Lead for Loyalty

Presented by
Group E2

Loyalty Leader Companies

Outstanding loyalty is the direct result of words and deeds the
Outstanding loyalty is the direct result of words and deeds the
decisions and practices of committed top executives who have
decisions and practices of committed top executives who have
personal integrity
personal integrity
Loyalty leader companies concentrate on strikingly similar
Loyalty leader companies concentrate on strikingly similar
relationship strategies
relationship strategies
The relationship strategies originate at the top of organisation and
The relationship strategies originate at the top of organisation and
inform all of its relationships, both within and beyond the company
inform all of its relationships, both within and beyond the company
walls
walls

Traits Of High Loyalty Companies

Exemplary leaders who are committed to
Exemplary leaders who are committed to
engendering and retaining loyalty
engendering and retaining loyalty

Relationship strategies based on 6 loyalty

Relationship strategies based on 6 loyalty
principles
principles

Principles of Loyalty
1

Preach what you

practice
Its not enough to have
the right values,
instead must also
clarify and hammer
them home to
customers, employees,
suppliers and
shareholders through
2
words
and
Play
todeeds
winwin
To build loyalty,
not only must
your competitor
lose, but
partners must

Be picky
Clarify the
difference
between loyalty
and tenure
Keep it simple

People need small

teams to simplify
responsibility and
accountability along
with simple rules to
guide decision making

5 Reward the right

results
Save the best deals for
most loyal customers;
and save the best
opportunity for most
loyal employees and
partners
6
Listen hard, talk straight
Listen to customer feedback;
Make it safe for employees to
offer candid criticism
Use Loyalty Acid Test survey
Communicate the learnings
and actions that will be taken

Preach what you practice

Only by preaching the importance of loyalty in clear, precise, powerful
terms can executives and businesses prevail against digital age dogma
and remain relevant to success in todays world

Case:
Company: Intuit Leader in personal-finance software
Company: Intuit Leader in personal-finance software
Chairman
of the Executive Committee and Founder : Scott Cook
Chairman of the Executive Committee and Founder : Scott Cook
Feb 1995 Cook was on his way to a speaking engagement when the newspapers
Feb 1995 Cook was on his way to a speaking engagement when the newspapers
reported a bug in Intuits tax preparation software, TurboTax
reported a bug in Intuits tax preparation software, TurboTax
Bug
affected less than 1% of 1.65million customers
Bug affected less than 1% of 1.65million customers
No time to return, Cook instructed his executive team to handle the crisis in
No time to return, Cook instructed his executive team to handle the crisis in
accordance with Intuits core value
accordance with Intuits core value

Solution
Intuits crisis management team issued a press release describing the bug &
Intuits crisis management team issued a press release describing the bug &
explaining how customers can fix it
explaining how customers can fix it
Offered
to send new copy of TurboTax to customers who requested for one, without
Offered to send new copy of TurboTax to customers who requested for one, without
proof of purchase
proof of purchase
Pledged
to pay any penalty that TurboTax users incurred
Pledged to pay any penalty that TurboTax users incurred

Impact

Intuits candour and devotion to its users, gave then an intense customer loyalty
Intuits candour and devotion to its users, gave then an intense customer loyalty
Microsoft
provided its personal-finance software for free, as competition to Intuits
Microsoft provided its personal-finance software for free, as competition to Intuits
product Quicken
product Quicken
However, Quicken and TurboTax still remains the most popular product in
However, Quicken and TurboTax still remains the most popular product in
personal finance category
personal finance category

Play to win-win
Customer loyalty & employee loyalty soring from same root : principled
leadership
Providing excellent service & value to customers generate pride and a
sense of purpose among employees

Case:
Company: Harley Davidson
Company: Harley Davidson
Retains
a cooperative & mutually
Retains a cooperative & mutually
respectful relation with its union
respectful relation with its union
Mangers
of Harleys Kanas City
Mangers of Harleys Kanas City
shares office with the plants 2 union
shares office with the plants 2 union
presidents
presidents

Partnerships are not simply about

mutual benefits; partnership does not
equal collusion. True partnerships
serve the customers best interests.

 Situation
A sudden spike in quality problems on production line which lead to the shutdown
A sudden spike in quality problems on production line which lead to the shutdown
of the line
of the line
Plant manager and top lieutenants were out of town
Plant manager and top lieutenants were out of town
Union president investigated the issue and identified the equipment that needed
Union president investigated the issue and identified the equipment that needed
adjustment
adjustment
Mechanics were called in; line was up and running in less than an hour
Mechanics were called in; line was up and running in less than an hour
Union workers were paid for full days work, despite downtime
Union workers were paid for full days work, despite downtime
Harleys dealers and customers were assured of a steady flow of high-quality bikes
Harleys dealers and customers were assured of a steady flow of high-quality bikes
from the plant
from the plant
Harley Davidson was considering a new site for building a
Harley Davidson was considering a new site for building a
new plant
new plant
CEO, Jeff Bluestein consulted with the union head in
CEO, Jeff Bluestein consulted with the union head in
selection process
selection process

Understandi
ng
Loyalty Leaders understands his obligation to, look out for his partners, even
those who are out of power
They concentrate on helping their customers find the best value

Be Picky
A truly humble company knows it can satisfy only certain customers, & takes
measures to keep them happy

Case

Company: Vanguard, loyalty champion in mutual funds

Company: Vanguard, loyalty champion in mutual funds
Ideal Customers: Substantial investor who is cost conscious & long term oriented
Ideal Customers: Substantial investor who is cost conscious & long term oriented
Value proposition oriented towards this customer & discourages high-turnover,
Value proposition oriented towards this customer & discourages high-turnover,
quick-trade accounts
quick-trade accounts
Limits transfers to combat frequent switching
Limits transfers to combat frequent switching
Reserves low cost Admiral shares for high balance investors and for those lower
Reserves low cost Admiral shares for high balance investors and for those lower
balance investors who have kept money with the bank for at least 3 years
balance investors who have kept money with the bank for at least 3 years
Vanguard controlled its average expense ratio to 0.3% compared with industry
Vanguard controlled its average expense ratio to 0.3% compared with industry
average of 1.2%
average of 1.2%
The benefit of higher return is also provided to employees, who share in a bonus pool
The benefit of higher return is also provided to employees, who share in a bonus pool
that is funded when the return on companys funds exceeds competitors average
that is funded when the return on companys funds exceeds competitors average

Situation
One institutional investor tried to place $40million in one of Vanguards funds
One institutional investor tried to place $40million in one of Vanguards funds
The application was rejected, as they suspected him to flip the position within few
The application was rejected, as they suspected him to flip the position within few
weeks which would result in high costs for their more loyal customers
weeks which would result in high costs for their more loyal customers
Investor complained to the CEO Jack Brennan
Investor complained to the CEO Jack Brennan
CEO declared his full support for the decision & used this as an example to remind
CEO declared his full support for the decision & used this as an example to remind
employees to be selective about the revenue they accept
employees to be selective about the revenue they accept

Understandi
ng

Careful selection of employees is as important as selecting a customer

Careful selection of employees is as important as selecting a customer
Select those candidates whose values are closely aligned with those of the company
Select those candidates whose values are closely aligned with those of the company
Result -> Impressive loyalty
Result -> Impressive loyalty
Example: Chick-fil-A : turnover among store operators <5% while industry average is
Example: Chick-fil-A : turnover among store operators <5% while industry average is
30-40%
30-40%

Keep it Simple
Case

Company: Northwestern Mutual

Company: Northwestern Mutual
CEO: Jim Ericson
CEO: Jim Ericson
Focused Rule: DO whatever it takes to keep the customers
Focused Rule: DO whatever it takes to keep the customers
best interest
best interest

Situation
Customer wanted to buy an insurance policy for his new-born daughter
Customer wanted to buy an insurance policy for his new-born daughter
Completed the application and sent the first premium payment
Completed the application and sent the first premium payment
Company did not issue the policy because the babys physician had not yet sent the
Company did not issue the policy because the babys physician had not yet sent the
necessary medical paperwork
necessary medical paperwork
The policy was delayed the little girl had died due to sudden infant death syndrome
The policy was delayed the little girl had died due to sudden infant death syndrome

Actions
taken

Employee after conferring with her manager, decided to issue the policy
Employee after conferring with her manager, decided to issue the policy
Eventually the doctor provided necessary information, Northwestern issued the policy
Eventually the doctor provided necessary information, Northwestern issued the policy
& paid the claim
& paid the claim

Understandi

There maybe costs associated with a companys loyalty to its customers, but long
There maybe costs associated with a companys loyalty to its customers, but long
ng
term economic benefits are far greater
term economic benefits are far greater
Simplicity has a structural application Organisational complexity impedes quick,
Simplicity has a structural application Organisational complexity impedes quick,
decisive execution
decisive execution
Organisation with small teams can respond with entrepreneurial creativity as
Organisation with small teams can respond with entrepreneurial creativity as
conditions change
conditions change
In large team measuring each members contribution is difficult and this may lead to
In large team measuring each members contribution is difficult and this may lead to
high achievers loosing motivation
high achievers loosing motivation
Another advantage of small teams is that customers dont get lost with anonymous
Another advantage of small teams is that customers dont get lost with anonymous
bureaucracy
bureaucracy

Reward the right results

Company: Enterprise Rent-A-Car
Company: Enterprise Rent-A-Car
CEO: Andy Taylor
CEO: Andy Taylor
Pay system devised that balanced pure profit
Companies often reward
Pay system devised that balanced pure profit
incentives with inducement to build long-term
incentives with inducement to build long-term employees who grab shortassets
assets
term profits and
First step, they developed a reliable gauge for
First step, they developed a reliable gauge for
shortchange those who
customer service eventually evolved into the
customer service eventually evolved into the
build long-term value and
ESQI
ESQI
customer loyalty.
Trumpeted the value of loyalty & customer
Trumpeted the value of loyalty & customer
satisfaction
Re-designed
satisfactionbranch financial statements so that each offices ESQI appeared next to
Re-designed
branch financial statements so that each offices ESQI appeared next to
their profits
their profits
Policy: no promotions if the branch EQSI is below average
Policy: no promotions if the branch EQSI is below average
Criteria for promotions: Branch ESQI, growth, profitability & number of promotable
Criteria for promotions: Branch ESQI, growth, profitability & number of promotable
candidates in branch

Impact
Branch managers eager for promotions now concentrates not only on running
Branch managers eager for promotions now concentrates not only on running
profitable shops, but also delivers superior experience to their customers and
profitable shops, but also delivers superior experience to their customers and
attracted talented, high potential employees
attracted talented, high potential employees
The entire effort to align profit incentives more directly with customer & employee
The entire effort to align profit incentives more directly with customer & employee
interests was of Taylor and the senior executive
interests was of Taylor and the senior executive

Understandi
ng
It is important to look beyond immediate profits to the longterm benefits of a loyal customer base and stable,
motivated work force

Listen hard, Talk straight

Communication enables business to clarify their priorities and coordinate responses

Communication enables business to clarify their priorities and coordinate responses
to problems opportunities as they develop
to problems opportunities as they develop

Company: CISCO
Company: CISCO
CEO: John Chambers
CEO: John Chambers
Cisco developed Bug Database which enables all customers, employees and
Cisco developed Bug Database which enables all customers, employees and
suppliers to post online any problem related to Cisco product or service and to
suppliers to post online any problem related to Cisco product or service and to
discuss possible solutions
discuss possible solutions
CEO receives personal updates from 15-20 major accounts via voice mail
CEO receives personal updates from 15-20 major accounts via voice mail

Case
Company: Dell Computers

Company: Dell Computers

CEO: Michael Dell
CEO: Michael Dell
Michael Dell was always straightforward with employees, customers and press
Michael Dell was always straightforward with employees, customers and press
The company mishandled the introduction of a line of notebook computers in
The company mishandled the introduction of a line of notebook computers in
1992, and its stock fell by 68%
1992, and its stock fell by 68%
Dell computers is plainspoken with customers about mundane matters ready
Dell computers is plainspoken with customers about mundane matters ready
information is available on-line about costs, order status, delivery schedules and
information is available on-line about costs, order status, delivery schedules and
any technical problem
any technical problem
The transparency is a trust builder
The transparency is a trust builder
Posting all pricing information on the Web, Dell executives can devote their time
Posting all pricing information on the Web, Dell executives can devote their time
on developing new solutions and improving quality
on developing new solutions and improving quality
Dell grades their vendors on supplier report card in areas such as quality,
Dell grades their vendors on supplier report card in areas such as quality,
efficiency, availability of technology and integration od suppliers internet
efficiency, availability of technology and integration od suppliers internet
operations with that of Dell
operations with that of Dell

The Acid Test

Along with satisfaction metrics, customer and employee retention rates are needed
to track real behaviour with financial consequences
Loyalty acid test a set of surveys - measures the loyalty of all the stakeholders
It examines a simple question: Does this organisation deserve your
loyalty?
Analysis of this survey revealed that the fundamental difference that set loyalty
leaders apart: perceived integrity of their top notch executives
There was very high positive correlation between responses that said their
executives have high personal integrity and those that said they are loyal
to certain organisations

Learnings
Low-road strategies can generate impressive financial returns, for a time and
buoyant earnings and stock price provide the necessary bribes to keep followers
committed
But eventually it will lead to trouble A time will come when the company will
be blindsided by competitors or fails to anticipate new technology that will make
its business model obsolete This is when loyalty will be significant
Unless leaders have built relationship based on loyalty something
more fundamental than stock price and earnings nothing will stop
partners from jumping ships the instant a better opportunity comes
along
Centre of gravity of business loyalty is personal integrity of senior leadership
team