ceoforum.com.au: How has the Global Financial Crisis in 2008 changed the way CEOS in multinational companies (MNCs) manage their businesses?
Thomas Monahan: Things are certainly different post-GFC, but in some cases the GFC simply accelerated existing trends, while in other cases it did produce more discontinuous change.
A key issue for CEOs is that it has become more and more apparent that driving productivity gains is now almost exclusively about reinvigorating your employee value proposition. Productivity is now basically a people game. Our data suggests that companies who mobilize their talent effectively, and manage attrition well, enjoy an average 7% gain in top line revenues compared to those who don’t.
That, of course, is a significant difference, and one that should concentrate the minds of all CEOs. Adding to the challenge is that a lot of companies in the US and Europe have made deep cuts during the recession, so re-energizing, re-engaging and re-motivating their employees is going to require a lot of work.
ceoforum.com.au: One well-known paradox of customer satisfaction is that higher levels of customer satisfaction rates don’t necessarily lead to higher revenues for the companies concerned. Do you see the same thing with employee satisfaction with their employees?
TM: It is true that simply making your employees ‘happier’ won’t necessarily increase your revenues. That’s why you need to measure your engagement levels in a more sophisticated manner.
One aspect of this is tracking the ‘intention to depart’ among your employees. Unwanted departures, of course, have a detrimental effect on productivity, when you replace a seasoned employee with someone new in the job. However, it is the people who want to leave, but can’t, who are often at least as big a problem for employers, as they are often very dis-engaged employees.
In recent times in the US, for instance, we have seen ‘intent to depart’ levels drop (mainly as a reflection of the poor job market), but levels of engagement have also dropped. The number of employees who were highly engaged has, on average, dropped by two thirds, so this is clearly a significant problem.
Another point about lowering levels of engagement is that fraud and other ethical misconduct tends to increase as engagement decreases. We estimate that the financial impact of fraud and the like for the average MNC operating in the US is about 5% of gross revenues, so it can be a substantial problem in its own right.
ceoforum.com.au: What other issues do CEOs need to pay particular attention to post-GFC?
TM: Many companies are rethinking their approach to risk. Senior executives think that, while their risk identification was fairly good, what they underestimated was the speed with which the risks would unfold. In the GFC, suppliers were going suddenly going bankrupt, customers were hitting financial difficulties, and capital markets virtually stopped functioning. As a result, companies found they simply were unable to detect and respond to these events with the required speed. In their risk analysis, they had asked how big is the risk, and how likely it was to eventuate, but – with 20/20 hindsight – they had neglected to ask how fast can this happen.
The reasons underlying the speed at which adverse events can impact on companies now are complex, but one factor is technology. Due to blogging, Facebook, SMS, and so on, word-of-mouth just operates so much more quickly. In the movie business, for instance, it used to take weeks for word to get around about a movie being poor, during which you still had time to recoup your investment. Now, a bad opening day can kill you.
Another factor impacting on risk is that, for many US companies, a greater proportion of their revenues, organization and growth prospects are now coming from emerging markets, which tend to have a higher risk profile than traditional major MNC markets in the developed world. Add to this that, post-GFC, many Western governments, such as the US, UK and France, have become more interventionist in their approach to regulation, you have a whole new array of regulatory risks to manage.
ceoforum.com.au: Has the way companies communicate their value proposition to customers changed as a result of the GFC?
TM: We’ve done a lot of research on effective sales and marketing processes over many years. One thing that really surprised us in the recent data is how the factors that make for effective sales people have changed. For the last ten years or so, conventional wisdom was that the most effective sales people are those who spend a lot of time building and cultivating relationships with customers, as this would lead to customer loyalty. Now we are finding, however, that the most effective sales people are those who confront and challenge their customers, and try to change their minds. That finding has major implications for how sales people are selected, trained and managed in the broader organization.
Our explanation for this is that there is so much information clutter in the marketplace now that it is only by creating a memorable experience for customers that you can stand out as a company. There is need for companies to have great clarity around what they are offering customers, and creating and communicating that clarity of purpose and proposition is vital for CEOs.
Information over-abundance is not a new trend, but the soft demand resulting from the GFC has probably accelerated its effects. Companies are now confronting very noisy, crowded market places, and need very distinctive propositions to cut through that.
ceoforum.com.au: How has the GFC changed, if at all, how CEOs need to lead their organizations?
TM: Often when we get CEOs together, they will talk about the need to increase the leadership capabilities within their organizations. Our research, however, indicates that most organizations have more than enough leadership capability already – they just have some people in the wrong places organizationally. Getting the right people in the right jobs has always been important for CEOs, but we believe the importance of this is only going to increase in the coming years.
A second leadership challenge is around communication. Just as there needs to be clarity about the company’s value proposition to customers, CEOs also need to make strategy tangible to their employees. Each employee needs to know how their job contributes to the overall objectives of the company, and the companies who can do this will enjoy higher returns in the market.
One specific suggestion I would make to CEOs is to seek out a broader range of information inputs when formulating key decisions. Being able to build, navigate and access new sources of information outside the traditional channels will help create the kind of innovative thinking and execution that companies will need to prosper and survive.
