May 5, 2020

Total Performance Leadership Blog Post #14: Stakeholder Engagement-Qualitative Factors

By Rob Andrews

Last week we spoke of capitalism’s evolving identity and what happened to one iconic brand that lost its soul. Raj Sisodia believes that companies that don’t understand the unstoppable forces that are driving this makeover could have a short life expectancy.

We are advocates of measuring all that matters. It’s a TPL principle. Not everything, however, can be measured with numbers. Companies with a soul are high-concept companies. “High-concept” means high touch, which means demonstrating the ability to empathize, to understand the subtleties of human interaction, to find joy in oneself and elicit it in others, and to stretch beyond the numbers in pursuit of purpose and meaning.

Firms of Endearment speaks of affection, love, joy, authenticity, empathy, compassion, soulfulness, and other terms of endearment—terms not usually found in business. These terms are used routinely by firms who endear themselves to stakeholders by bringing them all into strategic alignment. No stakeholder group benefits at the expense of another and each prospers as the others do. They meet the needs of all their stakeholders and delight them and engender affection for and loyalty to the company.

The terms “share of wallet,” “share of stomach,” “share of spend,” and others are commonly used today. The firms Sisodia writes about strive for share of heart. Earn a place in the customer’s heart and she will gladly offer you a bigger share of her wallet. Do the same for an employee and he will pay you back with a quantum leap in productivity and work quality. Bond with your providers and be rewarded with superior offerings and amazing responsiveness. Give the communities in which you operate a reason to love you and be rewarded with an endless source of loyal customers and employees. And don’t forget the shareholders. They want good returns, but they also take delight in investing in companies they admire.

The peak-performing companies highlighted in Firms of Endearment all subscribe to a purpose that is different from and goes beyond making money. They actively align the interests of all stakeholder groups that go beyond stakeholder engagement. They have compensation plans that are far more equitable than most. They devote far more time to workforce training than their industry peers. They have significantly lower turnover, and they empower employees to make certain that every customer is fully satisfied. They typically pay more than their peers but expect employees to work hard in support of their fellow stakeholders. They make a serious effort to hire only those who are passionate about their company and products. They humanize the experience for customers and employees while having a genuine passion for customers of an emotional level. Their marketing costs are significantly lower and their customer loyalty significantly higher than their industry peers. They view their suppliers as true partners and collaborate with them to move both their companies forward. Rather than trying to extract every nickel of cost from their suppliers, and forcing them to discount their services, they help their suppliers reach higher levels of productivity, quality, and profitability. Suppliers, in return, function as true partners, advocates, and extensions of their staffs, rather than indentured servants.

Each one of the companies highlighted in Firms of Endearment recognize their corporate culture to be their single greatest asset and primary source of competitive advantage. This is also the case among the companies we’ve studied to build the Total Performance Leadership architecture. The leaders of these peak-performing organizations know that their cultures are in fact their only sustainable competitive advantage and that everything else can be copied.

Their cultures are resistant to short-term, incidental pressures but also quickly adapt as needed. Because engagement levels are so high in these companies, they tend to be the innovators and the rule-breakers within their industry sectors. Because these exceptional leaders understand that corporate culture is tantamount to physical health, and must be constantly monitored and adjusted, they are painstaking in their efforts to establish mechanisms to measure cultural norms and strive for optimal organizational health.

According to Sisodia, while financial data surely is important in analyzing a company’s strength and past performance, qualitative indicators are even more important is assessing a company’s future prospects. In fact, Raj goes as far as to say that in many instances, qualitative factors may be more revealing in drawing an accurate picture of a company’s future performance than quantitative factors. Southwest Airlines has elected a “Culture Committee” charged with sustaining and strengthening the company’s unique culture.

Every one of these firms has developed methods by which they constantly assess the effectiveness of their hiring practices, leadership, clarity of purpose, stakeholder engagement, customer experience, measurement systems, innovation, and financial performance. It is amazing how much these organizations differ in their capital structures, industry sector, size, and for-profit status and how strikingly similar they are in their approach to maintaining optimal organizational health. The leaders we’ve studied are keenly aware that great cultures take discipline, hard work, and constant attention to build—and very little to destroy. Even the most powerful culture is incredibly perishable and can evaporate overnight without the right leadership at the top. Next week we’ll dig further into this exciting field of study. Stay tuned!