Emotional Intelligence - the Business Case

Emotional Intelligence (EI) is critical in business. The emotions that leaders, employees, and customers feel impact the bottom line of companies and the effectiveness of government and non-profit organizations.

In their Harvard Business Review article, "The Service-Profit Chain," Hesket et. al. identified a chain of factors driving profitability in a company. Their factors revealed that effective leadership is critical to profitability. The emotions that leaders experience impact the climate and culture of an organization as a whole. More specifically, leaders' emotions impact

- What employees feel
- The satisfaction employees experience with their company and their work
- How loyal they are and their willingness to give extra effort.
- How productive and efficient they are.

How employees feel and perform their work impact how customers feel, how satisfied they are with both products and services, and ultimately how loyal a customer is to the company or organization. And how loyal customers are has a direct impact on the bottom line and profitability of an organization.

Notice that the foundational element in this set of relationships is leadership. It does not say CEO or Executive Vice President or Director. It says leaders. The in-charge person in every work team, every manager, and every individual in the organization is a leader. Self-leadership is one of the most important factors to focus on in skill development. Whether at work or at home, self-leadership is the internal ability to lead oneself to make the best decisions or choices throughout the day moment-to-moment.

Both positive and negative emotions impact everyone in organizations and the customers they serve. For example, negative emotions may result in poor performance, high stress, increased conflict, low morale, lack of trust and teamwork, more errors, poor quality, increased turnover and more. In turn, these problems may decrease customer satisfaction and increase customer complaints and defection. Ultimately, profitability can be negatively impacted.

Impact:

We can discover the significant impact negative emotions can have on the organization by asking a few questions relating to these problems:

- Which of these problems have you experienced in your organization?
- What is the impact on performance, business objectives, and key initiatives?
- What could your organization achieve if these problems were minimized?

Value of Developing Emotional Competence:

The critical value of developing the Emotional Competence of leaders is supported by additional research. Daniel Goleman, author of Emotional Intelligence, examined competency studies of 200 large global companies and reported the following results in the Nov./Dec., 1998 Harvard Business Review:

"When I calculated the ratio of technical skills, IQ, and emotional intelligence as ingredients of excellent performance, emotional intelligence proved to be twice as important as the others for jobs at all levels."

His conclusions about senior leaders were even more telling...

"When I compared star performers with average ones in senior leadership positions, nearly 90% of the difference in their profiles was attributable to emotional intelligence factors rather than cognitive abilities."

Impact on the Bottom Line:

Several studies reveal a direct impact of the organization's leadership on its bottom line. In the same HBR article (see above), Goleman shares the following findings:

"David McClelland found that when senior managers had a critical mass of emotional intelligence capabilities, their divisions outperformed yearly earnings goals by 20%. Division leaders without that critical mass under performed by almost the same amount."

In his book Primal Leadership, Goleman, et. al. provides further evidence of the impact of emotional intelligence on the organization's profitability:

"A study found that the more positive the overall moods of people in the top management team, the more cooperatively they worked together - and the better the company's business results."

"In a study of nineteen insurance companies, the climate created by the CEOs among their direct reports predicted the business performance of the entire organization: In 75% of the cases, climate alone accurately sorted companies into high versus low profits and growth." (Cited in Primal Leadership - research by David McClelland, "Identifying Competencies with Behavior-Event Interviews," Psychological Science 9, 1998 and David Williams, "Leadership for the 21st Century," Life Insurance Leadership Study, 1995.)

The Results:

The effects of EI skill development are far-reaching. They go beyond just leadership competencies or management skills. It's difficult to identify any other organizational improvement intervention that has the potential to positively impact so many organizational problems concurrently. EI skill-building training enhances and complements other values-based and principle-centered programs by providing practical "how-to's." EI skills are foundations skills enabling people to improve the "how" of achieving results.

EI training results can be significant. During post-program impact interviews, participants have reported improvements that range from 15% to 35% increased teamwork, 20% to 35% increase in personal productivity, 20% to 40% reduction in stress and worry, and similar improvements in personal motivation, management of emotional reactiveness, work/life balance, creativity and more.