The business case for emotionally intelligent leadership

As leaders around the world learned about emotional intelligence, many immediately saw how these concepts could improve critical areas of people’s 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.

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

“In tough times, the soft stuff often goes away. But it turns out that emotional intelligence isn’t so soft. If emotional forgetfulness jeopardizes your ability to perform, hold your own against bullies, or be compassionate in a crisis, no amount of attention the bottom line will protect your career. Emotional intelligence is not a luxury you can do without in difficult times. It is a basic tool that, delicately deployed, is the key to professional success.”[i]

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

In fact, for most companies, products and properties provide little competitive advantage. You develop a new process and in a week your competitor replicates it. It increases efficiency and reduces the cost of the product, and a better and cheaper version will be produced in another country next month. You invest in specialized equipment, and so does the guy on the street.

So where can today’s companies find a 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 in the coming decades the people side will increasingly become the only significant competitive advantage. And if emotional intelligence helps build customer and employee loyalty, helps people innovate and perform, helps leaders create value, then these competencies are essential for world-class performance.

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

The Six Seconds team and I are working 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, took over and we engaged in a year long project to improve performance. As Grant put it, 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 weather was not conducive. We then run a series of emotional intelligence trainings to foster dialogue, increase awareness of emotional drivers of performance, and increase team competency in managing the emotional side of staff. In total, the executive team had just over 20 hours of training, select individuals had a combined total of less than 20 hours of training, and line staff had 2-8 hours of EQ training.

The results were a dramatic increase in guest satisfaction and market share, and a significant reduction in billing.[ii] The customer experience was so remarkable that the hotel group started sending their VIPs to this 3-star hotel instead of the 5-star one they own. We held our fourth NexusEQ conference at the Sheraton Studio City and the feedback was the most positive we have received at any hotel. One delegate shared this story about an interaction that came to typify Sheraton Studio City line staff: “I asked someone at the hotel where I could get a candy bar. He asked what I liked and then said he’d be right back.” .Turns out he went across the street and bought me one, amazing!”

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

Joseph Hee-Woo Jae of Ateneo de Manila University in the Philippines tested 100 college-educated front-line employees at a major Asian bank. He found that while IQ scores had almost no predictive value (0.07 correlation with performance, or less than 0.5%), EQ scores predicted 27% of job performance.[iv]

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

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

Emotional intelligence makes it easier to harness your emotional assets, understand what makes you tick, and stay wide awake every day. Perhaps that is why emotionally intelligent leaders are simply more effective at running businesses.

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References:

i Harvard Business Review, “Revolutionary 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

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

iv Multi Health Systems Research Report, published at 6seconds.org ( http://www.6seconds.org ), 1998.

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

vi Reuven BarOn and Geetu Orme, 2003, published in Orme and Langhorn, “Lessons Learned from Implementing EI Programs,” pp. 32-39, Competence and Emotional Intelligence, Volume 10, 2003

Copyright 2006 Joshua Freedman