Customer Service Reader

What is strategy?

Excerpts from What is Strategy?
Michael E Porter in Harvard Business Review

A company can outperform rivals only if it can establish a difference that it can preserve. It must deliver greater value to customers or create comparable value at a lower cost, or do both. The arithmetic of superior profitability then follows: delivering greater value allows a company to charge higher average unit prices; greater efficiency results in lower average unit costs.

• Ultimately, all differences between companies in cost or price derive from the hundreds of activities required to create, produce, sell, and deliver their products or services, such as calling on customers, assembling final products, and training employees.
• Cost is generated by performing activities, and cost advantage arises from performing particular activities more efficiently than competitors.
• Similarly, differentiation arises from both the choice of activities and how they are performed. Activities, then, are the basic units of competitive advantage. Overall advantage or disadvantage results from all a company's activities, not only a few.
• Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.
• Strategy is making trade-offs in competing. The essence of strategy is choosing what not to do. Without trade-offs, there would be no need for choice and thus no need for strategy.
• Strategy is creating fit among a company's activities. The success of a strategy depends on doing many things well - not just a few - and integrating among them. If there is no fit among activities, there is no distinctive strategy and little sustainability. Management reverts to the simpler task of overseeing independent functions, and operational effectiveness determines an organization's relative performance.

Fit and Sustainability

Competitive advantage grows out of the entire system of activities. The fit among activities substantially reduces cost or increases differentiation. Thus in competitive companies it can be misleading to explain success by specifying individual strengths, core competencies, or critical resources. It is more useful to think in terms of themes that pervade many activities, such as low cost, a particular notion of customer service, or a particular conception of the value delivered. These themes are embodied in nests of tightly linked activities.

• Strategic fit among many activities is fundamental not only to competitive advantage but also to the sustainability of that advantage. It is harder for a rival to match an array of interlocked activities than it is merely to imitate a particular sales-force approach, match a process technology, or replicate a set of product features. Positions built on systems of activities are far more sustainable than those built on individual activities.
• Consider this simple exercise. The probability that competitors can match any activity is often less than one. The probabilities then quickly compound to make matching the entire system highly unlikely (.9x.9= .81; .9x.9x.9x.9= .66, and so on).

The Role of Leadership

• The challenge of developing or reestablishing a clear strategy is often primarily an organizational one and depends on leadership. With so many forces at work against making choices and tradeoffs in organizations, a clear intellectual framework to guide strategy is a necessary counterweight.
• In many companies, leadership has degenerated into orchestrating operational improvements and making deals. But the leader's role is broader and far more important: General management is more than the stewardship of individual functions. Its core is strategy: defining and communicating the company's unique position, making trade-offs, and forging fit among activities. The leader must provide the discipline to decide which industry changes and customer needs the company will respond to, while avoiding organizational distractions and maintaining the company's distinctiveness.

Ultimate notes

Notes on The Ultimate Question, by Fred Reichheld

• The average Net-Promoter Score (NPS) for U.S. companies is less than 10%
• Senior managers are delusional. 96% of senior managers said they were “focused” on the customer. 80% believed they delivered a “superior experience” to their customers. But when their customers were surveyed, only 8% of their companies were given a superior rating.
• Measurement is not enough. Pointless to set up an NPS measurement system if you don’t understand that delighting customers is the only path to true growth.
• If you do get it, three things you must do: (1) design value propositions that focus on the right customers, then create a complete customer experience capable of delighting each targeted segment, (2) deliver those propositions end-to-end, with all employees pulling in the same direction, (3) do all this over and over again.
• Good design is not enough. What counts is a company’s ability to deliver those propositions consistently.
• Delivery depends primarily on the spirit, enthusiasm, and cooperation of frontline employees - the people who actually produce the goods, or deliver the services and deal with the customers.
• And there's the problem. Bain surveyed North American employees who had worked ten years or more for the same company. Only 39% trust their leaders to communicate openly and honestly. Only 33% believe that employee loyalty at their company is valued and rewarded. Only 28% say that their company values people and relationships above short-term profits. Only 19% provide enthusiastic referrals for the company that employs them.
• To build an organization that creates promoters: (1) send the right messages to your people, (2) hire and fire to inspire, (3) pay well and invest in training, (4) keep teams small to enhance accountability and service, (5) link measures and rewards to company values.
• Don't tread on Fred. On Claes Fornell (principal author of the American Customer Satisfaction Index): "the Journal reported that Fornell had been buying or short-selling shares of companies surveyed by the ACSI prior to releasing the data for publication". On JD Power: "There are J.D. Power winners for flights over five hundred miles and flights under five hundred miles. Perhaps we'll soon see awards for the highest customer satisfaction among bankrupt airlines."

See also:
Excerpts from Chapter 1 (inc a link to a downloadable pdf version)
Reichheld on Loyalty, the war on customers, wrong yardsticks, keeping it simple
Fred Reichheld's net promoter slide show. A 3-minute presentation.
A Survey of Surveys
The Net Promoter Forum

Strategic advantage in retail

Excerpts from Retailing Management, Chapter 19: Customer Service
Michael Levy & Barton A Weitz

• Good service keeps customers returning to a retailer, and generates positive word-of-mouth communication, which attracts new customers.
• Providing high-quality service is difficult for retailers. Automated manufacturing makes the quality of most merchandise consistent from item to item. But the quality of retail service can vary dramatically from store to store, and from salesperson to salesperson within a store.
• It’s hard for retailers to control the performance of employees who provide the service. A sales associate may provide good service to one customer and poor service to the next customer.
• 73% of consumers attribute their best customer service experience to store employees. Conversely, 81% of consumers attribute their worst customer service experience to employees.
• Most services provided by retailers are intangible - customers can’t see or touch them. Clothing can be held and examined, but the assistance provided by a sales associate or an electronic agent can’t. Intangibility makes it hard to provide and maintain high-quality service because retailers can’t count, measure, or check service before it’s delivered to customers.
• The challenges of providing consistent high-quality service provides an opportunity for a retailer to develop a sustainable competitive advantage.

"Variation is evil"

Taking care of a customer is easy. It’s taking care of all customers all of the time that’s tremendously hard. Most companies can't even take care of most of their customers most of the time. And this is why most companies fail to excel at customer service, and thus fail to use it to their competitive advantage.

In Winning, Jack Welch wrote that “variation is evil”. This Six Sigma mantra is as true of service processes, as it is of manufacturing processes.

The customer’s affection for a company can very quickly turn into enmity at the first encounter with inconsistency. Take just two common situations:

• You’re impressed by a salesperson’s knowledge and empathy. You try to buy what she sells, but fall in line for five minutes as a cashier argues with a customer.
• You had a great experience with Store A, at the branch close to your home. The product breaks and you try to get it exchanged at the branch closer to work, where they treat you like a beggar because "the receipt clearly states that you have 14 days to exchange a product, and you’re one week too late".

Very quickly, you swing from appreciation to disdain. And this is how variation kills us.

See also:
Strategic advantage in retail
Michael Porter's What is strategy?

Gallup's Human Sigma

Excerpts from Manage your Human Sigma
John H. Fleming, Curt Coffman, and James K. Harter, in Harvard Business Review

In sales and service organizations value is created when an employee interacts with a customer. To achieve meaningful operational and financial improvements, the employee-customer encounter must be managed with great care.

Quality improvement methodologies such as Six Sigma are extremely useful in manufacturing contexts, but they’re less useful when it comes to the employee-customer encounter, with its volatile human dimensions. To address this problem of fit, Gallup developed a quality improvement approach that we call Human Sigma. Like Six Sigma, Human Sigma focuses on reducing variability and improving performance. But while Six Sigma applies to processes, systems, and output quality, our approach looks at the quality of the employee-customer encounter, weaving together a consistent method for assessing it and a disciplined process for managing and improving it.

As we developed our thinking about Human Sigma, we arrived at several core principles for measuring and managing interactions between customers and employees:

• Emotions inform both sides’ judgments and behavior even more powerfully than rationality does.
• The employee-customer encounter must be measured and managed locally, because there are enormous variations in quality at the work-group and individual levels.
• It’s possible to arrive at a single measure of effectiveness for the employee-customer encounter; this measure has a high correlation with financial performance.
• To improve the quality of the employee-customer interaction, organizations must conduct both short-term, transactional interventions (such as coaching) and long-term, transformational ones (such as changing the processes for hiring and promotion).
• The company’s organizational structure often must be adjusted so that the employee-customer encounter can be managed holistically.

Human Sigma grew out of a multiyear, research-based initiative designed to map the terrain of the employee-customer encounter. This work was based on direct experience with hundreds of companies and millions of customers and employees. We then tested and cross-validated our findings in 1,979 business units—involved in financial services, professional services, retail, and sales—within ten companies. The results thus far have been extraordinary. The ten companies, all of which have applied the best-practice principles for managing the employee-customer encounter, together outperformed their five largest peers during 2003 by 26% in gross margins and by 85% in sales growth. We can’t guarantee readers comparable results, but we believe that closely monitoring the health of a firm’s employee-customer relationships will result in dramatic performance improvements.