Born in Cleveland, Fred Reichheld is an author and business strategist employed by Bain & Company. Holding a B.A. from Harvard College and an M.B.A. from Harvard Business School, Reichheld writes on the loyalty business model. His most popular books are The Loyalty Effect, Loyalty Rules!, and The Ultimate Question. In 2003, Consulting Magazine named Reichheld one of the world’s top 25 consultants.
Good Ethics Is Good Business?
Spend any time with a business executive and you might hear the cliché, “Good ethics is good business.” Setting aside the clear disassociation between this statement and the way American businesses operate, the philosopher in me reacts negatively to such statements. Often times, good ethics does equal high profits, but such a statement should never paint broad strokes. Occasionally, the right decision costs a firm extensive money.
However, Fred Reichheld’s The Ultimate Question might offer a key to translating an overused cliché into a tangible metric that links profits with good ethics.
At its core, The Ultimate Question proposes that business managers rethink the ways they evaluate business success. Since financial metrics are easy to produce and easy to read, managers often make decisions strictly based on financials.
Reichheld, however, believes that these profit-oriented measurements force business leaders to become addicted to bad profits. Reichheld says,
“Bad profits work much of their damage through the detractors they produce. Detractors are customers who feel badly treated by a company – so badly that they cut back on their purchases, switch to the competition if they can, and warn others to stay away from the company they feel has done them wrong” (6).
To reorient business decisions, the author argues that managers ought to measure customer satisfaction instead of financial performance. If a company creates loyal customers, it produces good profits.
“A company earns good profits when it so delights its customers that they willingly come back for more – and not only that, they tell their friends and colleagues to do business with the company. Satisfied customers become, in effect, part of the company’s marketing department, not only increasing their own purchases but also providing enthusiastic referrals. They become promoters” (9-10).
The Ultimate Question
After years of research, Reichheld and his consulting firm, Bain & Company, found that highly satisfied customers offer a direct link to profitable long term growth for a company. In order to find out whether a company holds satisfied customers, only one question needs to be asked. That question is:
“How likely is it that you would recommend this company to a friend or colleague” (18-19)?
By answering that question on a 0-10 scale, a company can truly gauge the satisfaction and loyalty of its customers. Those that answer in the 9-10 range are considered promoters; those in the 7-8 range are passive; and those in the 0-6 range are detractors. Thus, a company will know the satisfaction of its customers by subtracting the detractors from the promoters. This equation gives managers a net promoter score (NPS).
If the company’s NPS is high, it has delighted customers who buy multiple products and encourage their friends to do the same. A company with a low NPS, on the other hand, is addicted to bad profits and is holding its customers hostage. Whenever the customers have an opportunity to leave this company, they will.
Theory aside, Reichheld’s metrics hold when applied in business settings. The industry leaders in NPS are also growing exponentially and making large profits.
TOMS: Good Ethics Equaling Good Business
Considering the angle I presented at the beginning of the review, where are the ethics in this book? At first glance, NPS is a customer satisfaction metric, an equation with little connection to ethics. A business need not be overtly ethical in order to serve customers; it only needs to practice the golden rule of treating others as it would wish to be treated in order to obtain a high NPS.
But I argue that serving customers is a task that orients a company toward ethics. By thinking of the needs of the customer, a company cannot act selfishly because a selfish action results in bad profits and customer detractors.
|Photo by Sharmili R|
So perhaps, advertised good ethics does equal business. More research is in order, but a link between ethics and high profits seems plausible.
With bad profits leaving most companies middling around a 0-10% NPS, the search for ways in which a company can raise its NPS, and therefore grow, is extremely important. If you manage a business, you owe it to yourself, your employees, and your customers to read Ultimate Question.
Verdict: 4.5 out of 5
Posted by: Donovan Richards