The death of loyalty

Companies are paying the price for the years of ruthless downsizing, says Roger Trapp

At a recent conference in London, the management guru Gary Hamel asked his audience of human resources specialists whether they had come across the phrase - in company reports or elsewhere - "Our people are our greatest asset." There was an outbreak of laughter when he posed his follow-up question: whether anybody had come across the term "downsizing".

The reaction goes to the heart of one of the biggest problems facing businesses around the world today: the breakdown of loyalty between companies on the one hand, and their employees and even their customers on the other. Despite regular launches of "loyalty cards" and the triumphant publication of surveys demonstrating high levels of customer satisfaction, the trend seems to be developing.

Last year Frederick Reichheld, a management consultant with Bain & Co, published a book, The Loyalty Effect, in which he pointed out that the cost of gaining new customers far outweighs the cost of retaining existing ones. Now another consultant, Dennis McCarthy, has written The Loyalty Link (John Wiley & Sons, pounds 15.99), which - as the subtitle puts it - sets out to explain "how loyal employees create loyal customers".

But the size of the task confronting anybody seeking to break the cycle is demonstrated by a survey out yesterday, from the outplacement specialists Sanders & Sidney. More than 90 per cent of the human resources professionals and other employees questioned felt that loyalty in the work-place had decreased, with two-thirds saying that it had gone down "a lot".

Of course, as Sanders & Sidney will have realised at first hand, a lot of that must have been caused by the waves of job cuts and the ending of the "psychological contract" under which employees supposedly had something like a guarantee of a job for life in return for doing good work - and being loyal.

According to the study, Broken Bonds, people are still reasonably loyal to those they work alongside; it is just the company they do not like.

And just in case anybody thought that was part of a wider malaise, under which general levels of loyalty were in decline, those conducting the survey discovered that the only change was in the increase in the value placed on family and friends, compared with five years ago. At that time as many as a fifth of employees would have made work colleagues first or second on their list of loyalties; now, that figure is just 9 per cent.

What these books and surveys demonstrate loud and clear is that it is hard to contain the effects of all this disillusionment. It does not take a management guru to tell you that you have a better chance of winning loyal customers if you have loyal staff. People can tell when a receptionist or desk clerk is wearing a forced smile. And no amount of loyalty cards - which are, by the way, nothing of the sort, since they encourage consumers to shop around for the best deals (especially when they realise they are just a tool to enable companies to discover more about them) - are going to change that.

As Mr McCarthy points out, the only way forward is for companies to give their customers the impression that they really care about them. As such, customer satisfaction is not the answer. He cites the example of a restaurant where the owner comes around at the end of the meal to make sure that everything is all right. The diners have had a perfectly good meal, and nobody had their soup tipped into their lap, but there was nothing memorable about the evening. In such a situation, the restaurant may pass the satisfaction test, but it may not have so impressed the customers that they will come back again, and tell their friends about it.

Contrast that with Kwik-Fit, the car-repairs organisation set up by the newly knighted Tom Farmer. Not only is it a beacon in an industry that is not renowned for customer service, but it is constantly pushing to improve its own offering - exemplified by crossing out the word "satisfaction" on its stationery and substituting "delight".

The message is slowly getting through; marketing consultancies, for instance, are increasingly talking of seeking to imbue brands with integrity and reputation, on the grounds that that sort of value will help consumers to distinguish them from the mass.

But it is still a sad fact that for many companies the truth is not so widely different from that described the other day by the American humorist Dave Barry. "I think customer service is a really brilliant system designed to keep customers from ever getting service," he told Fortune magazine. "My theory is that the most hated group in any company is the customers"n