Merrifield Consulting Group

August 19, 2017


















Article 3.11

 

WHAT HAPPENED TO “SERVICE AMERICA?”

 

            In 1985, Karl Albrecht wrote a pop business book entitled “Service America” that perfectly hit the boom stage of the service management craze. Legions of pop authors, speakers and total quality management (TQM) consultants quickly appeared to feed our managerial appetites. A climax of sorts occurred in the fall of ’90. The Wallace Company of Houston, a pipe, valve and fitting distributor, won the Baldridge Award for the “small, service firm category.” Its managers addressed many distribution association conferences until the end of ’91 when the company declared bankruptcy.

Did we ever learn the lessons from Wallace’s surprising failure? What happened to the popularity of the Baldridge Award? Who won the “small, service firm category” last year? Today, where are our perfect service guarantees and benefits? And, why don’t we still care about any of these questions?

            Since the early ‘90s, service management seems to have slipped down and off our mental priority list. The new, hot topics in distribution channels are mostly applications that pertain to “channel cost reduction.” Some of the sub-topics in this area are: vendor managed inventory or continuous replenishment; integrated sole supply; warehouse automation; activity based costing; sales force automation; and the still unclear, but exponentially growing opportunity of “interactive web commerce.”

 

THE BAD NEWS

            The eclipse of service management is unfortunate, because it directly supports “cost reduction” goals and more. We seem to have forgotten that zero errors and 100% on-time delivery provides not just the lowest operational costs, but the best valued service for customers and the highest morale boost for employees.

How big are the unrealized gains in the service management area? Imagine that a guest visits a distribution center and asks the bottom 80% of the payroll who make or break perfect service and then the managers individually the following questions:

What is your #1 niche of customers? Who are your 5 to 10 most profitable customers in that niche? What service measurables do they want in priority order? Where and how do you measure these factors in real-time? What can you do to be part of the distinctive service solution? How have you thought or should you rethink or participate in service systems, personnel re-training and responsibility shifting to help service levels sustainably improve for one customer niche at a time? And, why should you care about any of these questions anyway; what is in it for you? (Note: These questions and their implied objectives differ significantly from what Baldridge and ISO 9000 criteria imply.)

If the front-liners are clueless and management’s answers are vague and diverse, then there is a big upside for service improvement and profitability. And, succeeding with service improvement is the best way to increase the bottom-up, can-do spirit and commitment from all associates, which can then be applied to other change programs.

 

SERVICE FIRST, COST REDUCTIONS SECOND

Achieving perfect service will increase the odds for succeeding, for example, with cost reduction programs. For starters, perfect service helps to retain best, right customers at a greater rate than the industry average. This in turn allows a firm to grow at a faster and more profitable rate than its competitors. Superior growth and profits attract and speak credibly to the better suppliers and customers that all competitors want to partner. Remember - it takes two, mutually attracted, capable and trustworthy partners to re-engineer a traditional buy-sell system for sustainable win-win results. 

 

 

Selling best suppliers and customers on a re-engineering program is tough, but successful implementation is harder. Since 1978 in the US, a big majority of sole supply programs have not achieved sustainable win-win status. Divorce rates however are dropping as partnering skills improve.

If we want to develop corporate change ability, maybe we should first seek it as a happy by-product of achieving basic service brilliance - an intuitively appealing goal within our own four wall control. Then, we might see if our committed employees can make inter-company changes work.

Distinctive service is finally a better opportunity for most distributors. Because only one or maybe two distributors can win the race to be the low-cost product pusher in a given trading area, most distributors might do better by trying to define a niche of customers for which they can achieve differentiated, best total-value service. It is entirely possible, however, that by winning the service quality race one niche at a time, a distributor could also become the low-cost fulfillment center too. They aren’t mutually exclusive.

 

Many of the possible customer-centric, service strategies will probably require, however, new distribution and pricing arrangements. The Value Added Resellers (VARs) in the PC distribution channel, for example, illustrate an advanced evolutionary channel pattern. Many VARs started out as PC stores in the early ‘80s with all of their contribution dollars coming from product markup. Today, they drop ship the goods from about six, national, “master distributors”, and they charge fees to the customer for un-bundled services. In ’96, the average VAR got about 30% of their contribution dollars (a percentage that is still dropping) from product markup and the rest from service fees. These are unsettling ideas for distributors who have always been mark-up, product sellers, but profitable survival is better than profitless volume that may eventually fail.

 

WHY DIDN’T SERVICE EXCELLENCE HAPPEN?

            If the unfinished service management opportunity is big and primary to all other change, then why didn’t more people succeed with the “Service America” advice of the ‘80’s? Some of the answers might be:

1.       The pop resources were not comprehensive enough with their advice. They offered anecdotal stories about great service outcomes, but they didn’t dive deep enough to determine the true strategic and system causes for the good outcomes. It turns out that breakthrough results require big changes starting with obsolete management thinking and practices. Most of us didn’t want to hear that message and then point fingers into the mirror. Many of us probably still don’t today!

2.       We may have been looking, instead, for quick, simple fixes that would fit into our traditional practice of top-down, financial incrementalism. We weren’t dissatisfied enough with the status quo to be actively looking for bold new approaches.

3.       Why the complacency? In the late ‘80’s the old ways may still have been working sufficiently. We had a strong economy from 1982 to 1990. And, as long as most of our competitors practiced the same equally outdated methods as we were, then it was a fair and still profitable fight.

4.       There was no industrial strength handbook that presented a total crystallized vision of how a firm might significantly reconfigure itself for high performance results - until now.

 

AN INDUSTRIAL STRENGTH PRESCRIPTION

A recently published book, “THE SERVICE PROFIT CHAIN”[1], is the culmination of 35 years of steady research by three Harvard Business School professors. While the pop service gurus were

cashing in from ’85 to ‘92, this trio kept on working at uncovering, proving and articulating the true hidden causes of great service performance.

 

 

But, as they brilliantly explain the underlying dynamics of great service, they also expose what is wrong with mainstream, top-down management practices, especially for multi-location, service firms. Within three successful, service transformation cases the authors illustrate that: big gains come from big change involving big pain.

The three cases and their transformational time periods are: Taco Bell from ’88 through ‘96+; NY Police Department from 1/1/94 to 96+; and Sears Roebuck’s Retail Store Group from 11/94 - 96+. Incumbent managers might be unsettled by the following highlighted statistics for the three cases:

1.       All three transformations were lead by new CEOs.

2.       Management mortality rates down the line were high in all three cases. 67% of Taco Bell’s store managers qualified for their redefined responsibilities in the new, service culture. 25% of the precinct captains in the NYPD fit into their new order. 40% of top managers at Sears made the transition, and 60% of the store managers have so far made successful migrations.

These casualty numbers suggest revolutionary change, not incremental, evolutionary activity. Smile training, slogans, team meetings with “associates” and some refined incentive plans won’t apparently do the job.

 

CONCLUSIONS

            Read the book. Join the on-line forum discussion for it at “merrifield.com.” Those companies that have made the most service management progress in the past will probably get the most out of the book.

For CEO’s of top-down, by-the-numbers firms, get more anxious about how rigid and unchanging your business has really been. If we are not changing as fast as the environment and our industry’s best competitor, then isn’t the end in sight?

If anyone is looking for more courage to act and overcome the fear of change pain and the unknown, the book will help. The authors identify and support three necessary factors for generating greater, offsetting energy: 1) dissatisfaction with the eroding status quo; 2) a clear compelling vision of what we could become; and, 3) a solid roadmap for how to get there with tips on how to handle the tough parts along the trail.

Only the high performance service firms will have the resources, the credibility and the can-do spirit to successfully implement the channel cost changes and surf the interactive, web commerce wave. Many top-down firms will invest in the channel cost reduction opportunities, but their returns will match the minimal ones that they got from their TQM service programs. We need to put “service management” back on top of our mental priority list. 

 

 

 

 

ÓMerrifield Consulting Group, Inc. Article # 3.11



[1] The Service Profit Chain, by James L. Heskett, W. Earl Sasser, Leonard A. Schlesinger. Free Press, 1997.

Go to http://www.merrifield.com/book review section.