People still make the difference in business, particularly during a “moment of truth,” a study has found.
EI versus AI might sound like part of an algebra equation but it is really a test everyone in business needs to take.
Simply put, it could be the difference between success and failure.
AI, obviously, is the hot new business tool of artificial intelligence, while EI is an older business tool somewhat faded from view.
It’s emotional intelligence.
Any business that can combine the two is guaranteed to have a significant advantage over its competitors, as demonstrated by a recent study from leading management consultancy McKinsey & Company.
A lot has been written about AI, which, when stripped bare, involves computers digesting, storing and regurgitating multiple events to produce an answer.
Most of the time AI systems get it right and are able to string together coherent and knowledgeable responses, as well as offer advice; as long as they have been correctly programmed.
But what an AI-enabled device is not yet able to do is bring genuine human emotion to a situation. Emotions are too unpredictable, which means too personal and too human.
In time, AI might be able to master EI, but until then emotion is a uniquely human quality most needed in a crisis or, to use McKinsey’s term during “a moment of truth”.
Those moments are generally when a customer has a problem that: does not fit a box-ticking questionnaire preferred by AI; tries to explain to a computer they have been given dud investment advice; or wants to redeem frequent flyer points.
McKinsey started its study of AI versus EI by acknowledging a business rule: that it’s far easier and more profitable to retain customers than spend a fortune on marketing and trying to acquire new ones, who tend to stick around if a moment of truth is handled effectively.
“Many companies make the mistake of overinvesting in humdrum transactions but fail to differentiate themselves in the customer experiences that really matter,” McKinsey says.
Banking examples include the need for a quick answer on a loan application or financial advice. A positive experience in those circumstance leads to 85 per cent of customers increasing their business with the bank. A negative experience leads to 70 per cent reducing their exposure.
Remote transactions are a particularly sensitive point of interaction, McKinsey says, with some German banks finding that customers who rely on remote banking services “are conspicuously disloyal” despite the high quality of the offering; a factor explained by the absence of any opportunity to form an emotional bond.
“Given the clear link between moments of truth and share of wallet, every customer-facing business should identify the points of interaction relevant to its industry,” McKinsey says.
According to McKinsey, EI in business typically reveals itself through interconnected characteristics that include a strong sense of self-empowerment and self-regulation, which helps employees make decisions on the spot if necessary, and an awareness of other people’s feelings.
An example mentioned was a 2004 decision by Bank of America to recruit branch managers from retailers such as The Gap and Best Buy because the bank found that “they get the retail mindset and we get them to understand banking, they like being on their feet and don’t want to sit behind a desk”.
Another North American bank found evidence of the link between customer loyalty and value creation when analysing a 50 per cent gap in the performance of its best and worst branches.
“Surveys conducted by the bank pointed to a distinguishing feature of the better performing branches; the ability to turn moments of truth to advantage by solving problems effectively and willingly to emphasise the financial needs of customers over the branches’ own sales priorities,” McKinsey says.
MinRes moves
CHRIS Ellison, chief executive of lithium and iron ore miner Mineral Resources, touched on a red-hot international issue last month when he shuffled the company’s asset portfolio to exit (for now) lithium chemical processing in favour of simply mining and upgrading ore.
The rearrangement involved MinRes’s exit from a minority position in the Kemerton lithium refinery in Western Australia’s south, run by US chemical specialist Albemarle, and increase its stake in the Wodgina mine and processing plant in the north.
In an associated move, Mr Ellison declined to partner Albemarle in a Chinese lithium processing opportunity, instead announcing a move to investigate developing its own processing plant, perhaps in Australia or perhaps somewhere else.
The key to deciding whether MinRes invests in its own lithium refinery is actually two questions: where and who helps meet the cost?
MinRes is effectively at the sharp end of the return of a deeply inefficient way of government involvement with business: taxpayer-funded subsidies of the sort that had largely disappeared with globalisation and free trade agreements.
No-one can blame Mr Ellison for seeking government assistance in expanding its lithium business because it seems that everyone else is doing it (and to not ask for a low-interest government loan, special tax treatment or cheap access to land risks being uncompetitive).
Unchecked, the subsidy game
– which is easy for politicians to play because it’s not their money – threatens to distort global capital flows, leading to distorted decisions such as forcing taxpayers to fund failing industries.
Chief villain in the return to an era of subsidy wars is the US, which has just introduced the $US500 billion Inflation Reduction Act.
The IRA aims to rebuild US manufacturing capacity, especially in computer chips and new energy technologies.
However, the result is also shaping as a spectacular distortion of trade and investment.
Naming right
WHAT’S in a name? Lots, if you follow the latest moves of billionaires Andrew Forrest and Elon Musk, who have changed the names of two prominent businesses for a possible marketing and image advantage.
Mr Musk has turned Twitter, a social media platform into X, a move that appears to have added little to the value of a business in decline.
Mr Forrest has dropped ‘Metals Group’ from the formal name of Fortescue Metals Group. The change to Fortescue includes redefining the company as “a global green energy and metals company”.
And you thought it was an iron ore miner.
Time will tell whether Mr Forrest has been too quick in putting the green horse in front of the iron ore cart; a switch that could produce unintended consequences.
