What Have Your Customers Done for You Lately?

June 22, 2009

Customer goodwill is also difficult to measure — or even define.  But we know it matters.  Certainly, it makes a difference to the top line.  Customers who like you are more likely to buy things from you and tell their friends about it.  They’re also more likely to behave once they cross the operational boundaries of your organization, which can make a big difference to service companies.  Customers with “good will” are better customer operators, better partners in the sometimes complex project of joint value creation.

How much better?  We still don’t have good universal measures of customer goodwill, but one that comes close is the number of complaints you receive relative to your competitors.  Airline customers tend to complain at a relatively high rate.  One reason is that airline service routinely fails to meet expectations.  Another is that the service is mission-critical for both business and leisure travels.  If you lose my luggage on the way to my daughter’s wedding or delay me for an important meeting, I’m going to want you to feel my pain.

But not if your Southwest Airlines.  Customers file official complaints about Southwest far less frequently than they do about other airlines, even when Southwest has similar mishaps.  Their customers also go above and beyond the call of duty in helping Southwest succeed.  A favorite example of the value of this devotion is captured in an HBS case written by Jim Heskett.  Early in Southwest’s run, an airline called Braniff International offered a 60-day “sale” on tickets between Dallas and Houston — Southwest’s core market — for half the price of Southwest’s fare, $13 instead of $26.  Southwest countered with an ad proclaiming that “nobody’s going to shoot us out of the sky for a lousy $13.”  And the company gave its customers a choice:  pay either $13 or $26 for exactly the same seat on Southwest.  80% of Southwest customers chose to pay $26.

Would your customers stick around if your competitors cut their prices in half?  There are lots of reasons that Southwest has thrived in a difficult service environment, but one primary reason is their ability to answer yes.  Let’s call it customer goodwill for short.


Employee Goodwill

June 17, 2009

British Airways has asked its employees to work for free for a month.  As CNN reported, the airline sent an e-mail out to its staff that “offered workers between one and four weeks of unpaid leave — but with the option to work during this period.”

How would this e-mail go over in your company?  What kind of relationship do you need to have with your employees for this message to be taken seriously?  In my experience, organizations spend a lot of time trying to measure the unmeasurable, trying to value concepts like culture and goodwill.  We know that these things often make or break the deal with customers and employees, but they don’t fit easily into a spreadsheet.  I would suggest that the organizational uptake on management’s offer to let people work for free is a very good measure of employee goodwill.

Employee goodwill matters in the best of times, particularly for service businesses.  As Heskett, Sasser, and Schlesinger argue in the Service Profit Chain, it is difficult to create value without employees, and so it helps to take great care of them.  But employee goodwill may matter even more in the worst of times, as the British Airways experience illustrates. The more that employees feel an organization is devoted to them, the more likely they’ll be to share the pain of adversity.  Strong relationships with your employees may help to buffer you against an unforgiving competitive environment.

On the flip side, antagonistic relationships between employees and organizations are never a good idea, but they may be disproportionately costly when the environment turns ugly. This dynamic is playing out around us with the widespread rise in layoffs and salary cuts.  Some of these wrenching decisions are being made a context of mutual trust and mutual regret. And some are happening in an environment of fear and anger, with untold costs to everyone involved, including customers.

We don’t yet know how the British Airways story will end, but I have a prediction. I think we’ll be able to confirm what we suspect, that employee goodwill makes an enormous competitive difference, particularly in hard times. And we may finally have a way to measure the size of that difference.  In the spirit of what-you-measure-is-what-you-get, this may increase the chance of its occurrence.


Leadership as Human Buffer

May 27, 2009

Ellison

Business Week recently described how Marvin Ellison, Home Depot’s newly-minted Executive Vice-President of U.S Stores, improved the store experience in the wake of Bob Nardelli’s infamous tenure.  Nardelli made several decisions that have been widely criticized, including some explicit cost/service tradeoffs that eroded Home Depot’s core advantage.  An earlier BW article described Nardelli’s run this way:

His military management style led to 100% turnover among his top 170 managers by the time he left the retailer in January. His cost-cutting moves replaced experienced salesclerks with low-wage students, devastating customer service and handing market share to rival Lowe’s.

Fast forward to today, where Home Depot’s service experience has been transformed by Ellison’s leadership: 

Sarah Larsen used to avoid Home Depot, having dealt for years with surly, hard-to-find employees and indifferent store managers. But about six months ago, faced with a major renovation project, the Naperville (Ill.) communications consultant gave the store another try. She immediately noticed the difference: Sales associates were friendly, helpful, and in large supply. Now, Larsen says, “it has become my go-to store.” 

Ellison made a number of crucial service plays, but I was most struck by his decision to limit the amount of communication that central managers could have with store personnel.  Essentially, Ellison told senior managers that they could communicate with him as much as they liked, and that he would be responsible for store performance.  But they could no longer communicate (read disrupt) store personnel directly.  In some cases, this meant reducing the number of daily e-mails and reports that store managers received from 200 to one.  He also gave his stores just three metrics to care about — cleaner warehouses, stocked shelves, and top customer service. 

Ellison made it crystal clear that managers’ most important constituents were the people in their stores — their customers and the employees who serve them — and not their corporate superiors pestering them from headquarters.  Ellison became a buffer between senior management and the front line, which created the time and space for his people to focus on what really mattered:    

More important, Ellison is enforcing a practice called “power hours”—weekdays from 10 a.m. to 2 p.m. and all day on Saturdays and Sundays—when employees are supposed to do nothing but serve customers. They can stock shelves, unload boxes, and survey inventory at other times. “We could not address customer service needs because we were too busy doing other things,” says Ellison.

The results? CEO Francis S. Blake explained Ellision’s rapid rise this way: “You could go blindfolded into two stores and know when you were in Marvin’s store.” Marvin’s stores, it turned out, had the sweet smell of success. 


The Employees You’re Slamming Are Behaving Rationally

May 11, 2009

It is difficult to find something written about change that doesn’t talk about how hard it is. My observation couldn’t be more different. I find that change happens in an instant — deciding what to change and finding the right levers for changing it, those are the complicated parts.

I’ll use culture as an example. I was recently working with some executives who were lamenting that their employees weren’t acting with a sense of urgency. And no matter how many times the senior management team implored employees to move faster, the needle on urgency didn’t move. The team concluded that employees just didn’t believe them that urgency really mattered.

They didn’t, for perfectly good reasons. When I asked the team to explain their employees’ behavior, they attributed all kinds of fundamental character flaws to these individuals they had carefully selected and trained — lazy, uncommitted, distracted, risk averse. I let them get all of that out of their system. And then I asked why a smart, well-intentioned employee would act without urgency in their organization.

It took a few tries to break the habit of judging and psychoanalyzing their employees, but eventually we got somewhere. It turns out that when employees made mistakes in this particular company, they were often pounced on by the most influential of the senior team. In some cases, it bordered on ridicule, a public hearing on someone’s judgment and intellect. Once we uncovered this pattern, we were 95% of the way towards change.

These employees were behaving rationally according to the dominant, if informal performance management system. Senior management could not have been clearer – only present polished work that you’re damn sure is right.  It was no surprise that few people revealed any intermediate progress. It made perfect sense to wait until every i was dotted, every t crossed, before making any sudden movements. That behavior looked like the absence of urgency. And senior managers’ actions were at the root of it.

The solution? It wasn’t to keep clarifying the importance of urgency. This team had to stop punishing small mistakes, particularly mistakes that were a consequence of working faster. And they had to start celebrating speed, with public acknowledgment that moving faster requires new behaviors like sharing unpolished ideas and building on each other’s work.

The lesson? Before setting out to change something, figure out why people might be behaving rationally in the culture and systems you’ve designed (or permitted). The least likely, least useful explanation is that good people have suddenly gone bad. The most likely explanation is that you’ve created an environment that is setting them up to fail. Now change your behaviors that are contributing to that environment. I promise it won’t take long.


Customer-Operators: Not Paying Them Doesn’t Mean They’re Free

May 6, 2009

People, it turns out, are desperate to be helpful.  Verizon has discovered this and joined the growing ranks of companies using what I call “customer-operators” to do the work employees used to do, everything from generating new product ideas to servicing other customers when those product ideas fail. Betting on the hope that all these customer-operators need in return are the intrinsic rewards of serving others and the status associated with becoming experts, Verizon is primarily making a cost play by inviting customers to perform routine customer service functions. The company has stumbled on some additional perks of engaging these “super-users,” like their knack for good improvement ideas, but this value is seen as peripheral.

At this point in the experiment, Verizon only sees the upside in recruiting and deploying an army of customer-operators. Before the company doubles down, I want to offer two points of caution:

First, customers are different from employees in ways that matter operationally. In general, they’re more difficult to manage, measure, recruit and fire.  Just because you don’t pay them, doesn’t mean they’re free. The price may be worth it to achieve radically higher levels of quality (Wikipedia) or a radically lower cost structure (eBay), but the tradeoffs aren’t as clear for traditional business models.

New management systems must be designed and maintained once you bring customers into your operations. And the effort may require more than a few “feedback stars” to measure and maintain quality. Reputation is a powerful incentive for good behavior, but it’s not all-powerful (see John Edwards). Have a plan for when the customer you’re relying on to provide good service doesn’t respond to another customer’s inquiry for days.

Second, those feel-good emotions of service and status may not be enough to compensate your most active (and valuable) customer-operators as time goes on. A lesson from many organizations is that when you ask customers to donate their labor, they often feel entitled to a seat at the decision-making table. Back to those feedback stars, I spent some time on the outrage of eBay customers when the color of their own stars was changed in an HBR case. Outrage may be too weak a word. There was an electronic revolt.

I’m with Verizon. I think customer involvement is a tremendous opportunity for many businesses. But I want to add a few caveats — customer-operators aren’t always easy to manage, and they aren’t always willing to stop at the operational boundaries you propose.  You may invite them on to the shop floor, but some of them are taking the elevator up to the C-suite.  Have a plan for what happens next.


Bring Me a Problem (Solution Optional)

April 29, 2009

In what is becoming a consistently provocative column for us, the NY Times recently featured Delta Airlines CEO Richard Anderson as part of its Saturday Corner Office series. Anderson came across as thoughtful, humble, and hopefully up for the task of saving that airline.  Buried deep in the article, however, was a brief statement that worried me.  It was his variation on the theme of “don’t bring me a problem without a solution,'” or in Anderson’s words:

…don’t bring a Rubik’s cube to the table, unless you have an idea on how you’re going to try to get an answer.

Like many other well-intentioned managers, Anderson is getting this one wrong. Finding problems can be a solo sport, but solving the ones that matter usually requires a team effort.  And if we limit the problems that get exposed to the organization to those the observer can handle alone, then we also seriously limit the organization’s opportunities to improve.

As soon as problems are seen as critical inputs to improvement — critical because they reveal the operational path to better performance — then improvement champions will realize that surfacing problems is among their most important jobs.  And they might end their insidiously damaging habit of requiring problems and solutions to be colocated.  Anderson will have a much better shot at saving Delta if he gets unlimited access to what’s going wrong.

I was interviewed about this topic by the Harvard Management Update – the text of that interview can be found here.


Tom Brokaw, Heretic or Hero?

April 21, 2009

brokaw1

Have we moved beyond these cumbersome divisions we call states? In a recent Op-Ed Tom Brokaw proposed that local governments blur their administrative lines and work together to deliver services more efficiently. In discussing North and South Dakota’s 17 colleges and universities, he made the following blasphemous comment:

I know this is heresy, but couldn’t the two states get a bigger bang for their higher education buck if they consolidated their smaller institutions into, say, the Dakota Territory College System, with satellite campuses but a common administration and shared standards?

Jefferson and Madison may be turning in their graves, but Brokaw makes a legitimate case for consolidating costly and overlapping public services. The economics are clearly in favor of pursuing such a system, but politics often get in the way of this kind of progress. As Brokaw points out, parochial interests will be the biggest hurdle to making these changes a reality.

The same dynamics play out in companies. Even when there are known advantages to centralizing activities — even when it makes things cheaper and better — the self-interest of individuals and business units can undermine a centralization campaign. Firms that overcome this tension usually do a few things right. First, they put someone in charge of “shared services” who has the leadership skills to bring a skeptical organization along. Second, they focus on the better as much as the cheaper, on the upside of leveraging learning and best practices across the entire organization.

It’s not only that the Dakotas’ 17 colleges and universities can buy chalk for less when they combine some activities, but also that the Dakota Territory College System can use the knowledge now embedded in each institution to improve the education being offered by all of them. And designed correctly, realizing these “economies of experience” doesn’t have to come at the price of innovation or agility or even customization. Indeed, done correctly, these changes can free up the time and resources for an organization to deliver unprecedented quality to its constituents.