Can a Company Care?
Gunther
Like a good neighbor, State Farm is there. Fly the Friendly Skies. You’re in good hands with Allstate. Talk to Chuck. You have a friend at Chase Manhattan. (I know, I’m dating myself with that last one.)
For a long time, companies have marketed themselves as our friends, neighbors and companions. Many tell their workers that they care, that their employees are part of the family.
Can companies care? I believe they can. My 2004 book, “Faith and Fortune: The Quiet Revolution That is Transforming Corporate America,” argued that smart companies (Herman Miller, Timberland, UPS, Southwest Airlines and Starbucks, among others) are driven by an ethic of service — to their employees, their customers and their shareholders, often in that order. This ethic of service generates loyalty and creates a powerful competitive advantage: Happier and more fulfilled employees mean satisfied customers, which drives long-term value for shareholders.
The thing is, companies that say they care need to behave that way. In tough times, that’s tough: Starbucks laid off thousands of baristas when its business went south last year.
A smart and lively book I’ve been reading, called “Predictably Irrational: The Hidden Forces That Shape Our Decisions,” touches on these question in a chapter called “The Cost of Social Norms: Why We Are Happy to Do Things, but Not When We Are Paid to Them.” The author, Dan Ariely, argues that we live simultaneously in two worlds: one characterized by social exchanges; the other characterized by market exchanges. The first is the world of family, friends, neighbors and community; the second, the world of business, wages, prices and rents. “When we keep social norms and market norms on their separate paths,” Ariely writes, “life hums along pretty well.” But when they collide, look out. Just try persuading your wife or girlfriend to have sex because you’ve just bought her an expensive dinner — his example, not mine.
Businesses gain when they bring social norms to the marketplace, Ariely says:
If customers and a company are family, then the company gets several benefits. Loyalty is paramount. Minor infractions — screwing up your bill or even imposing a modest hike in your insurance rates — are accommodated. Relationships, of course, have ups and downs but, of course, they are a pretty good thing.
I’m willing to bet that Southwest customers are less grumpy about flight delays than those on United or Delta because they have a sense that the company wants to treat them right. When I buy something at Nordstrom and it no longer fits, I’m fine because I know they’ll happily do an alteration.
Trouble arises when companies don’t deliver what they promise. We all understand that we can’t literally “talk to Chuck,” but Charles Schwab had better make sure that the people who answer its phones are friendly, responsive and knowledgeable. State Farm has to act like a neighbor when a customer submits a claim. As Ariely writes:
If you’re a company, my advice is to remember that you can’t have it both ways. You can’t treat your customers like family one moment, and then treat them impersonally — or even worse, as a nuisance or a competitor — a moment later when this becomes more convenient or profitable.
Make no mistake, Ariely isn’t saying that companies should only operate by market norms. He believes in the power of social norms, and his experiments in behavioral economics back him up.
“Cash will only take you so far,” he writes. “Social norms are the forces that can make a difference in the long run.” Money,” he goes on to say, is “very often the most expensive way to motivate people. Social norms are not only cheaper but more effective.”
Put simply, we’ll all work harder for a cause — or a company — that we believe in.
Much of this echoes what I’ve been hearing lately from Dov Seidman, the founder and CEO of LRN and author of the book “HOW: Why HOW We Do Anything Means Everything in Business (and in Life).” Dov talks about how companies need to inspire, rather than coerce or motivate, their workforce. He also says that the best businesses need to “outbehave” their competition.
I agree, but Ariely reminds us that this is a high-risk, high-return way of running a company. Those who say that they care create very high expectations that they had better meet.
Last 5 posts by Marc Gunther
• Investing in Good Corporate Conduct - April 22nd, 2010
• Google Gets Tough on Values With China - January 20th, 2010
• Will the Crisis Launch an Investment Revolution? - November 4th, 2009
• The Story of AES: Business as Unusual - October 21st, 2009
• UPS Tries to Outgreen FedEx - September 23rd, 2009
