January 22, 2014
Reputational Risk Management Using the Three Bell Curves
The inside-out approach to reputation risk management requires an understanding of the nature of organizational culture.
Incremental reputational risk, if not managed correctly, can chip away at a company’s brand for years and eventually result in lower sales and lower retention of customers.
Most risk management initiatives we hear about are “outside-in” approaches. Managing the Three Bell Curves proposes an “inside-out” method that builds an organizational culture where reputational risk management is woven into the fabric of a company’s DNA. The only way this can be done is by including the customer’s voice in just about all decision making.
What Is Organizational Culture?
I Googled “organizational culture” and got more than 36,000,000 hits in .32 second. None of the definitions is wrong—but none is perfectly right, either. What people miss is that organizational culture is an emergence – an immeasurable state made up of two or more relatively simple ingredients, where 2+2=7.
Deal and Kennedy (1982) defined organizational culture as “the way things get done around here.” Of all the definitions I’ve read, this simple one resonates with me most. Deal and Kennedy’s definition, while not perfect, seems to be the most widely accepted.
“The Way Things Get Done Around Here”
While culture itself is extremely difficult, if not impossible, to measure and manage, the relatively simple ingredients of culture are not. Because they are manageable, it is possible to guide the organization’s culture without being able to manage it directly.
When we think about “the way things are done around here” from a high level, we see there are really only three key ingredients: employees, work and customers. That’s all. And managing all three well ensures customers get what they want, when they want it, at a quality level they expect (or better). Guiding culture through the proper management of employees, work and customers results in a maximization of customer retention, brand strengthening and even growth (through referrals).
The Three Bell Curves
The simple bell curve shows the normal distribution of things in many facets of business. We use them when gauging success, failure, mediocrity and everything in between. A bell curve can be assigned to each of the simple ingredients that make up your company’s culture.
Gallup estimates that 52% of American workers are not engaged and that a further 18% are actively disengaged. This means that only 30% are either engaged or actively engaged. Where does your company stand? There are several ways to find out.
- Employee surveys
- Employee giving
- Customer surveys
The impact of employees on reputational risk is obvious. Or is it? When we think about the impact employees have, most of us think about the customer-facing employee – the ones customers actually communicate with. The fact of the matter is that, in many companies, most employees are back-office or noncustomer-facing. These workers as a whole have every bit as much of an impact on customer retention and growth as those who are customer-facing. This is because problems left unsolved in the back office always present themselves in some form or another on the front line. Similarly, the problem solving that occurs in the back office creates a smoother experience on the front lines, helping those customer-facing employees provide a better experience. This is even more the case in manufacturing, where a product does all the speaking for itself and there is no customer-facing employee to manage the experience.
While it’s one thing to come up with metrics, it’s a whole other thing to execute strategies for change or improvement. Fortunately, much work has been done in the field of organizational psychology that has revealed the drivers of engagement. Sirota Survey Intelligence, out of New York, has been capturing data regarding employee attitudes since the early ‘70s. Their findings are really interesting. In terms of drivers of engagement, the three most important areas should be:
- *Employee equity (sense of fairness)
- Employee camaraderie
- Employee sense of achievement
By measuring and managing the workforce’s sense of equity, achievement and camaraderie, a company can make great strides toward reducing reputational risk.
Peter Drucker said, “There is nothing more useless than doing efficiently that which is not necessary.” Unnecessary work (waste) results in a couple of things. First, working with processes that aren’t necessary smacks an employee’s need for the sense of achievement in the gut – dead center. Second, the customer pays for everything your company does, even if the work is considered “waste.”
Necessary work is activities that are required (usually by law) that customers aren’t necessarily interested in paying for but must. Valuable work is work that customers would pay for.
The measure of value vs. waste comes during the process of problem solving. Problem solving done the right way eliminates waste. Done the wrong way, it adds complexity. Workarounds, for instance, add waste. Root-cause elimination removes waste and leaves more room for creating value.
Success on the” work” ingredient can be measured in terms of speed, cycle time and quality. It also presents itself in overall customer satisfaction. It helps employees to envision the work bell curve as they perform their everyday job duties. If everyone had an “eliminate waste, maximize value” mindset, think of the ideas employees would come up with! And once those ideas are acted upon, it leads to the employee’s sense of achievement and the removal of something customers didn’t want to have to pay for.
The Lean Enterprise Institute (Cambridge, MA) has a website that contains a plethora of useful information on working with the principles of lean inside and outside of manufacturing. Check out http://www.lean.org for more information on thinking and working lean.
Fred Reichheld, who founded Bain's loyalty practice, was determined to find out why some companies were so successful while others weren’t. In side by side comparisons, he and his research team found that customer advocacy was very strong among the successful companies while, at the mediocre or poor-performing companies, customer advocacy was weak. This all makes perfect sense. What didn’t (make sense) was that there was no calculation, no indicator, that could help a company understand where it stands and how to move the needle to the right on the bell curve.
By asking just one question, the team found, a company could develop a benchmark and use it to improve results. The one questions is: “On a scale of 0 through 10, how likely are you to recommend (company XYZ) to a family member, friend or colleague?” Having listened to answers to that question many times, researchers began to notice that customers who responded with a 9 or a 10 had actually promoted the organization or were going to in the future. Those who answered with a 7 or 8 were neither excited nor disappointed. Customers who scored between 0 and 6, the team found, were most likely to damage the reputation of the company by speaking about an experience in a negative light.
So how does a company calculate its Net Promoter Score?
A company’s Net Promoter Score is calculated by subtracting the percentage of detractors from the percentage of promoters: %PROMOTERS – %DETRACTORS = Net Promoter Score. Yes, it’s that simple. NPS is a sign for everyone from the ground up to the corner office to see and work to improve. It’s the customer’s voice. It’s your company’s true north. Measure it. Improve it.
For more information on The Net Promoter Score , read The Ultimate Question by Frederick Reichheld.
The inside-out approach to reputation risk management requires an understanding of the nature of organizational culture (the way we do things around here).
Net Promoter, Net Promoter Score, and NPS are trademarks of Satmetrix Systems, Inc., Bain & Company, Inc., and Fred Reichheld