The Beginning of the End at AT&T

May 24, 2010

In an incredible announcement, AT&T declared that it will be raising its termination fee for iPhones and a few other devices from $175 to $325.  The company offers some explanatory chatter about handset subsidies, but the real message it’s sending is that it’s simply done trying to win over customers.  Rather than keeping us the old fashioned way, by creating and sustaining real value, AT&T is now just charging us a ransom to leave.  Imagine an AT&T that was truly confident in its ability to serve? How would it behave in the marketplace?  It would invite customers to stay only as long as we’re satisfied — and not a cell-phone minute longer.

I find this decision scandalous, particularly since I’m already a frustrated AT&T customer (I can barely make it through a phone call without it being dropped).  When a company moves towards trapping customers, the clock starts ticking on its ability to serve them.  Penalties for ending the relationship create sharp antagonism with customers — antagonism that’s disproportionately felt by front-line workers — and signals to the entire organization to forget about excellence.

This toxic combination ensures mediocrity and accelerates a company’s decline.  I get it.  Winning the cell phone game is hard, and the people behind the idea likely had the best interests of the company in mind.  But when you broadcast that you can’t convince customers to voluntarily stick around, everyone hears you loud and clear, including your employees.  Who would keep trying in a culture like this?

Sigh.  This is a sad day for AT&T.


Lean Thinking at Starbucks

August 5, 2009

The WSJ wrote an article about the recent adoption of “lean thinking” at Starbucks.  Lean thinking is a philosophy popularized by Toyota’s famous Toyota Production System (TPS) that emphasizes rooting out waste in its many forms.  At Toyota, waste might be excess inventory.  At Starbucks, waste might be baristas taking too many steps to travel from the coffee beans to the espresso maker.  After reading the article, I’m not optimistic about the process of Starbucks trimming down.

Scott Heydon has the title Vice President of Lean Thinking at Starbucks, and two of his quotes set off alarm bells for me.  The first suggests that the impetus for the change is to free up the time and space for employees to deliver a better service experience.  The quote:

Mr Heydon says reducing waste will free up time for baristas – or “partners,” as the company calls them — to interact with customers and improve the Starbucks experience.

But Heydon follows quickly with this quote:

If Starbucks can reduce the time each employee spends making a drink, the company could make more drinks with the same number of workers or have fewer workers.

At first glance, this may not sound like an impending disaster.  After all, who doesn’t want better service and lower costs?  The danger lies in the ambivalent framing of the initiative, which is often good enough for the C Suite, but doesn’t fly on the front lines.  If the objective is to enhance the service experience, then a set of activities will reinforce that goal, and the definition of success will be fairly straightforward.  Alternatively, if the objective is to reduce costs, then a different set of activities will be required.  Eventually, these activities will be at odds with each other, and employees will get caught in the tension.

This is a well-worn path that can easily lower performance and increase employee cynicism.  The typical sequence of events is as follows: A manager sets out to make changes with the stated intention of improving the service experience.  Compelling rationale is used, invoking the experience as a driver of premium pricing.  Then, under the banner of improved service, the same manager starts talking about the efficiency gains of the changes.  You’re a barista with more time on your hands? Serve more customers!  Say good-bye to your colleagues!

This is dangerous for two reasons.  First, if your employees believe your commitment to service and then watch you measure productivity gains, you sacrifice focus and trust.  Not only do you breed confusion, but as clarity emerges, employee cynicism is not far behind.  Second, when senior executives begin to prioritize labor productivity over service, they often start to erode the competitive distinction that led to the premium pricing.  It’s one thing to purposefully pivot away from a premium position.  It’s another to creep away from it without making a clear strategic choice.

To be clear, I have seen companies achieve great success through cost-cutting initiatives.  But they were internally branded as cost-cutting initiatives, as a competitive rallying cry for employees and sometimes even customers.  Similarly, I have seen spectacular success when companies commit to enhancing their service experiences — again, internally branded commitments with the requisite decisions and activities in alignment.  I have even seen success with initiatives designed to improve both cost and service.  These typically work when a company is performing poorly compared to its peers and can make improvements on both dimensions, or when a company is in an innovative phase and looking for breakthrough ways to do things.

The problem is the disingenuous internal framing.  By far the most common approach is to try to dress up cost-cutting initiatives as service improvements, which breeds disappointment among employees, customers and owners.  And a tell-tale sign of this charade is shifts in messaging, particularly for multiple audiences.  Starbucks contradicted itself within minutes for the WSJ, which doesn’t make me optimistic that they’ll be an exception to the rule that these initiatives tend to cause more harm than good.


Service Showdown at the Four Seasons

June 30, 2009

The NYT described some recent challenges at the Four Seasons.  Among them is healthy tension in the underlying business model, which separates asset ownership from service management.  The Four Seasons — a management company that owns none of  its hotels – has expensive tastes.  And some owners’ appetite for excellence is being suppressed by the recession.

Four Seasons managers want to keep the flowers fresh and the payroll fat to protect the brand and its future.  But the incentives of individual property owners aren’t necessarily aligned with this strategy.  Owners are ready to trade off on some aspects of the service experience to weather the economic storm in their particular markets, and managers are systematically refusing.  Things have gotten so bad in San Diego that the owners of the Aviara Resort and the Four Seasons are now suing each other — after a showdown that included locked doors and accounting ledgers being forcibly removed.

One source of the animosity is that some property owners are pressuring Four Seasons managers to drop their prices.  Managers are pushing back, arguing that once customers are trained to expect price breaks, it’s almost impossible to get them to pay full fare again.  And these managers are right.  If your service model depends on high prices, then it’s risky to give up ground.  But it takes a strong stomach to execute, particularly when you’re feeling quite a bit of financial pain.  As one airline manager said to me, “we need to tie one hand behind our back so that we stop giving discounts.”

The brand’s ownership structure, which gives most owners a a deep view of only one property, may also be obscuring the true source of the Four Seasons’ advantage.  The company competes on standardization and scale, not words we usually associate with luxury.  But impeccable service comes from exquisite attention to the details of an experience, and that experience isn’t necessarily diminished by the fact that it’s being replicated all over the world.  In fact, companies like the Four Seasons achieve excellence because of — not in spite of — a high degree of standardization.  Standardization of operations frees up the time, space and money to compete on a main driver of excellence in hospitality industries:  personalized, detail-oriented interactions with guests.

Prince Walid bin Talal, one of the majority owners of the Four Seasons, described the strategy this way:   “It takes a lot of effort, a lot of perseverance and a lot of consistency to reach the stage that [the] Four Seasons has.”  Consistency is probably a more palatable word than standardization for the luxury market. Now we need a new word for litigation.


Service Excellence Defined (and Illustrated)

April 7, 2009

Service excellence can be hard to define — it often falls into the “know it when I see it” category of vague, but important distinctions.  Part of the challenge is the subjectivity of a word like excellence. Not all customers value service attributes in the same way. The intimacy you enjoy with a waiter who asks about your children and remembers how you like your burger may feel intrusive and jarring to me (hypothetically, of course).

I’d like to ground the definition of service excellence in the idea of reliability.  Service excellence is the consistent delivery of a high value/price experience, day after day, year after year, regardless of who happens to be on the front lines of the delivery process. It is the systematic output of a service model that is designed explicitly to produce it.  It is not the typical way we consume good service today, which is when entrepreneurial employees take it upon themselves to meet our needs in spite of the system.

In the spirit of know-it-when-I-see-it, I’m starting a highly subjective, incomplete list of service organizations that have reliably offered me (or people I know) excellent service.  I hope this brings the concept to life a bit. I also hope to learn from you. I would love to hear about other organizations you’d add to this list.

  • Lexus Service Centers – incredible that this level of service is possible and its competitors are choosing not to do it.
  • USAA – very difficult to find an unsatisfied customer
  • Zappos – very difficult to find an unsatisfied customer or employee
  • Wine.com – two-day shipping, scheduled at your convenience (including evenings and weekends), for $49 per year
  • Progressive Insurance – offers differentiated features such as Immediate Response vans and Total Repair
  • Four Seasons – unobtrusive excellence, if you like that sort of thing
  • J. Crew – straightforward excellence in the retail stores (thanks Kristin!)


Extreme Customer Service

February 24, 2009

BusinessWeek’s cover story this week is called Extreme Customer Service. The title has an aspirational ring to it, and the article celebrates examples of “extreme service,” including a UPS delivery person who is instructed by his president to defy the firm’s six-hour delivery window policy, show up at a customer’s door at precisely the scheduled time (extreme!), and deliver chocolates and dog treats along with the storage unit the customer was anticipating. As the story is written, it’s meant to be a beautiful ending, complete with the delivery person offering to assemble the unit.

Extreme Service Man looks like a hero, but he’s actually a symptom of a serious service problem. Defining his behavior as excellent service is contributing to escalating costs and plummeting satisfaction in almost every service industry.  When employees must go “above and beyond” to satisfy customers — a natural impulse in environments where dissatisfaction is rising —  it means that something is broken in the service model.  And responding with costly, ad-hoc spikes in service quality makes it harder to surface and solve the underlying problem.  Serving some clients with excellence, it turns out, increases the likelihood of serving the rest of them with mediocrity.

The goal for service businesses must be reliable excellence. Organizations that deliver truly great service build service models that consistently meet the needs of all clients. They invest in the systematic delivery of outstanding value — and treat Extreme Service Man as a well-meaning menace to the pursuit of excellence.


Seeking Exceptional Service Providers

January 8, 2009

We are looking for examples of exceptional service providers, preferably those with innovative models and/or those that are unheralded in the press. If you have a suggestion, please post as a comment or email me directly ffrei@hbs.edu. Thank you!