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Optimizing Employee and Customer
Engagement to Drive Success
John H. Fleming, Ph.D., Principal
Chief Scientist, Customer Engagement & HumanSigma

Copyright © 2009 Gallup. Inc. All rights reserved. 2

What Are Your Vital Signs?

Heart Rate

Respiration

Blood Pressure


What Are Your Company’s Vital Signs?

Heart Rate Customer
Engagement

Respiration Employee
Engagement

Blood Pressure Financial and
Operational
Effectiveness


What Is Engagement Optimization?

An holistic approach to “optimizing” your company’s vital signs.

– The behavioral economics of the employee-customer encounter

Like Six Sigma, focus on reducing variability in performance and
improving organizational effectiveness.

Unlike Six Sigma, focus on the human aspects of organizational
performance to drive profitability and growth.


The Employee-Customer Encounter

In manufacturing, value is
created on the factory floor when
a product is made available for
sale

But in the service economy, value is
created when an employee meets – and
interacts with – a customer


The Employee-Customer Encounter

To achieve meaningful operational and
financial improvements, the employee-
customer encounter must be
Measured, Managed, and
Optimized.


Engagement Optimization

The EO approach is based on five “new rules” that our research
and experience have found facilitate the effective management
of the employee-customer encounter.

The 10 companies (1,979 business units) from our research who
applied these principles outperformed their 5 largest peers
during a recent one-year period by:
– 26% in gross margin and
– 85% in sales growth.


Engagement Optimization | The “New Rules”

1. Like vital signs, the employee-customer encounter must be
conceptualized and managed holistically.
2. The employee-customer encounter is fundamentally emotional.
3. The employee-customer encounter must be measured and
managed locally.
4. The effectiveness of the employee-customer encounter can be
quantified and summarized in a single performance metric – the
Optimization metric – that is powerfully related to financial
performance.
5. Optimizing local performance requires attention to a
combination of “transactional” and “transformational”
intervention activities.


Optimization Rule #1 | E Pluribus Unum


Because value creation in the service economy flows from the
interaction between employees and customers, both sides of
the employee-customer encounter must be viewed as
interrelated and mutually-dependent systems that should be
measured and managed as a coherent whole, not as
independent activities housed within separate organizational
entities.


Optimization Rule #2 | Feelings Are Facts


Because both employees and customers are human agents, the
measurement and management of the employee-customer
encounter must acknowledge and incorporate the critical
emotional infrastructure of human behavior and decision-
making, yielding a concept that extends well beyond traditional
considerations of employee and customer “satisfaction” – a
concept we refer to as engagement.


Employee Engagement


U.S. Engagement Scores 2008

20% 51% 29%
Actively
Not Engaged Engaged
Disengaged


Employee Engagement Hierarchy

Financial Outcomes
100%

How can Growth
we grow?

Do I belong? Teamwork

Individual
What do I give? Contribution

Basic
What do I get? Needs

0%


What Does Employee Disengagement Look Like?


The 12 Elements of Great Managing
THE FIRST ELEMENT THE SEVENTH ELEMENT
Knowing What’s Expected My Opinions Seem to Count

THE SECOND ELEMENT THE EIGHTH ELEMENT
Materials and Equipment A Connection with the Mission of the
Company
THE THIRD ELEMENT
THE NINTH ELEMENT
The Opportunity to Do What I Do
Best Coworkers Committed to Doing
Quality Work
THE FOURTH ELEMENT THE TENTH ELEMENT
Recognition and Praise A Best Friend at Work
THE FIFTH ELEMENT THE ELEVENTH ELEMENT
Someone at Work Cares About Me Talking About Progress
as a Person
THE TWELFTH ELEMENT
THE SIXTH ELEMENT Opportunities to Learn and Grow
Someone at Work Encourages My
Development


Employee Engagement and Performance

Note: Differences are between top and bottom quartile workgroups.
Absenteeism statistic is the difference between engaged and actively disengaged employees.


Employee Engagement and EPS

2.6x Higher Growth Rate for
High-Engagement Companies

Note: Based on analysis of data from 89 publicly traded companies.
Engagement data collected from 2002 to 2004. Comparables averaged 7.3 competitors per company.


Customer Engagement


“Not everything that can
be counted counts.”
-Albert Einstein


Understanding Customer Engagement

Customers are not strictly rational – healthy, engaged customer
relationships have a significant emotional dimension which must
be measured and managed.

– “When it comes to customers, feelings are facts.”
Simon Cooper, President & COO, Ritz-Carlton Hotel Company LLC.

Simply satisfying customers on a rational basis is not enough to
drive financial performance.


Satisfaction Is Not Enough | Three Kinds of “Satisfaction”

“1-4” “5” “5”

Rationally Emotionally
Dissatisfied
Satisfied Satisfied

Not at all Extremely
satisfied satisfied

1 2 3 4 5


Satisfaction Is Not Enough

100
Retail Banking

Surgeons


Customer Engagement Hierarchy
Increased Financial & Operational Effectiveness

Can’t imagine a world without Your company is irreplaceable to
Perfect company for people like me Passion me. I feel passionate about you.

Treats me with respect Your company is prestigious. It
Feel proud to be a customer Pride is part of who I am.

Fair resolution of any problems When we have a problem,
Integrity
Always treats me fairly you always treat me fairly.

Always delivers on promise I can safely assume that
Confidence you will always keep
Name I can always trust
your promises.

Overall Satisfaction Your company executes
Likelihood to Recommend Rational Foundation and fulfills my basic
Likelihood to Continue expectations.


Customer Engagement Drives Financial Performance

100


Optimization Rule #3 | Think Globally, Act Locally

managed locally.

While other kinds of organizational activities may be managed
effectively from the top down, the employee-customer encounter
is an intensely local phenomenon whose effectiveness varies
considerably from location to location within the same company.
Because of this variability in local effectiveness, its
measurement and management must be focused locally.


Local Performance Variation Is the Scourge of High Performance

Average
Performance

Range of
Performance


Variation = Danger


Optimization Rule #4 | The One Number You Need To Grow

performance.

Our research has revealed that the two sides of the employee-
customer encounter potentiate one another and can be
quantified into a single Optimization metric. The interactive
effects of employee and customer engagement at the local unit
level exponentially drive operational and financial performance
and growth.


Optimization | Bringing It All Together

The Engagement Optimization Model arose from a set of
unexpected findings.

Business units that had high levels of Employee and Customer
Engagement exponentially out-performed units in which one, or
both, of these critical vital signs were at sub-optimal levels.

These top performers are “optimized.”


Engagement Optimization Quadrants

“Optimized”
Q III QI

Q IV Q II


Engagement Optimization Quadrants

“Optimized”

70%
1.7 240%
boost 3.4
boost

1.0 70%
1.7
boost


Engagement Optimization Bands

5.2x

4.5x

3.8x

2.5x

1.8x
1.0


Engagement Optimization Rule #5 | If You Pray for Potatoes,
You Better Grab a Hoe

5. Optimizing local performance requires attention to a
combination of “transactional” and “transformational”
intervention activities.

Transactional activities, such as action planning and training,
are cyclical interventions that tend to be more topical and short-
term in focus, but recur regularly. Transformational activities, on
the other hand, are structural interventions that focus on how
companies select employees, select and promote managers,
pay and appraise employees, do succession planning, and
recognize and develop employees. Transformational activities
are focused on creating an organizational infrastructure that
supports Engagement Optimization.


Transactional Interventions

Learning, Adjustment,
& Alignment
Performance
Measurement &
Accountability

Education &
Dialogue


Transformational Interventions

To reliably
influence these...

Engagement
Optimization

…these must be
all managed.
Transformational
Interventions

Copyright © 1996-2002 Gallup. Inc. All rights reserved. 36

Xtreme Optimization at Bank S


Optimization at Bank S | 2004

0.2% of branches (1)

5.4%



N=441 branches
Note: Line is regression line for CE11 and Q12


Optimization at Bank S | 2009


97.4%



0.0% of branches
N=910 branches
Note: Line is regression line for CE11 and Q12


What have been the results? | Bank S

Revenue up 25% year over year.
Stock price up 35% over past three years.
Assets up 27%.
Bank has moved up from #4 to #3 bank in region overall.
– #1 in net profit, ROE, and ROA.
– #1 in market cap.
Market cap of USD 6 billion.
– #1 in retail outlets.
850 branch locations (+400).
4,000 ATMs (+2,000).
– #1 in credit cards issued.
– #3 in total assets.

.


Optimization Summary | The “New Rules”

managed locally.
performance.
5. Optimizing local performance requires attention to a combination of
“transactional” and “transformational” intervention activities.


Questions from you
Thank You!


Copyright Standards

This document contains proprietary research, copyrighted materials, and literary property of The Gallup Organization. It is for
the guidance of your company's executives only and ® not to be copied, quoted, published, or divulged to others outside of
is
®
your organization. Gallup®, HumanSigma®, Q12 , CE11 , StrengthsFinder® and each of the 34 StrengthsFinder talent themes,
are trademarks of The Gallup Organization, Princeton, NJ. All other trademarks are the property of their respective owners.
This document is of great value to both your organization and The Gallup Organization. Accordingly, the ideas, concepts,
and recommendations related within this document are protected by international and domestic laws and penalties
guaranteeing patent, copyright, trademark, and trade secret protection.
No changes may be made to this document without the express written permission of The Gallup Organization.


Q12® Employee Engagement

I know what is expected of me at work.
I have the materials and equipment I need to do my work right.

At work, I have the opportunity to do what I do best every day.
In the last seven days, I have received recognition or praise for doing good work.
My supervisor, or someone at work, seems to care about me as a person.
There is someone at work who encourages my development.

At work, my opinions seem to count.
The mission/purpose of my company makes me feel my job is important.
My associates (fellow employees) are committed to doing quality work.
I have a best friend at work.

In the last six months, someone at work has talked to me about my progress.
This last year, I have had opportunities at work to learn and grow.

Copyright © 1992-1999 Gallup. Inc. All rights reserved. 44

CE11® Customer Engagement

I can’t imagine a world without [Brand].
Passion [Brand] is the perfect [company/product] for people like me.

[Brand] always treats me with respect.
Pride
I feel proud to be a [Brand] customer.
If a problem arises, I can always count on [Brand] to reach a
Integrity fair and satisfactory resolution.
[Brand] always treats me fairly.

[Brand] always delivers on what they promise.
Confidence
[Brand] is a name I can always trust.

Overall, how satisfied are you with [Brand]?
Rational
How likely are you to continue to choose/repurchase [Brand]?
Foundation
How likely are you to recommend [Brand] to a friend/associate?

Copyright © 1994-2000 Gallup, Inc. All rights reserved. 45

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