Emotional Intelligence and the Bottom Line

The Emotional Intelligence (EI) of a business's people can be critical to success. Leaders' and employees' emotions can play a role in how people behave (what they say or do). And this behavior can directly impact their customers and the bottom line.

In their Harvard Business Review article, "The Service-Profit Chain," Hesket et. al. identified a chain of factors driving profitability in a company. They described how a company's profitability was dependent upon effective leadership. The climate and culture of an organization as a whole is impacted by the emotions of the leaders. More specifically, leaders' emotions impact:nn- What employees feel.nn- The satisfaction employees experience with their company and their work.nn- How loyal and willing employees are to put forth extra effort.nn- Employee productivity and efficiency.

How employees feel and perform their work impact how customers feel, how satisfied they are with both products and services, and ultimately how loyal a customer is to the company or organization. And customer loyalty directly affects the bottom line and organizational profitability.

In this set of relationships, it is important to notice that the foundational element is leadership. It doesn't say Executive Vice President, Director, or CEO. It says leaders. The in-charge person in every work team, every manager, and every individual in the organization is a leader. Self-leadership is one of the most important factors to focus on in skill development. Whether at work or at home, self-leadership is the internal ability to lead oneself to make the best decisions or choices throughout the day moment-to-moment.

Everyone in an organization and the customers they serve are affected by both positive and negative emotions. For example, negative emotions may result in poor performance, high stress, increased conflict, low morale, lack of trust and teamwork, more errors, poor quality, increased turnover and more. In turn, these problems may negatively affect customer satisfaction, increasing complaints and defection. Ultimately, this could negatively impact organizational profitability.

Impact:

We can discover the significant impact negative emotions can have on the organization by asking a few questions relating to these problems:nn- Has your organization experienced any of these problems?nn- What is the impact on performance, business objectives, and key initiatives?nn- If these problems were minimized, what could your organization achieve?

Value of Developing Emotional Competence:

Additional research supports the critical value of developing the Emotional Competence of leaders. Daniel Goleman, author of Emotional Intelligence, examined competency studies of 200 large global companies and reported the following results in the Nov./Dec., 1998 Harvard Business Review:

"When I calculated the ratio of technical skills, IQ, and emotional intelligence as ingredients of excellent performance, emotional intelligence proved to be twice as important as the others for jobs at all levels."

His conclusions about senior leaders were even more telling...

"When I compared star performers with average ones in senior leadership positions, nearly 90% of the difference in their profiles was attributable to emotional intelligence factors rather than cognitive abilities."

Impact on the Bottom Line:

Several studies reveal a direct impact of the organization's leadership on its bottom line. Goleman (HBR Nov./Dec., 1998), shares the following findings:

"David McClelland found that when senior managers had a critical mass of emotional intelligence capabilities, their divisions outperformed yearly earnings goals by 20%. Division leaders without that critical mass under performed by almost the same amount."

In his book Primal Leadership, Goleman, et. al. provides further evidence of the impact of emotional intelligence on the organization's profitability:

"A study found that the more positive the overall moods of people in the top management team, the more cooperatively they worked together - and the better the company's business results."

"In a study of nineteen insurance companies, the climate created by the CEOs among their direct reports predicted the business performance of the entire organization: In 75% of the cases, climate alone accurately sorted companies into high versus low profits and growth." (Cited in Primal Leadership - research by David McClelland, "Identifying Competencies with Behavior-Event Interviews," Psychological Science 9, 1998 and David Williams, "Leadership for the 21st Century," Life Insurance Leadership Study, 1995.)

The Results:

The effects of EI skill development are far-reaching. They go beyond just management skills or leadership competencies. Unlike typical organizational improvement interventions, EI skill development is unique in that it has the potential to positively impact a multitude of organizational problems concurrently. By providing practical "how-to's," EI skill development enhances and complements other values-based and principle-centered programs. As foundational skills, EI skills enable people to improve the "how" of achieving results.

EI training results can be significant. During post-program impact interviews, participants have reported improvements that range from 15% to 35% increased teamwork, 20% to 35% increase in personal productivity, 20% to 40% reduction in stress and worry, and similar improvements in personal motivation, management of emotional reactiveness, work/life balance, creativity and more.