Friday, August 14, 2009

Why Loyalty Matters

Management fads are often driven by the conflict of interest that bonus structures create. Sunbeam had massive downsizing which resulted in extreme riches to managers who battened on the health and wealth of the company to its harm. Texas Instruments had its culture ravaged by the same sort of thing and has been striving to make things right. In every case the company involved betrays the loyalty of its workers to benefit often transitory and predatory managers.

It goes back to business schools. I had a friend in the early 80s who expressed his unhappiness that to continue in his then area of choice he needed to find a plant and close it to demonstrate toughness. He needed to sacrifice the careers and lives of hundreds of employees to have a resume item. He noted that probably more than 75% of plant closings at that time in the 1980s were not justified – they were betrayals of worker loyalty for modest personal profit for the managers closing them at the expense of the corporate entity and the loyal employees.

It is no surprise that after about thirty years of this type of treatment, older workers tend to lack loyalty and younger workers (often their children) see loyalty as foolish. That is one of the gifts that elite MBA schools and management consultants have given modern America – an erosion of loyalty. That same experience has bled out into consumer relationships.

I can compare a small business I know with Volvo. When the UPS strike hit, in order to make his commitments to clients to make thirty day delivery turn-around, John paid for overnight express delivery and ate the loss. He was and is loyal to his customers and a man of integrity. Volvo, I bought a car from them (two actually). The paint was bad. They kept promising that they had fixed it when all they had done was buff and use colored wax that would hide the problem for 2-3 months. Finally, they offered to pay for half of the cost of repainting – if I used their provider. Of course they wanted me to pay about $2,500.00 for my half, up front, for a paint job that should have cost a total of less than $1,500.00 (same color, one color, no primer needed). I actually had the job done for $800.00 and it has lasted several years and is still excellent.

In other words, Volvo offered to make only a $1,600.00 profit at my expense for fixing their problem. Did that show or inculcate loyalty, honesty or trustworthiness? Obviously not at all. I’ll never buy a Volvo again and would advise anyone I know not to buy one.

Yet, there is a reason people are happier when they are loyal. Companies that are loyal have more satisfied and effective employees and better served customers. Now loyalty alone won’t do the job, but without loyalty in the mix, the job does not get done well.

As you might suspect, I’ve been enjoying

If you pick it up, it is easy to mistake it for a book length advertisement for a web 2.0 application. Of course access to the application is free with the book and only tangential to the book itself (in other words, it is an effort to provide “value added” material, not a cheesy attempt to get you to pay for a book length advertisement for a web app).

Once you get past the short aside for the web based service, what you get is an explanation of what loyalty is, why it is important, how to measure loyalty (rather than how to make superficial guesses like most “loyalty programs” do) and how to nurture and integrate loyalty with the other elements that lead to corporate and personal success, and that are essential for individual satisfaction and happiness.

The book is honest. For example, 80% of your loyal customers are ones you are losing money on and will never turn a profit on (which is one of the reasons they are loyal).

However, it is important to realize that your life will be more satisfying and you will be happier if you have areas where you can be loyal. Understanding loyalty is a significant point in finding happiness in your life.

I’ll write more on the book and on loyalty, but it is a worthwhile read.


Kent White said...

I've been thinking a lot about this issue over the last week as I've been researching the Mondragon Cooperative Corporation in Spain. They are doing astoundingly well since their Spanish employees are also owners. They don't have shareholders, or investors, just member-owners to whom they distribute 50% of the profits. They have no need for government programs since they are able to care for their pensions, health care, education, etc. An amazing business model in an age where loyalty is weak.

Visit the Front Porch Republic for more on this one.

Stephen said...

Excellent, and thank you. I was just having a discussion with another attorney about companies like this one, and the specific example is exactly what I was looking for Friday.

Thank you again Mr. White.

PaulM said...

I have to say this post is drivel. Its characterization of corporate management demonstrates a level of ignorance that is beyond the pale. No one closes down a plant just to prove one's toughness. Please, provide a specific example of a company that shut down operations just so some manager could prove their toughness. Now, it's often a standard part of a career progression within a company to participate in a shutdown but the participants are typically not party to the decision to terminate operations at a particular facility.

You also seem to be blind to the one group that most demands and deserves management loyalty-- the stockholders.

Stephen said...

Paul, I've had friends who were MBAs who were complaining about closing plants to prove toughness.

By all means, shareholders deserve primary loyalty, which is what often gets sacrificed.