by Shaun Smith
I learned a lot by our boardroom rout. I was 27 and I’d just been made a director and all the other directors came to me and said ‘We’ve decided your father should retire and that your uncle should take over.’ Then they went ahead and did it – six votes to two – and my father was out and that taught me an awful lot. A bit later on I had the chance to do a management buy-out; I made sure I got more than 50 per cent and then when I got the chance to get the full 100 per cent I grabbed the opportunity even though I had to mortgage my house to do so – it made my wife very unhappy for a bit! We don’t have to worry about shareholders, we don’t actually have any borrowings from the bank – actually we’re not indebted to anybody – and that takes away a lot of the pressure – we can do what we want.
When we introduced upside-down management, we had a real problem with middle management, particularly the area managers. They were pretty resistant – and I can understand why, because they’d all come up from the shop floor themselves – we don’t recruit into our field staff from outside, everyone starts as an apprentice. So they’d been told what to do by their bosses and they’ve now got what they thought was going to be the suit and the briefcase and they were going to go round and tell everyone else what to do. I turn up and say ‘No, it’s not like that any more, you’re not allowed to issue orders – your job is to look after your people and be nice to the ones who are great and so on.’
And so you could understand why they were a bit resistant. I was asking them to still be responsible but to give the authority to their people. But managers feel more comfortable doing it the other way round – let employees have the responsibility of getting on with it and I’ll have the authority to tell them what to do. So this is exactly what they said – ‘How can I be responsible for the results of my area when the people working for me can do whatever they want? I’ve got to tell them what to do, I’ve got to watch, I’ve got to make sure they’re doing it my way.’ So that was the first problem.
The other thing I couldn’t get them to do was let their assistants do a real job. They had assistants running shops and being relief managers and I wanted them to do the training and do real management jobs, but they were resistant to handing authority out like that to other people because they thought if I give assistants those jobs, what would be left for the area managers to do? And so they had to learn a new job, which is finding the people who are ‘nines and tens’, and looking after the atmosphere, making the whole culture work; looking after people who had personal problems – that’s what their job is, and they’ve now learned that.
One of the tests that we use for our area managers is that I ask them to give the name of the dog, or whatever, of one of their people to see how much they know about their people. It’s a ‘how well do you know your people?’ test – literally it is those sorts of questions. What car do they drive? Where was their last holiday? What is their partner’s name? What are their children’s names? Because we reckon that to be a good boss you’ve got to know your people very well. How can you reward them with the present that they want if you don’t know what presents they like to receive? You’ve got to know which football team they support – you’ve got to know that. We regard that as being an important part of being their boss.
Our people feel they share in the business – they don’t technically have shares, but the bonus scheme makes them feel it’s their shop. Loads of our customers think that the shops are franchised – which they’re not – it’s only Snappy Snaps that is franchised. As far as the people who work in the support side of things, who aren’t involved in the weekly bonus scheme, we have a very generous profit-share that is based on a formula. I make sure that they feel they are very much part of the success of the company. The better we do, the more they are going to get.
We have a department that we call ‘People Support’, we chose not to call it HR and I approve of that because they are there to help our people – not to tell people what to do. We don’t get tribunals – and that’s not because we settle before we go in there, we just tend not to get those problems.
It’s not for me to tell other businesses how to do it but there must be ways in which they can trust their people more. There must be ways they can look after their people more. It must be a jolly good idea for them to give everyone their birthday off, I would have thought, just try it once – just as a way of celebrating some good year, or an anniversary of some kind. That’s how I started it, because I invented a centenary. If you look at our shops, up on the fascia, on the Timpson line, it says established 1903 – I started that when we refitted the shop in Fleet Street in 1996, and I picked 1903 because I thought 2003 would be a great year to have a centenary. And when we had the centenary we gave everyone their birthday off and it was so successful we’ve done it ever since. But it all depends on the chief executive – none of this works unless the chief executive is committed to it.
In my book, I say, ‘The world has forgotten that management is an art, not a science. If you run a business by the book you will create a healthy, safe, and diverse workplace at the expense of the profit-making flair that you really need to succeed.’
Let’s take how we got into watch repairs. I called at a shop we had in West Bromwich – actually it was then a little kiosk in West Bromwich – and Glen was running the shop; I hadn’t met Glen before, he’d just joined us because it was part of an acquisition, and Glen apologized to me because he was actually doing a few watch straps and batteries on the sly. The money was going in the till – no problem – but he was not doing as he was being told, because he used to work for a watch repairer. Glen has made the company a fortune – within a year he was running the first workshop, he’s done all the training, and he’s helped us to develop a service from nothing to being a £20 million business – and that started by spotting someone doing something that was out of the ordinary. Lots of other things – we have a lifetime guarantee that we offer, started by a guy in Beverly. You find someone doing something that seems to work, have a go at it – if it works, try it in 10 more shops – if it works, put it in every area – and away we go.
I also said in my book: ‘Obeying the rules creates extra costs and guarantees nothing but a mediocre performance. Companies are throwing money down the drain in a national campaign for a corporate conformity – I prefer to challenge every regulation in the cause of common sense.’
Our main company charity is a programme called ‘After Adoption’ – for obvious reasons. We have adopted two children ourselves as well as fostering a lot – and so we collect money in our shops. We used to do a lot of jobs for free, such as putting a little hole in a belt or a little sticky job, that sort of stuff – and I changed tack about 12 years ago and said instead of saying ‘No charge’ we say ‘No, don’t pay me – just put a pound in the box for charity.’ And we collect about £5,500 a week that way. Customers like it – and it goes to a good cause. But I must finish with this one point – I think some people miss this – that before looking after charitable things, people outside the company, the number one cause that we look after is the people who work for us.
Chapter Eight
Experience measurement
Every organization needs a way to ‘keep score’. In the case of the London 2012 games it was the number of satisfied spectators who returned home with fond memories of the games and the games makers. All too often, organizations keep score by measuring what is easy rather than what is important. Step forward the usual suspects: sales, costs, churn, average call-handling time, shrinkage, earnings per share (EPS). The list goes on. But how many of these can the average manager, let alone employee, really influence?
We advocate building a scorecard of linked measures combining employee engagement, customer experience, customer advocacy, brand reputation and business results (Figure 8.1). The employee and customer experience measures are the leading indicators that managers can directly influence. The brand reputation and b
usiness results are more lagging indicators that are a result of many variables, most of which are beyond the control of the individual.
Figure 8.1 Example Telecom score card
Note: CSI = Customer Satisfaction Index, ARPU = Average Revenue Per User, EBITDA = Earnings Before Interest Tax Depreciation Amortization
Source: © shaunsmith+co
CitizenM is a good example of an organization that uses this approach by linking customer satisfaction, which managers can influence, to brand reputation. Michael Levie explains:
‘We use a programme called Review Pro that screens some 250 third-party common sites, whether this is TripAdvisor or online travel agents, and they score the sites to create what they call the global index; so a guest satisfaction index.
‘We can measure the hotel against itself and against the other hotels within the chain; but we can also measure against others in the local area. I think third-party social media sites are where you get the broadest finger on the pulse, because it has become common practice for people to use them for reviews. We solicit directly and use a net promoter score for that. We ask if you would recommend us and, if you would, then we drill down into five key areas. Every Monday morning I get all those reports from the hotels.
‘The hotels only deal with anything and everything guest-satisfaction related. They are rewarded on a monthly basis with incentives that only relate to guest satisfaction; they do not have any sales targets or anything financial, purely 100 per cent guest satisfaction.’
The concept of managing leading and lagging indicators, and the relationship between the employee experience, the customer experience and business results, are well known. Joe Wheeler, Shaun’s co-author of Managing the Customer Experience: People who deliver a great brand experience, and our US partner, runs the Service Profit Chain Institute (SPCI), a consulting firm that specializes in this concept. Joe shares his best practice advice with us.
The service profit chain: reloaded
Just over 20 years since its first publication, the service profit chain still appears in the presentations of leading companies at conferences around the world.1 Perhaps no other management model has survived the test of time and scrutiny by both business and academic leaders. Why? Well, perhaps the premise is difficult to argue with. The chain describes how you create a ‘cycle of capability’ that:
ensures high levels of employee satisfaction, which
generate greater retention and productivity, which
create more value for customers, which
significantly improves satisfaction, loyalty and financial results.
A mouthful to be sure, but for organizations described as ‘service profit-chain leaders’ the results speak for themselves. The service profit chain enables an organization to take a holistic view of their business, make cause-and-effect relationships explicit and keep score of things that matter to all three stakeholders: employees, customers and shareholders. Our research with service profit-chain leaders reveals three major reasons why it has stood firm over time:
It explains how the business actually works: companies that take the time to identify and measure the unique elements in their operating model that connect the links in the chain simply have a better understanding of what creates superior value for all stakeholders. They have more than a theory of the business; they have an adaptable management system that facilitates ‘double-loop’ (a form of iterative feedback) learning. In fact, at their best, service profit-chain leaders are able to predict future performance based on leading indicators defined by the service profit chain, and take corrective action before they miss critical indicators of deteriorating performance.
Culture as competitive advantage: James Heskett, co-founder of SPCI, in his recent book The Culture Cycle (2011), presents evidence of the degree to which a superior culture influences the profitability of one marketing services organization. It is worth reading, but visit any service profit-chain leader to see how the power of a culture focused on the company’s common purpose and core values definitely confers a competitive advantage. This is at the core of service profit-chain thinking. As Lanham Napier, the former CEO of Rackpace Hosting, one of the world’s leading cloud providers, told us: ‘Our culture and the awesome people we have are the things I am most proud of… I would say it’s impossible for our competitors to copy. They’d have to start over and build it from scratch.’
Leadership’s change model: running an organization is hard work. Technology has helped to reduce barriers to entry across most industries. Finding and retaining top talent is as competitive as finding and retaining target customers. The service profit chain provides leadership with a clear road map to strategic success. Harvard Business School Professor Michael Beer’s formula for effective change tells us:
Successful change = D (dissatisfaction with the status quo) × M (model) × P (process) > C (cost).
What this means is that change is successful when dissatisfaction with the status quo (D) is enabled by an operating model that works (M) and a process for facilitating change that is effective (P) and, finally, the benefits are greater than the cost (C) of the effort. For countless organizations around the world, the service profit chain has been the ‘M’ in Professor Beer’s insightful equation.
In 2008, we wrote The Ownership Quotient, as a follow-up to the original Service Profit Chain book. We were struck by the degree to which service profit-chain leaders such as Wegmans Food Markets, SAS and others had created even higher levels of advocacy and ownership with both employees and customers. From co-creating new product and service ideas with customers, to applying digital and data science technologies to anticipate and predict customer needs, these companies had pushed the boundaries of what we could only imagine back in the mid-1990s. Today, these insights have helped us to accelerate the results achieved when our clients were determined to stand firm.
Based on our experience, we recommend that readers charged with leading their company’s efforts to enhance customer or employee experience take three recommendations to heart:
Make sure you understand the ‘defining element’ of your customer experience: we learned this lesson back in 2002 when Shaun Smith and I wrote Managing the Customer Experience, but it is just as relevant today. A company that really understands this is IKEA, the Swedish furniture manufacturer. Although their products can be purchased through different channels, they have apparently figured out that if you are going to choose furniture that is going to be just right for the look of your home this is most effective while in the store, standing in front of that particular item. They understand the ‘defining element’ of the IKEA experience and don’t dilute it with distractions that move them away from something they are not.
Apply technology that adds value – not just cost: building on the first recommendation, be careful not to be seduced by all that glitters. For example, one retail customer in the technology business removed touchscreen panels piloted in several stores and replaced them with simple round tables with bar stools. Another, a toy retailer, redesigned their customer experience with touchscreen technology that interconnected the whole shopping experience. Both realized substantial increases in average ticket and transaction volumes. There is no one right answer, there is just the brand promise you have committed to deliver and the most consistent, intentional and differentiated way you have designed for your customers to experience it.
Be in the ‘relationship’ rather than the ‘transaction’ business: I’ll admit, it is tempting when you see the cost-effectiveness of introducing more digital transactions in your business. For large organizations managing millions of transactions, even a few basic points of channel migration can represent significant cost savings. Service profit-chain leaders understand, however, that they are not in the transaction business – they are in the relationship business. Their goal is to build lifetime value for their target customers and earn their loya
lty by delivering an experience that creates significant advocacy. As a result, they drive down the cost of marketing and put those dollars to better use for real value creation. As Robert Stephens, the founder of Geek Squad, has said: ‘Marketing is the tax you pay for being unremarkable.’
Don’t be unremarkable. Leave that to your competitors. Stand up, stand out and most of all – stand firm.
Joe’s third point ‘be in the relationship rather than the transaction business’ is exactly right, but it requires organizations to value, measure and reward different things. O2 is looking at how it moves from being a transaction business to one that values relationships by reducing extrinsic rewards and increasing intrinsic ones.
We have had some great advice on how to hire people, train them, motivate them and finally measure the results. What does all of this look like when it comes together? We asked Francisco Sordo who manages the citizenM properties in Amsterdam to tell us.
Putting it together
Francisco Sordo, citizenM
CitizenM stands for creating a great environment for the staff and then from there you bring it out from within to the guest. It treats every single individual that is working for the company as an individual, and respects them for who they are and how they do things. I say many times that whenever I’m looking for a new ambassador, as we call them, I’m not looking for an employee. I’m looking for an individual who is going to enrich our team. And by encouraging people to be themselves you automatically bring out the best in them.