IBM’s Turnaround: Taking Service Seriously

January 28, 2010

I recently discussed Google’s response to the service demands on its new Android phone.  Google has prided itself on excellence, but has come up short with the Android offering, where hands-on service is a critical part of getting it right.  As I wrote in that post, the phone needs a different kind of customer interaction than Google is used to delivering.  If Google continues to rely on its standard service model, it will continue to struggle.

There was an interesting parallel in the NYT’s recent description of IBM’s turnaround, which has been fueled by its pivot to high-end services.  Why has IBM succeeded where others have stumbled?  In part, it’s because IBM didn’t underestimate the challenge.  IBM managers realized how much change was required to play and win the services game.  That may sound simple, but the emotional barriers to service excellence can be enormous.  Said differently, acknowledging that you can’t deliver great service without some serious soul-searching can be as important as whatever happens next.

What did IBM do differently?  The short answer is everything.  The longer answer is that it took service seriously.  And then changed its products, pricing, processes, human resources, and customer interaction.  For example, instead of designing a product that it then sold into organizations, it learned how to uncover a client’s problem and develop solutions to that problem.  Fortunately for IBM, many of its clients had similar problems, which has permitted standardization across solutions.

IBM gets 80% of its revenues from services. Just a few years ago it was 50%, and not too long before that, services were essentially a hobby for the company.  IBM has demonstrated that it’s possible for a product company to play the service game, but pulling it off requires new attitudes about customer needs — and a deep humility about the road ahead.   When that kind of humility meets those kinds of attitudes, the outcome is happy customers. And when you throw standardization into the mix, now you have a service business.


Koehn on Obama, Lincoln and Leadership

January 25, 2010

As usual, Nancy Koehn of HBS has some provocative insights into Obama’s leadership challenges, wrapped up in a rich historical package.   In a recent contribution to the Washington Post’s “On Leadership” column, Koehn compares Obama’s challenges to the political, military and economic disasters threatening to overwhelm Lincoln at the end of his first year in office:

…the Civil War was going badly for the Union, and his main general, George McClellan, refused to march on Confederate troops; radical elements in his own party…concluded the president was incompetent (indeed, Lincoln’s attorney general, Edward Bates, said the president “lacked will and purpose, and I greatly fear he, has not the power to command”); his treasury secretary had few funds to keep fighting the war, telling Lincoln he could raise no more; and most Northerners were impatient for a more vigorous prosecution of the war.  As Lincoln himself said in early January to the Quartermaster General,”The bottom is out of the tub…What shall I do?”

Koehn finds inspiration for the Obama Administration in Lincoln’s ultimate response:

What Lincoln did in the first six months of 1862–with critically important consequences for the fate of the country–was to find his own leadership backbone. In the crucible of his own failure and anxiety that winter, he found a clearer focus, a new resolve about the importance and purpose of saving the Union–a resolve that would by mid-summer result in his drafting the Emancipation Proclamation, a new well of confidence in himself and his position that would help him discern whom he could trust and who had to be fired around him, and finally, a deeper understanding of the power of the presidency and how to use that power in service to his mission.

She closes by connecting the dots.  It’s good advice for anyone looking for their leadership mojo in a context of doubt and despair:

Barack Obama’s most surprising weakness in his first year as president has been his own inability to find his leadership backbone and to draw from this core strength and animating purpose to really lead — that is, to focus on the most important problems, to articulate and then embrace the central mission of his presidency, and then to take up the reins of presidential power to advance this mission, even at the expense of challenge and hostility from other powerful players.


Will Amazon Kill the Zappos Magic?

January 22, 2010

In a recent NYT interview Tony Hsieh (pronounced “shay”), CEO of Zappos, described his management priorities in this order:  culture first, service second.  This may come as a surprise to anyone who has first-hand experience with the Zappos service model, which consistently produces excellence at virtually every customer touch point.  I myself was surprised.  I’ve heard many executives talk about the need to align culture with service, but I’ve rarely heard someone describe culture as their organization’s primary purpose.

When pushed to explain what got him there, Hsieh reflected poignantly on a prior company he built and sold (for a great deal of money) that had a culture he and others hated.  He vowed never to let it happen again:

When it was starting out, when it was just 5 or 10 of us, it was like your typical dot-com. We were all really excited, working around the clock, sleeping under our desks, had no idea what day of the week it was. But we didn’t know any better and didn’t pay attention to company culture.

By the time we got to 100 people, even though we hired people with the right skill sets and experiences, I just dreaded getting out of bed in the morning…when I joined Zappos about a year later, I wanted to make sure that I didn’t make the same mistake…in terms of the company culture going downhill. So for us, at Zappos, we really view culture as our No. 1 priority. We decided that if we get the culture right, most of the stuff, like building a brand around delivering the very best customer service, will just take care of itself.

How do you “get the culture right?”  In Hsieh’s case, he and his team decided to live and die by a series of core values:

…we formalized the definition of our culture into 10 core values. We wanted to come up with committable core values, meaning that we would actually be willing to hire and fire people based on those values, regardless of their individual job performance. Given that criteria, it’s actually pretty tough to come up with core values.

I was particularly moved by his take on his own role in designing and protecting the Zappos culture, which involved a central responsibility to create an environment where other people will thrive:

Maybe an analogy is, if you think of the employees and culture as plants growing, I’m not trying to be the biggest plant for them to aspire to. I’m more trying to architect the greenhouse where they can all flourish and grow.

So what happens to the greenhouse once Amazon buys it? I wrestled with this question when I wrote about Zappos culture in a post last year, as I was getting ready to go on a case visit.  We wrote the case just as the Amazon purchase was going through (for just under a billion dollars).

Amazon has clearly indicated its respect for Zappos culture and its desire to leave the company alone to continue to deliver wold-class service.  My hope is that Amazon can resist the temptation that has tripped up so many other acquirers, the temptation to provide a bit too much help the moment the acquired misses its numbers, a tweak here, a tweak there, to improve its performance.  That kind of help can be a lethal blow to the true drivers of a company’s value.  In the case of Zappos, I’m not convinced its culture could survive this well-intentioned support.


Google’s Service Problem

January 15, 2010

The NYT recently described Google’s customer service supporting its new Android phone.  The article described how customers can’t call Google for help and that it may take up to 48 hours for the company to respond to email messages.  The article referenced one customer who has been trying for a week to talk to a live person. Still no luck getting through.

This article made the front page of the NYT business section because it’s a story about Google, not because it’s a particularly rare or surprising service phenomenon.  When a service model designed for one type of customer needs (e.g., using web-based adwords) is then used to serve an entirely different set of needs (e.g., after-sales service for a new type of phone), there is predictable turmoil.

The interesting part will be to watch how Google responds to the realization that it’s trying to meet wildly divergent service needs — what I call distinct operating segments — with a single operating model.  In my experience, the company has some choices to make if it wants to deliver excellent or even adequate service.  Option A is to serve one operating segment well and essentially ignore the other.  That’s not as bad as it sounds.  Southwest Airlines optimizes its service model for low-maintenance travelers. When high-maintenance travelers come along, it doesn’t turn them away, but it also doesn’t work very hard to accommodate them.  Southwest serves one segment with excellence and asks everyone else to adjust.  This is the definition of focused service.

Option B is to create a distinct service model for each operating segment.  If Southwest is an example of focused service, I call this approach multi-focused service.  To execute well on a multi-focused structure, Google must convince itself that multiple service models are better off under the same corporate roof.  I’ll talk about that more in later posts, but the key is shared services.  While shared services are often appealing at first glance, the model can be very difficult to pull off.  (Here’s a link to an HBR article where I touched on the concept of shared services briefly at the end.)

There are many examples of excellent organizations operating with either focused or multi-focused service models. But there are far more examples of organizations doing neither.  Instead, these organizations work hard not to disappoint either operating segment too much, which ensures a limit to the anger and outrage, but also ensures mediocrity.  It’s the path of least resistance because customers complain more about bad service than they do about the absence of excellence.  A hard truth about service is that you often have to disappoint some people in order to delight others.

The responses by two of Google’s employees seem to foreshadow the direction it’s taking:

Katie Watson, a Google spokeswoman, said no one was available to speak about the service problems. But in an e-mail statement, she said, “Solving customer support issues is extremely important to us.”

Andy Rubin, Google vice president for engineering in charge of Android technology, gave a similar response, indicating that its challenge was to reduce its email response time from days to a couple of hours.  These statements suggest that Google’s still committed to using its existing service model to serve an entirely new operating segment.  I’m hopeful that abandoning this fantasy is an outcome of these initial service difficulties.