The Gallup Path to Business Performance

The Gallup Path: Microeconomics

Gallup developed a model to describe the path between employees’ individual contribution and the company’s ultimate business outcome – an increase in company value, usually measured by increase in stock price and market valuation.

The Gallup Path was created from the study of how the world’s best companies have created sustainable, authentic growth through maximizing their relationships with their customers and employees, using research of more than 25 million customers, 7 million employees, 250,000 managers, and 40,000 leaders in more than 500 organizations around the world.

From this research Gallup created an integrated solution that businesses in various economic sectors can use to drive performance throughout their organizations. But the bottom line is that maximizing individual performance drives company performance.

1. Real Profit Increase Drives Stock Increase

Of the variables that influence a company’s market that are in its control, real profit increase is the most important driver of stock increase (sustained vs. short-term profitability.) These exclude creative accounting, such as write-downs, aggressive one-time charges, or forcing orders for products at the end-of-period to overstate revenue, and include:

  • Solid operational initiatives, such as improving process efficiency or cutting costs.
  • Sustained profit increase from normal operations.

2. Sustainable Growth Drives Real Profit Increase

Real profit increase can only be driven by sustainable growth, as opposed to “bought growth.” A company can buy growth through various techniques that create a  spike in your revenue while failing to address the issue of sustaining that revenue, and typically undermining it, including:

  • Acquiring another company’s revenue stream.
  • Slashing prices.
  • Opening as many new locations as possible as quickly as possible.

Sustainable growth is measured by metrics such as revenue per store, or revenue per product, or number of services used per customer which reveal whether or not your revenue stream is robust.
3. Engaged Customers Drive Sustainable Growth

The most critical driver of sustainable growth is an expanding base of engaged customers, and in some industries it is critical to have a growing base of engaged customers who are willing to pay a premium price. It is even better if these engaged customers become advocates, thereby creating a large, vocal, and unpaid sales force.

True customer engagement is created, not just by sales and marketing communications (“brand promise”), but  providing a superior product and service (“brand experience.”) A company can only create a growing number of engaged customers if its brand experience matches or exceeds its brand promise.

4. Engaged Employees Drive Customer Engagement

“Fully engaged” employees are an important subject of Gallup research and can answer all the questions in the Gallup Q12 with a strong affirmative. This tool correlates employee attitudes to five outcome measures: 1. employee retention, 2. productivity, 3. customer satisfaction/engagement, 4. safety, and 5. profitability. In addition to the strong link between engaged employees and customer engagement, there are often direct links between an increase in the number of engaged employees and profit, through increases in productivity, or decreases in employee turnover.

5. The Right Managers Drive Employee Engagement

At the entry point of The Path, you must first identify the employees’ individual strengths, to position individuals to perform roles that capitalize on these strengths.  The key is to identify a person’s dominant themes of talent, then refine them with knowledge and skills (Gallup believes that companies spend too much time focusing on  skills and knowledge and not nearly enough on their talents, which are the basis of strength and success. Gallup tools for this include its strengths-based selection and strengths-based development.

To engage talented employees successfully means selecting and developing great managers. Companies that are unable to create this kind of environment will lose more talented people than they keep by miscasting, overpromoting, undervaluing, and otherwise misusing the talented employees who do stay. Lacking talented people in the right roles, this company will have to revert to less robust routes to performance:

  • Overreliance on marketing.
  • Acquisition
  • Frantic push for “bought” growth.

Success Stories in Financial Services

These Gallup Management Journal articles and case studies provide case studies at each link of the Path, including

Snap! principle of a “path” to business performance:

Company performance is driven by maximizing individual performance.