Firms of Endearment

On Collaborative Stakeholder Relationships

In Firms of Endearment we extolled the virtues of the stakeholder relationship management (SRM) business model that guides the companies we identified as “firms of endearment (FoE.”

After reading Jody Gittell’s The Southwest Airlines Way I have come to believe that we should abandon the term “stakeholder relationship management.” In its place I offer “collaborative stakeholder relationships” (CSR).

Southwest doesn’t manage its relationships with stakeholders. It collaborates with them. From unions to staffers who clean planes, Southwest's management fosters a collaborative relationship with its stakeholders.

The word “manage” suggests pretensions of control. Southwestern Airlines will have none of that. Instead, as the subtitles of Gittlell's says, Southwest uses "the power of relationships to achieve high performance." Relationships tend wither and grow weak when one party tries to "manage" the relationship.

I’ve always had problems with the term “management” in another context. In the mid-1990s, the term "customer relationship management” came into vogue and became the core concept of a new information industry based on storing, analyzing, retrieving and using customer information to increase "share of wallet." CRM gurus Don Peppers and Martha Rogers enthusiastically championed CRM as the most important event in marketing since P.T. Barnum invented advertising.

But CRM was not about managing customer relationships. It was about managing customer data in order to more effectively exploit customers. The very term "share of wallet," coined by Peppers and Rogers, betrays the intention to exploit rather than to serve.

In contrast, FoEs strive for share of heart. They fervently believe that if they interact honorably with customers, customers will reward them with loyalty, which in fact is likely – though not necessarily – to increase share of wallet.

I’ve often written that proponents of CRM would project greater authenticity if they changed the term to “customer data management (CDM), for in all truth that is what CRM is all about.

I’ve thought the term customer relationship management verges on arrogance. No company is going to manage my relationship with it. Whether I have a relationship with a company is entirely up to me. FoEs realize that it is the same with stakeholders.

An economist that was introduced to an MIT MBA class as an expert in aviation explained Southwest’s extraordinary financial success to its having no unions to contend with. In fact, Southwest is one of the most heavily unionized airlines. But unlike the other big airlines, Southwest views unions as partners, intentionally collaborating with them for mutual benefit.

And so it is with all the companies we identified as firms of endearment – they all view stakeholders not as objects of managed relationships but as collaborative relationships. Henceforth I shall speak not of teh stakeholder relationship management business model, but of the collaborative stakeholder relationships business model. I would appreciate readers views on this change in business nomenclature.

DBW

This post also appeared at David Wolfe's Ageless marketing blog.

The Little Grocery That Is Surprising the Big Guys

If you are not familiar with Trader Joe's, you would do well to learn how this quirky company whose owners have never taken a dime out of it and never put a nickel into it have nurtured it into a $2 billion dollar business that translates into about $1,100 per square foot, twice that of traditional supermarkets.

Along with Whole Foods, Wegman’s and Costco, Trader Joe’s made the cut in our new book, Firms of Endearment as an exemplar of the stakeholder relationship management (SRM) business model that is somewhat pushing CRM (customer relationship management) to the side.

Business Week is carrying a story on Trader Joe’s this week. Click over to the story. It’s a good read. Also, check out the  blog post on Trader Joe’s at C. B. Whittemore’s blog, Flooring the Customer.  You’ll likely be glad you did. She offers  an excellent presentation of the Trader Joe’s philosophy. That philosophy squares with the profile of every company that we described as FoEs in Firms of Endearment.

It's the CULTURE Stupid

I’ve just gotten into Jody Gittell’s The Southwestern Way. So far I like what I’m reading. It’s not a new book – it came out in 2003. But somehow we over looked it when doing our research for Firms of Endearment. Southwest, of course, is an FoE.

Ms. Gittell does a fascinating comparison between American Airlines and Southwest. American, like the other legacy airlines, has tried to copy in at least some regard the “Southwest Way.” The only problem they’ve encountered is that they don’t get the Southwest Way.

They have tried to copy the mechanical aspects of the Southwest Way – ramp procedures, baggage handling, reduction of types of aircraft and so on. But none has altered their culture.

While pilots and baggage handlers look at and talk to each other, no such thing happens at the other airlines that are socially organized by status position based on one’s job.

Gittell sums up the Southwest culture early in the book by saying the company’s social organization is based on shared goals, shared knowledge and mutual respect. At Southwest, the goals to which everyone subscribes are few and simple: on-time departures and arrivals, no lost luggage and smiling, happy customers. The other airlines may say they have the same goals, but no team identity exists to make them realizable.

At Southwest, every employee has a basic understanding of everyone else’s job and knows how they fit into the total picture. Legacy airline employees are pitifully ignorant of what employees not in their own line of work really do.

At Southwest, everyone talks to each other with respect. The people who clean the p[lanes are literally regarded as being just as important to the realization of shared goals as the pilots are.

One might think that with Southwest’s enviable record of 36 years of unbroken profits (some legacy airlines have been in bankruptcy two or more times), that someone in the other airlines would have figured out how Southwest Airlines does it. It’s not complicated. One word accounts for Southwest’s becoming the most successful airline in aviation history: “It’s the CULTURE, stupid,” as Bill Clinton’s leading political strategist James Carville might say.

Einstein famously said, “Not everything that can be counted counts, and not everything that counts can be counted.” Business managers are generally so accustomed to discounting what cannot be measured that they fail to take into account what really makes for success.

How does one measure culture? Certainly not with the certainty one measures ROI or ROE. Yet, in our research of companies we hold out as exemplars of the stakeholder relationship management business model, we came to the conclusion that culture is more accurately predictive of future performance than last year’s financials.

Ms. Gittell says that the real reason Southwest has been so successful is that it uses the power of relationships to achieve high performance. This is how it has created a cohesive, single culture. Most companies have multiple cultures. There is an executive culture and a product development culture. Then there’s a marketing culture and a sales culture. The, like so many stands of “junk” DNA tiny microcosmic cultures surrounding cliques of only a few people swirl around in company venues.

In short, most companies don’t have a culture. They are socially fragmented agglomerations of individuals, all looking out for themselves as priority number one. Few realize that a socially cohesive organization is the best way to serve everyone’s interests. Just ask the maintenance people and flight attendants at Southwest who became millionaires working for the company they LUV (Southwest’s ticker symbol).

DBW

(This post also appeared at http://agelessmarketing.typepad.com)

 

Sample of Rosenzweig's Thinking

I just received an abstract from The Halo Effect (see previous post) via the online version of the McKinsey Quarterly. It will give you a good feel for Phil Rosenzweig's thinking about common delusions in the business community concerning reasons for company performance, either good or bad, spectacularly or truly dismal. You will probably have to register to see the abstract, but it's free. Click here.

DBW

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I just received an abstract from The Halo Effect (see previous post) via the online version of the McKinsey Quarterly. It will give you a good feel for Phil Rosenzweig's thinking about common delusions in the business community concerning reasons for company performance, either good or bad, spectacularly or truly dismal. You will probably have to register to see the abstract, but it's free. Click here.

DBW

________________

I just received an abstract from The Halo Effect (see previous post) via the online version of the McKinsey Quarterly. It will give you a good feel for Phil Rosenzweig's thinking about common delusions in the business community concerning reasons for company performance, either good or bad, spectacularly or truly dismal. You will probably have to register to see the abstract, but it's free. Click here.

DBW

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Phil Rosenzweig: Beware of the Halo Effect

I have just finished reading what I consider to be one of the most valuable business books in a long time. Maybe a long, long time. Written by Phil Rosenzweig, a professor at IMD in Lausanne, Switzerland, The Halo Effect … and the Eight Other Business Delusions That Deceive Managers claims that most business books contain errors of logic and flawed judgments that distort our understanding for a company’s performance.

Moreover, Rosenzweig argues that media is no less error-prone in divining the reasons for a company’s performance than gurus who write books on company performance.

He uses two prominent case histories to support the latter claim. Cisco and ABB. He recalls for readers how before the dotcom bubble collapse Cisco’s John Chambers was widely regarded as the world’s best manager and Cisco itself as without surpass in its organizational structure and corporate culture. Beyond that, according to the common view expressed in media, no company operated with greater customer centricity.

Within months of the dotcom collapse the same media that had virtually canonized Chambers were ripping his reputation as a great CEO to shreds. Cisco’s was criticized for lack of attention to customer needs. This was alleged to have played a major role in its downturn in revenues and consequent precipitous loss in stock value. Writers told how the company’s organization was fragmented and its culture grossly defective.

Rosenzweig tells a similar story of the Swiss-Swedish power company ABB. From being one of Europe’s most highly regarded company to being a favorite whipping boy in media within not very many months, ABB turned out to be another example of what Rosenzweig calls the Halo Effect.

As Rosenzweig explains it, the Halo Effect refers to the aura surrounding a company and its leadership that promotes gross generalizations about its nature. When a company is outperforming, most everyone assumes everything about the company is exemplary. When the same company is underperforming, most everyone assumes everything about the company is defective.

Rosenzweig reminds us that externalities accounted mainly for Cisco’s and ABB’s decline in fortune. Cisco’s downturn for example was inextricably linked to its Internet customers who flamed out in droves when the dotcom bubble burst. No amount of executive brilliance could have stayed the fiscal injury inflected by the dotcom bust.

Rosenzweig takes on the business book genre with lethal dispatch. While observing that some of the principles presented in Tom Peters and Bob Waterman’s classic, In Search of Excellent, have wonderfully withstood the test of time, he say Peters and Waterman’s prose is filled with extractions from corporate halos. However, he ruthlessly guts Jim Collins’ two books, Built to Last and Good to Great for their errors of logic and flawed judgments. Rosenzweig avers that Collins’ and most other writers of business books usually ignore external influences on a company’s performance over which a company has no control

I do have some problems with Rosenzweig’s total dismissal of the Halo Effect. A Halo Effect can have positive value to a company. When employees bask in the iridescent glow of the admiration and love flowing from customers, suppliers, the community, investors and employees themselves, it serves to boost performance to even higher levels.

What does it matter that under a cold, clinical light their company has warts – isn't perfect? Perhaps unlike any other time in human history, we desperately need things – companies, people, institutions, ideas – in which we can believe. We have maybe grown to prone to demand perfection. A Halo Effect – like that cast by New Jersey-based Commerce Bank’s philosophy of WOW! can be a wonderful, comforting good thing.

Notwithstanding some nits here and there with The Halo Effect, it is for me one of the most thought-provoking books on business in some years. Writer Nassim Nicholas Taleb calls The Halo Effect, "One of the most important management books of all time."

Whether Nassim is right or not, I suspect that you will never read another book on business the same after being exposed to Rosenzweig’s diligent analysis of how we are so often taken in by writers offering us their silver bullets for achieving sure-fire success for our companies.

DBW
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This review has also been posted here.