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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 Chainby Heskett, Sasser and Schlesinger argues the case for this model convincingly. Kotter and Heskett, inCorporate Culture and Performanceinvestigated the relationship between culture and profitability. InFirst, 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:
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 theycause(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 conclusionsarenew. 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, youwillmake 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 havedirectdata 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
Chapter One: The Survey
To ensure a comprehensive view, four measures of financial performance were obtained for each of the offices in this study:
These were then combined into a single financial performance score by averaging each office's performance on all four measures, giving equal weight to all four measures, and constructing a financial performance index (Appendix 1). Full financial information was available for 96 offices, compared to the 139 offices that completed the employee survey.
The employee survey was a series of 74 questions with which the respondents were invited to agree or disagree. The full results are shown in Appendix 2.
Seventy-four questions are a lot to examine simultaneously. Fortunately, a technique known as factor analysis allows us to group
individual questions into (statistically) related groups or factors.
Applying this technique generated nine groupings or factors (Appendix 3). The nine factors do not include all of the questions, but they are useful as a quick shorthand to look at the results. The nine factors (or question groups) are:
The employee responses for each factor are shown using the following scale:
6 = Strongly agree; 5 = Agree; 4 = Somewhat agree; 3 = Somewhat disagree; 2 = Disagree; 1 = Strongly disagree
The message here is clear. The 5,589 respondents in the 139 offices rate quality and client relationships as the area of performance that is currently done best in their office. (Of course, this is what the employees say, not the clients. These results may reflect pride as much as reality.)
They also give high marks for their degree of empowerment, or autonomy (not surprising in a professional environment). It is encouraging to note that they give slightly above average grades to high standards and coaching, although these averages are not high in an absolute sense (4.26, where 4 stands for "somewhat agree.") Employee satisfaction also achieves only modest agreement, overall.
The results for the final four factors are not so encouraging, at least on the surface. Rated lowest of all is training and development. What is immediately apparent is that those things to do with clients are ranked highest, while issues to do with managing people were consistently ranked as being done least well, across offices, across different businesses, across the world.
It is not too surprising that the highest overall average was "only" 4.7. Remember, this is an average across 5,589 individuals in 139 offices. It would take an amazing degree of consensus about true excellence for theaverageof all these people to be much higher. When it comes to the factor groups, we are also averaging across questions, and hence failing to observe some highs and lows.
On the other hand, when the average is as low as 3.5 on a 6-point scale (halfway between somewhat disagree and somewhat agree), as it is for training and development, you can be pretty sure that the few who are doing this well are swamped by the many who are not.
To validate these responses, I asked an additional question in the survey, giving people ten (traditional) goals of a firm and asked them to evaluate how well they thought their individual office was performing on each goal. The scale was from 6 ("We're superb at this") to 1 ("We're very weak at this").
The lesson is the same. Client-related goals are rated highest, while anything to do with managing people falls to the bottom.
It is intriguing that the employees rate profit and growth in the middle of the pack. Most of these companies are actually very profitable, among the highest in their industry, and growing very fast. So why do the staff think their office is doing them only moderately well?
One theory is that when it comes to financial results in business, management's desire is always for "more, more, more." Any financial accomplishment is immediately reset as the minimum benchmark, and people are left with the impression that what they have achieved financially is insufficient. It is thus not surprising that they feel that they are only doing "reasonably" well on these financial things, and hence they award average ratings.
Are yousurprisedby all of these results? I am not. While all companies (in every industry) acknowledge their obligations to their three constituencies of clients, shareholders and employees, employees are almost always the third priority on this list.
I have worked extensively not only in the industries covered by this survey, but also in the professions at large, and these results are very familiar. When it comes to meeting its goals for its people, this group of 139 offices is, in my experience, no worse than its competitors (and perhaps, overall, no better).
There is, of course, a troubling paradox here. Many businesses, including professional firms, have nothing to sellexcepttheir people. Surely it would be a matter of simple logic (or simple self-preservation) for such firms to excel at energizing their people! But, of course, they don't.
One possible explanation is that many firms assume that people will be self-starting and inherently self-motivating, and therefore don't work very hard, if at all, at managing them. If managing means reaching out to energize, challenge, exhort, inspire and enthuse individuals on a real-time basis, then little managing takes place inside most firms.
Instead, what passes for management in these businesses is a system of strict financial controls, with periodic general meetings to listen to the latest inspirational speech and unfold the latest branding slogan or mission statement poster. This represents a combination of tight administration and weak attempts at visionary leadership. Even when done well, neither of these ismanaging.
When there are only people at stake, as in a professional firm, interpersonal skills, social interactions, emotional context and personal psychology all play crucial roles. As Charlie Green (my co-author onThe Trusted Advisor)points out, people are not just the brains of professional firms, they are the heart, the soul, the guts and the rest of the anatomy as well.
What surprised me, and continues to surprise me, is how many people I meet for whom this is an uncomfortable and, sometimes, unfortunate necessity. Many managers feel most comfortable within the financial, intellectual, rational or artistic boundaries of their field. The realm of dealing withpeople(yeuch!) andhuman emotions(horrors!) is something they feel unprepared for and inclined to avoid whenever they can.
I confess to sometimes feeling this way myself. Wouldn't it be nice if, even occasionally, we could just be purely rational and analytical, without having to deal with the sloppy, messy emotions that interactions with human beings require? Yes, it would be great, but it's not an available option for most of us! And certainly not for those charged with managerial responsibilities.
Further, when selecting people to become managers, firms tend to focus on "business skills" (business development or financial management) rather than people skills. The ability to energize others (i.e., manage) is rarely a primary criterion for choosing managers.
Perhaps the most important questions that follow from this are those that this book is devoted to. Does all this matter? Is it of any consequence that the people-related questions were ranked lowest? Should you care if your office's employees give low marks to the level of commitment, enthusiasm and respect? The answer to all these questions, as this book will show, is: Yes, all of this matters a great deal.
Just so you know what's coming, here's an overview of the quantitative analysis, which I present in steps of increasing statistical rigor.
Interspersed with the quantitative chapters are case studies of the offices that performed best, both financially and on employee attitudes. We now turn to the first case study, one of the most financially successful offices among all the offices in the database.
How to Use This Book
The book is written for the practicing manager. I have tried to write the text in plain language, and defer all statistical language and presentation to the appendices. Those who wish to investigate the supporting data in depth can look there. However, if you choose, you should be able to read straight through the book without referring to the appendices.
Whatever contribution this book makes lies less in innovative conclusions than in the fact that I have tried to present newevidenceto support important, but perhaps familiar, conclusions. (Hence the book's title: the message is not to preach new things, but to practice what most managers and firms already preach.)
Accordingly, the book is built around the evidence, quantitative and anecdotal, that I obtained. It unfolds slowly, presenting the results of analyses one at a time, building up from the simplest to the most complex. Similarly, rather than open the book with the major lessons learned from the case studies as a whole, I invite you to read each of the case studies one at a time, and experience them as I did, with (I hope) growing cumulative impact. The summary is deferred until the latter portion of the book.
For those whodowish to get the book's main conclusions right away, there's a relatively simple way to do it. Skim chapter 1 then jump straight to chapter 7 (The Predictive Package); chapter 9 (The Path to Performance); and Chapters 20 to 23 (Lessons). These chapters summarize the most important statistical and case study evidence in the their most essential form.
However, the story is richer than those chapters alone, and I hope that most readers will come with me as I recreate the journey of discovery that this research took me on.
Keep an eye out for lessons in the evidence that I may have failed to stress! While I will provide summaries and tell you what I think the lessons of the evidence are, you may want to keep a yellow highlighter pen handy to mark the lessons you deem to be the most important.
Excerpted from Practice What You Preach: What Managers Must Do to Create a High Achievement Culture by David H. Maister All rights reserved by the original copyright owners. Excerpts are provided for display purposes only and may not be reproduced, reprinted or distributed without the written permission of the publisher.
