QUANTIFYING THE “FEEL” OF A COMPANY
Common wisdom, of course, holds that employees who feel upbeat will likely go the extra mile to please customers and therefore improve the bottom line. But there’s actually a logarithm that predicts that relationship: For every 1 percent improvement in the service climate, there’s a 2 percent increase in revenue.43
Benjamin Schneider, a professor at the University of Maryland, found in operations as diverse as bank branches, insurance company regional offices, credit card call centers, and hospitals that employees’ ratings of service climate predicted customer satisfaction, which drove business results. Likewise, poor morale among frontline customer service reps at a given point in time predicts high turnover – and declining customer satisfaction – up to three years later. This low customer satisfaction, in turn, drives declining revenues.44
Of all the aspects of business, superior customer care – that holy grail of any service industry – is perhaps affected most by mood contagion, and therefore by the open-loop aspect of the brain. Customer service jobs are notoriously stressful, with high emotions flowing freely, not just from customers to the front lines but also from workers to customers. From a business viewpoint, of course, bad moods in people who serve customers are bad news. First, rudeness is contagious, creating dissatisfied, even angry, customers – quite apart from whether or not a particular service matter was handled well. Second, grumpy workers serve customers poorly, with sometimes devastating results: Cardiac care units where the nurses’ general mood was “depressed” had a death rate among patients four times higher than on comparable units.45
By contrast, upbeat moods at the front lines benefit a business. If customers find interactions with a counterperson enjoyable, they start to think of the store as a “nice place” to shop. That means not only more repeat visits, but also good word-of-mouth advertising. Moreover, when service people feel upbeat, they do more to please customers: In a study of thirty–two stores in a U.S. retail chain, outlets with positive salespeople showed the best sales results.46
But just what does that finding have to do with leadership? In all of those retail outlets, it was the store manager who created the emotional climate that drove salespeople’s moods – and ultimately, sales – in the right direction. When the managers themselves were peppy, confident, and optimistic, their moods rubbed off on the staff. Besides the obvious relationships between climate and working conditions or salary, resonant leaders play a key role. In general, the more emotionally demanding the work, the more empathic and supportive the leader needs to be. Leaders drive the service climate and thus the predisposition of employees to satisfy customers. At an insurance company, for instance, effective leadership influenced service climate among agents to account for a 3 to 4 percent difference in insurance renewals – a seemingly small margin that made a big difference to the business.
Organizational consultants have long assumed a positive link of some kind between a business unit’s human climate and its performance. But data connecting the two have been sparse – and so, in practice, leaders could more easily ignore their personal style and its effects on the people they led, focusing instead on “harder” business objectives. But now we have results from a range of industries that link leadership to climate and to business performance, making it possible to quantify the hard difference for business performance made by something as soft as the “feel” of a company.
For instance, at a global food and beverage company, positive climate readings predicted higher yearly earnings at major divisions. And in a study of nineteen insurance companies, the climate created by the CEOs among their direct reports predicted the business performance of the entire organization: In 75 percent of cases, climate alone accurately sorted companies into high versus low profits and growth.47
Climate in itself does not determine performance. The factors deciding which companies prove most fit in any given quarter are notoriously complex. But our analyses suggest that, overall, the climate – how people feel about working at a company – can account for 20 to 30 percent of business performance. Getting the best out of people pays off in hard results.
If climate drives business results, what drives climate? Roughly 50 to 70 percent of how employees perceive their organization’s climate can be traced to the actions of one person: the leader. More than anyone else, the boss creates the conditions that directly determine people’s ability to work well.48
In short, leaders’ emotional states and actions do affect how the people they lead will feel and therefore perform. How well leaders manage their moods and affect everyone else’s moods, then, becomes not just a private matter, but a factor in how well a business will do.