Joie de Vivre's Web of Relationships

My company is composed of a complicated web of relationships. We operate more than 40 businesses that generate nearly $250 million in annual revenue. We have created a unique name and identity for each business that is part of the Joie de Vivre family. We are an owner in just under half of the hotels, but in not one of them are we a majority partner. Of the hotels in which we have an ownership stake, there are more than a hundred different investors representing more than a dozen different ownership entities. That's the simple part.

The rest of our hotels are owned by everyone from Wall Street investment firms to small-time local real estate owners. In each of these hotels, we are a third-party manager, just like Hilton might be with a hotel they manage that bears their name but which they do not own. From the perspective of our employees and customers, most don't know which ones we own versus which we purely manage. But I can tell you, the owners certainly know.

All in all, we have nearly 30 different ownership groups to whom we're accountable. This is not unusual for a hotel management company. What was unusual in the previous decade is that the world fell apart, and regionwide hotel revenues dropped by an unprecedented 50 percent in Silicon Valley and nearly 35 percent in San Francisco over a three-year period. Imagine your company's revenues being cut in half virtually overnight. All of Joie de Vivre's hotels were located in this worst-in-the-nation region, and many competed in the same geographic or price submarket. One thing a downturn will teach you is which relationships in your life—both inside and outside of work—are secure and which ones are not.

If any of us on the Joie de Vivre leadership team forgot for a day that relationships were at the heart of our business, we were quickly reminded of the fact by one of innumerable nervous or agitated investors or owners. Each of these ownership groups wanted to feel like they were our top, and in some cases our only, priority. Understandably, with their money at risk and the dire hotel economy only getting worse, these investors needed constant assurance that we were focused on their hotel. Further complicating things, they needed to trust that another one of our Joie de Vivre properties down the street wasn't cannibalizing their business.

We faced a similarly difficult challenge navigating the web of our employee and customer relationships. Some of our hotel employees are represented by unions. Others are not. In some cases, there are four different unions representing various job classifications within the same hotel. And of course, nearly half of our employees are immigrants to the United States and speak English as a second or third language, so there are a variety of cultural factors at work. As for our customers, our largest corporate account represents less than 2 percent of our total revenues, so we have a lengthy list of individuals and groups to whom we're accountable as our regular patrons. It's not like we can sign one corporate sales agreement to change our fortunes overnight, as might be the case in another industry.

I became supremely aware of how far we could stretch our relationships during the downturn. Most economists think of employees as “units of production,” customers as “units of consumption,” and investors as “units of investment.” I came to realize that there is no one unit of production because employees are influenced by their motivation, capacity, and the tools we've made available to them, and their results are a function of these influencers. Similarly, not all customers or investors approach their relationship with a company in the same way. In sum, many business observers view these units as fixed commodities (like steel) when, in fact, they truly are flexible (like a web), depending on how these relationships have been nurtured or spun.

The Value of Relationships in the Workplace

As I was preparing to write this book, I read nearly a hundred books and scholarly articles on the nature of relationships in the workplace. One of the most fascinating articles was cowritten by a business school professor and a management consultant (Ranjay Gulati and David Kletter) in the California Management Review. This article, “Shrinking Core, Expanding Periphery: The Relational Architecture of High-Performing Organizations,” posits that “winning companies define relationships in a very consistent, specific, and multi-faceted manner.”²

Gulati and Kletter conducted a survey of Fortune 1000 senior executives for their article to understand the nature of “relationship-centered organizations.” What the results showed is that sustained performers are set apart from their competitors by a higher willingness to engage in activities that increase the longevity of their relationships, both internally and externally. This was particularly true in a downturn.

From a Hierarchy of Needs perspective, however, we witness what seems to be a natural tendency for companies and people to get stuck at the bottom of the pyramid when faced with an economic recession. Fear breeds the need for safety and security. And this race to the bottom of the pyramid can lead to a downward spiral of declining employee morale, customer satisfaction, and financial performance.

In a troubled time, more than two-thirds of the top-performing firms (top 25 percent) in Gulati and Kletter's survey devoted their primary focus to heightening their awareness of their customers' needs while the bottom-performing companies devoted more of their attention to cutting costs and shedding underperforming assets. Gulati and Kletter conclude that it is just as important for a company to manage, monitor, and measure their relational capital as it is to do the same with their financial capital. In fact, one could argue that the relational health helps create the financial success.

When you talk to successful business leaders about some of their greatest career memories, you often hear them talk about the deep relationships they created in a downturn. The shared experience of authentically facing vulnerability and the sense of connectedness that comes from a focused team can create a true self-actualizing experience in the workplace. We observe this behavior from enlightened leaders and successful companies. Unfortunately, too many companies and business leaders, when faced with mounting financial pressures, take the opposite approach: they create a bunker mentality with senior leaders providing no face time to the troops or customers.

But being smart in today's workplace means understanding and interacting with people. Daniel Goleman, the best-selling author of books on emotional intelligence, says, “After analyzing 181 competence models from 121 organizations world-wide, we found that 67 percent of the abilities deemed essential for effective performance were emotional competencies. Compared to IQ and expertise, emotional competence mattered twice as much.”³

Goleman also found that feelings are contagious—positive even more so than negative. The limbic system of the brain is characterized as an open loop, and it relies heavily on connections. The mood of an organization has a causal effect on everyone within that organization. This scientific research just reinforces my comment in the last chapter about the fear ripples or tsunamis that can occur in a company. Creating good psychohygiene in your company is one of the most valuable steps you can take, especially during difficult times.

When Joie de Vivre's hotels started seeing double-digit revenue drops in 2001, I didn't sequester myself and my leadership team inside a cocoon, analyzing our strategy, organizational processes, or how we needed to cut expenses. Our senior leaders spent as much time as possible interacting with our line-level employees and managers, our regular customers, and our loyal investors.

You may remember I've mentioned Fred Reichheld, the Bain & Company consultant who has written a number of books on the value of loyalty. His first book, The Loyalty Effect, persuasively argued that companies obsessively focused on employee and customer loyalty created greater economic growth and reduced recruiting, sales, and marketing costs. This makes so much sense because most of your new employees and customers cost the business in their early years and become more profitable over time. Reichheld was able to show that an increase in customer retention rates of just 5 percent could increase profits by 25 to 95 percent, depending on the industry. And these companies typically grew revenues at more than twice the rate of their competitors. He writes, “Quite likely the only possible source of sustainable competitive advantage in the new economy will be the bonds of loyalty you generate…. Human capital, unlike other assets, does not depreciate over time. Like good wine, it actually improves with age.”⁴

Perhaps the quintessential example of the importance of workplace relationships is Southwest Airlines. Author Jody Hoffer Gittell wrote in The Southwest Airlines Way about how the company has created a bundle of mutually reinforcing organizational practices that allow it to have spectacular internal and external relationships. Through statistical analysis, the author was able to show that relational coordination led to shorter airplane turnaround times, greater employee productivity, fewer customer complaints, and fewer lost bags. The book also shows that in post-9/11 times, when most of Southwest's competitors were in true downward spirals financially and culturally, Southwest had an organizational resilience that allowed it to rise to the occasion. It was the only major American airline to show consistent profitability during this trying time. Gittell sums up the book with the following thoughts, “For Southwest's leaders, taking care of business literally means taking care of relationships…. They believe that to develop the company, they must constantly invest in these relationships.”⁵

Based on all this evidence, you'd think that the number one investment modern companies would make is in their relationship architecture and processes. Yet, former Xerox Corporation Palo Alto Research Center director John Seely Brown (coauthor of The Social Life of Information) says companies have instead invested 95 percent of their spending on business processes, and only 5 percent has gone toward supporting ways to mine a corporation's human capital. Once again, the tangibles of processes overrule the intangibles of people.

Introducing the Relationship Truths

In Chapter Two, I introduced the organizing principle of the Transformation Pyramid, which suggested that Maslow's Hierarchy of Needs could be distilled down to three essential levels: survive, succeed, and transform. We use these three levels to consider the true motivators for employees, customers, and investors, as these are the most important stakeholders in most businesses. I have organized these stakeholders into three pyramids that I call the Relationship Truths. We will examine each of these pyramids in the light of survival, success, and transformation over the next nine chapters. But let me first give you a summary of the key principles of the three pyramids and what lies ahead.

Companies often misjudge the true motivations of their employees, imagining that compensation is their primary aspiration. Similar to Maslow's placing physiological needs at the base of the pyramid, money (or, more broadly, the full compensation and benefits package) is a base need but also a base motivation for most employees. Loyalty and inspiration are fostered further up the pyramid. Recognition needs to be viewed broadly; it's about not only knowing someone's name but also their talents, goals, and dreams. At the top of the Employee Pyramid is a concept that few employers talk about or even think about (because it's less tangible than the subject of money). Finding meaning in one's work—both in what you do daily and in the company's sense of mission—creates a more inspired employee. On each of these three levels of the Employee Pyramid, you'll see a duality that gives you choices about how you address this particular need. For example, there are two ways to address the issue of money: through looking at the wage or salary and through the traditional or unique benefits you offer. Similarly, there are both informal and formal means of recognition. Finally, meaning can come intrinsically from what an employee does, or more broadly, from what the organization does.

Just like money is at the bottom of the Employee Pyramid, meeting the expectations of customers is the survival need for this second Relationship Truth. Most companies spend too much time just trying to achieve basic customer satisfaction at the bottom of this pyramid. Purely creating customer satisfaction won't necessarily tame your customer's tendency to wander in an increasingly promiscuous marketplace. Tapping into customers' desires can be a means of creating differentiation, which can be your cure in a progressively commoditized world. When customers' desires are met, they are substantially more likely to come back for more, and they tell others.

Frederick W. Smith, the chair and CEO of FedEx, sums up the top of this pyramid: “We thought we were selling the transportation of goods; in fact, we were selling peace of mind.”⁶ Most companies think too narrowly about who they are and whom they're serving. Rarely do they consider searching out and meeting the unrecognized needs of their customers. Instead, at best they create focus groups to listen to their customers' conscious wishes. But companies like Airbnb, Apple and Harley-Davidson have become highly successful cult brands by creating self-actualizing experiences for their customers.

There would be no employees or customers if there weren't a capital source for the business. This Relationship Truth addresses what a company can do to meet the needs of its investors. Many of us think that the only need an investor has is to make bucketfuls of money. No doubt investors' base premise is that they want to ensure a strong return on investment. To facilitate this, they need to have transaction alignment with the company executives or, in a start-up, with an entrepreneur. Establishing parallel goals will create trust.

Yet, just being aligned on the key goals for a particular investment creates a short-term, transactional relationship. Moving beyond this basic survival level is the idea of creating a collaborative partnership in which an entrepreneur or company and its investor see the relationship as being the core to why they do business together as opposed to having the transaction or business act as the glue that keeps this relationship alive. At the core of relationship alignment is the idea that an investor has built deep confidence in the people they are investing in, and they have likely built a close personal relationship as well. On this level, an investor's social and esteem needs may be met. Finally, at the top of the Investor Pyramid is the transformative nature of what investing can mean in making a difference in the world. A self-actualized investor is one who sees the legacy in his or her investing, whether it's in some breakthrough of a new product that will revolutionize an industry, in the socially responsible results of what the company does, or in how this investment and the investor's counsel can help a mentor relationship build with a budding entrepreneur so they can live up to their full potential. When investors invest in this manner, they experience pride of ownership.

The Power of the Pyramid

What's common about each of the pyramids is they move from tangible elements at the bottom to intangible elements at the top—just like the Hierarchy of Needs goes from food, water, and sleep to the peak experience of self-actualization. And you'll see that what's created at the top layer of the pyramids is something meaningful, whether it's inspiration, evangelism, or pride of ownership.

Pyramids provide a powerful metaphor for progression that is different from a ladder or some other geometric shape. Pyramids get narrower at the top, which seems to suggest that it is more challenging the higher one ascends. Certainly, the traditional corporate pyramid suggests that the narrowness at the top means there's only a small collection of folks running the company (hopefully that narrowness isn't a reflection of the nature of the minds at the top).

Each of these three pyramids has a survival base, a success-oriented midlevel, and a transformative peak. Human beings cannot survive by spending all of their time on self-actualization without attending to their physiological needs. Similarly, some nonprofit organizations focus the whole employee experience on the sense of meaning that's created in the workplace—at the risk of losing employees because their compensation doesn't cover their rent. And some creative start-ups focus too much on imagining their customers' unrecognized needs—at the risk of neglecting the base expectations of their customers.

The reality is that most companies have the opposite problem. They spend too much of their time focused on the base of the three pyramids, thinking that moderately motivated employees, barely satisfied customers, and transactionally driven investors will transform them into an industry leader. Transformation happens at the peak of the pyramid, and it cascades down from there. Unprecedented loyalty comes from the peak experiences we've been able to create for our employees, customers, and investors. I intuitively have always believed, but now empirically know, that what people remember in business isn't the mundane day-to-day details; it's the peak experiences that create lifelong inspiration, evangelism, and pride of ownership. Peak experiences create lasting impressions.

These Relationship Truths are the relational mojo that makes diverse companies from Starbucks to Google successful. These three pyramids will provide you the opportunity to create a dialogue in your company about how you address the self-actualizing needs of your employees, customers, and investors. Most business leaders want to consider new ways to think about their key stakeholders. The Relationship Truths provide a language to make the intangible more tangible.

Most of us spend our lives focusing on what is, but Abe Maslow reminded us to focus on what could be. This transformational perspective is just as relevant to a company as it is to an individual. Maslow expressed how relevant he believed companies could be to the transformation of the world when he wrote, “This is the simplest way of saying that proper management of the work lives of human beings, of the way in which they earn their living, can improve them and improve the world and in this sense be a utopian or revolutionary technique.”⁷

For me, the Relationship Truths were heaven sent. They proved that I didn't have to be the supreme leader trying to solve all of the organization's problems unilaterally. I could engage our talented operations managers and senior leaders in a discussion about how we were addressing the true human motivations of our employees, customers, and investors. And the more empathic our people became about these motivations, the easier it was for them to feel empowered to create solutions.