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Change Management: What’s the Divorce Rate in Your Company?

We live in a promiscuous era, don’t we? America is experiencing a divorce epidemic and the future of the American family is at stake. Is this statement a myth or reality? Turns out it’s a myth. The divorce rate in America has dropped for more than a quarter century and is now one-third lower than it was in 1981.

We live in a promiscuous era, don’t we? America is experiencing a divorce epidemic and the future of the American family is at stake. Is this statement a myth or reality? Turns out it’s a myth. The divorce rate in America has dropped for more than a quarter century and is now one-third lower than it was in 1981.

OK, if that’s the case, then maybe all these stories we hear about employees, customers, and investors being short-term oriented and less loyal are also myths. Actually, while marriage may be making a comeback, sorry to say loyalty in the workplace is become a quaint old notion. The average length of tenure of an American employee has dropped by 6% in the past twenty years (it’s dropped by 17% among men and actually has gone up among women as they have stayed in the workforce longer). In the era of the Internet, customer brand loyalty has plummeted, especially amongst products that are seen as commodities in the marketplace. If employees and customers are defecting, it’s not surprising that investors have decreased their loyalty as the average length of holding a public stock has tumbled from more than six years to approximately one year. Promiscuity (or at least divorce) may be on the decline in homes across America, but the workplace seems to have become a “rent-a-relationship” kind of world.

Fred Reichheld has written a number of books on the value of loyalty in the workplace and he’s proven that building lasting relationships with employees, customers, and investors creates a more sustainable business model for any company. One of his most illuminating studies found that a 5 percent increase in customer retention rates led to increased profits between 25 and 95 percent depending upon the industry. So, if “Loyalty Rules” (as one of Fred’s books is named), why do companies put so little attention on the quality of the relationships that are being created in the workplace?

I’m a bit of an Abraham Maslow junkie and have long marveled at how his “Hierarchy of Needs,” introduced more than fifty years ago, seems to have universal relevance. Most of us are familiar with the idea that we all have base, survival needs like food, water, sleep, and safety and, as we satisfy those needs, we can focus on our social/belonging or esteem needs….in essence, the way we connect with others and see ourselves in the world. For a lucky few, self-actualization is that transformative need at the peak of the pyramid that allows certain people to have continuous peak experiences in their lives. Being a Northern Californian, all this kind of inspirational talk is familiar. What’s ironic is that many business leaders are introduced to (or reacquainted with) Maslow in business school or in corporate universities.

My own reconnection with Dr. Abe occurred when my company was on the verge of bankruptcy. In the post-dot-com, post-9/11 world, being a San Francisco Bay Area boutique hotelier was a struggle and, if I didn’t learn a thing or two about loyalty during that time, I knew I was going to be out of business. Each day during the early part of 2002, when there seemed to be no limit to the depths the Bay Area hotel industry could fall, I would come home from work weary and a little battered and crack open another Maslow book. His theory of human motivation has an awful lot to do with actualizing potential or, as the U.S. Army says “be all you can be” (the phrase came from their internal Task Force Delta team which sort of ripped off Maslow’s quote: “what man can be, he must be”).

I’ve always believed a great leader knows how to tap into potential and actualize it into reality. What Abe Maslow helped me realize is that a great business leader deeply understands the motivations of their employees, customers, and investors. And, from that I started to realize that there was a Hierarchy of Needs pyramid for employees, customers, and investors. But, unfortunately, most companies get so caught up with the base survival needs in these relationships that they lose track of the higher needs of each of these three groups. Business has a natural tendency toward the tangible which impedes many companies from moving to the priceless (to use a MasterCard word) intangible elements at the peak of the employee, customer, or investor pyramids.

I’m thrilled to be blogging for Fast Company about this subject of how creating “peak experiences” can create peak performance for any company. At the very least, I might be able to help reduce your company’s divorce rate with these three important constituencies: employees, customers, and investors. Psychologist John Gottman created a landmark study on marriage and found that successful relationships averaged a 5 to 1 ratio of positive to negative interactions. Other studies in the business world have put this ratio at 3 to 1 with respect to what drives productivity in employees. If your workplace is more focused on giving feedback only when something is going wrong, as opposed to celebrating what’s going right, you may end up with a high divorce rate with your employees (I’m proud to say that at Joie de Vivre, our employee turnover rate is one-fourth the hospitality industry average). These same ratios can also apply to your relationships with your customers, and, miraculously to your investors too (although I know many of you don’t believe a human Hierarchy of Needs may have anything to do with the Return on Investment Robots we call investors).

Maslow posited that studying healthy functioning humans told us more about psychology than studying unhealthy dysfunctional humans (Freud). Similarly, most of us believe that studying best practices in business teaches us more than studying worst practices. I believe there’s a qualitative difference between a human not being sick versus actually feeling healthy or truly alive. Similarly, this idea can be applied to companies. Think of a company that’s not sick but not really alive. Then, imagine a company that’s living up to its potential and is full of a spirit of being alive. If humans aspire to self-actualization, why can’t companies – which are really just a collection of people – aspire to this peak, too? The self-actualized company creates deep relationships with its employees, customers, and investors, and, in so doing, develops a workplace that has a remarkably low divorce rate. The health of any organization is simply the accumulated health of the individual relationships that constitute it. This is true for families and it’s true for companies.