their shared passion for riding. Teerlink and the rest of the leadership team regularly attended HOG meetings and listened to complaints as well as to praise. While they were frying bacon for the bikers and polishing fenders, they watched HOGs customize their bikes and found inspiration for new models. Harley management's steady dedication to the development of the HOG program has paid off. Teerlink firmly believes that HOG stands out as one of Harley's most successful loyalty-building efforts. This pathbreaking program has continued to be as active after his retirement as before.
Teerlink talked to customers about the firm's philosophy and the importance of mutually beneficial relationships among all the firm's stakeholders. This message is obviously attractive to customers and dealers-even suppliers and unions-but it is precisely the kind of talk most loathed by investors. The typical investor would prefer to hear a CEO chant, "The reason our firm exists is to maximize shareholder value."
And yet, few investors are complaining about Harley. Teerlink and the management team utilized their partnership philosophy to fuel one of the most storied turnarounds in corporate history. After surviving the bankruptcy scare in 1985, the firm returned to public ownership in 1986. The rest of the Cinderella story is public record: Market share rebounded to over 55 percent of the large bike market. Despite an initial 40 percent layoff in 1982, Harley's leadership team won the loyalty of workers and broke new ground in effective union relations. Additionally, the firm's success in transforming its unreliable, oil-leaking clunkers into a state-of-the-art product line made it a poster child for the U.S. quality movement. Of course this transformation was mutually beneficial for investors, since an initial investment of $100 in Harley stock in 1986 would have grown to more than $16,000 by the year 2000, representing an annual return of over 40 percent.
The formula that Teerlink and his colleagues followed to produce this remarkable turnaround builds superior, loyal relationships, and it is the same formula the firm uses today. They recognize that the firm's competitive advantage is based on these special relationships:
Building and maintaining the relationships that make the Harley-Davidson experience unique and our business successful is a big part of what we are all about. Pure and simple, these relationships are a competitive advantage for Harley-Davidson. . . . No matter where you look, we have developed long-lasting relationships that produce positive results for everyone touched by Harley-Davidson.15
The principles underpinning these relationships have not changed since they were first articulated in the early 1980s. Veteran employees throughout the organization can recite them by memory, and they are handed out to newcomers on laminated plastic cards. The credo is short and direct:
-Tell the truth.
-Keep your promises.
-Respect the individual.
-Encourage intellectual curiosity.
Picture the irony here. Many employees, including most of the executive team, own and ride Harley motorcycles; if you walk through a factory, you'll see a crew that could double as extras for Brando's classic The Wild One. As the staff editor at Training magazine observed, "Here's a bunch of hard-core bikers producing the most infamous icon of go-to-hell individualism in America, and it turns out they're all worked up about relationships?"16 As you will see in later chapters, Harley's success is fundamentally a story about the power of leaders who inspire almost fanatical loyalty by helping people build successful relationships.
THE DELL COMPUTER STORY
Can the loyalty principles that apply in traditional businesses like motorcycles and mutual funds also work in the warp-speed world of computers? Michael Dell's success in transforming the personal computer business proves that they can.
Rising from a college dorm room operation in 1983 to the second largest manufacturer and marketer of computers in the world in 2000, Dell Computer Corporation is one of the most noteworthy success stories of the 1990s. With current growth at more than five times the industry average, Dell is already the number one e-commerce company in the world. Its Web site sold more than $30 million per day in 1999 (compared with $3.5 million at Amazon.com) and expects to earn more than half of its revenues over the Internet in the early 2000s. Most people know that Dell pioneered direct distribution in the PC business and offered superior prices by cutting out the middleman. By rapidly adapting to a Web environment, the company reduced its sales, general, and administrative costs from 15 percent of revenues in 1994 to 9 percent in 1999. But few people recognize that Dell is about much more than low costs. Michael Dell knew that building a business solely on low costs does not create a sustainable advantage. As he explains in Direct from Dell, "What was really important was sustaining the loyalty among our customers and employees."17 Many strategists claim that a business should focus on being either low cost or high service, but leaders such as Michael Dell, Andy Taylor, and John Bogle have demonstrated that by taking the high road-by focusing on partnership and loyalty-they can deliver both superior service and remarkably low costs.
Choosing Customers Dell-iberately
Early in Dell's formative years, there was very little loyalty in the PC industry. Average customer repurchase rates were only about 20 percent. With 80 percent of customers freely switching brands, PC margins rapidly approached the kind of returns typical of undifferentiated commodities-with many companies being acquired or exiting the business. Michael Dell broke away from the pack by recognizing that the best opportunity to transform this commodity business into one based on principled relationships and loyalty was in sales to corporations. He focused his company's resources and efforts accordingly. Dell designed a product line and services ideally suited to corporate clients. And Dell, indeed, has become the provider of choice in this segment.
Several other major decisions have contributed to Dell Computer's unique status in the industry. The company decided to serve some individual consumers, but only experienced users whose product and service needs are most similar to those of Dell's core corporate customer. The enormous market for beginners-who have a voracious appetite for product support and education-was left to companies such as Compaq, Gateway, and Packard-Bell. Also, rather than risk compromising the value offered to its target customers, Dell focused even more intently on its core strengths by exiting the retail channel entirely. Conventional logic held that if a company were going to build sufficient market power to become a long-term winner in PCs, it would have to gobble up the prodigious market share controlled by the retail superstores. News stories at the time hammered Dell for the decision to jettison its retail business, claiming that it would severely limit the company's growth.
But rather than slowing growth, the firm's decision to simplify its focus actually accelerated growth. Michael Dell explains:
The real value was that it forced all of our people to focus 100 percent on the direct model. That single-mindedness was a powerful unifying force. . . . We had to identify those opportunities that made the most of our strengths and go after only the best ones . . . [so that we could] hold ourselves accountable to our customers, employees and shareholders.18
A further unifying force is the firm's clear, simple, and unwavering commitment to work in the customer's best interest, even at the expense of short-term revenue opportunities. For example, Dell never sells its mailing lists or customer information, viewing this as a violation of the customer's privacy.
Another key element of Dell's loyalty model is intensive two-way communication with customers, says Michael Dell: "The best way we've found to stay in tune with our customers and keep them happy is to engage in a cooperative, mutually beneficial dialogue."19 This discussion includes face-to-face meetings, online surveys, and online focus groups. Dell himself continues to spend substantial time on the Web interacting with customers, sometimes as an anonymous Dell employee so that he can get the unvarnished truth about how customers feel about his company and the service it provides.
Communication also plays an important role in the successful relationships Dell Computer has forged with its vendors. Early on, the company made an important strategic decision to avoid manufacturing at Dell anything that could be made better and cheaper by another company. This policy not only reinforces the firm's ability to focus on what it does best, but also removes the cost of holding inventory. Considering the rapid price decline and obsolescence of many computer components, a large inventory places an enormous drag on most competitors' earnings. Dell describes his preference for outsourcing: "Choose what you want to excel at and find great partners for the rest. . . . Today our rule is keep it simple and have as few partners as possible."20 Dell Computer now has fewer than forty suppliers, which provide more than 90 percent of its materials needs. Dell adds, "The lesson is simple: complexity kills. Bring suppliers into your business and provide them with all the information they need to make an informed decision."21 Dell could never have grown as fast as it has without its superior network of vendor partnerships.
Building a Company of Owners
Of course, in a hypergrowth industry like computers during the 1990s, the most prized commodity is talented employees. Their loyalty is an absolute necessity. Michael Dell devoted an entire chapter of Direct from Dell to the subject of building employee loyalty. The chapter's title, "Build a Company of Owners," encapsulates his employee strategy:
You need to engender a sense of personal investment in all your employees-which comes down to three things: responsibility, accountability, and shared success. . . . Mobilize your people around a common goal. Help them to feel part of something genuine, special and important, and you'll inspire real passion and loyalty.22
Dell practices what he preaches. He has organized the company into small teams, each with clear P&L (profit and loss) responsibility for one customer, product, or geographical segment. As an organizational unit grows too large, he can subdivide it appropriately since a core part of his organizational philosophy is to "stay allergic to hierarchy." Every team is held accountable for its financial and customer service results, and every employee is rewarded with stock options in the firm. This organizational simplicity and consistency has helped build one of the greatest business successes in the United States. There are so many millionaires among Dell employees that they have their own name, Dellionaires. But it is much more than financial success that keeps outstanding people at Dell. The loyalty of employees to one another and to the company has enabled this once tiny, undercapitalized start-up to grow at an astonishing rate, eclipsing enormous rivals along the way. And it is why Michael Dell remains so confident about his firm's ability to continue its skyrocketing trajectory far into the future: "It's about people who are thoroughly invested in each other's growth. It is, in the truest sense of the word, a loyal partnership."23
THE MORAL OF THESE STORIES
So what is the moral of all these stories? What can you extrapolate from the stresses and successes of these loyalty leaders to help you along your own pathway? Clearly the high road often traverses difficult terrain, but these leaders did more than survive. They thrived by steadfastly doing the right thing. Indeed, only in the most difficult times are principles truly tested and proven for others to witness and to understand.
Early in its turnaround, Harley came face-to-face with bankruptcy and was forced to lay off 40 percent of its workforce. Enterprise ran up against the auto industry Goliaths that acquired the other rental companies and ran them for inventory management instead of for profits. In 1992 and 1993, Dell stumbled badly, saw earnings deteriorate, and had to survive a cash crisis before finally managing to get back on track. Even in the most trying times, these loyalty leaders have neither grasped at industry fads or management fashions nor looked for quick fixes to boost their earnings. Instead, they have had the courage to ask themselves how they could do a better job in living up to their principles, how they could become more worthy partners. As a result, by building relationships worthy of trust and commitment, they have fundamentally transformed the economics of their industries-and the lives of the people their businesses have touched.
The moral of these stories is that loyalty leaders don't ask for loyalty from their partners; they don't even make it an objective. Their objective is to be loyal to partners by remaining true to core principles and always working in their partners' best interests. By being loyal, leaders will earn the loyalty of those around them. And earning partner loyalty becomes the measure of their leadership.
To follow in the footsteps of these loyalty leaders, you, too, must use partner loyalty as the measure of your success. You must have the courage to take the Loyalty Acid Test-regularly-to learn how many of your partners believe you deserve their trust and loyalty. As you read through the following chapters, you will gain a more detailed understanding of the principles of loyalty that have guided our model leaders. Then, as you listen carefully to partner feedback, you will discover the inconsistencies between your practices and the principles. By constantly striving to close the gap between principles and practices, you will find yourself on the high road. This is the only path to becoming a loyalty leader.
Excerpted from Chapter 2, Loyalty Rules!: How Today's Leaders Build Lasting Relationships, by Frederick F. Reichheld, Harvard Business School Press, 2001. Copyright 2001 President and Fellows of Harvard College. All rights reserved.
Table of ContentsPreface
1 Timeless Principles
2 Loyalty Leadership: Putting Principles into Practice
3 Play to Win/Win: Profiting at Your Partners' Expense Is a Shortcut to a Dead End
4 Be Picky: Membership Is a Privilege
5 Keep It Simple: Complexity Is the Enemy of Speed and Flexibility
6 Reward the Right Results: Worthy Partners Deserve Worthy Goals
7 Listen Hard, Talk Straight: Long-Term Relationships Require Honest, Two-Way Communication and Learning
8 Preach What You Practice: Actions Often Speak Louder than Words, but Together They Are Unbeatable
About the Author
What People are Saying About This
Robert T. Herres, General, U.S. Air Force (retired), and Chairman, USAA
In The Loyalty Effect, Fred Reichheld showed us that indeed, loyalty 'is the hidden force behind growth, profits, and lasting value'-the intangible that binds an organization together and manifests the strength and quality of its culture. In Loyalty Rules!, he identifies and illustrates the simple rules and timeless principles that cultivate this hidden force and bring lasting value to enterprises that can implement and master them.
Leon A. Gorman, President, L.L.Bean
Once again, Fred Reichheld clearly demonstrates the importance of building customer loyalty. He provides rigorous checklists and compelling real-life examples that prove loyalty building is not only good business, it's also good corporate citizenship. This is a philosophy we live by at L.L. Bean, and one with which I couldn't agree more.
Richard A. Gephardt, House Democratic Leader
Reichheld's previous work proved that people and profits needn't be at odds-they can, in fact, be mutually supportive. Now, Loyalty Rules! provides the tools for leaders to implement this simple yet revolutionary concept and help ensure long-term success. Through concrete actions and winning strategies, Reichheld shows how people at all levels of an organization can promote loyalty and, in turn, create greater outcomes for all stakeholders. A valuable message for both the public and the private sector."
Most Helpful Customer Reviews
Most sequels to business books merely add some more detail to the argument of the previous book. Loyalty Rules! is a happy exception to that circumstance. The Loyalty Effect is a fine and helpful book, but I prefer Loyalty Rules! because it is more practical and explores so many more dimensions of leadership and management. There is also new information in Loyalty Rules! about the economics of customer loyalty for doing business on the Internet. Many people take the financial incentive to keep customers longer as encouragement to employ all of the latest loyalty-building tools (from data-mining to loyalty incentive programs). Mr. Reichheld is correct that encouraging people to be loyal while treating them with bad service, poor products, or disloyalty in return will not work. He argues instead for a values-based orientation that will remind many people of the principles in The 7 Habits of Highly Effective People. The essence of the concept for creating loyalty is: 'Show your partners [stakeholders like customers and employees] that loyalty is a logical strategy for the pursuit of self-interest when self-interest is defined in the context of lifelong success.' His six principles for building loyalty are paraphrased as follows: (1) Always play to provide wins for the stakeholder as well as for the company. (2) Be selective about the employees and customers you take on and encourage to stay with you, so that they enhance your cooperative system. (3) Keep your approach to being loyal (and earning loyalty in return) simple. For example, 'Do right by the customer' was an actionable motto for Intuit when bugs cropped up in its tax software. (4) Reward providing the right results (which usually means adjusting the way your compensate and motivate people in your organization). (5) Listen, learn, act, and explain (communication is a two-way street if you are to improve and be reponsive). (6) Begin with how you want to be remembered when you decide what to say and do today, and then preach with your words and actions to support that end. The book has fairly well developed examples from Enterprise Rent-A-Car, Vanguard Group, Harley-Davidson, Cisco Systems, Dell, Northwestern Mutual, MBNA, Chick-Fil-A, SAS, USAA, the New York Times, the U.S. Marines, and Intuit. There are also references to companies like ServiceMaster, Southwest Airlines, SAS (the computer software company) and other service organizations. The book and the book's web site contain loyalty questionnaires you can use to diagnose how your organization is doing. At the end of chapters 3-8 are directions for how to use the answers you get to direct your next steps. One big surprise in the book is that it emphasizes the dual idea of having an economic advantage and then using some of the economic benefits of that advantage over competitors to provide better results in ways that will build loyalty. The concept is that you turn a temporary economic advantage into a permanent one by building loyalty. You are directed to another Bain book, Profit from the Core, as the source for how to achieve that initial economic advantage by focusing on your core strength. Clearly, some of the examples seemed to have as much to do with superior economic advantage (partly helped by employee loyalty) as they did with building customer loyalty. That was especially true of Dell, Cisco, Southwest Airlines, and Enterprise Rent-A-Car. I was left with the question of what to do if your economic advantage erodes faster than you can building an economic advantage from loyalty. The book suggests that all of this applies to other stakeholders like vendors, partners, lenders, shareholders, the communities you serve, and so forth. Only vendors show up in any specific discussions. It looked to me like much of the advice would work better for a private company or governmental operation (as some of these are) than for a public company with 'what have you done for me lat