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Building Learning Organizations: The Operations of Excellence

May 2010

Frances X. Frei

Principles of Service Excellence


Create value for customers, employees, and shareholders.
Funding Mechanism How is the excellence paid for?

Service Offering

Employee Management System

Are employees set up for success?

Which specific attributes of service are you competing on?

Customer Management System

How are customers managed and trained?


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Frances X. Frei

Targeting Specific Attributes


Conventional

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

Wisdom in Retail Banking

Growth comes from attractive rates or acquiring other banks

Commerce offers the worst rates, avoids acquisitions, yet


became the fastest growing bank in the US

Frances X. Frei

Funding Mechanism

Commerce Bank: Hard-Coded Tradeoffs

Service Offering

Employee Mgmt System

Customer Mgmt System

Convenient service

Better customer interactions

Frances X. Frei

Funding Mechanism

Commerce Bank: Hard-Coded Tradeoffs

Service Offering

Employee Mgmt System

Customer Mgmt System

permits

Spending money on service features

creates

Lower deposit rates

Convenient service

Better customer interactions

Frances X. Frei

Funding Mechanism

Commerce Bank: Hard-Coded Tradeoffs

Service Offering

Employee Mgmt System

Customer Mgmt System

permits

Spending money on service features

creates

Lower deposit rates

Convenient service

permits

Hire for attitude & Train for service

creates

Limited product set

Better customer interactions

Frances X. Frei

Labor Reality

High

$$

Aptitude
Low

$
Low High

Attitude
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Commerce Bank: Hard-Coded Tradeoffs


High

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

$$

Aptitude
Low

$
Low High

Attitude

permits

Hire for attitude & Train for service

creates

Limited product set

Better customer interactions

Frances X. Frei

Funding Mechanism

Commerce Bank: Hard-Coded Tradeoffs

Service Offering

Employee Mgmt System

Customer Mgmt System

permits

Spending money on service features

creates

Lower deposit rates

Convenient service

permits

Hire for attitude & Train for service

creates

Limited product set

Better customer interactions

Frances X. Frei

Commerce Bank Attribute Map

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

Most important to target market

Convenience Customer interactions Product range

Least important to target market

2 3 4 5 Relative Performance of Firm 1

Price

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Southwest Attribute Map


Most important to SWA target market
Low prices Friendly service Frequent departures On-time arrival Fast transport
Convenient airports Fullservice airline

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

SWA

The bus

Extensive network

Least important to SWA target market

On-board amenities
1 2 3 4 5

Relative Performance of Firm


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Wal-Mart Attribute Map


Most important to Wal-Mart target market
Low prices

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

Wal-Mart
Selection across categories Rural convenience Reliable prices Merchandise quality Suburban convenience Selection within categories

Sears

Least important to Wal-Mart target market

Sales help Ambiance


1 2 3 4

Mom & Pop

Relative Performance of Firm


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Organizations Have a Choice to Make

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

1 2 versus 3 4 5 1 2

3 4 5

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Multi-Focused Organization

Funding Mechanism

Funding Mechanism

Service Offering

Employee Mgmt System

Service Offering

Employee Mgmt System

Customer Mgmt System

Customer Mgmt System

Service model Shared services

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Multi-Focused Organization

Funding Mechanism

Funding Mechanism

Service Offering

Employee Mgmt System

Service Offering

Employee Mgmt System

Customer Mgmt System

Customer Mgmt System

Service model Shared services

Human resource processing Executive training Finance Purchasing IT {economies of scale} {economies of experience}

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Furniture Attribute Map


Most important to furniture buyers
Durability Assembly Sales assistance Location
IKEA

Funding Mechanism

Service Offering

Employee Mgmt System

Traditional Retailers

Customer Mgmt System

Least important to furniture buyers


1 2 3 4 5

Relative Performance of Firm


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IKEA Attribute Map


Most important to IKEA target market

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

Durability Assembly Sales assistance

IKEA

Traditional Retailers

Least important to IKEA target market

Location

Relative Performance of Firm


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IKEA Attribute Map


Most important to IKEA target market
Ability to change! Fun project! Independence! A destination!
Traditional Retailers

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

IKEA

Durability Assembly Sales assistance

IKEA

Traditional Retailers

Least important to IKEA target market

Location

Relative Performance of Firm


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Identify Funding Mechanism

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

Customer pays, in a palatable way

permits

Spending money on service features

creates

Lower deposit rates

Convenient service

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Progressive Insurance

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

Insurance Economics

Firms lose money on insurance - make money investing pre-paid


premiums

Customers are extremely price sensitive

Progressive Insurance

Progressive spends more on service features, yet the company


makes more on insurance.

Framing : operational savings framed as value-added service


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Identify Funding Mechanism


Customer

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

pays, in a palatable way as value-added service

Operations

Framing Operations: operational savings framed as valueadded service

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Identify Funding Mechanism


Customer

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

pays, in a palatable way as value-added service

Operations

Framing Operations: operational savings framed as valueadded service


Customer

performs the work

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Funding Mechanism

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

Can self-service lead to service excellence? Yes, if

Self-service

readily available full service alternative


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Frances X. Frei

3. Employee Management System

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

permits

Hire for attitude & Train for service

creates

Limited product set

Better customer interactions

Design a system where typical employees have a reasonable chance of success System = selection, training, job design, performance management
Diagnostic Questions: Q: What makes employees reasonably able to achieve excellence? Q: What makes employees reasonably motivated to achieve excellence?
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Job Design at Large International Bank

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

A senior manager complained that no matter how the incentives or training were changed, the customer experience in the branch would not improve. We suggested that the manager spend time working as a frontline employee in the branch.

She reported back after her first day of work

From the time the doors opened, customers were yelling at me. By the end of the day, I was yelling back.

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Job Design Common Culprit

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

Marketing

Operations

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Job Design Common Culprit

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

Operational Complexity
level

GAP Experienced by front line

Employee Sophistication
time

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4. Customer Management System


Which

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

customers are you focusing on?

Which

behaviors do you want?

techniques are you using to influence behavior?

Which

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Which Behaviors?

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

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Influence in Action

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

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Influence in Action

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

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Principles of Service Excellence


Create value for customers, employees, and shareholders.
Funding Mechanism How is the excellence paid for?

Service Offering

Employee Management System

Are employees set up for success?

Which specific attributes of service are you competing on?

Customer Management System

How are customers managed and trained?


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Frances X. Frei

Steinway Pianos
Too late

Quality Ouch! Lets get serious

Its ok, were a segmented market

Frances X. Frei

Volume

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Focus on Rate of Improvement


Company A
At any point in time, benchmarks of absolute difference can be very misleading for Company A

Company B
Quality

Time

Yamaha and Steinway pianos Toyota and GM autos Honda/Suzuki and Triumph motorcycles Swiss and Hamitar watches Korean and Japanese shipbuilders

How does Company B improve faster? A story might help


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Rock and Pond (A)

Point A

Point B

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Rock and Pond (A)

Point A

Point B

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Rock and Pond (A)

Point A

Point B

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Rock and Pond (A)

Point A

Point B

Continue to add water, and crossings will be possible. Or


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Rock and Pond (B)

Point A

Point B

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Rock and Pond (B)

Point A

Point B

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Rock and Pond (B)

Point A

Point B

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Rock and Pond (B)

Point A

Point B

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Rock and Pond (B)

Point A

Point B

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Rock and Pond (B)

Point A

Point B

Remove as much water as possible and then cross.


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Root Cause Analysis


Were having quality problems. Why are we having quality problems?

Because people are not performing well. Why? Because theyre not being trained. Why? Because were hiring them too fast to keep up with the training.
Why?

Because we didnt forecast demand well.

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Lessons from Steinway and Yamaha


Focus

on rate of improvement pursuit of surfacing problems

Relentless Incredible

humility in addressing problems

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Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

The Mind of the Customer

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Customer Perception

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

Customers do not attribute service performance evenly across employees and firm

Positive experiences Employees Negative experiences Firm

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Lessons From Behavioral Science: 1 of 3

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

Beginning of service encounter

End of service encounter

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Lessons From Behavioral Science: 2 of 3

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

Win $5 Win $10 or Win $5 Make winning last...

Lose $5 Get losing over with... Lose $10 or Lose $5

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Lessons From Behavioral Science: 3 of 3

Funding Mechanism

Service Offering

Employee Mgmt System

Customer Mgmt System

Study found that blood donors perceived significantly less discomfort when they were allowed to select the arm from which blood would be drawn.

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Contact Information
My Contact info Morgan Hall 411, Harvard Business School 617.495.7968 ffrei@hbs.edu Blog: www.DecisionToLead.com For Appointments Janelle Mills: jmills@hbs.edu, 617.495.6560

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