When we are in an unhappy relationship, we might contemplate breaking up, engage in discussions to address the issues, or choose to endure it, especially if we have committed a significant amount of time to the relationship.
These three options can be explained as—Exit, Voice, and Loyalty—which are also the principal terms used in the 1970 classic Exit, Voice, and Loyalty: Responses to Decline in Firms, Organisations, and States by German economist Albert O. Hirschman. It describes the responses that customers or employees of an organisation could take when there is a deterioration in quality or benefit from the business or even the State to the individual.
Individuals Have Two Options In Displaying Their Dissatisfaction Over The Firm’s Deteriorating Quality
The book begins with the premise that under any economic, social, or political circumstances, individuals, business firms, and organisations are generally bound to suffer from “repairable lapses”. This may result in a deterioration of the firm’s performance in relation to the quality of the product or service provided. The management of the firm may then find out about its failings in one of two ways:
Option 1: Exit
The first option that Hirschman describes that individuals would do to show their dissatisfaction is for customers to stop buying the products or employees to leave the organisation. For the firm, this would naturally result in revenue losses and may motivate management to look into the issue and take corrective actions.
However, if the demand is highly inelastic despite the drop in quality, then the revenue losses may be small, and the firm may not receive enough feedback on the drop in quality to make the required changes. On the other hand, if the demand is very elastic, the firm may not have the time to address the issues, as they could be wiped out even before realising the issue.
Option 2: Voice
The second option that individuals could resort to is to voice their dissatisfaction by attempting to change the practises, policies, and outputs of the firms that they either buy from or work for. For example, consumers may request to speak to a higher authority or send in their feedback to the firm, highlighting the lapses that they wish for it to address.
This then forces management to look into the issues and provide solutions to its customers before the exit option is chosen by individuals. Though voices can alert firms to their failings, management should be given sufficient time to address any potential shortcomings.
The Role Of Loyalty In Choosing Between To Exit Or Voice
In scenarios where consumers are convinced that voice can be effective, they will postpone exit. It is usually taken at the early stage of the firm’s deterioration, as once exited, they would lose the opportunity to use voice but not vice versa.
Another situation where voice can be preferred to exit is when there’s loyalty to the firm by the customer or employee. The more loyal we are to a brand or company, the more likely we are to provide feedback on the deteriorating quality of the firm rather than leave.
This would benefit companies that are highly attentive to feedback and make the necessary changes for better retention of customers or employees. On the other hand, if companies are less receptive to picking up on the disgruntlement of customers or employees, it would result in higher exit rates. Hence, voice can be a substitute for exit as well as complement it.
Applying Hirschman’s Exit, Voice, and Loyalty Framework
Every organisation is bound to go through periods of lapse and deterioration due to a lack of feedback. Beyond customers, businesses can also apply the principles underpinning the Exit, Voice, and Loyalty framework to improve their employer-employee relationships.
For instance, employees who have the option of exiting may decide upon voicing their opinion depending on their willingness to trade off the uncertainty and costs of exit against the certainties of staying and improving the situation.
Hirschman’s “Exit, Voice, and Loyalty” is one of the must-read books in the social science field. It could benefit business owners by helping them understand customer and employee behaviour and improve engagement with their stakeholders for better retention. Get your copy of the book from here.
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