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Dr. John Flemings "Human Sigma" presentation at the Gallup Financial Services Breakfast on June 10, 2009

Dr. John Flemings "Human Sigma" presentation at the Gallup Financial Services Breakfast on June 10, 2009

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  • 1. 1
  • 2. Optimizing Employee and Customer Engagement to Drive Success John H. Fleming, Ph.D., Principal Chief Scientist, Customer Engagement & HumanSigma Copyright © 2009 Gallup. Inc. All rights reserved. 2
  • 3. What Are Your Vital Signs? Heart Rate Respiration Blood Pressure Copyright © 2009 Gallup. Inc. All rights reserved. 3
  • 4. What Are Your Company’s Vital Signs? Heart Rate Customer Engagement Respiration Employee Engagement Blood Pressure Financial and Operational Effectiveness Copyright © 2009 Gallup. Inc. All rights reserved. 4
  • 5. What Is Engagement Optimization? An holistic approach to “optimizing” your company’s vital signs. – The behavioral economics of the employee-customer encounter Like Six Sigma, focus on reducing variability in performance and improving organizational effectiveness. Unlike Six Sigma, focus on the human aspects of organizational performance to drive profitability and growth. Copyright © 2009 Gallup. Inc. All rights reserved. 5
  • 6. The Employee-Customer Encounter In manufacturing, value is created on the factory floor when a product is made available for sale But in the service economy, value is created when an employee meets – and interacts with – a customer Copyright © 2009 Gallup. Inc. All rights reserved. 6
  • 7. The Employee-Customer Encounter To achieve meaningful operational and financial improvements, the employee- customer encounter must be Measured, Managed, and Optimized. Copyright © 2009 Gallup. Inc. All rights reserved. 7
  • 8. Engagement Optimization The EO approach is based on five “new rules” that our research and experience have found facilitate the effective management of the employee-customer encounter. The 10 companies (1,979 business units) from our research who applied these principles outperformed their 5 largest peers during a recent one-year period by: – 26% in gross margin and – 85% in sales growth. Copyright © 2009 Gallup. Inc. All rights reserved. 8
  • 9. Engagement Optimization | The “New Rules” 1. Like vital signs, the employee-customer encounter must be conceptualized and managed holistically. 2. The employee-customer encounter is fundamentally emotional. 3. The employee-customer encounter must be measured and managed locally. 4. The effectiveness of the employee-customer encounter can be quantified and summarized in a single performance metric – the Optimization metric – that is powerfully related to financial performance. 5. Optimizing local performance requires attention to a combination of “transactional” and “transformational” intervention activities. Copyright © 2009 Gallup. Inc. All rights reserved. 9
  • 10. Optimization Rule #1 | E Pluribus Unum 1. Like vital signs, the employee-customer encounter must be conceptualized and managed holistically. Because value creation in the service economy flows from the interaction between employees and customers, both sides of the employee-customer encounter must be viewed as interrelated and mutually-dependent systems that should be measured and managed as a coherent whole, not as independent activities housed within separate organizational entities. Copyright © 2009 Gallup. Inc. All rights reserved. 10
  • 11. Optimization Rule #2 | Feelings Are Facts 2. The employee-customer encounter is fundamentally emotional. Because both employees and customers are human agents, the measurement and management of the employee-customer encounter must acknowledge and incorporate the critical emotional infrastructure of human behavior and decision- making, yielding a concept that extends well beyond traditional considerations of employee and customer “satisfaction” – a concept we refer to as engagement. Copyright © 2009 Gallup. Inc. All rights reserved. 11
  • 12. Employee Engagement Copyright © 2009 Gallup. Inc. All rights reserved. 12
  • 13. U.S. Engagement Scores 2008 20% 51% 29% Actively Not Engaged Engaged Disengaged Copyright © 2009 Gallup. Inc. All rights reserved. 13
  • 14. Employee Engagement Hierarchy Financial Outcomes 100% How can Growth we grow? Do I belong? Teamwork Individual What do I give? Contribution Basic What do I get? Needs 0% Copyright © 2009 Gallup. Inc. All rights reserved. 14
  • 15. What Does Employee Disengagement Look Like? Copyright © 2009 Gallup. Inc. All rights reserved. 15
  • 16. The 12 Elements of Great Managing THE FIRST ELEMENT THE SEVENTH ELEMENT Knowing What’s Expected My Opinions Seem to Count THE SECOND ELEMENT THE EIGHTH ELEMENT Materials and Equipment A Connection with the Mission of the Company THE THIRD ELEMENT THE NINTH ELEMENT The Opportunity to Do What I Do Best Coworkers Committed to Doing Quality Work THE FOURTH ELEMENT THE TENTH ELEMENT Recognition and Praise A Best Friend at Work THE FIFTH ELEMENT THE ELEVENTH ELEMENT Someone at Work Cares About Me Talking About Progress as a Person THE TWELFTH ELEMENT THE SIXTH ELEMENT Opportunities to Learn and Grow Someone at Work Encourages My Development Copyright © 2009 Gallup. Inc. All rights reserved. 16
  • 17. Employee Engagement and Performance Note: Differences are between top and bottom quartile workgroups. Absenteeism statistic is the difference between engaged and actively disengaged employees. Copyright © 2009 Gallup. Inc. All rights reserved. 17
  • 18. Employee Engagement and EPS 2.6x Higher Growth Rate for High-Engagement Companies Note: Based on analysis of data from 89 publicly traded companies. Engagement data collected from 2002 to 2004. Comparables averaged 7.3 competitors per company. Copyright © 2009 Gallup. Inc. All rights reserved. 18
  • 19. Customer Engagement Copyright © 2009 Gallup. Inc. All rights reserved. 19
  • 20. “Not everything that can be counted counts.” -Albert Einstein Copyright © 2009 Gallup. Inc. All rights reserved. 20
  • 21. Understanding Customer Engagement Customers are not strictly rational – healthy, engaged customer relationships have a significant emotional dimension which must be measured and managed. – “When it comes to customers, feelings are facts.” Simon Cooper, President & COO, Ritz-Carlton Hotel Company LLC. Simply satisfying customers on a rational basis is not enough to drive financial performance. Copyright © 2009 Gallup. Inc. All rights reserved. 21
  • 22. Satisfaction Is Not Enough | Three Kinds of “Satisfaction” “1-4” “5” “5” Rationally Emotionally Dissatisfied Satisfied Satisfied Not at all Extremely satisfied satisfied 1 2 3 4 5 Copyright © 2009 Gallup. Inc. All rights reserved. 22
  • 23. Satisfaction Is Not Enough 100 Retail Banking Surgeons Copyright © 2009 Gallup. Inc. All rights reserved. 23
  • 24. Customer Engagement Hierarchy Increased Financial & Operational Effectiveness Can’t imagine a world without Your company is irreplaceable to Perfect company for people like me Passion me. I feel passionate about you. Treats me with respect Your company is prestigious. It Feel proud to be a customer Pride is part of who I am. Fair resolution of any problems When we have a problem, Integrity Always treats me fairly you always treat me fairly. Always delivers on promise I can safely assume that Confidence you will always keep Name I can always trust your promises. Overall Satisfaction Your company executes Likelihood to Recommend Rational Foundation and fulfills my basic Likelihood to Continue expectations. Copyright © 2009 Gallup. Inc. All rights reserved. 24
  • 25. Customer Engagement Drives Financial Performance 100 Copyright © 2009 Gallup. Inc. All rights reserved. 25
  • 26. Optimization Rule #3 | Think Globally, Act Locally 3. The employee-customer encounter must be measured and managed locally. While other kinds of organizational activities may be managed effectively from the top down, the employee-customer encounter is an intensely local phenomenon whose effectiveness varies considerably from location to location within the same company. Because of this variability in local effectiveness, its measurement and management must be focused locally. Copyright © 2009 Gallup. Inc. All rights reserved. 26
  • 27. Local Performance Variation Is the Scourge of High Performance Average Performance Range of Performance Copyright © 2009 Gallup. Inc. All rights reserved. 27
  • 28. Variation = Danger Copyright © 2009 Gallup. Inc. All rights reserved. 28
  • 29. Optimization Rule #4 | The One Number You Need To Grow 4. The effectiveness of the employee-customer encounter can be quantified and summarized in a single performance metric – the Optimization metric – that is powerfully related to financial performance. Our research has revealed that the two sides of the employee- customer encounter potentiate one another and can be quantified into a single Optimization metric. The interactive effects of employee and customer engagement at the local unit level exponentially drive operational and financial performance and growth. Copyright © 2009 Gallup. Inc. All rights reserved. 29
  • 30. Optimization | Bringing It All Together The Engagement Optimization Model arose from a set of unexpected findings. Business units that had high levels of Employee and Customer Engagement exponentially out-performed units in which one, or both, of these critical vital signs were at sub-optimal levels. These top performers are “optimized.” Copyright © 2009 Gallup. Inc. All rights reserved. 30
  • 31. Engagement Optimization Quadrants “Optimized” Q III QI Q IV Q II Copyright © 2009 Gallup. Inc. All rights reserved. 31
  • 32. Engagement Optimization Quadrants “Optimized” 70% 1.7 240% boost 3.4 boost 1.0 70% 1.7 boost Copyright © 2009 Gallup. Inc. All rights reserved. 32
  • 33. Engagement Optimization Bands 5.2x 4.5x 3.8x 2.5x 1.8x 1.0 Copyright © 2009 Gallup. Inc. All rights reserved. 33
  • 34. Engagement Optimization Rule #5 | If You Pray for Potatoes, You Better Grab a Hoe 5. Optimizing local performance requires attention to a combination of “transactional” and “transformational” intervention activities. Transactional activities, such as action planning and training, are cyclical interventions that tend to be more topical and short- term in focus, but recur regularly. Transformational activities, on the other hand, are structural interventions that focus on how companies select employees, select and promote managers, pay and appraise employees, do succession planning, and recognize and develop employees. Transformational activities are focused on creating an organizational infrastructure that supports Engagement Optimization. Copyright © 2009 Gallup. Inc. All rights reserved. 34
  • 35. Transactional Interventions Learning, Adjustment, & Alignment Performance Measurement & Accountability Education & Dialogue Copyright © 2009 Gallup. Inc. All rights reserved. 35
  • 36. Transformational Interventions To reliably influence these... Engagement Optimization …these must be all managed. Transformational Interventions Copyright © 1996-2002 Gallup. Inc. All rights reserved. 36
  • 37. Xtreme Optimization at Bank S Copyright © 2009 Gallup. Inc. All rights reserved. 37
  • 38. Optimization at Bank S | 2004 0.2% of branches (1) 5.4% 2.0% of branches (9) 3.2% of branches (14) 15.4% of branches (68) 56.5% of branches (249) 22.7% of branches (100) N=441 branches Note: Line is regression line for CE11 and Q12 Copyright © 2009 Gallup. Inc. All rights reserved. 38
  • 39. Optimization at Bank S | 2009 78.2% of branches (712) 97.4% 17.9% of branches (163) 1.2% of branches (11) 2.1% of branches (19) 0.5% of branches (5) 0.0% of branches N=910 branches Note: Line is regression line for CE11 and Q12 Copyright © 2009 Gallup. Inc. All rights reserved. 39
  • 40. What have been the results? | Bank S Revenue up 25% year over year. Stock price up 35% over past three years. Assets up 27%. Bank has moved up from #4 to #3 bank in region overall. – #1 in net profit, ROE, and ROA. – #1 in market cap. Market cap of USD 6 billion. – #1 in retail outlets. 850 branch locations (+400). 4,000 ATMs (+2,000). – #1 in credit cards issued. – #3 in total assets. . Copyright © 2009 Gallup. Inc. All rights reserved. 40
  • 41. Optimization Summary | The “New Rules” 1. Like vital signs, the employee-customer encounter must be conceptualized and managed holistically. 2. The employee-customer encounter is fundamentally emotional. 3. The employee-customer encounter must be measured and managed locally. 4. The effectiveness of the employee-customer encounter can be quantified and summarized in a single performance metric – the Optimization metric – that is powerfully related to financial performance. 5. Optimizing local performance requires attention to a combination of “transactional” and “transformational” intervention activities. Copyright © 2009 Gallup. Inc. All rights reserved. 41
  • 42. Questions from you Thank You! Copyright © 2009 Gallup. Inc. All rights reserved. 42
  • 43. Copyright Standards This document contains proprietary research, copyrighted materials, and literary property of The Gallup Organization. It is for the guidance of your company's executives only and ® not to be copied, quoted, published, or divulged to others outside of is ® your organization. Gallup®, HumanSigma®, Q12 , CE11 , StrengthsFinder® and each of the 34 StrengthsFinder talent themes, are trademarks of The Gallup Organization, Princeton, NJ. All other trademarks are the property of their respective owners. This document is of great value to both your organization and The Gallup Organization. Accordingly, the ideas, concepts, and recommendations related within this document are protected by international and domestic laws and penalties guaranteeing patent, copyright, trademark, and trade secret protection. No changes may be made to this document without the express written permission of The Gallup Organization. Copyright © 2009 Gallup. Inc. All rights reserved. 43
  • 44. Q12® Employee Engagement I know what is expected of me at work. I have the materials and equipment I need to do my work right. At work, I have the opportunity to do what I do best every day. In the last seven days, I have received recognition or praise for doing good work. My supervisor, or someone at work, seems to care about me as a person. There is someone at work who encourages my development. At work, my opinions seem to count. The mission/purpose of my company makes me feel my job is important. My associates (fellow employees) are committed to doing quality work. I have a best friend at work. In the last six months, someone at work has talked to me about my progress. This last year, I have had opportunities at work to learn and grow. Copyright © 1992-1999 Gallup. Inc. All rights reserved. 44
  • 45. CE11® Customer Engagement I can’t imagine a world without [Brand]. Passion [Brand] is the perfect [company/product] for people like me. [Brand] always treats me with respect. Pride I feel proud to be a [Brand] customer. If a problem arises, I can always count on [Brand] to reach a Integrity fair and satisfactory resolution. [Brand] always treats me fairly. [Brand] always delivers on what they promise. Confidence [Brand] is a name I can always trust. Overall, how satisfied are you with [Brand]? Rational How likely are you to continue to choose/repurchase [Brand]? Foundation How likely are you to recommend [Brand] to a friend/associate? Copyright © 1994-2000 Gallup, Inc. All rights reserved. 45