The Loyalty Effect

Abstract

Thave been looking for this book for the last couple of decades, ever since I lbecame enamored of virtue ethics. Written by a CEO (with Thomas Teal) who believes that can be the new basis for management and business, this volume is really a breath of fresh air in business literature. Ethics is as far from the mind of the author as is virtue but this makes his study all the more significant, it seems to me. Frederick Reichheld is a businessman not an ethicist nor a theoretician. His over-riding interest, therefore, is with what makes a business work or fail. His answers have a rare simplicity. A business fails when its defections-customer, employee and investor reach critical proportions. It works when these same three populations develop a loyalty, each in their own ways, to the company. The insight at the core of the book comes from the experience of Prederick Reichheld and his firm, Bain & Co., a consulting firm headquartered in Boston with 23 offices world wide. Not satisfied that this was a wide enough sample to write convincingly on the subject, the author undertook a study of a number of other companies which he had reason to believe would reinforce the insight and experience of Bain. So we learn about the factor of loyalties at firms as diverse as Leo Burnett Advertising, Toyota/Lexus, MBNA, Staples, Chick-fil-a, State Fann, USAA, Northwestern Mutual Life and ARBY Communications. If the book was not convincing from an economic perspective I would not think attention to it was worthwhile since the author spends very little time analysing in anything other than in economic payback terms. What Bain and the other loyalty leaders seem to have in common is that they have placed

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