Tag Archives: journal of finance

How to Unleash Employee Talent

Your company’s financial performance is below plan. You need to act! The most common response is to cut costs to improve the bottom line or fire or reassign a senior executive to create a sense of urgency. But these actions create disruption and distraction at a time when the organization needs to be aligned and focused.

There’s another approach: Empower your employees to find the solution. Step back and let them take the lead. Invest them with the power to effect change. There are three basic approaches:

  1. Create a cross-functional team to focus on the problem. Early in my career, I was summoned to the office of the CEO of a major carrier along with two other people from different departments. The CEO told us that one of our smaller divisions was not doing well. He said everyone in the group was working hard, but no one had any solutions. He asked us to come up with a plan within a week to improve the division’s performance. He said there were “no sacred cows.”  We should not concern ourselves with whether our solutions were politically correct. We came up with a plan that adopted an open-architecture product approach, where the company’s product was just one of many that our insurance salespeople could offer. Broadening customer selection highlighted the benefits of our product offering, and sales increased markedly.
  2. Empower your front-line employees to find the solution. Zappos, the online shoe website, empowers its customer service representatives (CSRs)to control the customer experience. Most call centers evaluate performance based on the length of a call. Calls that last beyond a certain time hurt the CSR’s performance reviews. Early on at Zappos, the CSRs reported that callers had a lot of questions and that the calls could last 10, 15 even 30-plus minutes. They suggested that Zappos not evaluate their performance based on the time a call lasted. Zappos adopted this policy and allows its CSRs to stay on the line as long as needed with a customer. This has translated into pricing power for the company. Zappos’ customer loyalty is so high, it enables the company to charge full retail for its shoes.
  3. Show your employees they come before you. In the March 22, 2014, Corner Office column in the New York Times, Don Knauss, the CEO of Clorox, recounted one of his first leadership lessons while in the Marines. After a hard day of drills in the field, the commanding officer had arranged for a special meal for the soldiers. Hungry, Knauss, a lieutenant, walked to the front of the line to get dinner. A gunnery sergeant tapped him on the shoulder and said, “In the field, the men always eat first. You can have some if there is any left.” As Knauss recounted, “It’s all about your people; it’s not about you. And if you’re going to lead these people, you’d better demonstrate that you care more about them than you care about yourself.”

Companies with CEOs who empower their employees perform better. In a study led by University of Chicago Booth School of Business Professor Steven N. Kaplan, titled, “Which CEO Characteristics and Abilities Matter?” to be published in the Journal of Finance, performance characteristics of approximately 400 CEOs were evaluated. There was a direct correlation between company performance and whether the CEO was “open to criticism” — another way of describing CEOs willing to empower others.

Technology and the Great Recession have reduced the number of management layers between the CEO and front-line employees. This creates an opportunity for more engagement and collaboration. CEOs must spend more time focusing on how they create a culture of engagement — in other words, a two-way conversation.