Newspaper article The Christian Science Monitor

Author: Loyalty Beats A Short-Term Focus

Newspaper article The Christian Science Monitor

Author: Loyalty Beats A Short-Term Focus

Article excerpt

IN this era of disposable workers, business consultant Frederick Reichheld says: Keep those employees.

Instead of downsizing, he maintains, employers should focus directly on sweeping up their employees in a "value-and-loyalty spiral" on behalf of the customer - and watch the profits grow.

Most businessmen would say they do aim to create value for their customers. But they usually focus on the bottom line, Mr. Reichheld says, which often leads to large cuts in staff.

The Harvard Business School Press today releases his new book titled the "Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value."

Head of a group called "Loyalty Practice" within Bain & Co., a consulting firm in Boston with offices in 19 countries, Mr. Reichheld has searched out and studied a number of companies that he maintains do focus primarily on creating lasting value for their customers. Employees fare well in these businesses, he says.

Some of the firms he examined are State Farm Mutual Insurance Co. of Bloomington, Ill., A.G. Edwards & Sons Inc., a St. Louis investment house, and Lexus/Toyota Inc. of Torrance, Calif.

Reichheld declares that loyalty is the prime quality that leads to value.

"Businesses need employees who are loyal to the idea of creating great value for customers, so much value that there is enough left over to reward employees and investors," he says in an interview.

Businesses, though, must in turn be loyal to their workers, he adds. Investors, too, need to comprehend how real value is created; this step "closes the loop" to allow a loyalty-based business to thrive.

Highly detailed studies over several years, he says, have enabled him to quantify the effect of loyalty. For example, a 5 percentage point increase in customer retention in a typical firm, he reckons, will increase profits by more than 25 percent and growth by more than 100 percent.

What keeps loyalty a "hidden force"?

"It's mostly the heavy focus today on accounting, a short-term focus on accounting fictions as standards," he says. …

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