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How to Avoid Giving Service that Sucks
December 2005

In an earlier article ('Why Service Sucks'), I described the effect of Darwin’s theory of natural selection on service industries as being the extinction of the worst rather than the survival of the fittest. In this article, I trace the importance of this observation for companies that want to thrive and survive in a rapidly shifting competitive environment.

All other things being equal, people only have so much money they can spend on any given part of their life – food, housing, books, entertainment, news, and so on – so they will mostly go for the best value they can find with a reasonable amount of effort. I believe that value, the touchstone of all sales, comes from a combination of quality and price; if you have high quality and a low price, you have great value. If you have low quality and a high price, you not only have no value, but you may be a value subtractor – someone who removes value from the world by taking something and making it worse.

Most of the quality that people want lasts beyond their purchase. Hence, if they can get a great bargain on some clothes that will last for years, but to do it they have to stand in line for, say, half an hour and have to deal with a clerk with a lousy attitude, then they may choose to shrug off the crummy service and remember the clothes. Likewise, if they get lousy service at a local store, but it’s convenient for the odd purchase that they need immediately, they’ll put up with it. That’s why most people will buy a book at the giant bookstore where the help knows nothing, but the books are all discounted, rather than the old, established bookseller who knows everything about books, but charges list prices for everything.

But if someone’s going someplace to get pampered, like a spa, then they want great service because what they’re buying is the experience itself. Bad service overwhelms what they’re paying for.

So the price we pay for something is balanced against the quality of our experience with the seller and the thing we are buying, and we won’t buy unless we get good value for our money. I’ve described this elsewhere in a formula: Value = Quality - Price.

There’s a balance between service & attitude on one side, and the enduring usefulness or appeal of everything we buy. This balance defines a conceptual frontier of trade-offs between these things. The illustration below identifies what might be described as a conceptual Price-Quality Frontier. Anything on the line is competitive in the marketplace. Anything above the line asks too much money for not enough in return, and is not competitive. Any seller to the right of the line sets the standard for competitiveness in their price-point. I’ll refer back to this illustration from time-to-time.
The Competitive Frontier:

Value = Quality - Price




Now look at this equation from the service provider’s side. The lower the level of competition, the more a company or store can get away with. In a seller’s market, you’re not all that concerned about reducing costs as there’s no real price competition. Since humans are inherently lazy, most of us never really worry about costs when we’re making money and don’t have our feet to the fire.

When competition starts to rise, companies can fight one or both battles to improve value: first, cut their prices, or second, improve the quality of the customer’s experience. To cut prices, the company either has to sacrifice profits or reduce costs, or some combination of the two. Companies will usually try to cut costs first as costs are most directly under their control. Some of that cost-cutting may be the fat that lack of competition allowed them live with. And some of it may come by cutting back on customer service, or hiring low-cost individuals who don’t know how to give good service, or just don’t care.

Now customers respond to both price and quality, but they respond to price first since it’s easier to gauge. It’s typically only with repeated exposure to a particular supplier that things beyond price start to become important, and even then, the trade-off between price and service is very rarely clear-cut.

As a result, what we usually get is not survival of the fittest (i.e., anyone who provides less than great service dies), but rather, extinction of the least fit (the truly awful supplier disappears while most others continue to give just-barely-acceptable service). And that means we get a lot of service that sucks.

Beyond the Value Frontier

So where do organizations like Wal-Mart and Disney, whom I mentioned in the first article, come into the picture? They are both beyond the price-quality frontier. You almost never get a bargain at Disney, but you almost always get full value for money as they aim at a premium price-point. At Wal-Mart, you get great prices, and they give reasonable service, too, but you don’t get good looking stores, or great depth of product knowledge, or the trendiest fashions. But what both Disney and Wal-Mart strive to make sure you get is great value; that is, a hard-to-beat combination of quality and price.

Both organizations have distilled their corporate goals down to short, clear statements that define their value propositions (that is, the trade-off between quality and price that produces value for their customers). For Disney, the statement is ‘We make people happy’ (four words). For Wal-Mart it’s ‘Always low prices’ (three words). Both statements define how each organization decides where on the price-quality frontier they want to be, but more than that, it provides focus for everything they do, and lets everyone in the organization know what their focus should be.

But the key part of the equation that’s not evident is the value they can produce with thought and effort, and that’s really where Disney and Wal-Mart (plus all other great companies) stand out. They start with where on the value frontier they want to sit, then they look at how they can move up beyond everyone else. (The recent controversy surrounding the way Wal-Mart treats its staff relates to a different, but related issue, which is that customers really value the total experience of every aspect of their dealings with a company, including their reputation and how they treat their workers, not just the features and benefits of its products and services. That’s another topic for another time.)

Wal-Mart creates their value proposition with great prices, and then moves off the competitive frontier by thinking about how they can also give great service without sacrificing low prices (since price is their primary focus). As it turns out, and as repeated management studies have verified, service people actually want to give good service, and, when permitted to, will typically bust a gut doing so. What usually stands in their way is management, either by throwing up barriers to good service (‘I’m sorry, sir, we can’t help you; it’s policy.’), or by actually penalizing workers for going the extra mile (‘You spent too much time with that customer. We’re measuring your performance based on how many calls you take per hour.’) Wal-Mart figured this out, and works at making sure that their people give great service.

The Obvious Secret of Modern Business

Now here’s one of the great secrets of modern business: it turns out that it’s usually cheaper to give great service than it is to give lousy service. It’s not easier, but it’s cheaper. And like most business ‘secrets’, this one has been widely known for years. What makes it truly secret is that people know it, they acknowledge it, they discount it as obvious and trite, and then they ignore it, like something hidden in plain sight. It’s a secret not because it’s unknown, but because it’s not practiced. As a result, it might as well be a complete mystery to most companies, even though they will quickly tell you they know all about it.

Employees who give lousy service get lousy feedback from customers, and go home feeling bad about themselves. As a result, their productivity and morale are low, and their turnover rate is high. Low productivity is always harmful to profits, and high staff turnover is probably the biggest hidden cost in the corporate world today. Companies like Disney actually cut costs by giving great service – while simultaneously removing themselves from the ordinary price-quality line that their competitors live on. Their people give great service, and their customers (excuse me; ‘guests’) generally love it and give great feedback. Moreover, Disney people are celebrated and rewarded by their management for giving great service. Their managers actively look for opportunities to catch employees (‘cast members’) doing things exceptionally well in order to thank them. And they make sure that when customers compliment them, it is acknowledged. As a result, Disney morale is generally high, turnover is generally low, and Disney people enjoy working hard – a virtuous circle which continues to stoke customer satisfaction and simultaneously keeps costs under control.

So great customer service experiences don’t necessarily cost more than good experiences – they just require more thought, just as Wal-Mart’s ultra-low prices require more thought and effort than so-so prices. And that’s where creativity and innovation come in. Creativity isn’t more expensive, it’s just harder than same-old, same-old business practices. It requires companies to really think outside the box, and experiment with new ideas – something that most companies aren’t very good at, and don’t really want to do, no matter what they say.

Innovating Your Way to Better AND Cheaper

JetBlue is one of the discount airlines that has changed the rules of the airline business. When you call customer service at JetBlue you get a real person that is usually eager to help you. Yet, this personalized, superior customer service is cheaper to provide than the automated voice-mail hell that most airlines foist off on the general public, because JetBlue used innovation to create a new model of service. JetBlue CSRs work out of their homes, and receive customer calls over VOIP (‘Voice over Internet Protocol’). This means they have more flexibility in their work, they are more comfortable, and generally happier. In turn JetBlue doesn’t have to invest in expensive real estate, office furniture and equipment, and saves money as a result. And JetBlue has built its business around a customer-centered service that makes its people eager to help. All of this means that JetBlue saves money, gives great service, has lower staff turnover, and happier customers who give positive feedback to their staff. Again, they save money while creating a virtuous circle.

Now let’s consider you and your business: how can you move from being stuck on the value frontier to being beyond it? Can you change a few things and move to great customer service at lower costs? Unfortunately, no. It takes long-term commitment to a wide range of changes, most of which will be uncomfortable, and all of which will be unconventional. Let’s start with what’s going on in your relations with your customers.

Whether you’ve decided on it explicitly or not, your business is out there on the price-quality frontier – or, if you’re not very good at what you do, then you fall above it, offering higher prices for lower quality than your competitors. So the first step in becoming outstanding – moving out beyond the frontier – is to know where on the line you’re aiming to be. In business jargon terms, this is called ‘knowing your value proposition.’ What is the trade-off of price and quality you want to provide? Is it ‘Always low prices,’ or ‘We make people happy,’ or something in between. This involves knowing who your direct competitors are, local and global, and what they offer in terms of price and quality trade-offs.

In clarifying your value proposition, it would be good to be able to express it in a very short statement, like Disney’s or Wal-Mart’s. However, one of the biggest traps in corporate navel-gazing is to spend big time and money on a ‘mission statement’ that typically tries to be all things to all people and winds up meaning nothing to anyone. Your value proposition statement, if you develop one, should drop straight out of the work you put into knowing yourself and knowing your clients. It should be easy and obvious. If it’s not, then you probably haven’t thought clearly enough about who you are and what you mean to your clients.

Don’t Start with Your Clients

So, how do you identify what you mean to your clients? I’m going to describe this process backwards, because it’s actually a thought process, and a creative one, not something to be ticked off like a airplane pre-flight checklist.

The obvious thing to do would be to ask your clients what you mean to them, but that’s not the first step. The first people you need to contact about your value proposition are your front line employees, both those that come in direct contact with your clients, and those who produce, manufacture, or supply the products or services you sell. They get direct feedback all the time from the sales or production end, and know more about your company’s true value proposition than anyone else.

At about this point, most companies will jump up and say that of course they are in regular touch with their front-line employees, and of course they know what their people are saying or thinking – but it ain’t necessarily so. In fact, I’d go beyond that: most companies have no idea what their front line employees really think. When they ask, or solicit opinions (suggestion box, anyone?), they get what they want to hear, not what they need to hear, or else they ignore what they do hear that they don’t like. And that happens because we, as a society, have developed what might be called a ‘gotcha’ culture, where saying something that sounds pessimistic, defeatist, or, worst of all, like admitting a mistake becomes cause for an attack. It can lead to the offending individual becoming the candidate for the next round of layoffs because ‘we don’t need negative people around here.’

Worst of all, organizational leaders don’t even know when they have such a culture – perhaps they don’t know it especially if they have it. It’s like a heart attack: one of the first symptoms is denial. But that’s a little like telling someone that they’re being defensive: anything they say in answer seems to prove that you’re right.

The Crucial Step

So, the crucial step in learning where you are in the value proposition is to earn the trust of the people that work with you, to the point where they will ‘speak truth to power,’ and tell you things that you may not want to hear. And believe me, hearing bad news is much better than not hearing it, especially if you hear it early enough to fix the problems.

But earning trust is not a simple process. It takes years, and concerted, consistent effort. And frankly, it’s easier not to bother. But if you stop at this point, you might as well quit the whole idea of improving your organization because you are only going to hear what you want to hear, and that’s only going to reinforce your mistakes.

If you decide to go this route, though, and put up with the agony and pain in the process, then start with two principles. The first comes from Jim Collins and his research team in their terrific book, Good to Great: hire for attitude, not skills. Skills can be taught; attitude can’t. You don’t want people around who do not share your values and ethics, who don’t agree with what the company is trying to do for its clients, or the way that you do it. This is difficult, because the temptation is to do exactly what I just said you mustn’t: get rid of people who don’t agree with you.

So the answer is, perhaps you shouldn’t be the one to do the deciding on such matters. Before I pursue this line of thought, I want to go back further to a principle first described by von Klausewitz, the 19th century Prussian military strategist: the only purpose for strategy is to make the tactics work.

Most corporate high foreheads think that strategy is invented at the pinnacle of an organization, by the deep thinkers who truly understand the realities of the marketplace. Not true. Napoleon was an artillery gunner, and succeeded for two reasons. First, he devised his strategy to maximize his expertise in the use of artillery. And second, he elevated common people who proved they could produce results, and then gave them authority, which had never been done before in Europe.

Strategy starts from the bottom by asking: what do we do well (and hopefully, what do we do best)? You play to the strengths of your organization, not to the brilliance of top management. General Electric, which in recent years has been famous for its former CEO, Jack Welch, is actually enormously good at training people, and then giving them authority. Indeed, Jack Welch is a product of that training. He wasn’t the person expected to succeed his predecessor, Reginald Jones, who was GE’s CEO from 1972 to 1981. Indeed, the business community and business press unanimously thought that no one could replace Jones, and certainly not Jack Welch. But Jones knew that what GE needed most was someone who saw its flaws, and wasn’t afraid to tackle them – and that Jack Welch, seen by most as a maverick, was that man. Jones relied on GE’s strengths: finding good people, training them, and then giving them the authority to do what they thought was necessary.

Who Is the Right Person to Make Each Decision?

For you, this means starting by focusing on a critical question: Who is the right person to make each decision? This is what Ralph Stayer did with his company, Johnsonville Foods, a family-owned maker of premium-priced sausages. (Stayer described all of this in a classic Harvard Business Review article, published in Nov/Dec 1990, from which I got the quote below.) By 1980, the company was successful by most yardsticks. They were profitable, and their sales were growing by 20% a year. But Stayer was worried about the future. Johnsonville was starting to be big enough to come to the attention of the major meat processors, and Stayer was concerned that Johnsonville wouldn’t survive head-on competition from the Big Boys:

What worried me [most] … was the gap between potential and performance. Our people didn’t seem to care. Every day I came to work and saw people so bored by their jobs that they made thoughtless, dumb mistakes. … I had been Johnsonville Sausage [Stayer said], assisted by some hired hands who, to my annoyance, lacked commitment. But why should they make a commitment to Johnsonville?


So what did he do? Well, first he tried all the classic management tricks: upbeat meetings, slogans, campaigns, sales contests – and they all fell flat. Finally, he realized that his people weren’t the problem, he was. He wanted everyone to do things his way, whether he was right or not. So, Stayer started with a question: Who’s the right person to make each decision?

He started with quality assurance. Who’s the right person to decide on the quality of our product?, Stayer asked. He decided that the right people were the people who made the product, because they knew the most about it. So he put the production people in charge of quality assurance, and gave them the authority to make changes in the production process – and quality went up.

Next, he asked: Who’s the right person to deal with customer complaints and customer relations? He decided that the people who produced the product were, because they knew the most about it, so he put them in charge of customer relations, and gave them the authority to deal with customer complaints, including giving refunds and make-good coupons. And customer satisfaction went up. What’s more, as customer satisfaction went up, so did employee satisfaction, which reduced turnover and increased productivity.

Over time, Stayer turned over many functions to different groups of employees that tradition says belongs to management: hiring and firing, awarding of bonuses, training, and so on. And the net result was improved profits, higher productivity, lower turnover, and increased customer satisfaction.

This was revolutionary in the 1980s, but in today’s world, where the levels of competition from globalization and automation are rising rapidly, it should be obvious. Companies need the brains, dedication, and creativity of all their employees, not just from the well-paid executives at the top. And the only way to get that kind of buy-in is by genuinely involving employees in decision-making, giving them authority making decisions, holding them responsible for results, and making sure that individuals get recognition for their contributions, as well as the rewards that should go with it.

But surely that’s what’s happening now, isn’t it? Aren’t companies developing flatter corporate structures that recognize employees and push down decision-making to the lowest-possible levels? Well, no, it’s not happening that way. In an interview on January 1st, 2000, the Wall Street Journal asked Peter Drucker, the author of most of the definitive works on management, how employees saw their employers. What he said was not encouraging.

Drucker, then in his 90s, still taught a Saturday afternoon course in management, to which top companies from around the United States sent only their brightest, rising stars. At the time of the interview, his class had 78 students, all from upper-middle management, and this is what he had to say about them:

…their bitterness about their management and their companies is unbelievable. They feel the financial people treat them like peons. What really offends them most is that the financial people think they can make them happy by bribing them [with high salaries and stock options]. …

WSJ: So what’s the answer?

Dr. Drucker: The answer is respect. … Look, who is the most successful in attracting and holding good people? The nonprofits. The satisfaction has to be greater than in business because there is no paycheck.


This is a major topic that goes well beyond the scope of a simple article, but for now let me extract a single, simple message: to avoid Darwin, you need to engage the brains, abilities, and commitment of all of your people by treating them with respect, giving them responsibility (including the authority to spend company money), and rewarding and recognizing their successes. And that requires that you have an on-going discussion about the future of the company, and listen to what they say with respect and consideration, not just pretend that you are listening.

How to Avoid Giving Service that Sucks

This whole area of discussion – quality vs. price, employee involvement, innovation and creativity, and so on – is like a thread hanging off a garment; the more you pull on it, the more there is of it, so let me sum up: to avoid Darwin, you need to take a very different approach than most modern corporations do. You need to:
  • Hire for attitudes, not skill sets.

  • Hire only people who share your values, so that your organization is unified on the bedrock issues.

  • Give people authority to act on their own within their areas, then hold them responsible for the results they produce.

  • Encourage people to try new things, even if those things initially fail, as long as (a) they learn from any failures, and (b) they correct their mistakes and keep getting better.

  • Listen to your people, and find out from them what feedback they are getting from your customers or clients. Moreover, keep that feedback coming all the time, not just every once in a while.

  • Constantly seek to improve your value proposition by both restraining costs, and improving the customer’s total experience with every aspect of your organization.

  • Use deliberate thought, innovation, and creativity to decrease costs and improve quality, rather than periodic slash-and-burn layoffs and top-down management hacking.

  • Know where you are, and where you want to be on the value frontier.

  • Look for ways of pushing out beyond your competitors on that frontier. And, finally and ultimately

  • Strain to find ways of creating a virtuous circle of good customer service producing good feedback for employees, leading to even better customer service.

    This isn’t easy. It’s easier to give crummy service and not think about what you’re doing. But giving great service is more rewarding personally, and substantially more rewarding financially.

    by futurist Richard Worzel, C.F.A.

    © Copyright, IF Research, December 2005.

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