LOYALTY, BUSINESS PROFITABILITY AND SHAREHOLDER VALUE
Every business venture or entity has four principal actors and stakeholders. They include the business owner or shareholder, management, employees and customers or clients. Each of these stakeholders has roles, responsibilities and interests. The success of the business thrives significantly on the convergence of the interests of the stakeholders.
The shareholder wishes to maximize return on investment; management seeks to achieve their targets; employees prefer fat pay cheques and job satisfaction in general; while customers or clients want to receive value for money. If these differing interests are achieved simultaneously, the business is certainly better off. Shareholders typically measure profitability with Return on Equity (ROE), i.e. the value they can extract from the application of their capital in the business. Several factors drive this variable. They include revenue maximization, cost minimization and in more sophisticated environments, tax efficiency.
If goods are produced and are left on the shelf, no money is made. It takes customers to get the goods off the shelf. Many companies have relied extensively on repeat business and referrals as a principal business strategy. Hardly has any business driven by this strategy succeeded without customer loyalty. This is what many Ghanaian businesses overlook, and it tells in the kind of customer service you receive from the “waakye” seller, the front desk person at the consulting firm or investment bank, the relationship officer manning the front desk of the retail bank and the receptionist at the factory. Customer loyalty is the “x factor” that makes the phone card seller’s business more profitable than the big manufacturing firm in the industrial area.
Why will the employee ignore this basic business tenet? It is possibly because the employer has failed to earn the employees’ loyalty. If the customer is turned away by the attitude of the employee, sales will drop, the employee continues to receive his or her salary, cost stays up and profitability dwindles. This certainly does not enhance shareholder value. Customer loyalty is important, but it is one that the business owner can hardly control. It is an external challenge that presents enormous opportunity for business growth.
The employer however has immense control over an internal opportunity which in most cases is significantly underexploited. This is employee loyalty. I have observed the phenomenal growth of a friend’s business, and I have asked many questions, trying to understand this success story. This business has defied many of the classical theories on business strategy, and still made it to the top. But one thing you will never fail to see in this business is the difficulty in differentiating between employers and employees. They both speak the same language and are clearly focused on one mission, i.e. “work and happiness”. Employee loyalty is the simple nerve centre of this business.
Loyalty, like respect, cannot be extracted from employees. It is simply earned, and how do business owners/shareholders earn their employees’ loyalty? I have outlined a few suggestions below.
1. A clear articulation of the firm’s vision, values and mission: This is the reason why many businesses pay the extra cedi to put up nicely framed mission and vision statements in their
offices. The employee comes to work every morning and sees these boldly written in the office. The psychological effects of this practice are normally underestimated. But once these words get ingrained in them, they feel the extra responsibility and drive to achieve them. In the process, employers are able to steer the employee’s interests towards theirs. Once loyalty is earned through a common interest and objective, the employee ceases to work for the employer, and begins to work for him/herself.
2. The open door policy: Staff need to know what is wanted from them, but they also need to know that employers are willing to listen to them and where there is a shorter management chain, there is more confidence that people will take notice of what they are saying. Some companies have taken this principle literally, and require that all doors remain open. This simple but effective practice allows employees to feel the transparency, openness and accessibility they have to their employers. They believe they will always be heard and are always ready to share their views, which by virtue of their direct interface with customers/clients allow them to transmit feedback to employers.
3. Mutual respect: Employers/shareholders need to treat their staff on the basis of trust and deliver what they expect from them. Let them feel you are a part of their successes and challenges. Going the extra mile to ask about their families makes them feel that they are not seen as money spinning machines.
Shareholders are better able to save some money by retaining loyal employees. It takes a lot of time and money to replace “good” employees. It costs a lot more to replace a loyal, productive worker. “There is more than the replacement cost/expense when a desirable employee leaves. Employees are pivotal in creating and delivering value to the customer, especially when doing so by effectively implementing the organization’s business model” – www.loyaltyresearch.com. By reducing cost and maintaining revenues up through employee loyalty and customer retention, shareholders are better able to enhance business profitability and shareholder value.