Articles

The following articles first appeared in Vision/Action, the journal of the Bay Area Organization Development Network.

Commitment: The Missing Element in Service Quality Strategies

Customer Focus Requires Employee Focus

Commitment: The Missing Element in Service Quality Strategies

By Elliott D. Brown

With more and more organizations acknowledging the importance of service quality as a key element of competitive differentiation, why do we see so little change? Our own experience as customers tells us that claims of service improvement have been greatly exaggerated. The author discusses some of the reasons why so many service improvement efforts remain unsuccessful.

These days, every airline, automobile manufacturer, retailer, and financial services company is telling us that high quality service is their top priority. Most talk about their renewed commitment to service, implying that it has always been there, in case we as customers hadn't noticed. Why, if so many of our organizations are proclaiming their allegiance to service differentiation, haven't we seen the resulting scale of change? My observation and experience suggest that, while more and more companies are, in fact, working at improving service, many, if not most, of their efforts lack the depth of personal and organizational commitment needed to ensure success. As a result, they fail to create the fundamental cultural changes necessary to make them self-sustaining.

Why this shallowness of commitment? I believe that there's a basic ignorance within our organizations about the wide-ranging implications of embracing a service quality "strategy." To many, service is a pragmatic "program," an intellectual exercise aimed first and foremost at the short-term profit of their organizations. After all, its "Golden Rule" simplicity suggests that the creation of a service culture should be easy to do: just treat customers the way they want to be treated--with respect, courtesy and care. It is not this easy, however, when we consider that our traditional competitive attitudes, hierarchical organizational structures, risk-aversion mentalities, short-term results orientation, and need to prove cause and effect, are, in fact, at odds with this simple strategy.

Even in a mom-and-pop operation, where one doesn't have to inculcate beliefs and values into hundreds or thousands of other people, the pressures and uncertainties of day-to-day operations can severely test one's resolve. If putting customer satisfaction first raises short-term costs, one may even begin to question the fundamental underpinnings of the strategy itself.

In larger organizations, the long-term commitment required to create a self-perpetuating service culture tends to conflict with the pressure to produce short-term results. Depending upon the organization's size, how much has to change, and intensity of the change effort, the conversion to a strong service culture may be a multi-year undertaking requiring a reexamination of every element of its operation, including the clear articulation of purpose and vision, explicit and implicit values, attitudes toward employees and customers (as exemplified by what it does, not by what it says), policies, procedures and practices, resource allocation, and so on.

A small company whose underlying values have been consistent with a service ethic may require simply some assistance in measurement or process design, while a 2000-employee organization which has for years mistrusted and mistreated its employees and customers will require years (3? 5? 10?) to effect a degree of cultural change that can be perceived and acknowledged by its customers. How big a shake-up is required? And how strong is the will to do it?

And how can you prove it's working? Because of its long-term nature, and its sometimes subtle impact upon customers' perceptions, feelings and attitudes, the contribution of a service quality strategy to improved financial performance may not so easily be segregated from other internal and external factors. This can be especially frustrating to those who need proof of the strategy's efficacy, and can weaken commitment as months stretch into years. Not many CEO's are comfortable, I believe, standing in front of their Boards of Directors and saying "Trust me!" Putting in place processes which ensure continual customer feedback and which measure customer satisfaction is the best means of "proving" cause-and-effect over time.

Given their short-term perspective and need for validation of the "strategy," it's no wonder that so many companies go for the "quick hit." One way they do this is to focus only on superficial behavioral changes in their customer-contact employees. They put everyone through a training program which teaches them how to smile and say "Have a nice day," then pat themselves on the back for this demonstration of their commitment to quality service. Or the "cultural change" may be undertaken by proclamation--a memo to staff which says, in essence: "We're advertising our improved service, so you'd damned well better deliver it!"

In other cases, a change is made in some customer-visible (and marketable) aspect of their operation, as when the major California banks started competing with each other in 1989 to see who could offer the most extended hours or the most comprehensive service "guarantee". Such superficial changes, however, are easily copied. And while customers may have benefitted by having longer in-bank (as opposed to ATM) banking hours, did they experience better service during those extra hours, or during the regular ones? As no one gained a competitive advantage, and extra hours meant extra expense, some banks have quietly retreated from this loudly-trumpeted service initiative.

The real changes, the ones which lead to sustainable advantage, are less visible and less easy to replicate. The thorough reexamination of every element of the organization's operation required to ensure that the service ethic is fully supported should include such considerations as:

These are just a few of the areas we need to examine if we're to be sure that the thread of service weaves consistently throughout the fabric of the organization.

Once organizations recognize the critical relationship between their internal culture and the behaviors they're asking their employees to use with external customers, however, the magnitude of the task becomes apparent, and the commitment to see it through is put severely to the test. It is most often at this point, I believe, that the commitment weakens, compromises become frequent, and the vision becomes clouded. It is then that even the well-intentioned may retreat into a defensive strategy, one aimed at competitive survival rather than preeminent superiority.

In fact, most organizations, it appears to me, have taken a defensive posture when it comes to service quality. Viewing traditional marketing as the primary means for acquiring new customers, they relegate service strategies to retaining customers, or reducing customer attrition. At best, service is mentioned as an undefined element in the sales process. This defensive posture reflects a half-hearted commitment to service excellence, and can take the following forms.

The first is what I call the "Don't Tick 'em Off" approach. This reflects the basic understanding that angry customers are not good for business, so minimal steps are taken to prevent or deal with what are perceived to be the most serious customer issues. It's an approach aimed basically at damage-control, striving not so much to retain existing customers as to prevent the dissatisfied ones from telling the world how bad you are.

The second, to borrow from a Tom Peters anecdote, is the "We're No Worse Than Anybody Else" approach. This reflects a point of view which says that it's important to maintain service parity with your competition so that you don't risk losing customers to them. Superficial changes are made, often grudgingly, in response to competitors' actions. Companies following this approach believe in giving as little as they have to, and their customers know it.

The third is the "Lip Service" approach to service, the one being taken by many of the companies who claim to be making a serious commitment to service quality. "Lip Service" doesn't have very lofty goals. It aims to be only marginally better than the competition, but no more. There is no vision of what this service level should be, only that it be better than what the competition offers. This is like the world champion athlete who strives only to beat world's records when held by others, never to better his or her own. This approach lets someone else--the competition--define your aspirations for you.

These defensive approaches to service quality do not create the legendary organization. They do not create an organizational culture which challenges and inspires employees to greater and greater innovation and achievement. And they do not create a noteworthy or unforgettable customer experience.

What separates the extraordinary service providers from the ordinary ones? They all have one thing in common. They go far beyond defensive behaviors. They don't try just to avoid customer dissatisfaction. Nor do they aim simply at delivering satisfying (i.e. uneventful) service. Their goal is to chart new territory. To carry service quality to dramatically higher levels. To set new standards for excellence. They recognize that service quality can be more than a retention strategy; it can be a powerful customer-acquisition strategy, one which can create new, loyal customer relationships, while at the same time retaining existing ones. They know that, as an acquisition vehicle, service quality can be more potent and cost-effective than traditional marketing programs and strategies. Given the substantial costs of acquiring each new customer in most industries, there is no more cost-effective form of advertising than word-of-mouth, and unexpected service quality can deliver it.

I emphasized the word unexpected above because I believe this is the key concept in understanding the means for developing a widespread reputation for service quality. It differs from excellent, or outstanding, or exceptional in that it creates a memorable experience for the customer. It means surprising them, dazzling them, even shocking them with elements of service they didn't anticipate, for it's only by exceeding a customer's expectations in this way that you can generate the reaction that leads them to tell others about the experience. Even outstanding service, if it is routine and normal for the industry, may not generate the word-of-mouth which truly unexpected service can deliver.

I said earlier that many companies are talking about service quality, but very few are doing much about it, at least to the degree I'm advocating here. In fact, many are doing something about service quality, and that something, usually quite superficial, reflects their basic underlying attitude about the value of service quality in their overall business strategy.

Despite my cynicism, I recognize that there is much good news to be found in this growing focus on service. Some of the organizations that have embraced a service quality strategy have done so with deep conviction, seriousness of purpose, and a profound belief in its fundamental soundness as a business (and a life) strategy. In most cases, these genuinely service-conscious organizations spend little, if any, time proclaiming their service beliefs, but instead spend their time building service quality and its implicit values deeply into the foundation and culture of their organizations. They know in their hearts as well as in their minds that delivering outstanding, caring service, dealing with customers and employees from a position of total integrity, will make them winners. In the end, their employees and their customers know it as well.

But even the more pragmatic organizations have begun to recognize that both the world and the demands of their customers are changing. The accelerating movement to a world of mutually beneficial cooperation rather than narrowly self-serving competition is bringing with it a resurgence in the basic human values which support a service quality ethic--integrity, openness and fair-play. At the same time, as information and other advanced technologies have made it possible to respond to competitive changes very quickly, many of the traditional competitive differentiators used by companies have become less powerful, less preemptive, less dependable, and less profitable. Product features, price, locational convenience, and image, while still important, are frequently no longer sufficient to build sustainable success.

Empirical evidence also strongly suggests that the relative importance of both product and service quality in customers' determination of value is growing. Our willingness to tolerate poor, or even mediocre, quality in the products and services we are offered has declined markedly in recent years. Customers are more and more willing to vote with their wallets for the institutions which give them good quality products and treat them well. They seem to be saying, as the character Howard Beale did in the 1976 movie Network, "I'm as mad as hell, and I'm not not going to take this anymore!" And the companies that are listening and responding with genuine commitment are the ones which will prevail.

To be effective at service differentiation requires, then, a long-term focus, relentless commitment throughout the organization--to the customer, to the employee, and to the service ethic itself--and a fearless determination to continuously examine and reexamine everything the company does. It requires a constancy of vision and a quality of leadership which challenges even those who are successful to strive for more. What makes that commitment worthwhile, I believe, is that the rewards of a successful service strategy go far beyond the financial. Being part of a company whose behavior reflects a strong service ethic and its essential values is both emotionally satisfying and spiritually uplifting. It enhances individual pride and self-esteem, and thereby elicits a deeper personal commitment from everyone in the organization. When added to the collective commitment of the "organization" itself, this can only accelerate the achievement of gains in productivity, creativity, and overall results.

Customer Focus Requires Employee Focus

by Elliott D. Brown

 

In a previous Vision/Action article entitled "Commitment: The Missing Element in Service Quality Strategies," I observed with some dismay that while many organizations were talking about customer service, very few were demonstrating the depth of commitment required to translate the talk into measurably improved customer satisfaction. While I continue to feel this is generally true, the good news is that a growing number of companies have recognized the fundamental importance of high customer satisfaction. They have intensified their efforts, often as part of a reengineering effort or under the banner of Total Quality Management, to become more customer-focused. They understand that to achieve long-term, sustainable success, they need to give their customers a quality product, produced by quality methods, and supported by quality systems.

But have some of these companies become less employee-focused in the process? And does it matter? While we know that satisfied customers are essential to the success of any business, do we know if there is a relationship between satisfied employees and satisfied customers? And if there is such a relationship, what should the OD practitioner, particularly when involved in TQM or reengineering efforts, be on the lookout for? My recent experience with diverse companies involved in such efforts suggests that OD specialists need to ask some critical questions to ensure that their clients are paying close enough attention to their employees as they focus more attention on their customers.

TQM theory and methodology recognize the importance of focusing just as intensely on employees-those who have to create and maintain the quality process-as on customers. All too frequently, it seems to me, this is not what happens. As the focus on the customer intensifies, employees' interests and concerns may get lost in the shuffle. Moreover, it sometimes seems that in reengineering efforts, employee satisfaction has become the sacrificial lamb, served up in the name of competitive marketplace reality.

When discussing surveys of customer and employee satisfaction with potential clients, I have always maintained that the two are inextricably linked and positively correlated. This assertion came primarily from observation of my own reactions, as a customer, to the level of job satisfaction I perceive in employees of companies with which I deal. I've noticed how much better I feel after an interaction with an employee who seems genuinely happy to be there. And conversations with friends and colleagues have confirmed my strong intuitive sense that many, if not most, people respond as I do. But until recently I haven't had any hard data to back up my assertions.

For three years, I conducted annual surveys of customer and employee satisfaction for a chain of skilled nursing facilities in California. Eight of its convalescent hospitals had both surveys conducted in all three years. After the third year's survey results were in, the CEO reminded me of my assertion that customer and employee satisfaction go hand-in-hand. He asked me to do a correlation analysis of results from the two surveys. In other words, he said, "Prove it!"

Each survey required respondents to indicate their level of agreement or disagreement with a series of statements, using a five-point Likert scale. For purposes of the correlation analysis, I chose from each survey the statement which I felt best represented overall satisfaction. They are:

From the Customer Survey: "I would recommend this hospital to anyone who needed its services."

From the Employee Survey: "I would recommend [this company] to my friends as a place to work."

The following chart shows the percentage change in employee satisfaction and customer satisfaction from Year 2 to Year 3 as reflected by these two statements:

Year-to-Year Change in Employee and Customer Satisfaction at Eight Convalescent Hospitals

 

Hospital

 % change in Employee Satisfaction  % change in Customer Satisfaction
A  + 11 + 9
B + 10 + 9
C + 6 + 6
D + 4 + 2
E + 3 + 2
F + 3 - 5
G - 6 - 2
H - 7 - 2

Even before doing any statistical calculations, the results are quite striking. In seven of the eight cases, employee and customer satisfaction moved in the same direction. Moreover, except for hospital F, as the positive change in employee satisfaction decreases, so does that of customer satisfaction.

Statisticians tell us, however, that, while the very high coefficient of correlation (+.79 in this case) suggests a high degree of relationship between the two sets of numbers, it does not provide any information about a causal relationship. Thus, while we can confidently say that customer and employee satisfaction go hand-in-hand, we can't say which is taking the lead. We don't know from these numbers, then, whether improved employee satisfaction causes improved customer satisfaction, or vice versa, or both, or neither.

Empirical observation suggests it's both. That is, satisfied employees are more likely to produce satisfied customers who, in turn, make the employees' experience more satisfying. Why? Because people feel good about their work, and themselves, when they are able to satisfy their customers. Customers feel good when they deal with companies that seem to treat their people well.

James Heskett and others in their 1994 Harvard Business Review article, "Putting the Service-Profit Chain to Work," maintain that:

The internal quality of a working environment drives employee satisfaction [which] results in employee loyalty [which] enhances productivity [which] creates value [which] largely influences customer satisfaction [which] results in customer loyalty [which] stimulates profitability and growth.

I couldn't agree more. In addition to this linear chain, however, there is an important circular element as well. Employees' satisfaction is naturally enhanced when they are able to deal frequently with loyal, satisfied customers. Such customers are friendlier, easier to serve (even if their expectations are high), and more patient and understanding if a problem develops. This circular relationship dramatically magnifies the power of the chain. It now, if nurtured properly, can build upon itself in an almost self-perpetuating manner, creating an upward spiral of increasing employee and customer satisfaction. And while my example addresses employees who deal with external customers, the potential exists for the same upward spiral in the satisfaction of employees and their internal customers.

In my work, I have never come across a company that focuses on employee satisfaction at the expense of its customers. But it is not unusual to find companies focusing on their customers while paying too little attention to the needs of their employees. Companies that focus only on the customer may fail to recognize that, at a time of growing product commoditization, their employees are often the primary and differentiating delivery vehicle of customer satisfaction.

Too often, companies equate improving employee satisfaction with the implementation of costly changes, particularly in pay and benefits. These are, of course, important influencers of employee satisfaction. But improving employee satisfaction often requires little or no financial investment. Some of the growth in employee satisfaction achieved by the nursing homes discussed above came from a program of better communication with employees, including communication about pay and benefits policies. Other remedial efforts which were aimed at bettering working conditions and interdepartmental teamwork, for example, involved procedural changes and educational programs requiring fairly small expenditures.

In the companies with which I'm familiar, the lack of attention to employee satisfaction has usually been unintentional, reflecting a misunderstanding of the relationship and need for balance between employee and customer focus. The following are three cases in point.

Case 1. A not-for-profit home healthcare agency strongly articulated its desire to differentiate itself through the quality of its customer focus. Its goal, it says, is to be viewed by its customers as the most user-friendly service provider of its type in its marketplace. It has focused attention on restructuring its operation to focus on customer needs and has conducted a survey of its referral sources to better understand those needs. At the same time, however, it has delayed several times the implementation of an employee survey, arguing that it just "wasn't the right time" to do so. At first, the concern seemed to be that there was "too much going on" in the organization. Later it was that, given the changes and pressures affecting their industry, things were only going to get worse for employees. Surveying them, therefore, would unrealistically raise their expectations that things might get better. The flaws in this thinking are the implicit assumptions that employees don't know what's going, that they can't deal with harsh reality, and that providing them an opportunity to express themselves would be unproductive.

Case 2. A rapidly-growing, privately-held manufacturing company, with over 1000 mostly unskilled employees, was concerned about declining employee morale. In employee focus groups it was learned that, while all employees knew it was going to happen, the company had not communicated any information about the impending move of its manufacturing facility, which had been in the works for a year. For more than 500 employees, staying with the company would mean an additional commute of up to 30 miles, and many do not have their own transportation. During this same period of uncertainty, employees reported a significant increase in internal manufacturing rejects (from 1% to 6%), as well as an increase in misshipments and missed contractual delivery dates. Other factors might be at work here, but it seems likely that the lack of attention to employees' welfare and the increase in quality issues were related.

Case 3. Of the several bank subsidiaries of a holding company, this bank had, in 1989, the highest customer satisfaction scores and correspondingly high employee satisfaction scores. That year, while maintaining an expressed commitment to customer service, attention and resources began to be shifted heavily toward accelerating the growth in sales volume. Over the next five years, the frequency of customer satisfaction and employee satisfaction surveys was cut back, reflecting the change in strategic focus. Employee and customer access to the company's management through formal feedback vehicles was curtailed, while a product- and marketing-driven strategy was pursued. In executing what it believed to be a customer-focused strategy-developing and delivering products and services it felt its customers wanted-the company began to lose touch with its customers and its employees.

By 1994 employee satisfaction scores had fallen significantly and customer satisfaction was the lowest in the nation among its sister banks, which themselves had experienced similar problems. In the company's internal newsletter, an article about the results of its 1994 employee and customer surveys acknowledged that customers weren't the only ones who felt they could be doing a better job. The results of the employee survey also revealed considerable staff frustration and dissatisfaction. Not surprisingly, the article concluded, the surveys revealed a strong relationship between customer satisfaction and employee satisfaction.

 

The three cases illustrate the impact of inadequate employee focus, although the implicit rationale was different in each case. In the first case, management understood that unhappy employees could affect its refocusing effort, but chose to avoid confronting the issue, fearing that to do so would cause greater problems. In Case 2, management's reluctance to openly communicate major changes to employees created an environment of mistrust and resulted in morale and quality problems. In the third case, management stopped listening to its customers and employees, thinking it knew all it needed to know, and rediscovered the hard way that attention must be paid to both, and that they are intertwined.

Too many organizations have yet to discover the relationship between satisfied employees and satisfied customers, and fail to recognize the competitive advantage of a satisfied workforce. They continue to believe that customers are unaware of and unaffected by the internal environment they create for their employees. They view investments in employee satisfaction and even in employee quality as too "soft" and unprofitable when compared with more tangible investments. The above cases, however, reveal that this perspective is short-sighted and potentially destructive to the organization.

For OD consultants, the challenge is to support these organizations in recognizing the critical relationship between employee satisfaction and the success of their efforts to improve customer satisfaction, to identify the warning signs of inadequate employee focus, and to help them develop and maintain the kind of internal environment in which satisfied employees create highly satisfied customers by going beyond their expectations. [See sidebar]

[Sidebar]

When Employee Focus is Lacking

Here are some of the things the OD practitioner needs to look for to determine whether there is inadequate employee focus.

General Warning Signs

Quality of Communication with Employees

Quality of Support for Employees