Core ideologies

Core Ideologies In Visionary Companies
Excerpts from Built to Last, Chapter 3, pages 68-73, Jim Collins, Jerry Porras
with links to currents statements

Core ideologies = Core values + Purpose

  • Core values = The organization's essential and enduring tenets; a small set of guiding principles
  • Purpose = The organization's fundamental reasons for existence

3M
Innovation; “Thou shalt not kill a new product idea”
Absolute integrity
Respect for individual initiative and personal growth
Tolerance for honest mistakes
Product quality and reliability
“Our real business is solving problems”

American Express
Heroic customer service
Worldwide reliability of services
Encouragement of individual initiative

General Electric
Improving the quality of life through technology and innovation
Interdependent balance between responsibility to customers, employees, society, and shareholders
Individual responsibility and opportunity
Honesty and integrity

Hewlett-Packard
Technical contribution to fields in which we participate
“We exist as a corporation to make a contribution”
Respect and opportunity for HP people, including opportunity to share success
Contribution and responsibility to the communities in which we operate
Affordable quality for HP customers
Profit and growth as a means to make all of the other values and objectives possible

IBM
Give full consideration to the individual employee
Spend a lot of time making customers happy
Go the last mile to do things right; seek superiority in all we undertake

Johnson & Johnson
The company exists “to alleviate pain and disease”
“We have a hierarchy of responsibilities:
customers, employees, society at large, then shareholders"
Individual opportunity and reward based on merit
Decentralization = Creativity = Productivity

Marriott
Friendly service & excellent value (customers a guests)
“Make people away from home feel that they’re among friends and really wanted”
People are number 1 - treat them well, expect a lot, and the rest will follow
Work hard, yet keep it fun
Continual self-improvement
Overcoming adversity to build character

Merck
“We are in the business of preserving and improving human life.
All of our actions must be measured by our success in achieving this goal”
Honesty and integrity
Corporate social responsibility
Science-based innovation, not imitation
Unequivocal excellence in all aspects of the company
Profit, but profit from work that benefits humanity

Proctor & Gamble
Product excellence
Continuous self-improvement
Honesty and fairness
Respect and concern for the individual

Nordstrom
Service to the customer above all else
Hard work and productivity
Continuous improvement, never being satisfied
Excellence in reputation, being part of something special

Wal-Mart
“We exist to provide value to our customers” – to make their lives better via lower prices and greater selection; all else is secondary
Swim upstream, buck conventional wisdom
Be in partnership with employees
Work with passion, commitment, and enthusiasm
Run lean
Pursue ever-higher goals

Walt Disney
No cynicism allowed
Fanatical attention to consistency and detail
Continuous progress via creativity, dreams, and imagination
Fanatical control and preservation of Disney’s “magic” image
“To bring happiness to millions, and
to celebrate, nurture, and promulgate “wholesome American values”

Core purpose

Excerpts from Built to Last, Chapter 11, pages 224–228
Jim Collins, Jerry Porras

  • Core purpose, the second component of core ideology, is the organization’s fundamental reason for being. An effective purpose reflects the importance people attach to the company’s work — it taps their idealistic motivations — rather than just describing the organization’s output or target customers.
  • It captures the soul of the organization. Purpose gets at the deeper reasons for an organization's existence beyond just making money, as illustrated by a speech David PackardDavid_packard_3 gave to HP people in 1960: “I want to discuss why a company exists in the first place. In other words, why are we here? I think many people assume, wrongly, that a company exists simply to make money. While this is an important result of a company’s existence, we have to go deeper and find the real reasons for our being. As we investigate this, we inevitably come to the conclusion that a group of people get together and exist as an institution that we call a company so they are able to accomplish something collectively that they could not accomplish separately — they make a contribution to society, a phrase that sounds trite but is fundamental … You can look around and still see people who are interested in money and nothing else, but the underlying drives come largely from a desire to do something else — to make a product, to give a service — generally to do something that is of value.”
  • Purpose (which should last at least 100 years) should not be confused with specific goals or business strategies (which should change many times in 100 years). Whereas you might achieve a goal or complete a strategy, you cannot fulfill a purpose; it is like a guiding star on the horizon—forever pursued, but never reached. Yet while purpose itself does not change, it does inspire change. The very fact that purpose can never be fully realized means that an organization can never stop stimulating change and progress in order to live more fully to its purpose.

Examples of Core Purpose

  • 3M: To solve unsolved problems innovatively
  • Fannie Mae: To strengthen the social fabric by democratizing home ownership
  • Mary Kay: To give unlimited opportunity to women
  • Merck: To preserve and improve human life
  • Nike: To experience the emotion of competition, winning, and crushing competitors
  • Walt Disney: To make people happy

The living brand

Excerpts from Creating the Living Brand 
Neeli Bendapudi and Venkat Bendapudi, in Harvard Business Review

Any company can deliver outstanding customer service - even convenience stores, where low pay and high turnover supposedly make service a problem.

  • Even companies that position themselves for the mass market can provide outstanding customer–employee interactions and profit from them. Their secret? They consider employees their living brand and devote a great deal of time and energy to hiring and developing them so that they reflect the brand’s core values
  • We studied the convenience store industry in depth for two years, in conjunction with the National Association of Convenience Stores, and conducted detailed case studies of two companies: QuikTrip (QT), a $4 billion privately held firm based in Tulsa, Oklahoma, that operates 462 stores in nine central, western, and southern states, and the $2.8 billion Wawa, a privately held company based in Wawa, Pennsylvania, that operates more than 500 stores in five eastern states. QT has been listed as one of Fortune’s 100 best places to work three years in a row; in 2005 it was ranked number 19. Turnover rates at QT and Wawa are 14% and 22% respectively, a small fraction of the triple-digit average turnover in the retail sector.
  • Both companies routinely outperform the market. From 1977 through 2003, Wawa stock has grown at an average annual compounded rate of 17%, nearly twice that of the S&P 500. QT’s stock value has risen 19.2% in the past three-year period, more than four times the S&P’s rate.
  • We uncovered six principles that both companies embrace to instill the brand and its meaning in their employees - and to create a strong culture of customer service. Both Wawa and QT demonstrate the power, even in minimum-wage businesses, of investment in employees to create a positive customer experience.

Six Lessons of the Living Brand

1. Know what you’re looking for

  • Every organization must have a clear vision of the skills and characteristics it wants in its workforce, and have a plan for getting them. But few companies that hire in the mass market have the discipline to go about doing that rationally and systematically.
  • A company must decide which skills and qualities can be taught and which must be hired. QT insists on hiring “nice” people who like people, because that’s a tough quality to teach; it’s either present or not. At Wawa, the must-have is passion, for work and life.
  • QT puts applicants through a rigorous, structured process that includes a personality assessment based on the qualities of QT’s most successful performers. Interviewers probe for stories to complete the picture.
  • Hiring decisions at QT aren’t left to store managers. Instead, managers in each of the company’s eight geographic divisions do all the recruiting and hiring for their regions.

2. Make the most of talent

  • In mass-market retail environments, talent is generally viewed as a commodity, and employees are basically interchangeable. But that outlook becomes a self-fulfilling prophesy. Studies have repeatedly shown that people rise or stoop to the expectations set for them.
  • Wawa and QT get more from their people because they expect more. One way they communicate expectations is through training. At QT, each new full-time employee is partnered with a personal trainer who has previously held the same position.
  • Such investment in people continues well beyond the initial hire. Wawa encourages its people to pursue degrees in any field of study, and reimburses tuition at three colleges with which it has relationships. The emphasis on learning helps Wawa to be an employer of choice, even though its pay is on a par with other companies in its labor market.
  • People perform at their best if they see a future for themselves at a company. Employees know they can have a career at QT, due to its strong culture of promoting from within.
  • These companies ensure that employees have the support they need, both externally and internally, to do their jobs well. Wawa involves store managers, who have the best information on store operations, in improving the performance of vendors. The company takes the same hard-nosed approach to analyzing the quality of internal support processes such as marketing and human resources.

3. Create pride in the brand

  • In retail, service is the manifestation of the brand, and service quality depends directly on employees’ attachment to the brand. QT and Wawa constantly and consciously invest in maintaining brands that employees can take pride in.
  • Such is the attachment to Wawa brands that the company’s 1994 move to put Taco Bell and Pizza Hut outlets in more than 100 stores was met with opposition from customers and employees alike. In 1996, Wawa began to phase out the brands to make more room for Wawa products. The company openly discussed with associates the error of the earlier decision and acknowledged the value of employee input.

4. Build community

  • While many convenience store chains have focused on speed of transactions and sales volume per store, Wawa and QT have made concerted efforts to build customer loyalty through a sense of community. Almost all the customers we interviewed mentioned employee friendliness as one of the reasons they come back to the stores.
  • At both stores, customers remarked upon two things they believed were unique: The people who worked at the stores seemed to be glad to be there, and they seemed to like one another. The perceived sense of community among store associates appears to spill over into a sense of community with customers.
  • At QT, the community feeling extends to the customer-service appraisal system and the reward structure. The emphasis is on the team’s performance in satisfying and delighting customers. If a mystery shopper is especially impressed with a particular employee, everyone on staff at the store during that shift receives a bonus.

5. Share the business context

  • Employees need a clear understanding of how their company operates - particularly, how it defines success. Because they understand the company’s values, employees don’t have to follow a rigid set of rules - they just have to behave in ways that meet customer needs.
  • Employees also need to know how their work affects companywide financial performance and how the company arrives at its targets. Armed with this information, workers can better understand the decisions of upper management and improve job performance. At QT, every full-time associate is trained to read the store’s monthly financial statements and earns a bonus that is based on the store’s operating profit.
  • QT executives are quick to dissect their mistakes. One of the purposes of this policy of openness is to encourage innovation by conveying the company’s tolerance for well-meant mistakes. Chet Cadieux, the CEO, tells employees that as long as the company hires smart and caring people, no employee can make an error that the company cannot recover from.
  • Wawa coffee, which has a devoted following, was introduced because a lone employee decided to offer brewed coffee in a store.

6. Satisfy the soul

  • Researchers suggest that to truly harness an individual’s creativity, to get her full passion and engagement, a company must meet her needs for security, esteem, and justice.
  • Security. QT’s employees know that their safety and well-being are of paramount importance to top management, which deploys technology and staffing models to create a sense of security.
  • Esteem. The emotional and physical demands of a service job can be wearing, so Wawa provides rejuvenation by celebrating successes and milestones. Every month, mystery shoppers evaluate Wawa stores along the company’s brand standards, which detail expectations for every element of the store experience, from waiting time to the freshness of the food to the cleanliness of the restrooms. Highscoring teams are visited by the “prize patrol,” which brings rewards and a party.
  • Justice. So that workers will feel they are being treated fairly, Wawa gives eligible employees a share in about 10% of the company’s base profits. It has expanded its employee stock-ownership plan and is offering associates an opportunity to purchase additional shares. A mark of employee confidence in the company: Some 29% of company shares are held by associates.

At first glance, the investments that Wawa and QT make in their living brands may seem excessive. Executives are quick to agree that both organizations spend more than their competitors, though as private companies they keep the numbers close to the vest. “How can they afford to do that?” is a question we have heard as we have shared these stories of uncommon service quality in a commonplace industry. The leaders of Wawa and QT reply: “How can you afford not to?”

Southwest's "Customer Service Commitment"

In The American Customer Satisfaction Index at Ten Years, Claes Fornell et al cite Southwest Airlines as having consistently been the leader in customer satisfaction among airline companies. The study also notes that Southwest is the only major airline that has been consistently profitable, and that its market value is greater than the value of all other major airlines combined.

The trend continues. Southwest's net income in 2005 rose to $548 million, from $313 million in 2004. While other majors are in bankruptcy, Southwest capped 33 consecutive years of profitability with a 75% increase in net income.

Southwest seems not to be content with that, as it revised its "Customer Service Commitment" (now 28 pages) in January 2006. Some excerpts:

Our Mission Statement

The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.

Foremost, we want you to know that it is never our wish to inconvenience our valued Customers. We tell our Employees we are in the Customer Service business - we just happen to provide airline transportation.

The Employees of Southwest Airlines understand our mission, and we are happy to share it, and the following information, with you, our valued Customer. Our Customer Service Commitment was designed and written in such a way as to clarify many of the most commonly questioned terms and conditions of our Contract of Carriage and provide you with insight into some of our policies and procedures. For that reason, it only made sense to make it a part of our Contract of Carriage. And, Southwest is proud to incorporate its voluntary Customer Service Commitment in its official Contract of Carriage reinforcing our pledge to provide safe, affordable, reliable, timely, courteous, and efficient air transportation and baggage handling service on every flight we operate, as well as produce a fair return on our Shareholders' investments.

Few companies bother to explain to their customers why they do things, much less go into detail about their standards, or how they deal with problems. Southwest bothers. Some examples from the Commitment:

  • Overbooking - What Is It and Why Do It? “Overbooking” means that airlines do not necessarily stop accepting reservations when they have taken enough to fill a particular airplane on a particular flight. Airlines overbook to compensate for passengers who neither cancel reservations nor show up for their confirmed flights. For example, on a flight that offers 137 seats, we may accept a small percentage of “extra” reservations because, historically, that has been the number of previously confirmed passengers, who, without notice, did not show up for the flight. If, instead, we allowed “no-show” seats to go unfilled, we would have to raise our fares in order to offset lost “no-show” revenue.
  • ... when a flight does oversell (again, it is rare), the first thing our CustomerService Agents do is ask those who have checked in if they are willing to volunteer to take a later flight. Typically, the incentives we offer result in a number of volunteers sufficient to free up the seats needed ...
  • ... If your alternate flight is scheduled to arrive at your destination or stopover point more than two hours later than your originally scheduled flight, your compensation will increase to an amount equal to twice your remaining one-way flight coupon ...
  • ... if uncontrollable circumstances cause ground delays of more than two hours, we will endeavor to: 1. Make refreshments available on request. If necessary, operationally feasible, and safe to do so, remote provisioning will remove trash and replenish depleted onboard snack and beverage service items ...
  • Our Airplanes. Southwest Airlines is the world’s largest operator of Boeing 737s. It is the only type of airplane we fly! This means that all of our Pilots, Flight Attendants, and Mechanics are expertly trained and thoroughly familiar with every airplane in our fleet. We believe our skilled professionals and our consistent, state-of-the-art fleet are two primary reasons that Southwest Airlines has one of the best operational safety records in the worldwide airline industry.
  • Baggage Handling. Southwest has maintained one of the best cumulative baggage-handling records in our industry. We do everything humanly possible to ensure that the items you entrust into our care are loaded onto the same plane you board and returned to you promptly at your destination. We know that your belongings are important and valuable to you.
  • Infants and Toddlers. Currently, federal air safety regulations allow children younger than two years of age to be held in the lap of another person who is at least 12 years of age. If you wish to hold your child under two years of age, we will not collect a fare ... While the decision to hold your little one is certainly up to you, our governmental safety agency the Federal Aviation Administration (FAA), and most airline professionals strongly recommend that children under 40 pounds are safer and more comfortable when secured in an approved, hard-sided car or safety seat. Southwest Airlines offers deeply discounted infant fares to make travel more affordable for Customers who reserve and purchase seats for small children. 

Sam Walton's 10 Rules

Excerpts from Running a Successful Company: Ten Rules that Worked for Me
Sam Walton, in Made in America

I didn't expect to find "get taxpayers to pay for your health insurance" on this list, and I didn't. Still, it's a pretty good list.

Sam_walton This isn’t the first time that I’ve been asked to to come up with a list of rules for success, but it is the first I’ve sat down and done it. I’m glad I did, because it’s been a revealing exercise for me.

I do seem to have a couple of dozen things that I’ve singled out at one time or another as the “key” to the whole thing. One thing I don’t even have on my list is “work hard”. If you don’t know that already, you probably won’t be going far enough to need my list anyway. Another thing I didn’t include on my list is the idea of building a team. It almost goes without saying that you absolutely must create a team of people who work together and give real meaning to the overused word “teamwork”. To me, that’s more the goal of the whole thing, rather than some way to get there. 

  1. COMMIT to your business. Believe in it more than anybody else. If you love your work, you’ll be out there every day trying to do it the best you possibly can, and pretty soon everybody will catch the passion from you – like a fever.
  2. SHARE your profits with all your associates, and treat them as partners. In turn, they will treat you as a partner, and together you will perform beyond your wildest expectations. Encourage your associates to hold a stake in the company. Behave as a servant leader in a partnership.
  3. MOTIVATE your partners. Money and ownership alone are not enough. Constantly think of new and more interesting ways to motivate and challenge your partners. Set high goals, encourage competition, and then keep score. If things get stale, cross-pollinate – have managers switch jobs with one another to stay challenged.
  4. COMMUNICATE everything you can with your partners. The more they know, the more they’ll understand. The more they understand, the more they’ll care. Once they care, there’s no stopping them. Information is power, and the gain you get from empowering your associates more than offsets the risk of informing your competitors.
  5. APPRECIATE everything your associates do for the business. All of us like to be told how much somebody appreciates what we do for them. We like to hear it often, especially when we have done something we’re really proud of. Nothing can substitute for a few well-chosen, well-timed, sincere words of praise. They’re absolutely free – and worth a fortune.
  6. CELEBRATE your successes. Find some humor in your failures. Don’t take yourself so seriously. Show enthusiasm – always.
  7. LISTEN to everyone in your company, and figure out ways to get them talking. The folks on the front lines – the ones who actually talk to the customer – are the only ones who really know what’s going on out there. You’d better find out what they know. To push responsibility down in your organization, and to force good ideas to bubble up, you must listen to what your associates are trying to tell you.
  8. EXCEED your customers’ expectations. If you do, they’ll come back over and over. Give them what they want – and a little more. Let them know you appreciate them. Make good on all your mistakes, and don’t make excuses – apologize. Stand behind everything you do. The two most important words I ever wrote were on that first Wal-Mart sign: “Satisfaction Guaranteed”.
  9. CONTROL your expenses better than your competition. You can make a lot of mistakes and still recover if you run an efficient operation. Or you can be brilliant and still go out of business if you’re too inefficient.
  10. SWIM upstream. Go the other way. Ignore conventional wisdom. If everybody else is doing it one way, there’s a good chance you can find a niche by going in exactly the opposite direction.

Those are some pretty ordinary rules, some would say even simplistic. The hard part, the real challenge, is to constantly figure out ways to execute them. You can’t just keep doing what works one time, because everything around you is always changing. To succeed, you have to stay out in front of that change.

Strategic advantage through customer service

Customer service is not always crucial to the success of an organization. Its importance is determined primarily by supply & demand. If there are few suppliers and many consumers, suppliers can dictate the terms of the relationship, and customers may have no choice but to accept them.

Most organizations, however, are not so lucky. Competition has exploded the cozy castles of all but a few protected markets, and will continue to undermine those as well.

Where competition flourishes, customer service is essential to an organization's long-term viability. It must be central to its strategy. A company can outperform rivals only if it can establish a difference that it can preserve. Customer service is such a difference.

Few companies are able to excel at customer service, because it is very difficult to control. Left to itself, the level of service may vary greatly between two servers in the same restaurant. One salesperson may offer great service to one customer, then aggravate the very next person in line. The difficulty is compounded when you have a multi-unit operation. In addition to variability within units, you also have variability among units.

That is both the challenge and the opportunity. The consistent delivery of superior service requires the careful design and execution of a whole system of activities that includes people, capital, technology, and processes. The few companies that can manage this system do stand out, and are sought out. This is the foundation of what Michael Porter calls their sustainable competitive advantage.

But although it does require an almost heroic effort to build and maintain such a system, it's not so hard to get it started. Service today is in such a sorry state that it doesn't take much to surprise most customers, and to make them want to come back for more. The trick is to get started before your competitors do, then to stay a few steps ahead.

By doing so, you'll be doing your whole industry (or community, or strip mall) a favor. Unlike price competition, which tends to sink all players, competition on the basis of service is one of those tides that lifts all boats.

The Golden Mean

Alexander_pope_1 Who love too much, hate in the like extreme,
And both the golden mean alike condemn.

- Alexander Pope, in The Odyssey of Homer

Although I am a customer service radical, I do not believe in such platitudes as the “customer is always right”. The customer can be wrong, or worse, insane. So I do not believe that you should always give them what they want. A revolution based on such unrealistic claptrap sows the seeds of its own destruction. You will not be able to stay in business if you give away the store.

Many companies that are renowned for customer service - such as Disney, Nordstrom, and Ritz-Carlton - can afford to do almost anything to appease their customers, even when they’re wrong. That’s because their margins are so high. You cannot afford to be so liberal when you’re competing in a low-margin industry.

And a lot also depends on the cost of the accommodation. It’s easy enough to give away a free day pass, or a free pair of shoes, or a free night’s stay. Not so easy to give a plasma TV away.

Too often I have seen companies swing from one extreme to the other. For example, they’ll start with a liberal “Satisfaction Guaranteed” return policy. They eventually notice that returns are hurting their sales, and that mountains of rejects are piling up on their floors. They panic and swing the other way. No returns past 14 days. 15% restock on open-box product. Eventually they notice that their customers abandoned them for the store next door, and that their employee turnover went through the roof because people just couldn’t take getting screamed at anymore. And back they swing again.

The right thing to do is, of course, somewhere in the middle. If you’re a low-margin business, you must have policies that are competitive – not much better or worse than your competition. Then you must give your people the power and the training to bend the rules. Here’s the principle: The policies are there to protect the company from bad customers. Your people are there to protect good customers from the policies.

Such a balanced approach requires that you hire people with experience and judgment. If you can’t afford to hire such people into front-line positions, you must define specific guidelines within which your people can play. If you think that hiring the right people and training them is just too much trouble and expense, enjoy the swing.

What is strategy?

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

Strategy_viewsA 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

Southwest_asCompetitive 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.

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.

War on customers

Excerpts from Stop The War on Customers
Fred Reichheld

Company leaders realize that profitable growth is impossible without loyalty — yet they have failed miserably in their efforts to earn loyalty from either their customers or their front-line employees. After pondering this paradox for several years I finally began to realize the answer.

The first step is to set aside all that rosy rhetoric about customer focus. Most companies today are waging a war they cannot win — the war against their customers. They cut corners on product and service quality. They impose hidden fees and charges. They force customers to endure aggressive sales tactics, endless airport lines, and virtual or voicemail hell. They don’t tell the truth in their advertising and marketing, nor do they own up to their mistakes.

Ironically, this is a war most of the generals do not want to fight. CEOs spend countless millions of dollars on customer-focus initiatives, improved service quality, and enhanced customer experiences. They extol customer loyalty as the ultimate strategic advantage. Satisfaction surveys rain down on homes and businesses with implicit messages of care, concern, and promises of a better future.

Yet this undeclared war is escalating. Cellular phone providers trap customers in long-term contracts, and then abuse them with outrageous overage charges. Car dealers mislead and manipulate consumers. Banks charge unconscionable nuisance fees. Electronics store clerks flog extended warranties more desperately than their flat-screen TVs. Printer manufacturers price-gouge on refill cartridges. Computer companies make sure that calling their customer help-line is more painful than a trip to the dentist.

Yes, what is really going on is an undeclared war that is destroying corporate reputations, alienating employees, and decimating economic prosperity. It is the reason that nearly 80% of the world’s major corporations failed to achieve a modest 5% real, sustainable rate of growth over the past decade. This war is the reason why society has concluded that business ethics and good profits are both oxymoronic.

Bad_good_profits The reason I wrote The Ultimate Question was to expose this war and its full range of guerrilla activities. I hoped that I could provide a manual of the tools and tactics required to stop this war for good—and clarify how corporate leaders are unwittingly motivating their troops to book bad profits that destroy loyalty and growth. My goal is to help leaders revitalize good profits and true growth by showing them a practical path for holding organization members accountable for building good relationships and for standards of behavior that are consistent with the Golden Rule and respectful of human dignity (of customers, employees, suppliers and investors alike). We must all blow the whistle on bad profits.

See also:
Reichheld on "The Ultimate Question"
Reichheld on Loyalty
A Survey of Surveys

"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.