DECEMBER 14, 2006

Why You're Failing to

Engage Customers
Most companies face barriers that prevent
them from fully engaging customers and
employees. Here are the five root causes of
those obstacles -- and how to overcome
them.
BY TOM RIEGER AND CRAIG KAMINS
All companies strive to make the most of two key assets -- customers and
employees. Yet organizations unintentionally create barriers that prevent
them from fully engaging those two groups.
In the first article of this two-part series, we outlined the
key characteristics of those barriers, as determined by a
Gallup study of barriers to engagement across several
industries in seven countries. (See "Are You Failing to
Engage?" in the "See Also" area on this page.) This
article explores the root causes of these barriers and
how to permanently remove them to clear a path to
greater customer and employee engagement.
The five root causes
Gallup's study identified about 200 barriers and evaluated the root causes
of each. Surprisingly, virtually every barrier identified could be traced back
to one of five primary causes, regardless of the industry, function, or
geography of the company.
The barriers were often obvious and seemingly intractable, as they involved
hundreds of variables and many job roles. Understanding the key variables
helps companies identify the specific systems, structures, processes, and
people in the organization that must change to overcome the barriers. And
though the barriers can seem entrenched and complex, the root causes are
not.
Root cause 1: fear
The most prevalent root cause of barriers to engagement is fear; at least
one fear-based barrier existed in all the companies Gallup studied. While it
may seem surprising that companies with rational, disciplined management
would be subject to self-inflicted damage due to fear, the data indicate that
it likely happens in all
companies.
Fear-based barriers restrict
employee and customer
engagement in several ways.
Fear stifles innovation and
creativity, limits an
organization's flexibility in
meeting customer requirements, prevents cross-functional collaboration in
addressing problems, discourages empowerment, and causes turnover.
As companies grow, they begin to introduce rules, policies, and procedures
that attempt to mitigate concern about loss -- loss of control, respect, or
certainty that employees will "do the right thing." Checks and balances are
required in all businesses, but they can go too far. Examples
of institutional fear-based barriers include excessive scripting of customer
contacts and lack of frontline empowerment.
Managing institutional fear may sound daunting, but it can be done. For
example, the customer center of a financial services company decided that
rather than scripting its customer center interactions, it would provide
guidelines to encourage customer service representatives (CSRs) to use
"value added phrases." The key is to establish limits while allowing
employees to take some risks to meet customer or internal needs. Risks
that succeed should be rewarded; risks that fail, but are attempted within
the rules, should be treated as learning experiences rather than as a cause
for discipline.
The second source of fear in an organization is at the individual level. Even
when an organization is struggling, some employees will find power and
contentment in the status quo. This leads them to resist change -- actively
or passively. Typically, fearful employees fall into three categories:

 The reluctant gatekeepers: These employees tend to derail progress

or innovation. Often, they are influential players who are more
interested in protecting the "old way" than in adapting to a changing
environment.

 The risk-averse: These workers are reluctant to challenge

inefficiencies or to propose change -- in the organization or in their
own department -- because they fear reprisal or are concerned about
how change might affect their role or workload.
  The "speed bumps": These employees aren't necessarily in a
position to directly influence thinking in the organization. But they
can, through lack of knowledge or motivation, slow down the
progress of groups tasked to investigate challenges and enact
change.

Managing individual fear is more challenging because this type of fear can't
necessarily be conquered by modifications to process or policy. The first
step is to ferret out the organizational factors leading to this fear.
For instance, change often inspires fear. One way to counteract this is to
improve communication about changes by clearly establishing who is
accountable for achieving strategic outcomes. This helps managers and
employees look past the initial hardships of change (such as increased or
varying workload, or loss of power or valuable connections) while focusing
on the eventual benefits of success (such as increased efficiency and
productivity, improved customer relations, or increased sales and incentive-
based compensation).
Root cause 2: information flow
Like fear-based barriers, information-flow barriers also existed in all the
companies Gallup studied. Information-flow barriers can appear within or
across departments and from the front line up to management. These
barriers limit employee and customer engagement by preventing
employees from getting the
information they need to
maximize their performance.
There are two main types of
communication barriers. The
first is a transmission failure:
when information fails to flow
smoothly from management to
frontline employees or from the
front lines back to management. Here are two examples:

 A number of the companies Gallup studied failed to provide their

frontline employees with sufficient information to do their job well.
This can happen when departments hoard crucial information that
other departments may need. Or, system limitations can prevent a
holistic view if customer-facing employees cannot access every
customer account, leading to missed opportunities and slower
service delivery.
  Other companies failed to incorporate frontline input into their
decision-making process. One manufacturing plant installed new
equipment without input from frontline employees, even though those
workers knew immediately that the machine wouldn't achieve its goal.
The equipment was pulled from the line at a tremendous cost.
Incidentally, there is significant evidence to suggest that involving
frontline workers in decision making not only helps reduce turnover,
but it also increases revenue.

The second type of communication barrier occurs when employees fail

to assimilate information or use it effectively. The most common causes of
this are a lack of time to process or understand new information or
insufficient access to needed facts.

 According to executives in a public utility service center, CSRs in a

call center must often absorb and implement more than 50 process
changes per week. However, many call centers provide very little
time for CSRs to read their e-mail (if they even have e-mail access)
or learn about changes in other ways.

 A large national pharmacy and convenience store never has

employee meetings, so employees don't always learn about policy
changes or new initiatives promptly. When communication does
occur, it often leaves out the "why" behind the change. As noted
earlier, a failure to explain change initiatives can lead to fear. Without
appropriate communication -- and time to assimilate it -- frontline
employees struggle to adapt.

There are many ways to address transmission barriers. A good strategy is

to analyze how information flows across an organization -- between
departments, to the front line, and to management. Mapping
communication can pinpoint where information is being lost, blocked, or
distorted.
It's just as important to analyze how communication is assimilated. A
particular department or group may be receiving information -- but are they
receiving it when they need it? Do workers have time to read it? Is the
technology used to send the message appropriate? Is the message easy to
understand, and can employees apply it immediately to their work? Does it
conflict with other messages? Is there a way for managers or workers to
request additional information, and how quickly is it provided? Addressing
questions like these is the key to providing timely strategic and tactical
information.
Root cause 3: organizational alignment
Successful communication alone isn't enough to ensure that operations will
run smoothly between departments. In many organizations, departments
work at cross purposes or fail to understand other departments' strengths.
Barriers like these existed in 92% of the organizations analyzed in the
Gallup study.
Lack of goal alignment was the most common barrier of this kind, found in
83% of the organizations. As companies grow larger and individual
fiefdoms become more powerful, some departments set goals that don't
necessarily mesh with the goals of other departments. Friction invariably
results.
Barriers like these typically appear as conflicts between departments with
competing goals: sales and service (customer acquisition versus customer
retention), sales and operations (revenue generation versus cost control),
human resources and operations (controlling hiring decisions versus living
with them). Here are three examples of poor goal alignment:

 Promises made in the sales process can place burdens on the

service organization. A balance transfer on a credit card may sound
attractive, but customers may become unhappy if they later learn that
"low rate" balances get paid off first, while interest on the remaining
balance and new charges continue to accrue at a higher rate.

 A call center may have strict goals for handling as many service calls
as it can as quickly as it can. However, if the CSRs answering the
phones don't share the same goals as the field technicians, the
CSRs may be tempted to "just send a technician," even though, by
spending a little more time with callers, they could have solved the
problem over the phone.

 Important information "left unsaid" in a mortgage loan-acquisition

process, such as prepayment penalties, servicing fees, and
additional closing costs may create unpleasant surprises for the
customer. These surprises then must be dealt with by escrow,
closing, and service personnel.

In each of these examples, departments end up working against each other

at the expense of employee engagement, customer engagement, and
profitability. In each case, the system rewards one group at the expense of
another.
Addressing alignment barriers starts with an analysis of the company's
goals. Companies that want alignment across all functions must
aggressively manage their goal-setting process. Each goal should make a
definable contribution to a key business outcome, such as revenue, repeat
purchases, or increased customer engagement. Similarly, each employee
should make a definable contribution to other departments as well as his or
her own.
Goals should not be set in a parochial manner, in which local success
trumps corporate success. But neither should department goals be so
focused that success on local, tactical goals isn't rewarded at all. Finding
the correct mix of local and shared accountabilities with clear links to
outcomes greatly improves the odds that alignment barriers won't hinder a
company's success. A strong performance management system can help
structure goals into appropriate success metrics and incentives.
Another manifestation of friction-based barriers is a lack of a holistic
customer strategy. It's not unusual for organizations to treat customers
more like transactions than like people, but people never see themselves
that way. Business banking customers also have personal checking
accounts. People with checking accounts also have credit cards. Business
travelers also take family vacations. Luxury car buyers may have teenagers
who need a more modest automobile. Yet companies rarely are able to
cross-reference activity across channels.
Organizations frequently overlook the reality that poor performance in one
channel will affect perceptions of the company as a whole, or that excellent
performance in one channel may represent an opportunity to broaden the
customer relationship in other areas. Both opportunities to improve are lost
when the channels don't align.
Improved knowledge management systems can help companies implement
a holistic customer strategy. However, employees from different
departments also need to provide one another with consistent service. Too
often, departments lack insight into how their actions affect other areas of
the company, leading to mutual distrust and competing claims that the
other departments are inefficient, uncooperative, or just "don't get it."
Consistent service to internal customers -- whether it's employee to
employee or team to team -- can help companies identify cross-selling or
process-efficiency opportunities that can benefit external customers too.
Root cause 4: money
Money-related barriers existed in 82% of the companies Gallup studied.
However, the actual percentage was likely higher, as these types of
barriers may have existed in some pockets of the organization that were
not included in each study. There are two main types of financial barriers.
First, people generally do what
they are rewarded to do. It
follows, then, that improperly
balanced compensation and
incentives can actually
encourage the wrong
behaviors. For example, if a
customer service call center
only provides incentives for
cross sales and low handle time, CSRs will be highly motivated to rush
customers, while pushing as many products as possible as quickly as
possible. Worse yet, CSRs might even be rewarded for hanging up on
callers before their problem is resolved, forcing customers to call back a
second time.
The second type of financial barrier is related to internal resource
allocation decisions. Budget battles are often won based on the best sales
presentation, the loudest voice, or personal relationships rather than on a
set of unbiased guiding principles, such as the impact of each budget
decision on customers, employees, financials, or risk.
Even when there is a level playing field, resource allocations aren't always
aligned with strategy if decisions are too closely tied to the previous year's
budget. In that case, departments are unlikely to surrender budget willingly
to another, even though corporate strategy or change initiatives make the
other department's needs more urgent.
The best way to address compensation and allocation barriers is not
necessarily to fight self-interest, as employees and department heads
usually gravitate toward the money. Instead, companies should ensure that
self-interest is aligned with corporate goals.
For employees, all desired behaviors should be rewarded under a balanced
incentive system. For example, if a company is focused on both revenue
growth and customer retention, it may want to reward sales representatives
for total sales and individual account growth. This would reduce a rep's
inclination to focus primarily on new sales and to keep him or her from
taking the "quick win" if it comes at the expense of the long-term health of
the account. (See "Roadblocks to Customer Engagement [Part 1]" and
"Giving Them What They Deserve" in the "See Also" area on this page.)
Not all incentives need to be financial. More often than many managers
realize, recognition itself can be a powerful reward, especially when the
type of position, a union contract, or other circumstances make praise the
only way to reward employees. Specific behaviors or outcomes may be
treated as milestones toward advancement or promotion, rather than
directly rewarding employees through base or incentive pay. (See "The
Best Ways to Recognize Employees" and "Don't Promote Your Stars" in
the "See Also" area on this page.)
Some allocation barriers may relate to the company's goals. As discussed
earlier, a lack of shared goals may generate barriers to engagement by
inadvertently pitting one department against another. However, shared
goals alone don't guarantee that a company will be free from these types of
challenges. Shared goals must be balanced with local and tactical
objectives that address the role a business unit, division, or department
plays in driving corporate strategy.
Transparency is also helpful. Resource allocation can have a strong impact
on employee engagement, particularly if budgeting decisions seem to be
based on favoritism or in support of "flavor-of-the-month" initiatives.
Root cause 5: short-term focus
These "quick-fix" barriers existed in 82% of the companies Gallup studied.
The barriers included acts of commission, or actions taken in the interest of
near-term benefits that may have a negative impact on mid- to long-term
revenues and profits, and acts
of omission, which occur when
the company takes no action in
an area that requires long-term
planning or analysis.
Acts of commission are
common, particularly in public
companies that focus more on
quarterly earnings than on
long-term horizons. In many cases, these acts involve significant near-term
cutbacks. For example:

 To make this quarter's numbers, a company may stop hiring new

employees. However, after a few months, staffing shortages may
result in overtime, lost customers, and inefficiencies that far outweigh
the initial savings.

 A plant may delay needed equipment repairs to save a few dollars in

the short term but suffer even greater repair needs and downtime
when the machine fails.

Acts of commission are not always the result of cost cutting. Some
companies drive employees to the breaking point to generate an increase
in near-term sales; others strive to achieve the same sales goal through
extreme discounting of their products or services. Both strategies may drive
short-term sales while damaging relationships with employees -- or
undermining customer relationships or the brand.
When it comes to acts of omission, the most common barrier is a lack of
succession planning. This goes beyond identifying potential stars for future
leadership in the organization. Many companies fail to make a "plan for
success" for employees in crucial but less prestigious roles. These barriers
also occur when there is an urgent need to "put out the fire" without
carefully thinking about how badly you have "flooded the house." For
example, resources may be pulled from other projects to handle an
emergency, which later causes those projects to fail or miss deadlines.
Given the realities of the marketplace, companies will always struggle with
balancing short-term and long-term needs. Adopting a short-term focus is
not necessarily a barrier to engagement. To determine whether its near-
term actions will have a negative impact on long-term engagement, a
company needs to ask itself three questions:

1. Do these actions achieve a strategic goal? Some companies must

take immediate measures to drive a lagging stock price or to
capitalize on an opportunity to grab market share from a weakened
competitor. But a myopic focus can also be a symptom of other
barriers mentioned above, such as fear, communication breakdowns,
or lack of collaboration between departments.

2. What are the implications of these actions? There are situations in

which a short-term gain is justified, but a near-term focus can
become a barrier when mid- to long-term implications aren't
considered. Logic and discipline must be added to resource-
allocation decisions to avoid these types of barriers. By implementing
a set of guiding principles that balance short- and long-term costs
and rewards, a company should be able to rationally prioritize long-
terms decisions. Guiding principles for decision making may include
questions such as:
3.
o How will this decision affect our revenue?

o How will this decision affect our costs?

o To what extent will this decision decrease or increase liability or

risk?
 o Will this decision prevent or inadvertently encourage any
catastrophic failures that could lead to higher costs?

o How will this decision affect employee engagement?

4. What will these actions communicate to employees and
customers? Employees must feel that the company is making the
right moves. Consistent communication about change and change
initiatives is important, particularly if the company is concerned about
maintaining employee engagement. Companies should give change
initiatives the appropriate resources and support even if that
increases short-term costs.

Pulling down barriers

If organizations want to build and sustain a great workplace that, in turn,
builds strong customer relationships, it's not enough to simply measure
employee or customer engagement, then hold team meetings to discuss it.
Workgroups can meet to identify and address local issues, but institutional
systems outside the control of managers and employees can remain thorny
barriers to employee and customer engagement. Barriers like these must
be systematically addressed by company leaders; organizations that fail to
address them may find that they are limiting their ability to achieve strategic
targets.
Having a disciplined, objective approach to identifying and removing
systemic barriers related to fear, information flow, organizational alignment,
money, and short-term focus can help clear a path toward organic growth.
Tom Rieger is the author of Breaking the Fear Barrier.