Lip Service: The Kiss Of Death
I’d be a rich man today if I received a pound for every time I heard companies claiming their employees are their greatest asset. However, I would be rather less wealthy if I received that pound for each of the companies that really delivered on those impressive words. Companies are fantastic at talking the talk, but less impressive when it comes to walking the walk; most play no more than lip service to this issue of employee value.
I’d be a rich man today if I received a pound for every time I heard companies claiming their employees are their greatest asset. However, I would be rather less wealthy if I received that pound for each of the companies that really delivered on those impressive words. Companies are fantastic at talking the talk, but less impressive when it comes to walking the walk; most play no more than lip service to this issue of employee value.
But things are slowly changing and companies are starting to look at this issue of employee value in a new light. The Service Profit Chain reflects the value employees add to a business. It demonstrates how loyal employees influence customer behaviour and encourage return business that contributes to bottom-line profitability.
While the Service Profit Chain identifies the links from internal service value through external service value and ultimately on to improved profits, it is interesting to note the observations of Tony Hope, associate professor of accounting at the London Business School. Hope points out that different elements of the chain are generally managed by different functions within our businesses. The early part of the chain is very much managed by the HR function, linking issues such as recruitment, development and retention to productivity. The second phase relates to the sales function and focuses on customer satisfaction and the generation of return business through an organisation’s ability to turn wavering customers into loyal customers that pass good news on to friends, family, and work colleagues. Finally, the accounts function balances the books through the use of systems that often focus on cost control rather than revenue generation and almost always state measurability as their guiding light. Yet how often do these departments get together to discuss the value of their people?
It is easy to measure and put value on the contribution of the second and third phases of the chain, yet much harder to measure and apportion value to the first phase. And as we are constantly reminded that “we can’t manage what we can’t measure,” I wonder if we don’t actually end up focusing on the wrong areas of our businesses purely because the “softer” issues of HR and employee relations are harder, if not impossible, to quantify.
Jack Welch of General Electric’s fame once suggested “The three most important things you should measure in a business are customer satisfaction, employee satisfaction and cash flow”. Asked some years later if he still believed in this quote he replied “No, it should read: the three most important things to measure in a business are employee satisfaction, customer satisfaction and cash flow”, noting that the satisfaction of employees is of fundamental importance to the survival and growth of any service company seeking to strengthen its customer base.
How then can a company value its employees? Let’s take a look at the following balance sheet, on the second line of which you will note an entry for tangible assets. This UK Public Limited Company has taken the unusual step of valuing elements of its workforce. It may come as a surprise to learn that this company has an active hospitality division with a top-class reputation in its field. However, no value has been attributed to its hospitality division. In fact, the value of £125,526 million is associated to just a few members of this company’s workforce, none of whom sit on the company’s board.
This balance sheet belongs to Manchester United Football Club and the staff members that have been valued are the likes of Van Nistelrooy, Ferdinand, Barthez, Silvestre and Forland, the only players Manchester has purchased over recent years. (The remainder of their squad being “home grown”.) Manchester values these players because of the considerable worth they add to the club. They are after all part of a team that’s consistently kept United at the top of the English premier league, delivered more silverwear than any other premier team in the last ten years, and has the largest supporter base of any football club in the world today. All of which adds millions to Manchester United’s top and bottom lines and makes mere Leeds United supporters like myself very-very envious at this moment in time.
If a football club like Manchester United can place a financial value on its human assets in this way and we in the hospitality industry constantly claim our employees are our greatest asset, why can’t hotels, restaurants and other hospitality companies do the same?
Hinkin and Tracey (2002), clearly demonstrate that value can be attributed to phase one of the profit chain in the form of investments made in staff recruitment, development, retention and productivity. In phase two we have the added value from customers attracted by fine service and the personality of employees, plus the abilities of those very same employees to up-sell and generate additional sales. In phase three we need to balance the desire for control with a willingness to reinvest in employee development and support systems that enhance the server’s ability to better meet customer needs. Our accounts departments have been valuing our inventory and property assets for years. Those whiz-kids in the marketing department have been valuing the worth of our customers for almost as long, and have also established brand values, whereby they put price tags on little more than a company name. Yet HR has been unsuccessful in getting our greatest asset valued in the same way. All the while we move further and further into a knowledge-based economy, where employee-owned knowledge, be it tacit or explicit, has the biggest potential to add real value to our businesses.
Fortunately some organisations fully understand the importance of employee satisfaction. As an example, let’s look at a hotel in London that’s set about this challenge with spectacular results.
Seven years ago Claridge’s had one of the most admired histories of any London hotel, yet the hotel itself was in desperate need of both financial and human investment. It also needed a manager who was willing and strong enough to use both these resources in order to change what was seen as the untouchable but fading jewel of British hospitality.
Enter Christopher Cowdray, supported by a new management team that set about implementing impressive reward and recognition systems designed to encourage employees to take ownership of the service encounter. An employee-owned training room was built, in which vigorous training was undertaken; 360 degree feedback systems were introduced so that managers could gauge morale within the building. The hotel began to recruit employees for their attitude as much as for their skill and an all important no-blame culture was established. New employee appraisals were introduced and internal promotion became a key goal whenever possible. KPI’s were set and the hotels daily performance statistics were displayed (good or bad) for all to see. The management’s visual profile was raised around the hotel and survey-based data collection was introduced to ensure staff satisfaction was moving in the right direction.
Today the Service Profit Chain is alive and kicking at Claridge’s, where the staff appreciate the value they contribute to the success of this fine hotel. That value may not as yet be indicated on any balance sheet, but Cowdray has no doubt as to how much the hotel’s workforce has contributed to impressive bottom-line performance.
It is true that other steps have been taken, such as upgrading the rooms and outsourcing the restaurant to Gordon Ramsay. But according to Cowdray, it’s been the work done with the employees that has given Claridge`s the highest average occupancy in London with an equally impressive RevPAR, a staff turnover well below the industry average, an unprecedented level of employee and guest satisfaction, plus five major industry awards, which include the British National Industry award as best UK employer and the Springboard Employer of the Year award.
The hotel has recently been put on the market by its US private equity owner, Blackstone. The asking price is a staggering £300 million or £1.47 million per bedroom, a world record for a hotel. I asked Cowdray how Blackstone could justify such an asking price when they paid an estimated £100 million for the hotel only five years ago. His response was emphatic “our people have added this value, we have the best team in town. They have turned this hotel into an icon. It is the employees that add the greatness to that beauty and make it a priceless combination. For this price, any new owner gets not only a beautiful building but also a great hotel;” A perfect example of employees that are valued because of the value they willingly add.
In the light of Cowdray’s comments I leave you with a slightly different calculation to ponder. Claridge’s £300 million asking price, minus the original purchase price, plus investments made in the building, divided by a workforce of 350 staff members, suggests the hotel has added value in excess of half a million per employee. As far as hotels go, who’s sitting on the top of England’s premier league at the moment?
Comments
Comments for this content
0 comments available