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Optimizing Employee and Customer Engagement to Drive SuccessEngagement to Drive Success

John H. Fleming, Ph.D., Principal

Chief Scientist, Customer Engagement & HumanSigma

2Copyright © 2009 Gallup. Inc. All rights reserved.

What Are Your Vital Signs?

� Heart Rate

� Respiration

� Blood Pressure


What Are Your Company’s Vital Signs?

� Heart Rate

� Respiration

� Customer

Engagement

� Employee

Engagement

� Blood Pressure

Engagement

� Financial and

Operational

Effectiveness


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.

5

� Unlike Six Sigma, focus on the human aspects of organizational

performance to drive profitability and growth.

Copyright © 2009 Gallup. Inc. All rights reserved.

In manufacturing, value is

created on the factory floor when

a product is made available for

sale

The Employee-Customer Encounter

But in the service economy, value is

created when an employee meets – and

interacts with – a customer


To achieve meaningful operational and financial improvements, the employee-

customer encounter must be

The Employee-Customer Encounter

customer encounter must be

Measured, Managed, and

Optimized.


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:during a recent one-year period by:

– 26% in gross margin and

– 85% in sales growth.


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 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.


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

10

interrelated and mutually-dependent systems that should be

measured and managed as a coherent whole, not as

independent activities housed within separate organizational

entities.


Optimization Rule #2 | Feelings Are Facts


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

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making, yielding a concept that extends well beyond traditional

considerations of employee and customer “satisfaction” – a

concept we refer to as engagement.


Employee Engagement


U.S. Engagement Scores 2008

29%51%

Actively

20%

13

EngagedNot EngagedActively

Disengaged


Employee Engagement Hierarchy

Growth

Teamwork

How canwe grow?

Do I belong?

100%

Financial Outcomes


IndividualContribution

Basic Needs

What do I give?

What do I get?

0%

What Does Employee Disengagement Look Like?


The 12 Elements of Great Managing

THE FIRST ELEMENT

Knowing What’s Expected

THE SECOND ELEMENT

Materials and Equipment

THE THIRD ELEMENT

The Opportunity to Do What I Do Best

THE SEVENTH ELEMENT

My Opinions Seem to Count

THE EIGHTH ELEMENT

A Connection with the Mission of the Company

THE NINTH ELEMENT

Coworkers Committed to Doing Quality Work

16

THE FOURTH ELEMENT

Recognition and Praise

THE FIFTH ELEMENT

Someone at Work Cares About Me as a Person

THE SIXTH ELEMENT

Someone at Work Encourages My Development

THE TENTH ELEMENT

A Best Friend at Work

THE ELEVENTH ELEMENT

Talking About Progress

THE TWELFTH ELEMENT

Opportunities to Learn and Grow


Employee Engagement and Performance

17

Note: Differences are between top and bottom quartile workgroups. Absenteeism statistic is the difference between engaged and actively disengaged employees.


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.

Customer Engagement


“Not everything that can

be counted counts.” be counted counts.” -Albert Einstein


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.

21

� Simply satisfying customers on a rational basis is not enough to

drive financial performance.


Satisfaction Is Not Enough | Three Kinds of “Satisfaction”

Dissatisfied

“1-4”

Emotionally

“5”“5”

Rationally


1 2 3 4 5

Not at all satisfied

Extremely satisfied

DissatisfiedSatisfiedSatisfied

Satisfaction Is Not Enough

Retail Banking

100


Surgeons

Customer Engagement Hierarchy

Can’t imagine a world without

Perfect company for people like me

Treats me with respect

Feel proud to be a customer

Fair resolution of any problems

Your company is irreplaceable to

me. I feel passionate about you.

Your company is prestigious. It

is part of who I am.

When we have a problem,

Passion

Pride

Integrity

Increased Financial & Operational Effectiveness

Fair resolution of any problems

Always treats me fairly

Always delivers on promise

Name I can always trust

When we have a problem,

you always treat me fairly.

I can safely assume that

you will always keep

your promises.

Integrity

Confidence

Rational Foundation

Overall Satisfaction

Likelihood to Recommend

Likelihood to Continue

Your company executes

and fulfills my basic

expectations.


Customer Engagement Drives Financial Performance

100


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.

26

considerably from location to location within the same company.

Because of this variability in local effectiveness, its

measurement and management must be focused locally.


Local Performance Variation Is the Scourge of High Performance

Average Performance

27

Range of Performance


Variation = Danger


Optimization Rule #4 | The One Number You Need To Grow


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

29

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.


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.

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� These top performers are “optimized.”


Q III Q I

“Optimized”

Engagement Optimization Quadrants

31

Q IV Q II


1.73.4

“Optimized”

70%

boost240%

boost

Engagement Optimization Quadrants

32

1.71.0


70%

boost

Engagement Optimization Bands

3.8x

5.2x

4.5x

Copyright © 2009 Gallup. Inc. All rights reserved. 33

1.8x

2.5x

1.0

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

Engagement Optimization Rule #5 | If You Pray for Potatoes, You Better Grab a Hoe

34

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.


Transactional Interventions

Performance

Measurement &

Accountability

Learning, Adjustment,

& Alignment

35

Education &

Dialogue


…these must be

all managed.

To reliably

influence these...

Transformational Interventions

Engagement Optimization

36Copyright © 1996-2002 Gallup. Inc. All rights reserved.

all managed.

Transformational

Interventions

treme Optimization at Bank SX


X

37

0.2% of branches (1)



Optimization at Bank S | 2004

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N=441 branches

Note: Line is regression line for CE11 and Q12


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Optimization at Bank S | 2009

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97.4%

39



0.0% of branches

N=910 branches

Note: Line is regression line for CE11 and Q12


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.

.

Copyright © 2009 Gallup. Inc. All rights reserved. 40

– #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.

Optimization Summary | The “New Rules”

1. Like vital signs, the employee-customer encounter must be conceptualized and managed holistically.


3. The employee-customer encounter must be measured and managed locally.


quantified and summarized in a single performance metric – the

41

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.


Questions from you

42

Thank You!


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 is not to be copied, quoted, published, or divulged to others outside of 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.


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.

44

� 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.

CE11® Customer Engagement

Passion

Pride

Integrity

� I can’t imagine a world without [Brand].

� [Brand] is the perfect [company/product] for people like me.

� [Brand] always treats me with respect.

� I feel proud to be a [Brand] customer.

� If a problem arises, I can always count on [Brand] to reach a

fair and satisfactory resolution.

45Copyright © 1994-2000 Gallup, Inc. All rights reserved.

Integrity

Confidence

Rational Foundation

� Overall, how satisfied are you with [Brand]?

� How likely are you to continue to choose/repurchase [Brand]?

� How likely are you to recommend [Brand] to a friend/associate?

� [Brand] always treats me fairly.

� [Brand] always delivers on what they promise.

� [Brand] is a name I can always trust.

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