Radical Management Book Club #2: Delighting the customer

27 February 2014

I’ve been participating in a multi-week series of online discussions, hosted by IBM, entitled the Radical Management Book Club. These were my opening remarks for the second  week’s discussions on February 4, 2014. The subject was the new goal of the organization: profitably delighting the customer.
 “It was a pleasantly crisp June morning. The sky was blue. I was sitting at an outdoor table of a café, Le Corsaire, sipping an espresso coffee. As I lingered, the rich, irresistible smell of fresh warm bread is wafting across the one-lane street from the boulangerie in that little French village, and tantalizing my nostrils. The bread was baked on the premises by people who are masters of their craft. Even at this hour, customers were coming to pick up their freshly baked baguettes. They usually bought two. It was no use buying one baguette. The bread was so tasty and aromatic that just about everyone who buys it will eat one on the way home.”
That’s from chapter 4 of my book, The Leader’s Guide to Radical Management, I hope that as you read that you could almost smell the wonderful aroma of freshly baked bread. I hope that you could imagine sinking your teeth into one of these perfectly baked baguettes. I hope also that you could imagine the healthy interactive relationship between the people who are in business baking the bread and the customers who buy the bread.
To be sure, the bakers are making money but that’s not the point of what they are doing: any baker who doesn’t love making bread for customers isn’t going to be successful there. Because the customers are very demanding. Average doesn’t work here. You have to be really good at baking bread to be successful.
And the work of baking bread, over and over again, is sometimes boring and irksome. But even when it is boring and irksome, people can see the meaning in what they are doing. The meaning of work isn’t in the bread that we’re baking: it’s in the enjoyment the customers get from eating the bread.
Now all that is fairly obvious when you look at it on a small scale in that little French village. Things can go awry when you start trying to organize things on a large scale and you start to think that the purpose of a business is to make money, or to maximize shareholder value.
The idea that the purpose of a firm is to maximize shareholder value that is actually quite recent. People sometimes think that businessmen have always believed that. Well, no. The idea got going around 1970, thanks to our good friend, Milton Friedman.
Then Jack Welch, as CEO of General Electric from 1981 to 2001, became known the perfect exemplar of the idea. That happened because over twenty years with Jack Welch as CEO, GE almost always made exactly the profit that he predicted it would. And as a result, the share price of GE did indeed skyrocket up into the stratosphere. Unfortunately, when he left, GE’s share price came crashing down again, and GE has struggled ever since. We can discuss why that is so if you like.
However Jack Welch did do one great service to humanity when in 2009 he labeled the idea that the purpose of a firm is to maximize shareholder value as “the dumbest idea in the world.”  If you read the Forbes article on this subject, you know that Roger Martin and I had fun imagining what the National Football League would be like if they focused only on making money.
Instead, a better way of looking at the world is to see the purpose of a firm as Peter Drucker pointed out in 1973 namely to create a customer.
Since then, with the shift in power in the marketplace from seller to buyer, merely creating a customer isn’t enough. It’s about delighting customers—continuously adding new value to customers—better, cheaper, faster, smaller, lighter, more convenient or more customized.
The meaning of work is thus not the thing or output that is being produced: it’s the experience that the thing or output generates. Thus, as I wrote on page 65 in the passage, we referred to last week, it plays in different ways in different spheres.
  • Take making toys: The meaning of work isn’t in the toy that we’re putting together; it’s in the smile on the face of the child.
  • Take building houses: The meaning of work isn’t in the bricks and mortar of the house we’re building; it’s in the happiness we generate in a family with a house that precisely meets their needs.
  • Take insurance: The meaning of work isn’t in the paper and print of the insurance policy we’ve issued; it’s in the security that we’re providing to the spouse and the children.
  • Take a hotel: The meaning of the boutique hotel that we’re running isn’t in the rooms and the physical facilities; it’s in the feeling of being at home away from home that we generate in people who stay there.
  • Take software: The meaning of the software we’re coding doesn’t lie in bits and bytes; it’s in the cool things that users can do with the software.
  • Take any of kind of work: The meaning that we see in work resides in the responses of the people for whom we are doing the work.
A participant asked a question last week: he was fascinated by the example of Apple and they really did delight him as an Apple customer. Jim asked: from a management point of view, how do you really get that whole customer delight dimension, defined, and then trained and focused so that the net result is that when I walk into the store, they are there to solve my problem. The French village is fine. But does all this scale in a modern economy?
Let's take the case of Apple's retail stores.

#1: Set the goal

It starts with the goal. Take Apple’s retail stores. Apple’s mission is not to make money but to ‘enrich the lives of customers and employees.’ The stores are places for people to gather and learn, not just to buy. They would be designed to encourage an ongoing relationship with customers, not merely a one-off purchase transaction. The delighted customers …would tell their friends and colleagues about their wonderful experience at the store.”
Note this is not just adding a customer focus dimension to the existing goals. This is not: “let’s try to delight our customers while we pursue our number one goal, namely, maximizing shareholder value.” This is about putting customers ahead of shareholder value. Profitably adding value becomes the central goal of the firm. So the first thing is to get the goal right. Steve Jobs had other flaws, but he did get the whole organization focused on delivering more value to customers.

#2: Measure

Secondly, measurement is central to delighting customers so that it becomes a daily reality.
I mentioned briefly last week the Net Promoter Score, which was developed by Fred Reichheld over 25 years, which is discussed in his book The Ultimate Question 2.0. It’s very simple, just a single question and very sensitive. It measures whether you are delighting your customer both in absolute terms and in relative terms. It’s used by many organizations, probably by IBM also.
Listening to customers isn’t something Apple does once a year or even once a quarter. NPS plays a central role in the daily management of Apple’s stores.

#3: Reinforce with action

And you reinforce with action. In Apple stores, comments from customers help store managers prepare for service recovery calls with detractors to close the feedback loop. The outcomes of these calls, together with the customer comments, provide important coaching and feedback messages that are passed along to employees.
Employees who create promoters are recognized by managers. In some stores, customer comments are scrolled across a large-screen TV monitor in in the employee break room.
Meanwhile Apple’s central NPS team analyzes customer feedback from all the stores to understand the systemic reasons for promoter’s enthusiasm or lack thereof.
At Apple, customer focus is thus not a vague slogan. It’s at the core of the way the stores are managed. Employees know where they stand among their peers in terms of NPS and where their stores stands relative to the rest of the stores in the region. Each day, there is an opening daily standup (the “daily download”) where the employees review the NPS feedback and discuss how to adjust their work accordingly. (p136)

#4: Time is vital

At Apple, store managers call every detractor within 24 hours. Initially, they found there were some detractors they couldn’t reach. Subsequent studies showed that detractors that they did reach purchased substantially more Apple products and services than the others. Further studies showed that every hour spent calling detractors was generating more than $1,000 in revenue.

#5: Don’t cut corners

In traditional management, where customers are secondary, the expense of following up with customers would seem like the first kind of expense to cut in a crunch. With these numbers in hand, Apple’s managers realize that this is one of the last things that should be cut.
#6: Extend the framework to employees
Nor does Apple’s focus on customers mean that it neglects its employees. Apple has been a pioneer in adapting the NPS framework to employees. Apple realized that only employees who were promoters themselves of Apple were likely to be able to turn customers into promoters. So they began surveying their own employees every four months to determine how likely the employees would be to recommend the store as a place to work.

The results

When Apple began measuring NPS in 2007, its stores already had a very good NPS of 58%. In 2011, its stores have an outstanding NPS of 72%. The best stores achieve a remarkable 90% NPS.
Is the primary source of customer enthusiasm Apple’s amazing products or cool design? No. The most common reason for becoming promoters is the way store employees treat them.

Making money is the result, not the goal

The financial result is of course that Apple makes an awful lot of money. What sometimes confuses people in thinking about Apple is that they see Apple making a lot of money, and they begin to imagine that making money must be Apple’s goal.
On the contrary. If making money were ever to become Apple’s goal, the whole approach would collapse back into the failing practices of traditional management.
Thus at Apple under Steve Jobs at least, making money was the result, not the goal of the organization. The bottom line of its business was to delight the customer.

Not just retail stores

You might ask, does any of this apply to IBM. IBM isn’t in retail these days. But what I am illustrating is the mindset involved. This is applicable whether you are cleaning hotel rooms at the Joie de Vivre hotel chain, or you’re doing high-end software work, or you are delivering professional services, it’s the same mindset. It’s a different way of thinking, speaking and acting in the workplace.
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Steve Denning’s most recent book is: The Leader’s Guide to Radical Management (Jossey-Bass, 2010).
Follow Steve Denning on Twitter @stevedenning

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