Category: Leadership

Chip Conley, the CEO of the Joie de Vivre chain of hotels, has a great blog post about loyalty in the workplace and how to inspire loyalty in employees, customers and investors. He takes his inspiration from Maslow’s hierachy of needs:

What Abe Maslow helped me realize is that a great business leader deeply understands the motivations of their employees, customers, and investors. And, from that I started to realize that there was a Hierarchy of Needs pyramid for employees, customers, and investors.

But, unfortunately, most companies get so caught up with the base survival needs in these relationships that they lose track of the higher needs of each of these three groups. Business has a natural tendency toward the tangible which impedes many companies from moving to the priceless (to use a MasterCard word) intangible elements at the peak of the employee, customer, or investor pyramids.

This is not just a lot of fun, it’s also darn good business:

[one study] found that a 5 percent increase in customer retention rates led to increased profits between 25 and 95 percent depending upon the industry.

Also Joie de Vivre has an employee turnover rate that is one-fourth the hospitality industry average – imagine how much money that saves them in recruitment and training costs.

One way Chip creates loyalty is to look at the ratio between positive and negative interactions:

Psychologist John Gottman created a landmark study on marriage and found that successful relationships averaged a 5 to 1 ratio of positive to negative interactions. Other studies in the business world have put this ratio at 3 to 1 with respect to what drives productivity in employees. If your workplace is more focused on giving feedback only when something is going wrong, as opposed to celebrating what’s going right, you may end up with a high divorce rate with your employees…

These same ratios can also apply to your relationships with your customers, and, miraculously to your investors too (although I know many of you don’t believe a human Hierarchy of Needs may have anything to do with the Return on Investment Robots we call investors).

Another is to create peak experiences for employees and customers – or even for complete strangers. In another great post, Chip explains how his company invited a bunch of strangers to a party:

…recently, we created a peak experience for a bunch of strangers – albeit strangers who had something in common with each other and the company. To celebrate the 20th anniversary of Joie de Vivre, we invited 10,000 people (I’m assuming mostly women) from the state of California with the name “Joy” to a JOY PARTY at our luxurious Hotel Vitale on San Francisco’s waterfront.
…
we ended up with a roomful of joy (or Joys) — 125 women sharing the name with dozens and dozens of husbands, significant others, friends, children and even a few media there to capture the occasion.

How cool is that! It’s an expression of joy, it’s quirky, it fits great with the company’s brand AND it’s a wonderful example of the abundance mentality at work.

I stand in awe of this approach to running a business – and it only confirms what I always say: That happy companies are way more efficient than unhappy ones. Their ability to inspire loyalty in employees, customers and investors is just one reason.

And that’s why the future belongs to the happy!

Chip has explained his ideas in his new book Peak: How Great Companies Get Their Mojo from Maslow, which went into my shopping basket at Amazon… [click] …right then.

A great big thank you to Simon White for telling me about Chip’s excellent posts!

Related:

• Top 10 reasons why happiness at work is the ultimate productivity booster
• Five reasons to forget about money and focus on what makes you happy at work
• The Feel Factor – Why no workplace can afford to ignore what people feel
• Why “Motivation by Pizza” doesn’t work

Sally Hogshead has a great post called How to be an anarchist that opens with these words:

They’re lighting the town square ablaze, running amok through the embassies, yanking down statues and looting the stores.

Who? Your consumers. And if you’re smart, you’ll grab a torch and join them.

Sally’s post is mostly about anarchy in media – about:

…the power shift from established forms of information to consumer-directed content. From encyclopedias to Wikipedia. From publishing to blogs. From movie theaters to iPod screens. From retail locations to pop-up stores. And in case you hadn’t noticed, from traditional paid media to all those new forms of digital media spawning like bunnies.

But I believe business anarchy has a much wider scope, and that it’s time for us to break away from the old mental model that defines a company as a way to control employees.

The time has come for the radical company.

What does that mean? To paraphrase Paolo Freire:

The radical company, committed to human liberation, does not become the prisoner of a “circle of certainty” within which reality is also imprisoned. On the contrary, the more radical the company is, the more fully it enters into reality so that, knowing it better, the company can better transform it.

This company is not afraid to confront, to listen, to see the world unveiled. This company is not afraid to meet the people or enter into dialogue with them. This company does not consider itself the proprietor of history of all people, or the liberator of the oppressed; but it does commit … to fight at their side.

Freire was talking about the radical human – I’ve rewritten his quote to talk about the radical business and it still makes perfect sense. To make a company happy you must be willing to be radical, to commit the company to the employees’ freedom.

Also, you must be willing to do this against business tradition and against the advice and recommendations of people who just don’t get it.

My good friends at WorldBlu make a living teaching organizations to be more democratic and they recently published their 2007 list of most democratic companies. This list shows that companies that are run democratically, with few remnants of the old, military-style, hierarchical, command and control structures perform better and more efficiently today.

They’re also happier workplaces because we like freedom. We like being able to take responsibility, make decisions and grow into leadership as fits us. On the other hand, we hate being stuck in bureaucracy, red tape, meaningless rules and endless power struggles.

A horrible case: Alabama A&M University who has this policy in case of a death in an employee’s family:

Staff members shall, upon request, be granted up to three (3) days annually of bereavement leave for the death of a parent, spouse, child, brother or sister, grand parents [sic], grand parents-in-law, grandchild, son or daughter-in-law, mother-in law, father-in-law, brother-in-law, sister-in-law, step children, children-in-law, aunts, uncles, nieces, nephews, and first and second cousins. Other relationships are excluded unless there is a guardian relationship. Such leave is non-accumulative, and the total amount of bereavement leave will not exceed three days within any fiscal year. If additional days of absences are necessary, employees may request sick or annual leave, after providing an explanation of extenuating circumstances.

(Via Gruntled Employees, who has some pointed words about this case :o)

A good case: Nordstrom’s, who only give their employees one rule:

Rule #1: In all situations, use your good judgement

In the excellent book The Second Cycle – Winning the War Against Bureaucracy, Lars Kolind wrote about how easy it is for companies to get stuck in a bureaucratic, controlling mindset – especially as they grow older, bigger or more successful. He also outlines his recipe for breaking out of this mindset, which includes A Collaborative Organization, i.e. one where leadership is distributed as much as possible.

Luckily, more and more companies are starting to realize that command and control style leadership:

• Is less effective
• Creates more stress
• Creates more bureaucracy and red tape
• Reduces creativity and innovation
• Makes employees cynical and disengaged

My favorite example of a radical organization is still Semco in Brazil where (just to mention a few examples):

• Employees set their own working hours
• Employees choose their own salaries
• All meetings are voluntary and open to everyone
• Employees hire their own bosses
• Employees choose which leader they want to work under

Radical companies give their employees more freedom and find that people become happy at work, and consequently are more engaged and productive. This also makes the company more profitable, which Semco has certainly found.

So making your company radical is not only fun it’s also good business.

And there has never been a better time for it. We’re richer, more educated and better informed than ever before in the history of mankind. We have the knowledge, the means, the tools and the drive to finally change business for good.

Our reward will be companies that are:

• More robust – because people who can lead themselves respond more effectively to crises
• More productive – because you don’t get bogged down in red tape
• More nimble – because the company will be able to change faster when employees have more responsiblity
• More fun – because this is closer to how we really work as human beings

And to anyone who thinks “yeah, nice idea sure. Too bad it’s impossible” I refer you to this quote.

What do you think – would you like to work in a radical company? Have you tried it already? What was it like?

In my last post I wrote about how Costco treats its employees better than their competitors, get huge profits as a result – and catch flack for it from stock analysts who want them to spend less money on their people. Go figure.

So here’s a good question… considering that Costco spends 40% more on their employees than their closest competition, how well is Costco CEO Sinegal himself paid?

Despite Costco’s impressive record, Mr. Sinegal’s salary is just $350,000, although he also received a $200,000 bonus last year. That puts him at less than 10 percent of many other chief executives, though Costco ranks 29th in revenue among all American companies.

“I’ve been very well rewarded,” said Mr. Sinegal, who is worth more than $150 million thanks to his Costco stock holdings. “I just think that if you’re going to try to run an organization that’s very cost-conscious, then you can’t have those disparities. Having an individual who is making 100 or 200 or 300 times more than the average person working on the floor is wrong.”

So here’s a company that pays its employees more than average – and its CEO waaaay less. I like it!

This also contributes to making people happy at work. While I always say that money can’t make us happy at work, a salary that’s too low or blatantly unfair (say one that is 200 times smaller than the CEO’s) can definitely make us unhappy.

You’d think that if a company treats its employees well (a lot better than their competitors) and gets great business results because of it, that this company and it executives would be celebrated and praised for it.

You’d be wrong.

The New York Times has a great article about Costco, the huge American chain of supermarkets who spend much more on their employees than their main competitors:

Costco’s average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam’s Club. And Costco’s health plan makes those at many other retailers look Scroogish.

According to Costco’s CEO Jim Sinegal, this makes good business sense:

Good wages and benefits are why Costco has extremely low rates of turnover and theft by employees, he said. And Costco’s customers, who are more affluent than other warehouse store shoppers, stay loyal because they like that low prices do not come at the workers’ expense. “This is not altruistic,” he said. “This is good business.”

The results are pretty impressive:

Costco’s stock price has risen more than 10 percent in the last 12 months, while Wal-Mart’s has slipped 5 percent. Costco shares sell for almost 23 times expected earnings; at Wal-Mart the multiple is about 19.

So how do stock analysts react to this? They tell Costco to start treating their employees worse:

Emme Kozloff, an analyst at Sanford C. Bernstein & Company, faulted Mr. Sinegal as being too generous to employees, noting that when analysts complained that Costco’s workers were paying just 4 percent toward their health costs, he raised that percentage only to 8 percent, when the retail average is 25 percent.

“He has been too benevolent,” she said. “He’s right that a happy employee is a productive long-term employee, but he could force employees to pick up a little more of the burden.”

This makes zero sense to me – but it illustrates two things perfectly:

1. Traditional business thinking in some areas still regards employees as resources, that like any other corporate item must be bought as cheaply as possible.
2. Executives who believe in treating employees well are faced with pressure from analysts and the stock market to stop doing so and start being more like anyone else – regardless of the results their strategy has been getting them so far.

This is partly why Jim Goodnight, the CEO and owner of software company SAS Institute refuses to take his company public; he knows that it would become much more difficult to keep SAS employees as happy as they currently are (read about how SAS keep their employees happy).

One company did manage to go public and keep their identity: Google. When they announced their IPO, founders Brinn and Page made it very clear that they would continue to run the company their way. They promised to go on treating their employees extremely well and making long-term decisions rather than living from quarter to quarter. If investors didn’t care for that, they were kindly requested to take their money elsewhere. Google being Google, investors flocked to buy the stock anyway – less famous companies might not get away with this approach.

To me, it makes perfect sense that treating employees well makes them happy and that happy companies make more money – and this is backed up by many studies. To give one example, the 100 best companies to work for in the US, have outperformed the general stock market by a factor of 3.

It’s time that investors and stock analysts realized this and started demanding of companies, that they make their employees happy. This not only increases profits, it’s one of the best and most efficient ways to do so.

UPDATE: Turns out the highly up-to-date article from the NY times I reference is 2 years old. So much for my amazing powers of observation :o) Fortunately the tendency still holds and Costco still treat their people better AND outperform Walmart on the stock market.

For the last year the great folks at WorldBlu have been on the hunt for companies that practice organizational democracy and they’ve found many great examples. The very best ones are companies that dare to be different, dare to include employees in the decisions being made … and interestingly they also tend to be very happy workplaces.

The awards list includes companies like Berret-Koehler Publishers, GE Aviation, Threadless and Linden Labs (who make Second Life).

And who tops the list? What is the most democratic company? You may be surprised, but I ain’t tellin’ – head on over to WorldBlu.com to find out.