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The Loyalty Effect:
The Hidden Force Behind Growth, Profits, and Lasting
Value.
Frederick F. Reichheld
Harvard Business School, 1996. Is loyalty dead?
Statistics cited by Reichheld would suggest it's not very
strong.
Most U.S. companies lose half their employees every four
years.
They lose half their customers in five years.
They lose half their investors in 12 months.
Perhaps there's a connection.
Reichheld, who heads up Bain & Co.'s world wide
loyalty practice suggests that companies would do well to
use what he calls loyalty-based management. The basis of
loyalty is standing up to pressures from short-term
investors. Reichheld writes, "It is management's
over-attentiveness to the demands of these short-term
investors that is stalling growth at many companies. This
hurts not only customers and employees, but is equally
detrimental to long-term investors."
Reichheld suggests that loyalty pays off. He cites State
Farm Mutual Automobile Insurance Co. as an example.
Agents stay with State Farm more than twice as long as
agents stay with other auto insurance companies. And,
State Farm agent productivity is 40% higher than the
industry norm.
Reichheld is not suggesting that staff who are
nonproductive be kept on the payroll. Loyalty is a two
way street, with employees pulling their share by being
committed to their own competence, development, and
productivity. Reichheld acknowledges that loyalty is
difficult to measure directly on the balance sheets.
TMI's Note: This is perhaps the major challenge
for those who suggest that attitudes, commitment, and
emotions must be considered in the total mix of
profitability. How do we measure the so-called
immeasurable? TMI, International is currently conducting
research to measure this connection.
 
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