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Business Journal

Maximizing Return

How to build profits by leveraging employee and customer assets

by William J. McEwen

Company leaders around the globe focus intensely on asset management. This is understandable, because investors and Wall Street analysts place great store in a company's ability to obtain consistently strong returns from deploying the various assets it holds in trust.

During tight economic times, the company's asset management emphasis may shift more toward protecting these precious assets against encroaching competition. Boom times, in contrast, may reveal a relatively stronger emphasis on leveraging company assets to pursue growth. Nevertheless, while this pendulum swings from time to time, companies must maintain a balance between the need to protect assets with the drive to enhance their value. For most companies, there must always be some sort of "balanced scorecard" representing the need for both defense and offense. Managing company assets implies a requirement to protect assets as well as grow them.

What is the nature of these various company assets? Most obviously, there is the "hard" stuff, such as products, processes, packaging, equipment, distribution systems, and physical plants. But there is "soft" stuff as well -- like brand names, intellectual property, advertising slogans, corporate logos, and "good will."

Whether "hard" or "soft," the most frequently discussed company assets are those that are represented by, or have been established through, the traditional "four Ps" of marketing: "Product, Place, Promotion and Price." These are assets worth building and well worth protecting -- assets that are well recognized, catalogued, and routinely audited by the company.

A world beyond the four Ps

There are, however, other company assets, that are every bit as important as these well-recognized company treasures. These other assets often seem to elude many managers either because they are not clearly recognized as business-building "assets" or merely because they are far more challenging to manage effectively. These company assets are, nevertheless, worthy candidates for intelligent and informed management. These are the assets that surround the important fifth "P:" People. Human assets. Human capital.

These human capital assets that are crying out for company management attention are comprised of two key "people" components that regularly interact and together largely determine the real worth of the company. These two are the employees and the customers. Why these two? First, employees represent the company and must "live" the brand while they deliver the company's promises to consumers. And these same employees interact directly or indirectly -- through a variety of touchpoints -- with the second group of people assets who clearly matter: the company's customers. The company's customers ultimately represent the real return on all of the company's investments.

Both of these human assets are critical. Both employee and customer relationships must be managed. Both also represent, however, management challenges that are far more daunting and complex than setting prices, choosing store locations, or approving an advertising budget.

How can these highly variable and frustratingly diverse human assets be managed?

First, as with all assets, the company's human assets must be audited. Management cannot be expected to manage what cannot be -- or currently is not -- reliably measured.

In addition, if they are to be leveraged or protected, these human assets must be established as a clear management focus -- issues for regular attention and management oversight and, whenever and wherever required, for intervention. Measurement is the basic requirement, but it is never by itself the solution.

Human asset management

Employee assets can be reliably measured through the Q12 employee engagement instrument developed by Gallup, as discussed in detail in First, Break all the Rules. And now, the company's customer relationship assets can be similarly assessed and reliably monitored, in this case through the application of Gallup's CE11 measurement of customer engagement.

Together, these two Gallup tools provide the means whereby a company's leadership can monitor the health of two essential people relationships: the relationship between the company and its employees, and the relationship between the company and its customers. Together these provide the essential information base necessary for a company-wide program of education and intervention -- to not only obtain and share these relationship "health" numbers, but to manage them.

Where should a manager focus? Which of these people relationship assets is more important? Is it employee engagement or customer engagement? The answer is, of course, that they are both essential. Asset scorecards must be balanced. Both of these assets must be built as well as protected. Thus, both internal and external people relationships must be managed.

It may well be that engaged employees are a prerequisite for engaged customers. A highly disengaged workplace is likely to yield highly disengaged customers. But employees and customers are of course not one and the same. Nor are they perfect correlates. Rather, engaged employees represent the energetic company resource -- the "engine" -- that can drive outstanding performance.

If engaged employees represent the driving force, then engaged customers represent the destination goal that steers, focuses, ultimately gives real meaning to the power of this employee-fueled engine. Companies can "optimize" their performance only when they build engagement with both employees and customers. Neither of these is sufficient if the goal is a smoothly running company that is also making steady progress toward a meaningful and profitable destination. It is only by managing to engage both employees and customers that the full scope of any company's human assets can be leveraged and protected, and thereby can bear the real fruits of enduring profit and stock market performance.

Optimizing assets for fun and profit

Three recent Gallup cases highlight the important business outcomes that can accrue for a company that successfully pays attention to both its engine (employee engagement) and its guidance system (customer engagement).

All three cases are based on major retailers with whom Gallup has worked to build employee engagement as well as enhance the company's customer relationships. All three have begun to address the balanced-scorecard goal of enhancing and nurturing the commitment of both the employee and the customer.

In the first case, Gallup consultants noted that there was an appreciable and important business bonus that resulted when employees were strongly bonded to their workplace and when that employee bond was also matched by the customer's emotional connection to the company and its stores. That is, there was a proven and powerful return to the company from the stores that managed to achieve higher levels of employee engagement (as assessed by store-level Q12) while also creating higher levels of customer engagement (as measured by CE11) through activating, focusing, and leveraging those employee assets.

What was the payoff? The stores in this nationwide chain that had above-average employee engagement combined with above-average customer engagement evidenced greater "conversion" of shoppers (who simply visited the store) to buyers (who actually purchased something) -- by anywhere from 7% to 9% per store above the levels noted for the non-optimized stores. When a 1% change in "conversion" translates to almost $1 million in annual revenue per store, those numbers take on obvious import. The advantage of "optimization" across a thousand stores is certainly enough to bring joy to the heart of any stockholder, and well-deserved bonuses to the managers and teams that work together to manage these critical human assets.

In a second national retail chain, Gallup consultants found that stores with above-average employee and customer engagement outperformed their non-optimized counterparts by almost 50% when it came to profit per square foot of retail space. In spite of common store layouts, inventories, pricing, and marketing promotions, stores that paid close attention to the management of both of their key people assets achieved levels of profit performance that could only be dreamed of by those managers who were unable or unwilling to focus on both of their human capital assets.

A third major multi-store retail chain discovered the same sort of clear "optimization" bonus. Optimized stores in this chain outperformed their store-level profit targets by over eight times the profit performance levels achieved by the non-optimized stores.

It takes two to tango

Optimization not only makes good conceptual sense -- it has been consistently proven to make good business sense. Assessing both employee engagement and customer engagement not only provides store or unit managers a meaningful balanced scorecard of performance, but also shows each manager a clear route to dramatically enhance that performance.

As a result, companies can begin to manage the full range of important company assets -- and not just the commonly recognized assets that are managed from "on high." By managing these human assets, the entire company stands to reap the resultant rewards. There continue to be, of course, lots of company assets that must be audited and managed. Two of the most important of these company assets -- the "human" ones -- have appeared to be largely unmanageable. No longer. There are now two important human asset components that not only should be managed -- but at last can be.


William J. McEwen, Ph.D., is the author of Married to the Brand.

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