Medallia Ideas

There are a lot of good books in our industry, but few are classics. This is is one of them: The Service Profit Chain. Though it is more than ten years old, the principles it advocates are timeless. And though dense, it's worth the effort, for its density is merely a result of its rich truths.

The authors, James L. Heskett, W. Earl Sasser, Jr., and Leonard A. Schlesinger, were Harvard Business School service firm experts (Schlesinger has left and is now president of Babson College). Throughout the book, their attention to detail and wealth of experience is obvious.

The goal of the authors was to come up with an accurate theory that explains why some companies are successful and others are not. A theory based not on a single anecdote or speculation but on years of observation, using quantifiable measures. They analyzed several leading organizations, including American Express, The Ritz-Carlton Hotel Company, and Intuit, among others.

Heskett, Sasser, and Schlesinger discovered what they call the service profit chain, a chain of strongly connected relationships that lead to companies becoming very profitable over the long term.

Simply stated, service profit chain thinking maintains that there are direct and strong relationships between profit; growth; customer loyalty; customer satisfaction; the value of goods and services delivered to customers; and employee capability, satisfaction, loyalty, and productivity.

Since profitability is necessary for successful business, it is easy to focus on just that—profitability. But understanding the service profit chain allows an organization to focus as well on things that cause profitability.

Let me offer a simple example.

It has been demonstrated that profitability is linked to customer loyalty, and that in turn is linked to customer satisfaction, but the chain continues: Customer satisfaction is linked to employee satisfaction. So one lesson that can be learned from the service profit chain is this: Employee satisfaction contributes to long-term profitability.

This is exciting because it can easily translate into actionable items.

Of course this small example is only a glimpse into how the service profit chain can change the way a company thinks---there's a lot more to it. Do read the book!

A Comparison

One of the hindrances of traditional performance measures is that they are historical in nature. In such a scenario, management is left quite helpless—it's only able to look back in agreement. Juxtapose this with a focus on the service profit chain, for it enables "managers to predict future organization performance, as indicated by current measures of employee and customer satisfaction and loyalty."

The authors present an interesting table (on page 211), which provides useful metrics an organization might use to rate and gauge future business success.

A focus on the service profit chain empowers all levels of an organization. The authors write:

A scorecard reflecting elements of the service profit chain encourages managers to think about the totality of a business. In addition, it can be implemented at successively lower levels in an organization as cross-functional teams apply it to encourage effective decision making in the face of conflicting outcomes and interests, particularly between short-term and long-term interests and outcomes. It has been used as well for the development of personal scorecards, particularly for managers with broad responsibilities.

Conclusion

The service profit chain is dense but potent. Old but relevant. It's a textbook for becoming a successful company. And we thoroughly recommend it.

We love the principles, but they're not just a detailed list to memorize. What we like especially is that most chapters conclude with a section entitled “Questions for Management” that gets beyond concepts and assists the reader in exploring how they can be applied to particular situations. From theories to practices, this book is of the highest caliber.

At another time we'll discuss in more detail some of the specific concepts and principles discovered by the authors, but don't wait for us: Get the book today.

Posted by Ryan Dunphey

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This is the third and final part of our discussion of Delivering Happiness, by Tony Hsieh.

Service That WOWs Translates to Great Marketing

Tony Hsieh often talks about a concept he calls WOW. (In fact, it’s Zappos' first core value, Deliver WOW Through Service). Here’s how he defines it:

To WOW, you must differentiate yourself, which means do something a little unconventional and innovative. You must do something that’s above and beyond what’s expected. And whatever you do must have an emotional impact on the receiver.

I love it. Creating WOW moments Building a great company is about delivering positive "emotional impact." Leadership in the marketplace today is more than just goods and services and a clever marketing jingle. It's about connecting with your customers in a truly meaningful way. It's about setting their goals at the core of your business.

It's not traditional, but it can be win-win. (The Zappos deal is just one example.)

Free Shipping Both Ways

Look at every interaction as an opportunity to WOW your customer. There are things your customers need. Things they want. And then there are things that go beyond all that. That's the Zappos model. That's WOW.

For instance, at Zappos, shipping is free both ways. The policy isn't intended just to hook the customer, it's to WOW them into a loyal relationship. Sure, the costs are high, but Hsieh rationalizes that quite easily:

The additional shipping costs are expensive for us, but we really view those costs as a marketing expense.

Now, most companies might find the free shipping model a satisfactory WOW experience. But is this really going beyond all possible expectations? Not for Zappos. It also upgrades frequent customers with free overnight shipping—ya gotta love a company like this.

Going Beyond Goes Beyond

Great customer service doesn’t merely translate into friends sharing experiences with friends. As time went on, stories about "the Zappos way" popped up on popular blogs and even in the mainstream media. And none of it was scheduled. It was all organic. And it all took Hsieh and his team by (pleasant) surprise.

Every once in a while, a reporter or popular blogger would pick up on something that we were doing, and the story would spread like wildfire. We were as surprised as anyone else by the publicity because it was never planned for on our end.

We learned a great lesson: If you just focus on making sure that your product or service continually WOWs people, eventually the press will find out about it. You don't need to put a lot of effort into reaching out to the press if your company naturally creates interesting stories as a by-product of delivering a great product or experience.

Conclusion

Treat every customer interaction as an engagement critical to the long-term health of your business, and find every opportunity to overwhelm customers with excellence. Keep in mind that WOW moments resound long after the actual experience and do more to build your brand than any traditional marketing effort ever could.

Yup, Hsieh and Zappos have set a high bar. We think you should set a similar one.

Posted by Ryan Dunphey

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This is the second part of a three-part quasi-review of "Delivering Happiness," by Tony Hsieh.

Your Culture is Your Brand

Social media is disruptive, and it's certainly having its way with traditional marketing and communications. No longer can brands (at least in the long term) conceal their true characters. By its very nature, the social web exposes the core of a company. Tony Hsieh writes:

With the Internet connecting everyone together, companies are becoming more and more transparent whether they like it or not. An unhappy customer or a disgruntled employee can blog about a bad experience with a company, and the story can spread like wildfire by email or with tools like Twitter....the good news is that the reverse is true as well. A great experience with a company can be read by millions of people almost instantaneously as well.

Some companies might find the social web unnerving, while others outright deny its strength. We think it's exciting, an opportunity for corporations to focus on their culture and their people. What's more, we believe that any investment in people (whether employees or customers) will ultimately lead to rewarding loyalty and profits.

At Zappos, our belief is that if you get the culture right, most of the other stuff — like great customer service, or building a great long-term brand, or passionate employees and customers — will happen naturally on its own.

Hire the Right People

This is interesting: Zappos has two separate groups that interview candidates. The first evaluates simply on ability and experience. A second team is commissioned to evaluate "purely for culture fit."

We've actually said no to a lot of very talented people that we know can make an immediate impact on our top or bottom line. But because we felt they weren't culture fits, we were willing to sacrifice the short-term benefits in order to protect our culture (and therefore our brand) for the long-term.

In fact, after a brief training period, new hires are offered $2,000 to quit—the company actually provide incentives to leave! Here's why: Zappos recognizes the core of its business IS its culture, and without it, the company is just another online shoe store. And so management zealously guards this by finding and ensuring that only passionate people who uphold Zappos' ideals work there.

Define the Culture You Want

For a few companies, great culture is innate and naturally bubbles up from within. This is ideal. But others require careful planning, discernment, and continual cultivation of a culture. That's okay. Zappos is a bit of both. The company obviously has a charismatic leader in Hsieh, but it also work hards to articulate and cultivate its vision—which the oft-published "10 Core Values" illustrates:

1. Deliver WOW Through Service
2. Embrace and Drive Change
3. Create Fun and a Little Weirdness
4. Be Adventurous, Creative, and Open-Minded
5. Pursue Growth and Learning
6. Build Open and Honest Relationships With Communication
7. Build a Positive Team and Family Spirit
8. Do More With Less
9. Be Passionate and Determined
10. Be Humble

One Last Point

As the web becomes more social and brands are forced to be transparent, companies that ignore their culture will be penalized. Articulating and defining your culture, and vigilantly hiring around that, will ultimately provide a company with the necessary foundation to achieve both meaningful impact and rich profits.

Both are possible!

Posted by Ryan Dunphey

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Tony Hsieh doesn't just "get" customer service, he's made a bajillion dollars from it. And his new book, Delivering Happiness, isn't just a history of the making of said bajilions, but an essential read for anyone looking to understand customer satisfaction in today's marketplace.

We throughly enjoyed the book and recommend it entirely, and we found three ideas are particularly interesting:

1. Never Outsource Your Core Competency
2. Your Culture Is Your Brand
3. Service That WOWs Translates to Great Marketing

In this first post (of a three-part review), let's take a look at: Never Outsource Your Core Competency

The Warehousing Dilemma

Early on, Zappos hired a company called eLogistics to store and ship its inventory of shoes. However, eLogistics didn't have the infrastructure to ship the orders accurately and was consistently behind in updating inventory. It was a mess, and to preserve the brand, Zappos had to set up its own warehouse. The company built a facility with the capacity to grow.

The takeaway for Hsieh?

We learned that we should never outsource our core competency. As an e-commerce company, we should have considered warehousing to be our core competency from the beginning. Outsourcing that to a third party and trusting that they would care about our customers as much as we would was one of our biggest mistakes. If we hadn't reacted quickly, it would have eventually destroyed Zappos.

If shipping is core, it has to be done correctly. And even if the infrastructure exists, any customer touchpoint must be met with the same passion and excellence or your brand will suffer.

Telephones

As time progressed, Tony and the team determine that the Zappos brand had to be about more than just selling shoes. They determined that it would be about offering the very best in customer service.

Soon thereafter, they considered outsourcing their call center activities overseas. But equipped with the lesson learned from the eLogistics debacle, and the company's newfound focus on service, Zappos kept call center activities in-house. Hsieh and his team recognized the deep value of a phone interaction, and in the long run they scored a huge win.

As unsexy and low-tech as it may sound, our belief is that the telephone is one of the best branding devices out there. You have the customer's undivided attention for five to ten minutes, and if you get the interaction right, what we've found is that the customer remembers the experience for a very long time and tells his or her friends about it.

Conclusion

On the surface, warehousing and phone support might seem auxiliary to your business; they may seem ripe for pruning and restructuring. But proceed cautiously. The heart of these things are customer contact points, and that needs to be your passion. Guard them. Keep them under your control (as much as possible). Don't make the mistake Zappos initially made. Your customer relationship is your core competency.

Posted by Ryan Dunphey

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