I picked up an interesting business book the other day called, It Is The Ultimate Question, by Fred Reichheld. Reichheld talks about how much of the corporate world is addicted to what he calls, “bad profits.” Bad profits are short term gains that comes at the expense of burned out employees and alienated customers. He calls these bad profits, “corporate steroids.”
Bad profits choke off opportunities, long range thinking and planning and employee morale by posting quick fixes to the balance sheet, disregarding whether they disrupt customer relationships.
The net effect of bad profits is that they produce legions of detractors, both inside and outside the company, who become vocal critics of the organization and its policies. These detractors go beyond disgruntled customers who will never again spend a dime with the business, they spread the word about why they will never come back.
What produces detractors? Is your company padding its profitability with more and more fees? Are you customers feeling nickel and dimed every time they do business with you? Or do you engage in such notorious practices as what the travel industry calls “overbooking.,” where a traveler shows up at the airport or hotel and finds his seat or room has been sold?
If so, you balance sheet may look healthy, but you may very well be accumulating detractors left and right.
The opposite of a detractor is the promoter, who champions your business and shouts about your excellent service from the housetops.
So far this sounds like thousands of other business books. And this is where these other books leave off. What Reichheld does better is he gives the manager a tool to help accumulate more promoters and reduce the number of detractors. This tool is called the Net Promoter Score (NPS).
The most commonly stated maxim in business is, “what gets measured gets done.” The NPS is a single, unambiguous number managers can use to track how many promoters vs. detractors they have earned. It is as clear as the scoreboard on a basketball court and it is, in Reichheld’s view, one of the surest predictors of the long-term profitability of an organization.
At the heart of the NPS is a simple question asked of past customers over and over again. “Would you recommend us to a friend?” This is not a measure of an intangible like customer satisfaction. It measures actual customer reaction in the form of a potential recommendation to a person the customer likes and feels responsible for.
By driving a business around this simple measurement, managers suddenly have a remarkably simple and easy to use tool. The lack of such a tool explains the addiction to bad profits, since short term profits are also single, unambiguous numbers.
But unlike short term profits, the NPS is unlikely to come at the expense of long term profits. Moreover, the NPS does not generate management promotions and salary increases at the expense of alienated customers who are leaving in droves.
COPYRIGHT(C)2006, Charles Brown. All rights reserved.
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