People make profits

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With the economy's prolonged malaise, industries across the board continue to make deep cost cuts. Far too often, the easiest and most efficient cuts are perceived as head count and professional training and development. But the companies that prosper in this climate do so because they recognize a strong correlation between employee satisfaction, customer loyalty and growth.

Take Rosenbluth International, the giant travel management firm, where over the past 25 years the client retention rate has reached 98% and revenue has grown from $20 million to $6.2 billion. What does Chairman-CEO Hal Rosenbluth know? It is, as the title of his book suggests, "The Customer Comes Second."

Mr. Rosenbluth observes, "Our secret is controversial. It centers around our basic belief that companies must put their people-not their customers-first."

There is now hard statistical evidence of a causal relationship between employee satisfaction, client satisfaction and results-in all types of companies, including professional service firms. Harvard Business School Professor James L. Heskett calls it "The Value Profit Chain" (also the title of his latest book). Here are its three tenets: Long-term growth and profitability start with employee satisfaction, loyalty and productivity; employee satisfaction today equals customer satisfaction tomorrow equals growth and profitability the day after tomorrow; and the process requires measurement, recognition, time and patience.

Omnicom Group is among those companies that have used value profit chain concepts. At Omnicom, we created a teaching organization and culture with a teachable point of view (what Mr. Heskett terms the "Omnicom Brain") on working through the talent to drive client satisfaction and retention.

The link between employee satisfaction and results is further validated by David Maister in his book "Practice What You Preach: What Managers Must Do to Create a High Achievement Culture." Taking hard data from surveys of more than 5,500 employees in 139 offices of Omnicom's Diversified Agency Services unit, the research examines the impact of employee attitudes on financial success, and what successful offices do differently than others.

Overlaying attitudinal data with financial performance, office by office, for three years, Mr. Maister uses statistical modeling to prove what offices do to drive employee loyalty and satisfaction subsequently also drives client loyalty and satisfaction and, in turn, drives revenue and profit. Key to this causal equation are nine predictive, interactive attributes identified in the research.

* Client satisfaction is a top priority at our firm.

* We have no room for those who put their personal agenda ahead of the interests of the clients or the office.

* Those who contribute the most to the overall success of the office are the most highly rewarded.

* Management gets the best work out of everybody in the office.

* Around here you are required, not just encouraged, to learn and develop new skills.

* We invest a significant amount of time in things that will pay off in the future.

* People within our office always treat others with respect.

* The quality of supervision on client projects is uniformly high.

* The quality of the professionals in our office is as high as can be expected.

Those offices with a strong corporate culture, solid leadership and high employee satisfaction also are the most profitable.

I have a line on my white board in my office: "People join companies and leave supervisors." Most managers don't know how to be both task-focused and people-oriented. They don't realize their job as a leader is to make other people successful by creating enthusiasm that lifts performance, builds relationships and retains and attracts employees and clients.

At Omnicom, we are taking the nine attributes and requiring that all of our marketing services companies include them in employee satisfaction surveys and then benchmark themselves against the results over time. We teach the results of Maister's culture-equals-profits research in our Omnicom University Senior Management Program, and review them in strategic planning sessions with the operating companies. Our objective is to turn these attributes into our leadership credo. Management development is good business.

Between 1995 and 2002, turnover among senior managers participating in Omnicom University was 8.5%, compared to an average of 18% for all senior managers. Estimating total costs of senior management turnover at $500,000 per manager, the estimated cost savings is $28 million, substantially more than our investment in Omnicom University.

What you do to develop and retain your talent is extremely important. Our people are more than our assets; they're investors in our company. None of us should forget that, even and especially when times get tough.

Tom Watson is vice chairman, Omnicom Group, New York, and dean of Omnicom University.

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