April 27, 2020
Total Performance Leadership Blog Post #13: Stakeholder Engagement-Emotional Attachment
Last week we spoke of a shift in global culture. According to Daniel Pink’s research, the global marketplace is favoring organizations like those in Firms of Endearment, who think in a unitive fashion, with a holistic vision in which all players in the game of commerce and interconnected and significant.
Remember Pink welcomes us to the Age of Transcendence, in which almost everything you thought you knew could be wrong. Sisodia is quick to point out that his material in Firms of Endearment is not about corporate social responsibility. It is about enlightened business management, which is not new, it’s just incredibly illusive and very uncommon.
Raj Sisodia, Jagsich Sheth, and David Wolfe, all co-authors, uncovered a holistic truth: that customers are drawn to companies that create superior value and have close relationships with all their stakeholders. They issue a clarion call to organizations of all types to become vehicles of service to every stakeholder group. They offer substantial case-based evidence that companies that practice a balanced stakeholder approach, develop a distinctive and lasting competitive advantage, and outperform their peers along multiple dimensions including financial. These companies build what we believe to be the only sustainable competitive advantage: a culture of peak performance.
According to Sisodia, customers are increasingly looking for meaning in their lives, rather than just adding to their list of possessions. That means relationships among friends, associates, suppliers, shareholders, peers, and the community. Raj believes that this fundamental cultural shift is changing the very soul of capitalism and that organizations who don’t get it, will ultimately succumb to those that do. Companies are increasingly motivated by and held accountable for humanistic as well as financial performance.
Humanistic companies are run in such a way that all of their stakeholders develop an emotional attachment to them, as they operate to serve and collaborate with their management, employees, customers, suppliers, and community. These companies are ultimate value creators; they create emotional, spiritual, social, cultural, intellectual, ecological, and, of course, financial value. Stakeholders of these companies feel safe, secure, and fulfilled in their dealings. They enjoy working with and for the company, buying from it, investing in it, and having it as a neighbor. There are plenty of successful companies that lack a soul, or an emotive dimension. Companies without a soul, argues Sisodia, face a doubtful future.
When I read this, I thought, as I do often, about a great Houston company that barely exists today. The Reader’s Digest version of Randalls Food & Drug Markets is worth reviewing because it illustrates what’s possible in a company with a soul, and what happens when it loses it. Randalls is now owned by Safeway, which is also a shadow of its former self, and other than the storefronts doesn’t resemble the Randalls of 1992. The story has special meaning to me because I knew the company and its leadership intimately. My family shopped at Randalls #2 on Long Point in Houston when there were only two stores. I watched Randalls grow to be the undisputed market leader, and then begin its slow descent to insignificance. During my first period in search, with a firm called Roth Young, a partner and I developed a ten-year-long exclusive retainer engagement as they’re rapid growth required recruiting assistance. We were told we played an important role in helping Randalls grow from fifteen stores in 1980 to 47 stores in 1992, the market leader, and the fastest-growing company in Houston.
Randalls was founded in 1966 by Bob Onstead, R.C. Barclay, and Norman Frewin. Bob as the CEO and this man had passion. Some say he was kind of a kook, but we could use more kooks like this. He had soul. He cared deeply about his people, his stores, his customers, and the community. In 1992, Randalls had 23% of the greater Houston market, a number that only H-E-B has recently matched. They also had the highest prices in the marketplace and the lowest-paid workforce. Surprisingly, they had by far the highest customer loyalty, the highest workforce engagement, the lowest turnover, the most loyal suppliers, exceptional profitability, and a brand that was seen by many as bulletproof.
Objectively, none of this makes sense. To understand Randalls’ success, you’d have to understand Bob Onstead’s humanistic approach and Randalls’ soul. The company’s tag line was: Remarkable People, Remarkable Stores. You’d have to look far and wide to find a company with a tag line that so accurately captured its very soul.
Randalls’ people, the lowest-paid workforce in Houston, principally because the other chains were members of four different unions that had driven wages to a point of unsustainability, were simply remarkable. They were extraordinary, outstanding, loyal, proud, passionate, amazing people. They bled Randalls blue and white. There were Randalls baseball teams, Randalls bowling leagues, Randalls parties, Randalls picnics, Randalls tee shirts, Randalls ball caps, and unimaginable Randalls spirit. Is was like a cult. These people loved their company. They knew Randalls was the best, and they were all proud to be a part of it. Bob Onstead was tough as nails and had exceptionally high standards that he was unwilling to compromise. Like Vince Lombardi, he loved and cared for his people while he drove them to levels beyond their own comprehension.
Randalls stores were remarkable. I doubt they were built with cost leadership in mind, but that didn’t matter to Bob. They were beautiful. The floors were spotless, the shelves perfectly stocked, the meat, produce, bakery and floral departments beyond description, with handmade salads, artisan bread, the freshest and finest seafood, the most beautiful floral shops, and the list goes on. I’ve been a supermarket student all my life. Wegmans, H-E-B, Publix, and a handful of others deliver an outstanding customer experience day in and day out. Randalls, however, was in a class all by itself, and I’ve not seen anything like it before or since.
Randalls customers were intensely loyal. It didn’t matter that their prices were 30% above Kroger. We were more than happy to pay the prices because of the way we felt when we shopped in those remarkable stores with those remarkable people. We felt special. We felt valued. We felt pampered. It was obvious to us that great pains had been taken to design and build beautiful stores, and that the remarkable people had worked very hard to deliver a customer experience that was equally as remarkable.
Some say the beginning of the end for Randalls was when Bob, for a variety of reasons that I’m sure made perfectly good sense to him at the time, bought the Cullum Companies’ Tom Thumb and Simon David stores and moved to Dallas to run them, leaving a leadership void in Houston. The next 28 years look and sound like a long series of unfortunate events, including partial ownership by KKR and ultimately complete ownership by Safeway, which began its own decline during the late seventies after Robert A. Magowan, who had built the nation’s largest and most profitable supermarket chain retired.
When Bob Onstead left Houston to run Thom Thumb, Randalls started to lose its humanistic approach and its soul; not all at once but it didn’t take long. When Bob was in charge, he did what Chet Cadieux at QuikTrip, Colleen Wegman at Wegmans, Bernie Marcus at Home Depot, Susan Wade, and Scott McClelland at HEB, Gary Kelly at Southwest Airlines and other stellar leaders do. He spent an extraordinary amount of time, usually two or three days a week, wandering around in his stores, talking to customers, managers, baggers, stockers, checkers, and vendors. He knew people by name, and he treated everyone equally. He spent more time with management by necessity, but he spoke to each and every employee and did his level best to make them feel special, to make them feel remarkable. Stay tuned for next week when we’ll examine more exceptional leaders who have built cultures of peak performance.