June 1999 Issue



By Elisa Mendzela

Every time you (or anyone in your organization) communicates with a customer or client, a risk arises. You may provoke a variety of reactions:

* Dissatisfaction--by not fulfilling needs or expectations

* Satisfaction--by meeting needs and expectations

* Delight--by exceeding expectations in some way.

Only those that delight can be certain of customer loyalty. It's far easier to keep an existing client than to attract a new one. That does not mean neglecting the quest for new business, but we need first to be mindful of the true value of existing customers--for renewal, repeat business, and (best of all) referral.

Key to Success

In today's fiercely competitive business environment, customer loyalty is a key success factor. In many industries, it's practically impossible to make a difference in terms of quality and type of product or service offered. For example, most banking services have become commoditized. Banks find themselves in the thick of development projects to seek better products in order to gain competitive advantage. Most developments are successful, but it's never long before competitors catch up or surpass them--for a short while. Once commoditized, businesses can easily be caught in a downward spiral of perpetual discounting--fighting for customer share.

Differentiating product is rarely possible, and differentiating price alone can spell disaster--unless the organization is so large that it can command powerful economies of scale.

Be Different

How can customer risk be managed? To a point, it can be managed the same way as any other risk--but there is one crucial difference.

Ask Questions. At least once a year, pause to reflect on your business position, customer base, and assets (not just balance sheet assets such as equipment or inventory, but also people, expertise, technology, and so on):

* What are your key markets?

* How are you positioned in each of them?

* What changes are occurring that could affect your business? Are you responding to these events?

* How well aligned are suppliers with your values, wants, and needs?

* Are you really serving the needs of your customers--particularly the most lucrative? Who are those customers?

* How appropriate is your staff

* Do your culture, management systems, and procedures support service excellence or impede it? How and why?

* How can you build or maintain the enthusiasm, commitment, and competence of your frontline staff (at all times)?

Identify the Risks. Before even thinking about staff, you need to know the business you are in and who your customers are. Included here is knowledge of your most lucrative customers, and what they have in common.

What would tempt them elsewhere? Consider how their needs might be changing and what your competitors are doing.

Quantify and Analyze. Don't rely on hunches; they are often wrong. Be systematic. Ask questions and find answers. Core questions should include the following:

* What brought your customers to you?

* What do your key customers want?

* What do they receive?

* How important is this to them?

* How can you add value to them?

* How do they view you against your competitors?

Harness technology to help you process information and develop a more personal understanding of, and relationship with, your customers.

Explore Values. Know what your customers are buying from you. That which a customer is purchasing may have little to do with the products or services you sell, but instead may be something which resonates with that customer's values. Examples are prestige, dependability, convenience, quality, youthful image, and security. (I recently spoke with someone who purchased accounting services from a well-known firm. As we talked, it became clear that he was not really purchasing accounting services but rather prestige, dependability, and innovation.) If we can identify what customers are really buying, we can tailor products and services to match their wants and needs.

More Magic Demands Less Control. In an increasingly competitive business environment, the smoothest, most customer-friendly operation wins and retains customers. We can go along quite merrily looking at strategy, collecting and analyzing information, and formulating risk-management plans.

However, we may be missing the most vital part of managing customer risk--how to motivate staff to use their creativity and talent in order to produce superior results. How do we encourage that X factor--the personal touch that distinguishes excellent service from adequate, creates customer delight, and raises profits?

People, not organizations, have ideas. People create, people innovate, people build or break businesses. So managing the people risk is critical. This doesn't mean control--a command and control approach doesn't work these days. Let me illustrate why.

X Minus--A while ago, I worked with two major retail chains. At that time the retail sector was stagnant--declining profits, frenzied competition, spiraling discounting. Both chains targeted middle- to upper-income customers. In many locations, it was possible to walk from one chain's store to the other's, and cover only a block between.

One chain operated a command and control style of management, which went so far as to prohibit employee bags in the workplace. Instead, management provided employees with a small transparent plastic handbag in which to place lunch-money and other small items. Each employee had a locker in a room near the staff entry-exit area. This was supervised at all times by security guards. At the start and end of each day, staff went to the locker room and transferred items to and from their plastic bags. Any larger bags were left at security. Contents were always scrutinized, recorded and ticketed. Staff were given a receipt on entering, and handed it in on the way out.

The store itself operated in a similar fashion--"Theory A" (employees are not to be trusted) was the common theme. Staff naturally felt unmotivated. Service delivery (and profits) were falling. Management's answer? "Incentives." Staff received no salary, only commissions.

Naturally, more than a few employees specialized in "hijacking" customers. This practice was rife around customer fitting rooms (and could even happen on a dual cash desk). It went like this: As customers exited the fitting rooms, and while the employee was hanging the unwanted garments on a rack (a company rule), a "poacher" would slip in and whisk the customer off to the till. The poacher would rapidly process the transaction--responding to incentives. They received someone else's commission--a staff member who may have spent considerable time and effort helping the customer.

Needless to say a spirit of cooperation was absent in that business. The trendy preaching about teamwork was there--but the practice wasn't.

Supervisors would usually turn a blind eye--they poached too. Staff turnover was high. Not surprisingly, the chain soon filed for Chapter 11 bankruptcy.

X Plus--The other chain I worked with operated a "Theory B" style (people are basically good and want to work). It managed the risk of customer drift by developing excitement and innovation, founded on a sound and well-communicated strategy. Management created an entrepreneurial culture, with strong staff "buy-in" to the organization's vision, values and spirit.

So during the tough times, when the Theory A chain went under, the Theory B chain (Nordstrom) achieved growth in earnings and three times more profit per square foot of space than its competitor.

Its success was based on the following:

* Communicating the Vision. At Nordstrom, staff are left with no doubt about the vision, values, and priorities of the organization. After careful recruiting (with attitude more important than experience or product knowledge), staff are welcomed to the company and told: "Our number one goal is to provide outstanding customer service. Set both your personal and professional goals high. Our number one rule is to use your good judgment in all situations. There will be no additional rules. Please feel free to ask your department manager, store manager, or division manager any question anytime."

On the other hand, the Theory A company had an extensive staff manual, setting out a multitude of delegations and procedures. It is good experience to be part of an organization in which people are encouraged to achieve their own goals and their department's in whatever way they feel is most appropriate--and it works.

* Empowering People. Empowerment is a trendy word but a real concept. It means sending staff somewhere they want to go--somewhere wonderful.

You've made sure they are all driving reliable vehicles (recruitment); each knows the destination and the expectations (vision, values, and goals). You've provided them with the information and support they need to get there (tools and coaching), so they can plan their personal route. When they arrive at their destination, each can feel achievement and exhilaration.

Their planning and navigation were successful--despite highly variable individual approaches. And don't worry if the vision changes. The world is changing fast, so it's not surprising if your vision changes too. Just keep on communicating, capturing the imagination, and enlisting commitment.

* Providing Information. To be successful, individuals and teams need to measure and monitor their performance and set and evaluate goals. At Nordstrom there was open access to all the data needed for this. Each staff member could have a clear personal, teamwide, storewide, and (even) organizationwide understanding of performance. New sales figures were displayed each week, not only for the particular store but also across the entire chain. There was frank discussion about why targets may or may not have been met. Positive strategies were shared. Coaching was a key part of every manager's job.

* Teaming. Nordstrom distinguished itself from its competitors by its clarity of purpose and direction and its commitment to staff empowerment and entrepreneurship. However, staff are good team players too. Incentive and recognition programs, including one in which staff were encouraged to praise and document outstanding service delivery from colleagues, helped build individual and team commitment. Recognizing and celebrating individual and team successes is a core strategy--not a feel-good clip-on.

* Leading by Example. Gaining buy-in from staff and creating the culture to sustain excellence in customer service (every day) is a challenge. Staff need management to "walk the talk" and treat them with the same dignity with which they would treat customers.

* Saying "Thanks"--Customers Have Choices. This should be acknowledged, without groveling. A simple concluding phrase, such as "We value your business" or "Thank you for your business," would help renew the positive glow of the earlier purchase decision.

* Achieving Consistency Across the Whole Experience. The chain of customer service is only as strong as its weakest link. For example, at the payment part of the sales cycle, you are still vulnerable to customer "drift." This is a moment of truth. Your customer forms an impression of the organization, which colors (positively or negatively) the whole service experience. To manage the risk of not achieving customer delight (and thus jeopardizing customer loyalty), you need to ensure that this part of your service matches the rest. Is your customer in a hurry to do something else, standing there frustrated because of your procedures or slow technology? Show courage and perseverance: Trusting people is an act of faith. Occasionally you'll be let down,
particularly when moving from a control culture to one of empowerment.

But if you have the right strategy,
communicate it well, gain commitment, provide support, and empower staff, they will perform heroics for you--and the bottom line will show the results.

A Courageous Decision

Managing business risk through leadership in customer service requires stamina and courage. In the words of Peter Drucker, "In every success story you find someone has made a courageous

It's scary--but worth it! *

Elisa Mendzela is principal of Mendhurst Associates Limited, a Wellington, New Zealand­based
company providing "Management for a Changing World." Feedback is welcome at P.O. Box 12-338, Wellington, or elisa@mendhurst.co.nz.

Reprinted with permission, Chartered Accountants Journal, the magazine of the Institute of Chartered Accountants of New Zealand, Copyright April 1998.

James L. Craig, Jr., CPA

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