Economy and Human Nature - Does it fit together

Recently, many companies have developed great expertise as "cost cutters." They were not good at this 25 years ago, but they have learnt how to lower production costs -- excellently -- by "standardization." But it did not stop margins from eroding.

"Re-engineering." Many companies did this and it also worked. In fact, many saved a lot of money by applying the theories of both of these significant corporate leadership movements.

Corporations have been quick to learn how to cut prices but they have learned virtually nothing about how to grow margins. They can't maintain their margins from normal operations when they are faced with extreme competition. What causes the problem? A customer relationship based solely on price. When all you have that differentiates you is your price, you are a commodity.

What is the solution? You have to have a relationship with customers that to some degree overrides price. If not, you will over time, go broke.

Yes, you should use all the latest cost-cutting techniques and re-engineering type processes to improve efficiencies as much as possible. But these processes do not provide the long-term solution to maintaining your margins.

The success of organizations doesn't depend on their understanding of economics, or organizational development, or marketing. It depends, quite simply, on the understanding of psychology: How each individual employee connects with your customers; how each individual employee connects with your company.

Why do employees stay with one company when others are willing to pay them more? Why do some employees know how to deal with customer complaints, without alienating those customers? Why do some customers drive three miles out of the way to come to a store, when the competitor is right across the street from them? If you don't know the answers to these questions, you cannot maintain your margins.

The extraordinary economies in Europe, America and parts of Asia of the last 50 years have been based on remarkable innovation and entrepreneurship. There is no substitute for these. However, in the new world of extreme competition, we are all going down the wrong path toward continuous margin erosion unless we discover a new way to manage human nature.

Emotions Are a Terrific Thing to Value

What is it that most successful organizations don't do? They don't suppose that either superior college grades or comprehensive training is the only accurate or dependable indicator of the right person for the right job. Neither do they expect that employee incentives will guarantee consistently better job performance.

Instead they depend on the reliable source that other businesses simply overlook: human nature. They know that the emotions of both employees and customers create feelings, which drive their behavior. Successful organizations are aware of the power of emotions and therefore set up the conditions that generate and cultivate emotional mechanisms among employees and customers. The only way to achieve this is through human interaction, the fastest and most powerful trigger of emotional states.

Recognizing and setting free the natural abilities of employees and matching their talents to the positions that will best take advantage of them, thus making them even stronger, is the way to move forward.

Companies need to care for the fluctuations in human behavior and to understand that these create the lead way to better margins:

- Employees who use their natural talents in their jobs produce significantly more than average workers.

- Emotionally committed employees form teams that deliver exceptional outcomes.

- Customers recognize the passion and commitment employees feel toward them and cannot help but respond in an emotional way.

- This emotionally driven reaction builds a bridge between employees and customers that creates engagement.

- This engagement becomes the key factor that drives sustainable growth.

- Sustainable growth is the route to profits and, ultimately, higher stock value.

In the end these organizations know that a reason-driven economy can travel only so far. The missing link is the engagement of deep-seated emotions as the driver of growth and profits. These -- and only these -- feelings are the fuel that propel talented individuals to do more, and inspire customers to return. And while reason influences both employees and customers, emotions are indispensable because they drive the best in both of them.

This article is based on Gallup's " Performance Path" concept.

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