Break All The Rules After polling thousands of companies, Gallup created a new approach to managing that has helped it and many others grow.
By Anne Fisher

(FORTUNE Small Business) – Has there ever been a success story in which plain dumb luck didn't play a part? If so, it's news to us. CEO Jim Clifton is the first to admit that in 1999, when the Gallup Organization began its first serious push into bigtime management consulting, plenty of potential clients were ready for something new. "What you have to understand about consultants and their clients is that these guys are like a school of 1,000 tuna," he says. "They swim together, and they all go after the same thing at the same time." Total Quality Management, reengineering, Six Sigma, the dot-com (ahem) revolution--as one management fad has followed another, many businesses are still stumbling along hoping to find the one that will finally unlock the secrets of profit growth. Mergers and acquisitions by and large don't do it. Neither does fancy accounting, or not for long (just ask Enron). And relentless waves of cost cutting, that perennial staple, often lead nowhere but to, well, stripped-down companies (seen AT&T lately?).

So, having tried everything else under the sun, ever larger numbers of CEOs are prepared to give Gallup's way a whirl. "The tuna are turning toward quantifying what we call the emotional economy," says Clifton. By that he means "a serious metrics approach to employee involvement and customer involvement"--because, let's face it, if you can't get your employees and your customers interested in what you're doing, you might as well go home. Clifton is very aware that this approach strikes some people as oddball: "Maximizing the potential of a human being is not something they teach at Harvard or Wharton. It's an alien concept. But we're betting the company on it." (For an in-depth look at Gallup's research findings, see page 58.)

Wait a second, you may be thinking. The Gallup Organization? The public-opinion polling people? The very same--except that taking the public pulse, on everything from imprudent priests to presidential hopefuls, now brings in just 1% of Gallup's revenues. The rest comes from speeches, one-day seminars (at $2,500 a head), management training, and consulting--the latter a $115-billion-a-year industry that was already crowded with giants like McKinsey, Accenture, and the Boston Consulting Group when Gallup leaped in. The firm's total revenues have rocketed 80% in just five years, from $110 million in 1995 to about $200 million in 2001. Gallup now has offices in 28 countries--not too shabby for a company that started out as a little research outfit in Lincoln, Neb.

Gallup has been in the consulting game since the early '90s, but the company's wild ride didn't start until 1999, when First, Break All the Rules (Simon & Schuster, $26), by Gallup consultants Marcus Buckingham and Curt Coffman, hit bookstores--and, to the authors' astonishment, landed almost instantly on several bestseller lists. The ideas in the book, which is about how to build a great company by teaching managers to stop alienating employees, were the genesis of a booming segment of Gallup's business: Speeches, seminars, and management consulting based on Rules exploded from $2 million in revenues in 1998 to $30 million two years later. Then, in 2001, came Now, Discover Your Strengths (Free Press, $26), which Buckingham co-authored with former Gallup Chairman Donald Clifton (father of the current CEO). It details a system for finding out people's unique talents and using those strengths to make businesses grow. Together, the books launched Gallup into the big leagues, with a string of huge clients like Toyota, its Lexus division, Fidelity Investments, International Paper, HCA, and Best Buy.

How does a small company like Gallup get that kind of phenomenal growth and keep it from tearing the company apart? To judge from Gallup's experience, it takes at least three things: First, build on what you're already good at. Then change the way you recruit, promote, and reward people. And last, but by no means least, have a system in place that ensures you're actually getting fairly paid for everything you sell, a challenge in any business. Gallup does have one advantage over many other fast-growing companies: The firm practices what it preaches to its clients, so that Gallup itself is a kind of laboratory for testing and fine-tuning its own management theories.

What Gallup has been good at for almost 70 years now, of course, is research. Larry Emond, the marketing chief who came up with the idea of spreading the Gallup gospel by getting it published in hardcovers, says that the company's polling business gives it a "halo of credibility. Not all consultants base their work on research. We do." You might say that: The advice to managers in First, Break All the Rules is a distillation of interviews with 80,000 managers and one million workers at more than 400 companies.

Those big numbers wouldn't mean much if all that interviewing hadn't yielded some genuine insights. Some clients say it has--especially at companies that, like Gallup itself, have grown at a dizzying speed. Tom Scott is chief operating officer of Coldwater Creek, a catalog and Internet retailer of upscale women's clothing. The company--based in Sandpoint, Idaho, where "there are still more moose than traffic lights," says Scott--began in 1984 by offering 18 items. It now sells more than 3,000, with revenues in 2001 of $424 million. "We grew so quickly that we outpaced our ability to communicate with our people or to figure out where we needed to improve what we were doing," Scott recalls. "When that happens, you start losing so many employees, you've just become a training ground for other companies." As these problems were piling up, co-founder and chairman Dennis Pence read First, Break All the Rules, loved it, and brought Gallup in to help get all of Coldwater Creek's workers pulling in the same direction.

The real eye-opener, as Scott tells it, was what Gallup's consultants did, not among the rank and file, but with management. A 1 1/2-day "Discover Your Strengths" workshop has apparently cured some major glitches in how Coldwater Creek's managers got their work done. The core of the Strengths program is an analysis of people's personalities that sheds light on why they approach tasks the way they do. Scott scored high on traits like "analytical" and "deliberative," meaning that he likes to get all the facts before taking action. A key subordinate, by contrast, is an "activator," a type who likes to leap first and make changes later. Gallup's system, Scott says, "really gives you a framework for understanding how people behave. It's like, 'Oh, that person's not a jerk, he's an activator.'" Instead of constantly clashing with his activator underling, he now brings her in on decisions only after he's sure he has the facts right and he's ready to have her take the ball and run with it. "I was skeptical of all this at first," he says, "but it has eliminated an incredible amount of stress and strain."

Within Gallup itself, one potential source of stress was that the research people, some of whom have been with the company for decades, would resent the consulting side as Johnny-come-latelies with jobs that are, ostensibly at least, more glamorous. "Whenever you expand into a different business, as we have--and especially if it is a 'hot' business that is growing really fast--you absolutely have to take good care of the employees who have been your strength all along," says Jane Miller, Gallup's chief operating officer. Gallup has revamped its hiring criteria, using the same strengths-profiling system it sells to its customers. Miller says the company hires only about one in 300 applicants, with heavy preference going to those who fit the "high achiever" profile--a group that thrives on change. At the same time, Miller has set up a new system of rewards that gives researchers the same shot at raises and promotions that consultants get. "We have some people who are still collecting data after 20 years, but they can grow horizontally, take on better projects and make more money, or in some cases move into consulting," she says. "Lots of companies have an 'up or out' approach--or else they expect people to just keep doing the same job forever. We didn't want either of those." Horizontal rewards seem to be working: Gallup's annual turnover hovers at 12%, well below the 20% consulting industry average.

"There are two ways to kill a business," says the Rules' Buckingham. "One is no growth. The other is really, really fast growth." True. It's unlikely that Gallup could have handled the stress of its rocket-powered success if not for a top-to-bottom restructuring that Miller engineered from 1997 to 1999. Before that, the budding consulting practice was "entrepreneurial and chaotic," says Miller. "We were trying to build a house without a blueprint, and we found that our people were charging for tile and giving away marble. That is, in way too many cases they were doing far more work than we were getting paid for. So we took these 1,500 people, all running off in different directions, and said, 'Okay, now we're going to start behaving like a business.' It was hands-down the hardest thing I've ever done." For starters, Miller and her team began to insist that everyone keep track of his or her billable hours. "It's kind of embarrassing that we got to be a $150 million company without doing that," she says. "Then we started asking questions like 'What exactly constitutes a project? What's in the contract? Are you sure we have a contract?' And a lot of our people reacted very badly, because they saw themselves as independent. They thought that being held to a formal plan would cramp their creativity."

The resistance died down when productivity and profit gains began to buff up Gallup's balance sheet. The company is employee-owned, with stock certificates issued by the state of Nebraska and valued by an outside auditor. "People who bought in before 1997 have seen their stock go from $60 to $300," says Miller. "That has tended to convince them that the new procedures we put in are not just paperwork."

And what, you may be wondering, do Gallup's blue-chip competitors have to say about this newcomer to their turf? Not much. People at the top U.S. consulting firms have plenty of comments, characterized by an entertaining (to a reporter, anyway) mixture of condescension and fear, but nearly all asked to be kept strictly off the record. One person, at a very famous consulting firm headquartered not far from the Charles River, made this not untypical comment: "Until they start recruiting heavily at the major B-schools, we're not going to worry about them." It may be time to start worrying. Miller says that the aptitudes Gallup seeks in its consultants are not necessarily found on the most prestigious campuses. But the B-schools, those breeding grounds for future consultants, seem ready to turn with the tuna. "I wish Gallup would come and recruit here," says Glenn Sykes, head of the MBA career services office at the University of Chicago. "Can you put in a word for us?"

See book review on page 58 >>