Reprinted from the Puget Sound Business Journal
April, 2002


The Importance of Investor Loyalty


to Service Excellence


CEOs know, or should know, the "secrets" to great customer service. In fact, there really are no secrets. Those who practice customer service successfully are generally happy to share what they know, and there is no shortage of books, articles and studies on the subject.

Nevertheless, most service in this country is mediocre, an observation made by Howard Schultz, Chairman of Starbucks, at a recent Professional Speaker Series on the topic of "Customer Service: Exceeding Expectations."

A variety of reasons have been offered to explain why it's a challenge for companies to raise the bar on service quality. Among the more familiar: increased demand for customer service personnel, due to an economic shift from manufacturing to service; higher turnover and loss of loyalty, as a result of the layoffs, mergers and acquisitions of the '80s and '90s; and the migration of traditional customer service workers to higher paying professions.

A less frequently mentioned factor, however, is the long-term investment needed to create a culture of service excellence.

It takes years to develop and successfully implement a service initiative, but our society and business systems mitigate against investing in such long-term initiatives. The payback is too slow and uncertain for many companies to support and for those companies that are publicly traded, mangers must plan within the time horizons of the investors for whom they act as agents.

Stockholders have little patience nowadays with investments that do not show a clear and quick return. To ensure that managers are acting in the owners' interests, management incentives are more frequently tied to quarterly financial performance than to difficult-to-measure variables like customer loyalty.

In such an environment service-related programs are sitting ducks when the budget ax comes out. Service initiatives have a tendency to come and go in large companies before they have a chance to prove their worth, resulting in customer frustration, employee cynicism and widespread service mediocrity.

Service gurus talk about the need for "investor loyalty" as a counterbalance to customer loyalty, but that requires a visionary, motivated and stable management team who can convince investors to look farther ahead.

In companies like Starbucks, where the founder is still vocal and active, and Nordstrom, with its four-generation dynasty, such a long-term vision is possible. In companies where the life of a CEO is nasty, brutish and short, superior service has a difficult time taking root.

In addition, good service should be an essential component of an organization's business model to obtain investor buy-in.

Christine Day, a Senior VP at Starbucks, who also presented at the speakers series, gave a somewhat more pragmatic set of recommendations: measure what matters; respond quickly to customer communications; develop a good service recovery system.

Schultz warns against approaching service as a "program". An ethic of service excellence must become a part of the organization's fabric, he claims, part of its "memory". When a company develops such a memory it can attract and maintain employees and customers more effectively, and the long-term financial benefits of superior service become apparent.

Unfortunately, many large companies have lost their memory, a result of mergers and acquisitions and of frequent turnover at the senior leadership level. They may have a history, but that is not the same thing. Lacking a memory, these companies no longer stand for anything in the minds of their investors, employees or customers. There is no service culture because there is no real culture at all.

Building a tradition and memory of service that will investor loyalty takes time, energy and commitment. Following are a few tips to consider when developing a profitable service strategy and a culture of service excellence:

  • Include customer service in the business plan from the start
  • Focus as much energy on sustaining and building customer relationships after acquisition as on attracting customers
  • Form a clear strategy linking service investments with profit-based outcomes
  • Align service strategy with other components of the company's business model
  • Outline a picture of what the relationship the company and the customer should look like as it advances through the customer's lifecycle