Upside Down Operations: Self-Service Can Increase Labor Costs

September 29, 2009

A “self-service” play almost always has a strong cost component.  The model’s logic is that if your customers are doing more of the work, then your employees can do less of it — and can be paid less for it.    Of course, firms look for additional advantages to customers meeting their own needs such as increased retention, but the desire to drive down costs anchors most of these initiatives.  (For a dated look at these type of motivations, see this link.)

I want to share a recent research finding that upends this logic in surprising ways.  Dennis Campbell and I studied what happened to customers after they adopted online banking services, which are essentially designed to drive people away from retail branches that are costly to build, maintain and staff.   The web’s promise of low-cost, scalable self-service business models seemed like a reasonable direction for the banking industry, and so we studied the option to measure just how much companies could save.  We were then shocked to discover that the cost to serve these customers increased after they moved online.

As we investigated this phenomenon, we uncovered something interesting.  When customers move online, they become more engaged with their financial information.  They can suddenly spend hours examining each transaction, and no one is line behind them to hurry them along.  This new consumer behavior, on its own, is not problematic for the banks.  But the  heightened level of engagement can also drive customers to consume more full-service resources from the bank.  Customers now call more.  They have more to say and more to inquire about.  They even visit branches more often.

In other words, an unintended outcome of self-service is increased engagement, and a predictable outcome of increased engagement is the desire to engage even more.  The lesson I take from this research is that managers must anticipate the potential impact of self-service on their customers’ engagement.  If it seems likely that engagement will increase, make sure that the goals of a self-service model go beyond potentially elusive cost savings.  Make sure that improved service is a central part of your agenda.  Indeed, make sure that the project will be considered a success even if costs go up.

Who should pay attention to these findings?  New self-service options that make customer information more accessible are ripe for this dynamic.  Think online health records, not pumping your own gas.

Non-Verbal Leadership

September 22, 2009

In a recent article in the NYTimes, Linda Hudson described her first day on her job after being promoted to president at General Dynamics:

… I went out and bought my new fancy suits to wear to work and so on. And I’m at work on my very first day, and a lady at Nordstrom’s had showed me how to tie a scarf in a very unusual kind of way for my new suit. And I go to work and wear my suit, and I have my first day at work. And then I come back to work the next day, and I run into no fewer than a dozen women in the organization who have on scarves tied exactly like mine.

Hudson’s scarf is a great metaphor for the power of non-verbal leadership. Language matters in leadership, of course, but non-verbal leadership — the signals that leaders throw off in their actions and body language — can speak as loud, if not louder than those carefully-chosen words.  This phenomenon can be an enormous opportunity, as long as you understand and harness it.  Ms. Hudson got it immediately:

And that’s when I realized that life was never going to be the way it had been before, that people were watching everything I did. And it wasn’t just going to be about how I dressed. It was about my behavior, the example I set, the tone I set, the way I carried myself, how confident I was — all those kinds of things. It really was now about me and the context of setting the tone for the organization.

I try to focus my students on the non-verbal influence they have on their peers in the classroom, influence that they will eventually have on organizations. This is counter-intuitive in the beginning.  Students often think they’re only being evaluated on the two minutes they may contribute to a conversation in any given class, but I try to explain that the other 78 minutes matter just as much.  Our goal is to get as much out of the discussion as we can as a group, which means everyone needs to work hard when they’re not speaking, too.  It turns out that the body language of one student can have an incredible effect — positive or negative — on other students.

As a simple example, imagine the quality of participation when Student A speaks and Student B is leaning forward and listening carefully.  Not only is Student A much more likely to deliver on the high expectations of Student B in that moment, not only is she much more likely to step up and share something brilliant with her audience of believers, but she’s also more likely to stay focused on the collective learning of the group.  Student B’s eagerness to learn from Student A shuts down the possibility of narrow, self-promotional exchanges that can sometimes creep into the dynamics between students and teachers.  Student A can no longer just talk to me, the evaluator.  She must respond to Student B’s non-verbal invitation to help him improve.  Now consider the quality when Student B is barely listening, or appears bored or dismissive.  Why should Student A bother to do anything but think about herself?

In my experience, the classroom is a microcosm for organizational dynamics. It’s a laboratory for learning how our  choices influence others in the structure of a group.  As I’m reminded every day when I step into that laboratory, our non-verbal choices are a powerful tool for creating the conditions for others to thrive.  The next time you are in a conversation, take note of how the body language of listeners affects the speaker.  If you accept the premise that our job is to bring the best out of the speaker, then we need to learn how to lead non-verbally.  The first step is understanding that we’re accountable for it.

On Glenn Beck

September 20, 2009

If you ever wonder how much exposure matters in your ability to influence people, Glenn Beck is as pure an experiment as you’ll find on the public stage. Beck is all heart, no head.  As much as he’s attacked for his words, his critics don’t get that his words don’t much matter. What does matter is that by stripping down in front of his audience, with no armor to protect himself or the rest of us from his swirling emotions, he gives his viewers permission to feel things, too.  That’s good television.

It’s also good leadership, or at least the foundation for it.  Whatever you think of Beck’s politics, he’s been able to influence the behavior of a lot of people over the last six months.  The chattering class is confused and appalled.  How is it possible that a man who told us FEMA might be building concentration camps has a large and growing following?

I recall seeing him host an obscure cable access show three or four years ago. I was stuck in an anonymous airport hotel in Miami, desperate for distraction from my own circumstances, and I stumbled on his show.  I was riveted.  I couldn’t leave the room, even with the promise of a fruity, poolside umbrella drink, and I stared for a jaw-dropping hour while he and his guests wrestled openly with their demons.  I couldn’t believe what I was seeing or my own reaction to it.  Sure, here was a crazy man, talking crazy, but that part got old after a few minutes.  What kept me there was the strangely empowering part of the ride.  In Glenn Beck’s universe, it was ok to feel things intensely and to channel those emotions into action and progress. This was exciting for a good WASP from Ohio.

I rarely agree with Beck’s proposed actions or definition of progress, but I’m convinced that there are lessons in his ascent for anyone who aspires to leadership. Show up. Remove whatever mask you’re wearing to protect yourself from judgment, and give us regular access to the emotions that drive you.

That means you, too, Mr. President.

Hidden Risks of Crisis Leadership

September 14, 2009

The NYT’s Adam Bryant delivered an interesting interview with Lloyd Blankfein, CEO of Goldman Sachs.  Blankfein offers some suggestions for leading in a crisis, which can be summarized as keep talking, to everyone, both to better inform your choices and to communicate changing conditions and strategies.  Blankfein walked the halls constantly during the height of the financial crisis and left a daily voicemail for the entire organization.

Blankfein also speaks to the need to “be good” to your people without lowering standards, a theme I explored in an earlier post.  In his words:

…being good to them doesn’t mean you pay them more or you’re more liberal, or you let them get away with things. Most people, what they want is to be better.

Getting this right is a central part of good leadership, but it’s harder to do in a crisis.  There is often intense pressure to care too little about your people — to become distracted by anxiety and external events — or to care too much and lower your expectations of their performance.  The first reaction is more common, but the second is more insidious.

Anxiety is a deeply selfish emotion. We don’t think of it that way because it’s often threats to other people that trigger the sensation, but anxiety’s unique rush of hormones and chemicals is biologically designed to promote our own survival.  The response is self-distracting, by design.  It’s almost impossible to focus on the experience of other people in these moments, to perform the very act that makes leadership possible, and so we end up hardening ourselves to the people who need us most.  Anxiety is an indulgence that destroys our capacity to lead.

In contrast, a crisis tempts some of us to become overly sympathetic and lower our standards.  When people you care about are going through a tough time, it can feel reasonable to compromise and let them off the hook a bit.  But there are two significant costs to that choice.  First, it denies your team the opportunity to learn.  People, like muscles, need to push themselves beyond their comfort zone to grow.  They need to bump up against their perceived limits in order to break through them, and protecting them from reality disrupts that growth process.  Second, lowering standards signals your hidden belief that maybe they’re not up for it after all.  It reveals a lack of confidence in your people when the stakes really matter.  They will internalize the message.  Their performance will rise only to the level of your diminished expectations, and everyone will conclude that you were right.  It is hard for organizations to recover from those dynamics.

A provocative way to think about it is that a crisis tempts us all to become anxious mothers or protective fathers.  Leadership requires that we reject both of these unproductive stereotypes.

The Morality of Profit

September 11, 2009

The Seven Fund is inviting submissions for a collection of essays it’s creating on the “morality of profit.” True to its belief in the value of risk and reward, the Fund will be giving $20,000 to the best of the pack, with an emphasis on fresh, innovative voices that challenge us to think about profit in new ways.

As the discussion of the contest suggests, our emotional and intellectual ambivalence about profit may be influencing our strategies for solving poverty and other problems.  The raging debate over public and private health insurance markets is just one example. Enterprise solutions to poverty, in particular, are often caught in the cultural crossfire between Ghandi and Gekko, between a notion of greed that is always destructive and the belief that  “greed, for lack of a better word, is good.”

The time is right for this important discussion. Details can be found here.

Why Your Message Is Not Getting Through

September 8, 2009

One way to describe my focus is “executive frustration.”  People typically call me when their customers or employees aren’t behaving the way they want them to, and I usually start hunting for clues in the blueprints of their service model. Customers and employees typically do exactly what an organization has set them up to do, whether intentional or not, and so the answer is often to tweak the model to change the behavior.  Once a service model is changed, however, the changes must be communicated in a way that the entire organization understands.  In my experience, when communication stumbles, there are three common culprits.

The first is a clash of expectations about volume.  Managers often think they’re communicating sufficiently, while employees feel like they’re getting very little information.  It’s typically managers who need to adjust.  Employees need to know a lot in order to focus, particularly in environments where uncertainty is high.  The things your people care most about may be on the line — everything from their sick child’s health insurance to the very core of their identities — and they have a very human need to manage their exposure to significant risk.  They have an obligation to fill in the blanks if you don’t, and ambiguity often gets interpreted negatively.

So be as thorough and clear as you can.  It doesn’t necessarily mean covering more territory, but rather going deeper with the territory you do cover.  Why are you moving in a new direction?  What is the specific cost imperative that requires 25% cuts?  How has the competitive landscape changed?  You hired your employees for their ability to inform their choices and ask smart questions — they’re not going to turn those skills off when the spotlight’s on you.

The second reason communication fails is that we underestimate the need for repetition and reinforcement.  Most executives I know only need to hear something once in order to internalize it.  And many choose to treat their employees with the same courtesy.  We’re all adults here, after all.  But the messages these executives are hearing “once” often get delivered in very intimate managerial settings.  They happen conversationally or in small groups, among collaborators with shared context, data and history.  They’re also typically followed by plenty of formal and informal opportunity for clarification.

This is rarely how messages are consumed in the broader organization.  Maybe the CEO gathers the troops and explains in a company-wide meeting that customer service is now a priority.  A few brave souls venture some clarifying questions during the Q&A session, but most soldier on and try to figure out the implications on their own.  Meanwhile, the message isn’t strongly reinforced by changes in organizational behavior.  Maybe employees continue to be measured on the efficiency of their customer interactions, or the responsibilities of the front line get more complex, making service even harder to deliver.  I wish these examples were exceptional, but they’re far too close to the norm.

Finally, communication depends on getting the tone right.  The vast majority of communication is non-verbal.  When frustration or anger creeps into your tone — particularly when the power dynamic is unequal — most people have a hard time focusing on the message.  It’s fight or flight time.  Your audience’s threat management system is kicking in, and most people are either plotting their escape or organizing their own communications arsenal for a rigorous defense.  In other words, when your tone is off, most reasonable people aren’t listening to a word you’re saying.

It’s safe to assume that someone, somewhere isn’t hearing you clearly enough. Consider these communications traps, and give them another shot.

Feedback and Trust

September 4, 2009

I want to revisit your discussion on feedback, Frances, because I think the topic often gets lost in the race to do things that feel more important organizationally.

The ability and willingness to communicate honestly is often framed as a soft contribution, nice but not critical in these serious times.  I take the opposite view.  I think feedback is the central act in building organizations since it creates the raw material that matters most:  trust.

Trust is necessary for any task that involves more than one person, which includes most of what an organization does all day (deciding things, making things, selling things). Trust persuades your employees to give you their best ideas and most productive hours.  Trust convinces your customers to believe your brand promises.

Trust gets built when we do what we say we will do. This is a fairly straightforward concept, but somehow gets highly complex in practice.  Calls get dropped.  Guitars get broken. Bonuses go unpaid. Companies who are competing on strong relationships with their stakeholders – think Google, Zappos, Whole Foods — work hard to prevent these violations, big and small.  They understand that trust dies in the space between talk and action.

But here’s the thing — we’re not reliable observers of these gaps in our own behavior. This is where feedback enters the story. We often don’t know when we’re letting our constituents down.  We often don’t know when we’re under-delivering on commitments, spoken or unspoken.  Feedback gives people the chance to address the variance, to close the distance between chatter and truth.

Customers give you this gift when they pick up the phone to “complain.”  A complaint identifies the weakness in the relationship, the place where trust must be built or rebuilt.  Frustrated and articulate customers are the competitive equivalent of Christmas morning, but they’re more likely to be treated like a nuisance or distraction.

The same dynamics play out in all human relationships.  Trust gets eroded every day between reasonable, well-intentioned people, and it can’t be restored unless we talk honestly with each other.   The reason feedback can change lives, as you suggest, is not just because it makes someone else better in a vague sense. Feedback changes lives because it creates the opening for greater integrity in our most important relationships. Feedback builds trust. And trust builds everything else.