What happened to service?

Your most unhappy customers are your greatest source of learning. – Bill Gates

It’s not the employer who pays the wages. Employers only handle the money. It’s the customer who pays the wages. – Henry Ford

More business is lost every year through neglect, than through any other cause. – Jim Cathcart

There is only one boss – the Customer. And he can fire anybody in the company from the chairman on down, simply by spending his money somewhere else. – Sam Walton

In the early ‘80s, Scandinavian Airlines (SAS) was having a tough time competing. Jan Carlzon, then president of the airline wanted to focus on improving services among other areas he found broken. In 1984 he coined the phrase “moments of truth,” in a book of the same name, to describe those incredibly valuable service interactions customers have with companies. His strategy was to manage, in a unique way, those “never-to-be-repeated opportunities” to distinguish SAS from its competitors. And it worked; SAS was turned around in record time and became one of the best-run airlines around the world. Moments of truth became the mantra of those focused on customer service. Companies like Nordstrom became famous for their fabulous treatment of customers, and their results showed the benefits of service as they were able to generate better than average profit and revenue growth than their competitors.

Nearly two decades later, after Billions of investments in new Customer Relationship Management (CRM) and other service systems, it seems like many of the important lessons learned have been forgotten or ignored. Interactions with companies today feel much more like “moments of denial” than opportunities to win a customer for life. What happened? Was Jan wrong? Is customer service irrelevant in this seemingly impersonal internet era?

In this age of networked customers, more choices are available, and companies performance in price, product capabilities and increasingly service is much more readily visible. Customer services more than ever before has the potential to create (or lose) enormous value to companies and their customers. During the dot boom, much attention was paid to the cost of customer acquisition. The theory was that as long as a company paid less for the acquisition of a customer than the lifetime value of that customer (a complex measure of how much profit can be generated while the customer remains a customer), then the business would be worth a lot. The theory was right, the valuation wrong. These models brought into sharp focus the notion of the value of customers. Where the valuations went awry was in the assumption about how long the customer would remain a customer (an area heavily influenced by customer service). What these companies forgot, was that losing a good customer was much more expensive than winning a new customer. Unfortunately, this lesson still needs to be learnt by many big companies.

Lets explore this dearth of common sense in service by reviewing an experience I had recently buying books. A short while ago, after checking a number of local bookstores for some technical (read expensive) books and not finding any in stock, I took to the Internet. The books could be found similarly priced at Amazon, Barnes and Noble, Borders, and Wal-Mart, while they were significantly cheaper at several other online stores. Eventually, I chose one of the major brands, because it was the only one with all the books in stock and available for delivery in 24 hours (a service differentiator). So I ordered the books forgoing the free shipment offer and instead requesting and paying for expedited overnight delivery.

The books were to be delivered two days later, and to my delight, were truly shipped on time and delivered on time. Two separate boxes were delivered, shipped from separate locations. I eagerly opened the first box to find only one book where the packing slip indicated there should be two. In the second box, to my disappointment, another customers order had been neatly packed. Being an analytical type, I figured the odds of such customer failure to be extremely low (bordering on near impossible). Something must have failed badly. Still, not daunted by the experience, I called the toll free number provided. After listening to an annoying announcement of service options (none of which worked for me), I was connected to a service representative. I explained the situation and suggested that since the other customer was at an address not very far from mine, and given that I really needed these books quickly (why I ordered overnight express), that the retailer might try contacting UPS and have the books, that were meant for me and most likely switched, picked up and rerouted to me. The rep took all of the details and then told me that the case would have to be “escalated” to a different group who will contact me in 1 to 2 days. This was my first clue of a “moment of denial”. I politely suggested that this did not make sense to wait that long for a conversation with a customer rep about what to do with this service failure. She promised to send a note to the relevant department.

Three days later, I called the same toll-free number. I had not been contacted by anyone. Again the same announcement, same story repeated to a new rep. After a long wait I was put through to the “escalated service” department. The rep offered to have UPS pick up my boxes and would get a supervisor to authorize a new shipment. I inquired as to the reason for delay in contacting me and was told that 2 to 3 days is the normal cycle, but that the service department was bogged down with requests due to an upcoming holiday (Valentines day due 10 days away). I told the rep they had lost a customer for life, that I would be sending the books back, and that they should cancel my order. She thanked me!

This was no customer service organization! Was this unusual, an aberration, a statistical blip? Unfortunately, millions of these interactions are taking place across the United States each day, creating a veritable churn in customer loyalties and shifting the preferences consumers demonstrate with their pocket books. Customer’s tolerance for shoddy customer service is being challenged today, more than ever before. At one major phone company, an enormous sum has been spent on call processing information to solve every kind of problem without ever having to connect to an individual. Which is all well and good, until one really wants to speak with a service rep. Call for help, and Silicon Sally, the voice of the phone company, will transfer you around and bring you back in loops so that in the end you may never get through to someone who can really help you. Or how about the major competitor that has a similar menu of options which require you identify yourself with phone number, zip code and social security number, which in and of itself is difficult to get entered without being disconnected on a wireless call, and then when an individual answers asks for a repeat of those numbers.

What should the book store have known, and how could this situation have been resolved to create an even more loyal customer? This example in many ways illustrates what has gone wrong with the large investments in service over the last decade. The impersonality of the systems, lack of common sense empowerment in decision making, and processes and systems that do not adequately segment and distinguish customers for their uniqueness are doomed to fail and will continue to lose more value than they create for the companies implementing them. Lets examine the case. The bookstore should have known I was a first time buyer online. They should have known that I was a customer worth having, as my purchases of nearly $400 in books would be at the high end of typical online book purchases. I used an American Express card and was willing to pay a premium for overnight delivery and did not avoid the sales taxes as I would had I bought these products at a competitor. This bookstore should have known that they paid very little to find a new customer that was probably worth a lot to keep. And upon the first indication of trouble, they should have taken that “moment of truth” to engender loyalty, by demonstrating concern for my needs through a good recovery. After all, customers talk a lot more about bad customer service than good service experiences, with the one exception being high recommendations for exceptional recoveries.

Great service organizations know their customers and differentiate their needs and treat them for what they are worth. They don’t have monolithic processes and systems that strive to confound customers desperately seeking help. Take American Express for example. Why is it that a company that charges its merchants more than Visa or MasterCard continues to be successful? Because they masterfully serve their “members” and those very merchants, more so than the premium they charge. Their service treatment of customers is rarely in doubt. When I lost my wallet in Sydney, Australia, American Express provided me with a replacement card and cash within 24 hours, in Sydney. MasterCard and Visa required I call the banks in the USA that issued the cards and the banks promised to send replacement cards to my home address in Cleveland. Lots of good those cards in the USA did while I was in Sydney for nearly a year using my American Express card exclusively.

Technology can enhance customer service capabilities by allowing a company to know a lot more about their customers at a moment of truth. Sadly, when the technology is not coupled with an organization and processes endowed with “common sense”, the result could be a deliberate destruction of long term customer value. For better results, introduce some basic common sense into the management of your customer interactions!

“Moments of Truth” (Jan Carlzon)

Reverse Auction and Supplier Relationships

Reverse auctions are almost ubiquitous and are being used daily to drive purchasing costs down in a variety of categories of products and services. And, the results are stunning. That is why its use has become a standard in many North American procurement organizations.

Recently I was attending a meeting of senior procurement executives during which the discussion topic focused on “myths of Reverse Auctions”. The presenter postulated that the belief “reverse auctions damaged supplier relationships,” was a myth. Members of this august group, including the procurement leaders of some of the largest and most influential North American companies, generally agreed. Rationale given included auctions were merely a device to discover “market price”, auctions are not just about getting the lowest price, in fact auction algorithms have been created to factor in other variables such as service and quality in addition to cost. And, incumbents typically win 70% of the auctions anyway.

As the lone dissenter on this question, I wondered whether the facts would support the point of view that relationships were not hurt with auctions. After all, every one in the group agreed that they did not want their company to be subject to auction by a customer.

I understand that there are categories of purchases in which a relationship might not be too important. If you are running a pharmaceutical company, you don’t really need much of a relationship with your office supply provider. But, there are large swaths of procurement categories for each company in which relationships matter. And where relationships mattered, I wondered whether auctions really could be used without affecting the relationship.

This particular group of procurement leaders did not think that auctions affected relationships. But I wondered if there wasn’t a lot of rationalization taking place. What would the suppliers say? Would they be so willing to forgive the process which so calculatingly pits them against competitors who have not been building a long term relationship, who have not been making investments to reduce costs of doing business? And, how willingly would they work to reduce costs or support a customer when times got tough after being subjected to an auction?

Not surprisingly, the facts are starkly in contrast to the views shared by the buyers. Incumbent sellers unanimously agree on their dislike of auctions. They view it as a dispassionate process that boils the essence of their relationship to price, and away from the “total cost of ownership” approach so espoused by buying organizations. And they feel helpless when subject to an auction. Does it affect the relationship? Absolutely. These suppliers all agree that given the opportunity to raise prices due to a market discontinuity, they would jump to it. And they would be less likely to support the customer in cost reduction efforts outside of the auction. In fact, post auction implementations by incumbents frequently include a number of efforts to find ways to reduce costs associated with servicing the customer.

Auctions have a role to play in procurement and should be a part your tool kit. In fact, they should be used precisely when you are unsure of the relationship premium you are paying (which is frequently the case when a relationship has been entered to, absent a stringent sourcing process). But don’t kid yourself. Where relationships with your existing supplier matter, use auctions at your own risk.

Do you see what you believe, or believe what you see?

My teenage daughter, like most kids her age, loves the look of fast sports cars. She is particularly amused by the fact that she shares the same name with a Lotus sports car, the Elise.

One morning recently, as I was driving her to the school bus stop, she excitedly pointed out the car in front of us. “Look dad, it’s an Elise.” Until then, she had only seen the car in magazines and online. I gently pointed out that the car was not an Elise, but a Corvette. But she was not to be deterred, as she insisted it was an Elise. That is, until we pulled up next to the car and she could clearly see the Corvette badge.

Later I reflected on this incident and wondered what it was that made a teenager who had never seen (or had a live experience with) a Lotus Elise, believe her own mental image of the car more than the feedback from someone three times her age, who has actually seen (had an experience with) the car in question. Was it youthful self confidence, or worse? And, I wondered how often the same phenomena occurred in business settings. I have seen managers reviewing market data and completely disagreeing on the potential opportunities. I have seen financial data which suggested financial deterioration, interpreted in a favorable light. And I wondered, were these people really seeing the same things?

I did not get very far with my exploration of these questions until I came across a piece written by Daniel Levitin:

The word pitch refers to the mental representation an organism has of the fundamental frequency of a sound. That is, pitch is a purely psychological phenomenon related to the frequency of vibrating air molecules. By “psychological,” I mean that it is entirely in our heads, not in the world-out-there; it is the end product of a chain of mental events that gives rise to an entirely subjective, internal mental representation or quality. Sound waves – molecules of air vibrating at various frequencies – do not themselves have pitch. Their motion and oscillations can be measured, but it takes a human (or animal) brain to map them to that internal quality we call pitch.

We perceive color in a similar way, and it was Isaac Newton who first realized this. (Newton, of course is known as the discoverer of the theory of gravity, and the inventor, along with Leibniz, of calculus. Like Einstein, Newton was a very poor student, and his teachers often complained of his inattentiveness.)

Newton was the first to point out that light is colorless, and that consequently color has to occur inside our brains.

Excerpts From This is your Brain on Music by Daniel Levitin

In essence, Daniel is saying that things like color and sound are not absolutes, people hear and see the same thing differently. Thus, some see a glass with some liquid and by focusing one way or the other can see a half-empty or half-filled glass. Several people might be listening to the same CD, but concentrating on different elements of the music and subsequently liking or disliking what they are hearing.

In a business setting, the implications are stunning. If everyone is seeing your markets, customers, performance, numbers the same way, and there are no opportunities for alternate explanations, you very well may be missing important elements. You might be looking at data that shows revenue growth, but nuances such as whether the growth was in line with the rest of the market, with targeted segments, due to lucky wins, or fundamentally based on purposefully managed activities delivering better value to customers are incredibly important distinctions. Management teams that lack diversity of thought, or avoid honest questioning of the facts, will almost always be blind-sided by an alternate reality.

Are there alternate realities or interpretations that can be inferred from the same set of facts? Absolutely! Just examine the optical illusion above. Some people see the young girl, others an old lady. They are both present in the same set of facts. What you choose to see is a matter of where you are looking. You can only see both pictures when you shift your perspective, an activity that might serve you well in your business.

“This Is Your Brain on Music: The Science of a Human Obsession” (Daniel J. Levitin)

New Age Job Survival

Daniel H. Pink has written a terrific book called “A Whole New Mind – Why Right-Brainers Will Rule The Future”. I recommend it to anyone who is concerned about job survival in this new age.

Daniel postulates that the world has evolved through three distinct ages over the last 150 years – The Agricultural Age, The Industrial Age, and The Information Age. More importantly, he speculates we are entering what he calls The Conceptual Age. One which favors “Right Brainers” (creators and empathizers) over the traditional “Left Brain Skills” (analysts).

We have arrived at the new Conceptual Age, due to three major forces which have essentially changed the rules of competition. These forces are Game changers on a global scale, which Daniel describes as Abundance (excess of available choices), Asia (dramatically lower cost), and Automation (machine driven productivity). To survive in this new age, Daniel argues, you must ask yourself three questions:

1. Are you doing something that cannot be done cheaper by someone overseas?

2. Are you doing something that cannot be done faster by a computer?

3. Are you offering something that is in demand (differentiating) in an age of abundance?

If you answer yes to these three questions, then you are safe (for some time). Answer No, and you are in deep trouble.

I have argued on this blog (“Lifetime Employment – Apply Here”) that only employees and companies capable of changing faster than customer choices are changing will survive. The fact is, low cost labor (Asia), and massive productivity improvements (Automation) have created far more choices (Abundance). And, the information age has enlightened consumers as to the availability of these abundant choices. The result is a need for more differentiation. Products have to stand out, they must have soul (“Are you obsessed about Quality? Do your products have soul?”). Similarly, new skills are required for you to stand out.

Read the book to find out which skills Daniel Pink believes will be more important in the future!

“A Whole New Mind: Why Right-Brainers Will Rule the Future” (Daniel H. Pink)

Where does talent come from?

Ericsson and his colleagues have thus taken to studying expert performers in a wide range of pursuits, including soccer, golf, surgery, piano playing, Scrabble, writing, chess, software design, stock picking and darts. They gather all the data they can, not just performance statistics and biographical details but also the results of their own laboratory experiments with high achievers.

Their work, compiled in the “Cambridge Handbook of Expertise and Expert Performance,” a 900-page academic book that will be published next month, makes a rather startling assertion: the trait we commonly call talent is highly overrated. Or, put another way, expert performers — whether in memory or surgery, ballet or computer programming — are nearly always made, not born. And yes, practice does make perfect. These may be the sort of clichés that parents are fond of whispering to their children. But these particular clichés just happen to be true.

Ericsson’s research suggests a third cliché as well: when it comes to choosing a life path, you should do what you love — because if you don’t love it, you are unlikely to work hard enough to get very good. Most people naturally don’t like to do things they aren’t “good” at. So they often give up, telling themselves they simply don’t possess the talent for math or skiing or the violin. But what they really lack is the desire to be good and to undertake the deliberate practice that would make them better.

Excerpt From A Star Is Made – New York Times referencing the research of Dr. Anders Ericsson

When we first moved to Florida in 2004, our good friend Barbara Wall, who runs the local Prudential office, invited us to lunch at the Eau Gallie Yacht Club. While there, she introduced our daughters (then 6 and 9) to a wonderful young girl just ten years old. Bre was friendly, charming, beautiful and made it really easy for our daughters to make the transition to their new home. It turns out, Bre Morgan is also a very talented young artist. In 2006 she won a national singing contest, and has recorded her first album at age 13.

The same year we first met Bre, my cousin Wilfred and Juliet welcomed their first grandchild. Kaitlyn is a lovely young girl born to wonderful parents, Allison and Reuben Maher. It’s 2008, now just four years later, and this last week, Kaitlyn was selected to be among the top 10 of the popular show America’s got Talent.

Ten years, four years, charming, beautiful and loaded with talent. But, where did the talent come from? Was their talent born, or made? I suspect these two young ladies were born talented, but the good news for the rest of us can be found in the work of Dr. Anders Ericsson. He attributes most expert performance to something he describes as “deliberate practice”. In other words, “practice does make perfect”. Turns out, you are more likely to practice something if you enjoy doing it. In case you are wondering, these two young ladies, they love what they do, and they practice a lot.

Want talented performance at work? Then your teams must love what they do, and they must practice at getting better!

Importance of Education to your future

Education is the key to prosperity. There’s simply no way to sugarcoat that fact. Communities without a strong educational foundation — good public schools, community colleges, a local college or university — are at a severe disadvantage in the competition for good-paying jobs with a future.

Employers need intelligent workers who can grasp new ideas and concepts quickly, who can think for themselves, who can visualize the big picture. It used to be that a high school diploma was the ticket to the middle class. Nowadays, one in four adults over the age of 25 possesses at least a bachelor’s degree, and in some metros — Boulder, Colo., for example — that figure exceeds 50 percent.

From Research Studies: Knowledge Worker Quotient

Are you obsessed about Quality? Do your products have soul?

The Japanese are particular about things; they understand the “soul” of things.

We aim to develop products with soul. The idea that products have soul is perhaps only understand by the Japanese, the French and the Italians. The reason why the Japanese understand it is, I think, because they have such a long history of tradition. There are Japanese craftsmen who spend years perfecting lacquerware. Others protect the 1,500 year tradition of using red dye from the safflower. Others still are attempting new experiments using 21st century technology with traditional colors. And there are many people who are called “living national treasures”. The Japanese are particular about things. They like to embark on new adventures and think about the next idea while still retaining the soul of things. Of course, not all consumers are “living national treasures”. But this kind of thing is understood at DNA level. The Japanese are sensitive to things. They understand the goodness of our products, beyond their appearance or brand image. And for that reason, I think they are an important market for us.

Let’s say you buy a garment and a thread comes out of it. The French would cut the thread off themselves, then wear the garment. An American would wear the garment without noticing the thread. The Japanese would take the garment back to the shop and complain that it was damaged. Japan is a market that makes such demands.

Richard Collasse, then President of Chanel, Japan addressing the Tokyo International Forum

Japan is roughly the size of Montana in land area, and has about 127 million inhabitants (roughly one-third of the USA). And, the Japanese are obsessed with luxury goods. They consumed 41% of the worlds luxury sales in 2006. Thus, when the Japanese customer is not satisfied with threads hanging from their newly purchased outfits, it makes sense for the luxury goods companies to pay attention.

The Japanese define quality in two ways – atarimae hinshitsu and miryokuteki hinshitsu. The first term atarimae hinshitsu, refers to the expectation that the item works the way it was intended. Miryokuteki hinshitsu means “bewitching” or “enchanting quality” and refers to the desirability or aesthetic appeal of the product. In essence, by focusing on both, you ensure your product works the way a customer wants and is also desirable to have (it has soul).

If your customers won’t tolerate hanging threads, should anyone on your team? Learn from your most demanding customers, and ensure everyone in your organization is focused on exceeding those changing expectations. This is the only way I know to drive long term sustainability.

Fix your shrinking knowledge quotient

Every hour of every day I’m learning more

The more I learn, the less I know about before

The less I know, the more I want to look around

Digging deep for clues on higher ground

From UB40 – Higher ground Lyrics

I love listening to UB40, a British reggae band formed in the 70’s. Their songs are usually light hearted affairs sung to a catchy melody which reminds you of being on a Caribbean beach vacation. Then I listened to the lyrics of the song “Higher Ground”. Now that was more serious stuff than I was accustomed to. i did not know what to make of it.

Over the years though, the meaning has become clearer to me. Friends warned me that, the more I learned the more I would not know. Recently I came across some stunning statistics on knowledge expansion and information overload. Did you know for example, that:

• It is estimated that one weeks worth of New York TImes contains more information than an individual would have encountered in a lifetime in the 18th century.
• IDC estimates 160 Exabytes (160 Billion Gigabytes) of data was generated in 2006, more than was generated in the previous 5000 years.
• It’s estimated that the amount of stored information is growing at a rate of 30 per cent a year and that the US generates about 40 per cent of that. The researchers estimated with a world population of 6.3 billion that would mean 800Mb of data each and less than 10 per cent of the world’s population have access to computers or the internet.
• Technical information is doubling every 2 years.

The stunning result of this exponential information explosion is that your personal knowledge quotient (and mine) is shrinking.

Fortunately, there are ways to ensure your knowledge does not become obsolete. An important action you must take is to continue to develop what you know personally. More important, you need to recognize that the rate of information growth is exponential, while your personal information growth is more likely to be linear (based on what you read, touch, experience etc.). Therefore, you should focus on capitalizing on the network effect. In our increasingly connected world, your network knowledge quotient is perhaps more important than your personal knowledge quotient. For it is your network, what it knows, and your ability to leverage that knowledge which is becoming increasingly important.

The most effective ways to build your network knowledge quotient is effectively increasing your network. Stuff it with the smartest people you know and tap into their knowledge a much as you can. Somewhere out there is n answer to any question you might have. Do you know how to find it?

Lifetime Employment – Apply Here

Since the 1950s, Japan’s labor markets have been characterized by several distinctive features. Perhaps the most notable among them is “lifetime employment,” the practice at large firms of hiring workers directly out of school and retaining them until a mandatory retirement age (originally age 55, now around 60 for most companies).

From Job Security in Japan: Is Lifetime Employment on the Way Out? – Brookings Institution

Lifetime employment used to mean staying with a company until retirement. However, as the workplace has evolved, few workers are interested in staying at a single company until retirement. The chart below shows how dramatically this effect has played out in different countries around the world (with Americans staying on average only 4 years per job).

The question of lifetime employment has therefore shifted to the possibility of being employed (at any company) until expected retirement. The challenge of staying relevant in the workforce has been exacerbated by concerns over the rapid shift of manufacturing and service sector jobs to lower wage regions around the world.

What can you do to stay employed, and not become a victim of these dynamic shifts in the global economy?

For my answer, I build on my three fundamental beliefs, except replacing company with employee. Thus:

1. Customers always choose the best available

2. The best is always changing

3. Only employees capable of change are sustainable.

In simple terms, your company can’t guarantee you a job, your government cannot, not your union rep, nor your boss. Only customers guarantee jobs, and only so while you are creating value for that customer.

• Who is your customer? Today? In the future?
• What does that customer want? Will want?
• What skills do customer needs imply are necesary and how will they change over time?

To stay relevant and experience lifetime employment, you must have answers to these questions and a personal development plan that allows you to change faster than your customers (employers) are changing. That I argue is the only way to ensure you have lifetime employment!

Fundamental Beliefs – Guiding principles for strategy

I am frequently asked about the most important factors that shape my views on strategy. And to that question, my answer is always simple. I am driven by three fundamental beliefs:

1. Customers always choose the best available

What is best is defined by each customer. It could be price, availability, specifications, or some other variable. Whatever the utility curve the customer is using to determine their preference, they will choose the best they can afford, from what’s available, wherever they can find it.

2. The best is always changing

The best changes over time because customer preferences change, what competitors offer changes, or because what companies provide to their customer changes.

3. Only companies capable of change are sustainable

The inevitable conclusion is that companies must change. And, they must change faster than the customers are changing in order to stay relevant.

For me, the only constant is change!