The problem with employee satisfaction

Rob_Markey — Tue, 07 Jun 2011 23:59:38 GMT

One of my clients recently embarked on an employee satisfaction effort. They had read a book written by one of the big market research firms and then hired the firm to survey their employees. When they got the survey results back, along with comparisons to other companies, a huge debate ensued. One group argued in favor of increasing compensation. Another read the results and concluded the company needed to offer more flexibility. A third pointed to the company's underperformance on a trust-related dimension.

The good news: this company's leaders are talking about how to improve the lot of their employees. The bad news: the entire conversation is focused solving problems that impact the satisfaction of employees.

The problem? Employee satisfaction should never be a goal in and of itself. Instead, the objective should be to promote employee engagement in ways that also result in customer loyalty. As an example, imagine the retailer who finds that store employees really dislike the small, dirty break rooms located in the stores. What should the company do? How much should they invest in improving the break rooms? Should there be comfy couches? Foosball tables? How about a television? Taken to its extreme, this example is obviously absurd. Creating a palatial break room would likely create very happy employees, but very unhappy customers.

What to do? Put the Promoter Flywheel to work. At the London conference, I plan to share how some companies systematically identify the parts of the employee and customer loyalty models that reinforce each other, creating a virtuous cycle of positive energy to keep the culture moving in the right direction.

Can't wait to see you in London!

Rob Markey

Bain & Company, Inc.

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Vanguard: A Loyalty Leader Founded By A Visionary

Rob_Markey — Tue, 05 May 2009 19:04:23 GMT

I've always been a huge admirer of Jack Bogle, founding CEO of Vanguard.

He articulated a clear vision for his company and exercised uncommon discipline in building Vanguard into one of the most successful loyalty leaders around. Vanguard has grown to become the largest US mutual fund company. While he can be almost dogmatic in his beliefs and business philosophy, he built an institution that has survived far beyond his personal stewardship. Now on the company's third CEO, Vanguard has successfully demsonstrated it has sustainable values that have helped it achieve extraordinary gains.

It is interesting to note that Vanguard has generally lost market share during market bubbles, but gained it back (and more) during downturns. This happens, I believe, because their investment philosophy intertwines with their design target customer segment, which is far less driven by the whims of the market than many other investor segments, creating a source of stable growth for Vanguard.

They espouse and follow a long-term, index fund-driven investment philosophy. Owned by their fund investors, the entire organization is geared to delivering value to them. They drive costs out of their system with vigor and energy so they can maintain the lowest fund fees in the industry. Although their funds do well, they don't advertise their fund performance. In fact, several times over the course of the last 20 years, they have either closed funds to new investment or actively discouraged investors from investing in funds that had experienced huge run-ups in value during asset price bubbles. They also have a reputation for acting ethically and responsibly, and their reputation for service quality is excellent.

As a result, Vanguard attracts investors who like their investment style: self-directed long-term investors seeking index-like returns with low fund fees. These investors tend to bring Vanguard a significant portion of their investable assets and they tend to stick around through good times and bad.

So Vanguard has low advertising and customer acquisition costs, low fund management costs (they don't pay "star managers" to "beat the index"), low customer churn, and much of their business comes to them through referrals from existing investors. Their "top-down" Net Promoter Score, measured against similar competitors, is at the head of the pack by leaps and bounds.

I was prompted to write this after seeing Jack Bogle's byline on an opinion piece in the Wall Street Journal a few weeks ago. You may not agree with him, but he espouses a consistent and thoughtful point of view. You can read the article online by following this link.

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The problem with employee satisfaction

Vanguard: A Loyalty Leader Founded By A Visionary