One of the biggest surprises in HR is how Gallup, which we thought was just a polling company, has become a leader in organizational development consulting.
David Creelman spoke to James Clifton, CEO of Gallup Inc.
DC- Tell me about your work at Gallup.
JC- I have been CEO of Gallup for 15 years. My background has really been as a pollster, especially around politics and current events. However, at Gallup we have three different constituencies: politics, customers and employees.
The thing I've noticed over the years is that companies have not built powerful relationships with their customers-although they talk a really good game. The relationship is, in truth, primarily a price relationship. I think that has really hurt free enterprise in this country. All of us have seen a supplier come in and the only thing they do is offer to lower the price. I don't think that leadership has really picked up on the power of relationships. They have never considered the value of building partnerships with companies rather than just competing on price.
Deming and Duran did their work on quality in manufacturing processes and found that when you reduce variation everything got better. They got very good at reducing variation. However they were only dealing with inventories, machinery and all of that. They never dealt with the human side. What we have found that in the emotional economy that exists within your customer and employee base the range of variation in the relationships is huge.
At one company, for example, there was one unit where every single customer they touched bought more and left with a positive vibe. There was another unit where every single customer they talked to was turned off. There is no wider variation than that. We see this all over the place-even in very well managed Fortune 100 companies.
When you have the full range in relationships with your customers it demands a price relationship. However, where you have the real, positive relationships you can charge more because the relationship creates a partnership that has more value than just price. I have sorted through the big-ticket things we buy at Gallup and our people don't always take the lowest price. They will choose someone who comes up with solutions or has useful ideas. My people say, "We didn't choose the cheapest vendor but we actually saved money in a lot of other ways."
If you look at the last 20 years of American business it has not been 20 years of great customer management and high profits -- it has been 20 years of cutting margins. Even with the efficiencies of lean manufacturing and TQM, companies just passed all the benefits on to the customers. This would be okay but it does not build sustainable organizations.
The solutions to fixing the self-destructive margin cutting in free enterprise probably lies in how you manage your own employees so that they can manage the customer relationship.
DC- Can you elaborate on your finding that relationships with employees and customers vary greatly from unit to unit.
JC- We didn't have any idea that the performance of employees varied so much. In every McDonald's the sign is the same, the color of the boxes is the same, and the food is the same. Everything is the same. They have controlled everything and you would expect there could be no variation in customer experience. Yet McDonald's has extreme variations in customers' experience from store to store. This variationcan best be predicted by the emotional engagement of the employees at the store.
I hadn't realized that one individual's performance-especially in these retail environments-could vary so much. One person can have 20% better productivity than someone else. There are about 100 million real jobs in the United States; if you divide that by the gross national product you get about $100,000 per person. If someone just does an extra 5%, well that is worth about $5,000. I am not talking about the CEO here; I'm talking about the average employee, the guy that runs the mailroom.
DC- So it's worth investing in people to get that extra performance.
JC- We are just starting a new university focused on a different way to lead. If you go to Harvard you learn how to manage mergers and acquisitions, how to restructure balance sheets, a lot of financial things; in those courses the people are totally irrelevant, they play no role in the future sustainability. I contend that you are building a monster and it becomes very hard to feed. You can't just continue playing with the finances to achieve success. There is a different way to manage. Our research says focusing on people builds a more sustainable company.
DC- What do organizations need to do to handle this incredible range in the quality of the customer relationship from unit to unit.
JC- You need to institutionalize the right customer measurements. Historically customer measurements included only rational, functional things. Frankly I played a big part in developing those rational, functional measures and it just wasn't that good. We all did it for about two decades but what we were missing was the emotional side of the attachment that a customer might have with a company. So the first thing you have to do is institutionalize the idea that the emotional economy is what matters.
The second thing you have to do is make it local. You can't do a customer satisfaction study and say, "Here is what the country thinks of McDonald's." It doesn't do any good. It doesn't do any good at all unless you look at every single store individually.
We have to have the emotional commitment of employees in every business unit or it is all a waste of time. You ask the right metrics and get it to every store or business unit. Get it down to the smallest groups you can and then hold those employees responsible for the relationship they have with the customer. If you just do that you will make bundles of money because employees know how to manage the customer relationship.
Thirdly, you have to institutionalize the right metrics for employees. Again, historically I have been a part of making terrible employee questionnaires. All of our old questionnaires had 200 questions. They would ask the same thing in 20 different ways and none of them seemed to add up and discriminate much at all. You need to ask the right questions to employees and hold the local management responsible for the results.
Then you need to build performance measurement systems around those two measures of employee and customer engagement. If you do that you will transform your organization. Next, build your training around these ideas because now people will actually want to be trained.
People will want to hear the stories about how you took a unit with low numbers and turned it around to get high numbers, or took a store with high numbers and made it even better.
All this has to be the main theme of a company's strategic plan.
DC- You are saying that employee engagement is something that leaders really should be focusing on. However, maybe in different companies something other than employee engagement is the problem. Maybe they are suffering from a bad strategy, or maybe they should really be focusing on getting their production systems up-to-date and not on employee engagement.
JC- I agree with you one hundred percent. There is no reason to be working with employees if you make a horrible product. I am not sure everyone in Gallup would agree with you and me on this but if the problem is a bad product you need to get it fixed. Most of our clients have been really well run companies...the sick ones don't come to us. That is good because we don't think we could fix them.
Here is another example: Let's imagine your firm has terrible leadership, let's say a horrible CEO. Its hard for Gallup to come in and help these kinds of organizations. The ones we work with best are companies like Lexus and Wells Fargo, companies that are superbly managed and ask how can we move forward one more time.
DC- I was surprised that Gallup became such a leader in organizational development. How did that happen?
JC- Gallup has always done customer polls for a large number of premier American companies. It is proprietary so you never read about it in the paper. When companies noticed the wide range of customer engagement in their different business units they finally started to get interested in what was driving that. So Gallup shifted its expertise to surveying employees because the very best leaders in business were wondering about how employees drove customer engagement.
This is all quite new. For the past 20 years, nobody had been interested in what employees thought. One big change in the social fabric is that leaders care about employee attitudes much more than they did just a decade ago.
DC- Would you like to make any closing comments?
JC- One of the things you notice in Gallup research is that only one in four workers in the U.S. are engaged in the workplace. It is just unbelievable to me the potential that exists for companies. Imagine if they could even get half the employees engaged. I think a movement here could be a lot bigger than lean management, six sigma or even TQM.