The Business Case for Emotionally Intelligent Leadership

Copyright 2006 Joshua Freedman

As leaders around the world have learned about emotional intelligence, many have immediately seen how these concepts could improve critical areas of people-performance. World-leading organizations from American Express to Federal Express, from the US Air Force to Sheraton are experimenting with emotional intelligence as a component of competitive advantage.

The Harvard Business Review (HBR), one of the most prestigious sources of business-best-practice, has released several articles on emotional intelligence. Their 1997 article by psychologist and author Daniel Goleman ranks as their most requested article ever. This popularity led the HBR to re-examine the data on emotional intelligence again in 2003. Their conclusion:

“In hard times, the soft stuff often goes away. But emotional intelligence, it turns out, isn’t so soft. If emotional obliviousness jeopardizes your ability to perform, fend off aggressors, or be compassionate in a crisis, no amount of attention to the bottom line will protect your career. Emotional intelligence isn’t a luxury you can dispense with in tough times. It’s a basic tool that, deployed with finesse, is the key to professional success.”[i]

Your organization is made of people, processes, and property. For a long time, “common wisdom” has been that returns come from investing in the latter two. Yet, in the last decades, new research has challenged that assumption and is increasingly proving that a company’s people are the differentiating factor.

In fact, for most businesses, products and property yield little competitive advantage. You develop a new process, and in a week your competitor replicates it. You increase efficiency and lower product cost, and next month a better version is being produced more cheaply in another country. You invest in specialized equipment – and so does the guy down the street.

So where can today’s businesses find competitive advantage? With a mobile workforce, globalization, and on-demand information, products and property are not enough. Exceptional organizations are investing in their relationships with customers, employees, and leaders – and over the next decades the people side will increasingly become the only meaningful competitive advantage. And if emotional intelligence helps build customer and employee loyalty, helps people innovate and perform, helps leaders build value, then these competencies are essential for world-class performance.

Emotional intelligence affects employee performance in multiple avenues. The employee’s own EQ, the interaction between the employee, and the emotional tone – or climate – all significantly affect the way employees feel about work, and the effectiveness of the work they do.

The Six Seconds team and I worked with the Sheraton Studio City in Orlando in a very challenging business situation. They had experienced very high levels of executive turnover, their guest satisfaction scores were suffering, and they were losing market share. A new General Manager, Grant Bannen, came in, and we engaged in a year-long project to improve performance. As Grant said, employees needed more “bounce in their step,” so we used the Organizational Vital Signs measure ( http://www.EQperformance.com/ovs.php ) to identify specific areas where the climate was not conducive. Then we conducted a series of emotional intelligence trainings to foster dialogue, increase awareness of the emotional drivers of performance, and increase the team’s competence in managing the emotional-side of staff. In total the executive team had just over 20 hours of training, selected individuals had a combined total of under 20 hours of coaching, and the line staff had between 2 and 8 hours of EQ training.

The results were a dramatic increase in guest satisfaction and market share, and a significant reduction in turnover.[ii] The customer experience was so remarkable that the hotel group began sending their VIPs to this 3-star hotel rather than the 5-star they own. We held our 4th NexusEQ Conference at the Sheraton Studio City and the comments were the most positive we’ve had at any hotel. One delegate shared this story about an interaction that came to typify the Sheraton Studio City line staff: “I asked someone from the hotel where I could get a chocolate bar. She asked me what I liked, then told me she’d be right back. It turns out she went across the street and bought me one – unbelievable!”

A focus on emotional intelligence changes the way employees relate to customers. That improves customer loyalty, and it increases sales. At L’Oreal, sales agents selected on the basis of certain emotional competencies significantly outsold salespeople selected using the company’s standard selection procedure. On an annual basis, salespeople selected on the basis of emotional competence sold $91,370 more than other salespeople did, for a net revenue increase of $2,558,360.[iii]

Joseph Hee-Woo Jae, at Ateneo de Manila University in the Philippines, evaluated 100 university-educated, front-line employees at a major Asian bank. He found that while IQ scores had almost no predictive value (correlation of .07 with performance, or under .5%), EQ scores predicted 27% of job performance.[iv]

In a landmark study showing how emotional intelligence predicts real-world performance, David Rosette assessed leaders in the Australian Tax Office using a range of assessment tools, performance metrics, and ratings by employees. Emotional intelligence predicted 25% of high performance, compared to cognitive ability that predicted less than 2%, and a test of personality that predicted nothing.[v]

In one of the UK’s largest restaurant groups, there was clear evidence that emotionally intelligent leaders were more effective. Managers high in emotional intelligence had restaurants that outperformed others with increased guest satisfaction, lower turnover, and 34% greater profit growth.[vi]

Drawing on your emotional assets, understanding what makes you tick, staying fully awake on a daily basis are all facilitated by emotional intelligence. Perhaps that’s why emotionally intelligent leaders are simply more effective at running businesses.

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References:

i Harvard Business Review, “Breakthrough Ideas for Tomorrow’s Business Agenda,” April 2003

ii Joshua Freedman, Case Study: Emotional Intelligence at the Sheraton Studio City Hotel, Six Seconds Institute For Organizational Performance ( http://www.EQperformance.com/mambo/ ), 2003

iii Spencer & Spencer, 1993; Spencer, McClelland, & Kelner, 1997 (cited in Cherniss, 2003)

iv Research report by Multi Health Systems, published on 6seconds.org ( http://www.6seconds.org ), 1998.

v EQ and Leadership – this study used the MSCEIT, an ability measure of EI. David Rosette, A Leader’s Edge – What Attributes Make and Effective Leader, NexusEQ ( http://www.NexusEQ.com ), 2005

vi Reuven BarOn and Geetu Orme, 2003, reported in Orme and Langhorn, “Lessons learned from implementing EI programmes” pp 32-39, Competency & Emotional Intelligence, Volume 10, 2003

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