Wednesday, January 19, 2011

The Customer Service Meltdown


Service leadership or customer-focused leadership is my characterization of a leadership style that gives life, through its actions, to an organization’s customer focus. Successful service leadership can not be produced by the blind mirroring of the norms established for the leadership of the industrial age. I believe most executives today understand that new market forces have changed the economic landscape in dramatic ways. I also believe, however, that few executives grasp the consequent impact of these economic changes on their own leadership actions and by extension on their organizations’ service behavior. This disconnect, in my view, has rendered many companies institutionally incapable—incapable organizationally, behaviorally, culturally—of delivering excellence in service to the customer as leadership models of old remain prevalent. To be blunt, these companies have made a habit of rendering mediocre service. As with most habits, this pattern of behavior will be hard to break. Unfortunately, these organizations might already have fallen too far behind to realistically entertain the prospect of challenging the service leaders in their peer industry group.

The fundamentals of the industrial age are very much different from those of the service and information age. The industrial age emphasized regimented labor, and swift capital formation for investment in plant, property, and equipment as the primary factors of production; bulk mattered. Industrial-age models of economic behavior focus on efficiency, short-term thinking, uniformity, and mass production. In contrast, human potential, creativity, and information are the primary resource strengths of the service and information age enterprise. These two views offer a graphic contrast of the deep business philosophical and cultural divide that has been with us for some time and which will take effective leadership to eventually bridge.

When I was a young computer consultant working for Big Eight accounting firm Touche Ross & Co., the singular focus was on client-billable hours. Few things mattered more to the firm and it set off fierce competition among staff to be among the leaders in billable hours. Kudos and bonuses—more of the former and less of the latter if you were a young staff member—came your way in direct proportion to your billable hours. In later years, I was to fire the consultants of accounting firm Arthur Andersen on two different occasions – I guess I didn’t learn my lesson the first time! — for “running the meter” on our company. Andersen’s demise in 2002, not unexpectedly, came at the expense of the public’s interest —that is, the customer’s interest—as it pursued a culture that demanded ever increasing levels of billable fees no matter what.

In the industrial age, workers were understood to be fungible. Corporate strategy, such as it was, focused on efficiency of production. The principal tool of strategy thus became the learning curve—factories could reasonably be expected to drop their unit cost predictably with each doubling of production volume. In service work, adherence to this model is assuredly counter-productive. One of the largest Internet Service Providers in the nation, for example, requires its call center teams to meet a quota of numbers of customers served each hour or risk losing their incentive bonus. Not only does this approach fly in the face of the need to devolve power to the front line for effective customer service, but it also fails to recognize that production incentives and quotas—in lieu of a practice that ensures that customers have all of their questions answered without a quick brush-off—are vestiges of a time long past.

Even U.S. military doctrine, to this day, is a vestige of our industrial past, reliant as it is on industrial and logistical strength, overwhelming force, and power on power—qualities which have been rendered obsolete by the small wars of the 21st century. Service-and-information-age models, both in commerce as in the military, stress effectiveness, knowledge, access to information, high-speed communications, and small, tailored volumes of production.


For some time now we have been a witness to the collision of industrial-age views of enterprise management with those of the service and information age. Few doubt that the former will eventually falter. But, make no mistake about it, industrial-age views are prevalent now and will, for some time to come, continue to dominate the thinking and actions of individuals in virtually every business sector. I have been a participant in many spirited boardroom debates dealing with everything from service company valuations, to the expenditure of funds for service initiatives, to the justification of payrolls for service management executives, and much more—enough to know that there is still a great deal of industrial-age Kool-Aid to go around. An executive who takes a long-term view, especially if such a view runs the risk of impinging on short-term financial objectives, will not be endeared to industrial-age constituencies and thus will have to fight for every inch of ground.

Constituencies that include boards of directors, institutional shareholders, investment bankers, research analysts, and accountants, all seem to have a genetic disinclination to take the long view which is required to allow the customer-focused provider to establish solid relationships in the marketplace. These constituencies are all a product of the same financial ethos that demands hard, easy-to-measure, financial results now. Enterprise executives, for their part, know on which side their bread is buttered: short-term financial objectives are just fine so long as executive short-term incentives and bonuses are in keeping with such goals!

Frederick Reichheld in his book, The Loyalty Effect, agrees. Reichheld says that “the tendency to regard short-term profit as the primary business objective has become more and more pronounced in both business schools and boardrooms.” The customer-focused provider with the core of its strategy resting on people, processes, and other intangible assets needs to free itself from the claustrophobic grip of short-term financial measures if it is to make its service vision a reality. This all takes time, but it must begin with executive leaders as change agents.

Effective and courageous leadership is needed to counteract – counterattack is a better word—the obsession with short term performance metrics and hard asset accounting yardsticks in the face of the challenges of the service and information age. I believe these measures as exclusive metrics of enterprise value and performance should be relegated to the archaeological dust bin of the industrial age. Until such time, however, the full value of the intangibles of the enterprise, as the driving force behind a business strategy based on service, will never take hold. If there is an elephant in the room that keeps firms from rendering excellence in service, I believe it is the industrial-age fixation with financial performance.


In this book, an entrepreneur and CEO of a major technology company shares original service concepts that will enable any company to keep customers coming back.

1 comment:

  1. This is an interesting write-up. No doubt that you are able to write an interesting book entitled "America's Service Meltdown: Restoring Service Excellence in the Age of the Customer". I am hoping that they business owners could be able to read this blog post to enlighten them and provide quality service to their customers. Thank you so much for the share.


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