Bridgepoint | The Point | December 2019 | Issue 36
Management
Loyal
forces
Loyalty was the subject of derision in the 1980s and 1990s. Now, however, companies increasingly recognise that it makes a difference – to employee welfare, customer service, productivity and, ultimately, the bottom line.
Modern business has little time for sentiment. The job for life died 20 or 30 years ago and, for many, employment is merely a transaction on the labour market. If you want loyalty, so the expression goes, get a dog.
Yet for years now, this attitude, which never seemed totally convincing, has been giving way to a view of work that is altogether less mercenary. The ever-emulated Silicon Valley tech giants are relentless both in trumpeting their higher purpose beyond profit and in offering their staff all manner of extras to entice them to stay.
This proliferation of perks has seen employers installing sleep pods, freezing embryos, building full-scale Irish pubs and even handing out free fish to their workers. Discounted gym membership or a mid-priced watch on your 25th anniversary no longer come anywhere close to cutting it.
There are three principal reasons for this change, suggests Isaac Getz, professor of leadership and innovation at ESCP Europe Business School. “One trend is millennials, who have a lot of allergies compared with their parents. If you don’t meet their expectations, they’ll leave. Another is the gig economy. If I’m a software developer, say, I can work when and where I want. Why should I spend my life in a glass skyscraper, when I can sit on a beach in Portugal?
There is an important difference between loyalty and retention. Talent retention is obviously desirable. Loyalty is something much more profound
Loyalty must be earned
“Even bigger, I believe, is that we’re living in a period where large corporations are collapsing like dominos. They used to have an aura – everyone was in total admiration of GE or BP – but now these businesses can’t take their corporate brand for granted.”
Combined, these factors mean that employees can no longer just be expected to stick around in gratitude for having a job – if a company wants their loyalty, it has to earn it.
There is an important difference between loyalty and retention, which smart businesses have pursued for some time. Talent retention is obviously desirable – if staff keep leaving, the consequent costs of recruitment, training, handover, absenteeism and presenteeism can seriously affect the bottom line.
Loyalty is something much more profound, Getz explains. Truly loyal employees stay because of the quality of the relationship between them and their company – and it is their company because they act as if it is their own. They don’t go to work because they are obliged to earn a living, but because they want to.
The chief executive’s task is to build a vision with employees, so people know why they come to work and what they contribute
The right toolkit
None of the tools in the human resources department’s retention arsenal – pay, perks, pensions, even promotion – can create this. Indeed, Getz argues, they may even be counter-productive.
“Employers can try too hard with all kinds of bribing schemes, but the workers only stay because of what they can get, which already makes it a fragile proposition. Loyalty is a consequence of having a true life at work, as opposed to a work life,” says Getz, who puts it in the same category as employee engagement. “You can’t aim directly at loyalty. In fact, unless you drop all extrinsic motivation as a way of keeping people, you’ll never get it.”
However, this does not mean that it is pointless to reward staff well, provide useful benefits or create pathways for career progression. Indeed, skimping on these could send a signal that a company does not care about or respect its people. But it does mean that companies wanting to create a deeper relationship with their workers have to stop seeing that relationship as something that can be bought.
The positive effects of engaged and loyal employees are legion, from encouraging better innovation, productivity and customer service to lowering the costs of replacing people. Yet while the businesses that score best in this respect all display deep and meaningful relationships with their employees, there is no simple formula that they all follow.
Independent electronics store Richer Sounds has been voted UK Retailer of the Year five times in the past decade in a large poll conducted by the Which? consumer group. Its founder, Julian Richer, has for 40 years championed putting people before profits and has been drafted into large corporates such as Asda and Marks & Spencer to help with their engagement strategies.
Employees are not the only people who respond well to being treated like human beings. It works with customers, too.
Bridgepoint-backed Hobbycraft set up what might appear to be a fairly conventional loyalty club six years ago. Signing up gives shoppers 15 per cent off their first purchase, £5 off on their birthday, early news about offers and invitations to VIP events.
Progress has been impressive – 56 per cent of revenue is linked to specific customers among the 4 million club members. But it would be a mistake to think that the sign-up offers are the reason for its success, says Hobbycraft’s customer director, Katherine Paterson.
“It’s not the club that is driving the loyalty. You can’t create loyalty unless you have the best prices or the most innovative product range, or offer great service. You have to get the basics right,” she says.
The club programme is expressly designed to communicate with users, alongside Hobbycraft’s thriving Facebook and Instagram channels, which have more than 400,000 followers. Paterson advises a less-is-more approach to both, avoiding cluttering users’ emails and not trying to own the conversation on social media.
Paterson adds that one of Hobbycraft’s great strengths is its highly engaged – and loyal – employees, who drive the majority of club-linked purchases in store.
“Our colleagues are amazing. They are all crafters themselves and that enthusiasm just shines through when customers come in and start asking for help.”
Staff enthusiasm drives club-linked purchases
Showing that you care
Aside from paying the real living wage, which is higher than the government’s national living wage, Richer offers a slew of staff benefits, including free private medical consultations, interest-free loans, a “helping hand fund” in times of hardship and free access to the company’s 12 holiday homes.
Companies wanting to build a deeper relationship with their workers have to stop seeing that relationship a something that can be bought
“If you show people loyalty, in my experience you’ll get it back in droves,” says Richer, who handed 60 per cent of the company to an employee-owned trust earlier this year. “You can’t buy it, but you can earn it by looking after your people. It’s not about money, it’s about showing that you care about them.”
The results extend beyond excellence in customer surveys. Richer points to his company’s “miniscule” staff turnover of 11 per cent, low absenteeism and an industry gold standard level of shrinkage (employee theft). “In retail it is one to two per cent, but we have less than 0.1 per cent. If your turnover is £200 million, and ours is around that, you could expect a loss of £2 - 4 million in shrinkage, but ours is nearer to £100,000. Those millions of pounds finance all the staff holiday homes many times over.”
Loyalty pays, clearly, but it is important not to take it too far. Businesses need fresh blood and new ideas, so being too good at keeping staff can be a double-edged sword
Aligning strengths with needs
Loyalty pays, clearly, but it is important not to take it too far. Businesses need fresh blood and new ideas, so being too good at keeping staff can be a double-edged sword. While loyal, engaged employees are not likely to spend their nine-to-five clock-watching, they still will not perform their best if they get complacent.
Leading US materials business WL Gore is famed for its employee loyalty and engagement, which in part rests on keeping business units small enough that bureaucracy does not set in.
The company addresses the problem of too much loyalty by tying its people strategy to the company’s purpose.
“We strive to provide an environment where each associate can contribute to the overall success of the enterprise, while growing and developing personally,” says CEO Jason Field. “We do this by working with them to explore ideas and causes that interest and inspire them, and aligning their personal strengths with business needs.”
This has paid off handsomely, with the company’s revenues increasing from $1.6 billion in 2004 to $3.5 billion in 2017, an outcome largely due to Gore’s ability to innovate and find new applications for its core PTFE technology, the best-known example being the Gore-Tex fabric used in waterproof clothing.
This can be directly traced to the high levels of motivation shown by its employees. In a recent Harvard Business Review article, Nimble Leadership, researchers told the story of an engineer who spent months of his free time experimenting with waterproofing fleeces, despite being in a different part of the business. He found a solution and then stayed with the project as it was monetised. A disloyal employee would not have done that.
There are two common themes to these examples. First, private companies seem to find it easier to develop deeper, loyal relationships with their employees, perhaps because they are not forced to chase aggressive quarterly targets at the expense of the long term. Second, loyalty cannot be cultivated without great leadership.
Building a vision
Getz says it is easy to spot teams run by great leaders because when he asks people why they come to work, they say to have fun with their friends – fun, like loyalty, being an emergent property of work environments with a strong culture and strong leadership.
It’s not the club that is driving the loyalty. You can’t create loyalty unless you have the best prices or the most innovative product range, or offer great service
While the front-line manager is critical, such an environment ultimately depends on the person at the very top. “Loyalty is in the realm of the chief executive, not the human resources manager. The chief executive’s task is to build a vision with employees, so people know why they come to work and what they contribute, and build an environment where people do their best when they are not obliged to,” Getz says.
Achieving loyalty in that sense is ultimately very simple, but at the same time difficult enough to elude most organisations. In its essence, it is not about policies or strategies, but about leading people in a way that makes them care – and the easiest way to achieve that is to care first n