Where is the love?

Employees really are your most important asset – the proof is in the bottom line. Go on, give them a hug. Karen Renk CAE, Executive Director of the IMA, reports.

Over the years, we have all heard CEOs say that their most valuable asset is their employees. Yet the typical corporate strategy to drive profit by increasing sales and cutting costs does not reflect this ‘employee first’ attitude. Budgets for employee recognition, employee incentive programs, and employee training are often the first to be cut, because non-sales employees have been viewed as ‘cost centers, not profit centers’.

Certainly there are exceptions to this reality. The Container Store and Starbucks, for example, are often cited as organizations that put their people first and have impressive bottom lines as a result. Yet, while we instinctively know that when people are treated with respect and are appropriately acknowledged for their contributions they perform better, HR professionals have had a difficult time convincing senior management that their organization’s ‘people strategy’ should be an integral part of the overall corporate strategy. Employee recognition has for too long been viewed as something that is nice to do but that doesn’t really impact profitability.

The times they are a changing
Three years ago, Tim Sanders, Chief Solutions Officer at Yahoo!, wrote a provocative book titled Love is the Killer App: How to Win Business and Influence Friends (Crown Business, 2002). It was provocative because he encouraged leaders to bring ‘love’ into the workplace. Certainly, this is a notion that is a little ‘squishy’ for the Executive Suite. His “show them the love” philosophy has gained traction in part because, as he writes, “there’s been a tremendous amount of research in the last few years that really confirms the idea that a leader’s compassion for her people or her customers is an indicator of future profits.”

This ‘compassion’ can be translated into the priority that a CEO places on creating a culture of recognition within their organization. Leveraging the link between employees’ satisfaction levels with an organization’s profits is definitely not ‘squishy’ thinking. Fortune’s annual list of 100 Best Places to Work recognizes organizations that strive to have satisfied and engaged employees at all levels. Not coincidentally, it is also a list of financially successful organizations. The Great Place to Work Institute and Russell Investment Group compared the financial performance of publicly traded companies on Fortune’s ‘100 best’ list with the broader market and found that the ‘best places to work’ companies earned 176 percent over seven years ending in 2004 compared with the Russell 3000’s 42 percent return and the S&P 500’s 39 percent gain in that time.

The Forum for People Performance Management and Measurement at Northwestern University is conducting research that addresses the impact of employees’ attitudes on an organization’s financial performance. (www.performanceforum.org) Their first two publicly released studies found a clear economic opportunity for organizations to more strategically link their external people strategies (marketing and sales) with internal marketing to their employees, and indicated a need for motivation, rewards and recognition strategies across numerous disciplines. This research is reinforced with numerous studies that strongly suggest employees dealing with customers not only represent the brand, but also become the brand to the customer.

One such study conducted with customers of Burger King, McDonald’s and Wendy’s found the quality of interactions with those taking and serving their orders dramatically impacted customer loyalty. In general, customers who feel that a chain’s staff stand out are five times more likely to return. In contrast, outstanding advertising tends to make customers only three times more likely to return. In other words, investment in training and engaging your front-line employees in delivering the brand promise yields better returns than advertising.

And back in the office?
What about the employee that never interfaces with the customer? In 2005, the Forum released a groundbreaking study conducted by Dr James Oakley, PhD, Purdue University, which found a direct link between employee satisfaction, customer satisfaction and profitability, even when the employees involved did not have direct customer contact.

This powerful research is proving what HR professionals have known for years – that having motivated and engaged employees at all levels is essential to achieve customer satisfaction, loyalty and profitability. In today’s economy, there is always someone who can do something cheaper or who can take a product and copy it. Now, companies are turning their attention to their customers and to what they can do to keep them happy. We now have evidence that to keep customers happy we have to keep employees happy.

What does this mean for HR professionals?
A major paradigm shift is taking place. Employee motivation and performance management, once considered to be ‘soft’ HR considerations, are now executive boardroom issues because brand equity is an executive-level priority. And although HR managers have not been viewed as responsible for helping to deliver the brand promise, they must be ready to assume this role.

Organizations concerned about retaining their customers will invest more money and more time to engage their employees at all levels to communicate and deliver the brand promise. Sales and non-sales employees will be viewed as ‘profit centers’. Employee communications, recognition programs, incentive programs and training will be viewed as sound investments in the bottom line. Furthermore, HR professionals will play an increasingly strategic role in communicating the brand promise from the boardroom to the employees, and ultimately to the customers.

Karen Renk CAE is the Executive Director of the Naperville, IL based Incentive Marketing Association. (www.incentivemarketing.org)