Uncommon Service

Uncommon Service - Frances Frei and Anne Morris

Introduction: If This Is a Service Economy, Why Am I Still on Hold?

“Here's what we've learned: uncommon service is not born from attitude and effort, but from design choices made in the very blueprints of a business model. It's easy to throw service into a mission statement and periodically do whatever it takes to make a customer happy. What's hard is designing a service model that allows average employees — not just the exceptional ones — to produce service excellence as an everyday routine. Outstanding service organizations create offerings, funding strategies, systems, and cultures that set their people up to excel casually.

Charismatic leaders sometimes assume that they can avoid this trade-off by sheer force of personality. If they just get everybody fired up, the kinks will work themselves out. But you can't design a system that is based on the faith that all of your employees will perform heroically, all day, every day, for an indefinite period. For a system to work, excellence must be normalised. And you don't get to that point by demanding extraordinary sacrifice. You get there by designing a model where the full spectrum of your employees — not just the out- standing ones — will have no choice but to deliver excellence as an everyday routine. You get there by building a system that just doesn't produce anything else.

Great service, it turns out, is not made possible by running the business harder and faster on the backs of a few extraordinary people. It's made possible — profitable, sustainable, scalable — by designing a system that sets up everyone to excel.

Leadership, at its core, is about making other people better as a result of your presence — and making sure that the impact lasts in your absence.

Culture not only guides individual decision-making, but also provides the foundation for all other organizational behavior and action. In other words, culture doesn't just tell you what to do — it shows you how to think. We see it this way:

Service Excellence = Design x Culture

Chapter One: Truth Number 1: You Can’t Be Good at Everything

“Notice what Commerce has done. It's worst in class on some service dimensions (rates and product mix) so that it can be best in class on others (hours and attitude). Bad in the service of great. It sounds simple, but the courage to choose low deposit rates and poor cross-sell performance seemed crazy alongside the desire to grow. These choices worked because being bad was not a missed opportunity, but rather was the fuel to create an exceptional service experience.

Notice that Commerce is indeed a collection of 5's (best) and I's (worst). The bank was so successful because it had the wisdom to know the difference, to know where it should be winning and losing. Being worst in class on the things that were least important to its customers allowed it to be best in class at the things that were most important to them. That's the trick. You have to be bad in the service of great — and you have to be very smart about which is which.

(Frei & Morris, “Uncommon Service”, p.20)

Walmart executives aren't likely to be shocked to learn that their stores are harshly lit environments with sporadic sales support. These choices reduce the cost of operations, which gives the stores the flexibility to charge customers less for a wide range of products. These choices funded the company's excellence in other, more important dimensions. Walmart had the stomach to let its customers solve their own problems in an uninspired setting in exchange for "always low prices," a deal their customers were happy to make.

Everything at the Cipriani is exquisite and made to order according to local traditions that date back centuries. But here's the catch: OEH hotels such as the Cipriani charge a 50 percent price premium over the number two competitor in their local markets. And the number two competitor might be the Four Seasons. If your market will give you a 50 percent price premium on the service you're offering, then you, too, can deliver perfection across the board. In this economic moment, however, we found very few companies that live in that world.

Beyond risk aversion, there's another psychological pull toward option B. It's simply human nature to want to avoid weakness or to use your weaknesses as a guide for where to improve. Indeed, most gap analyses are built on this idea and then color-coded to reinforce the point: hunt down your biggest flaws (the red ones), and improve them; now move quickly on to the yellow ones. But this approach can be a disaster. When your weaknesses are enabling your strengths, reducing the gaps between you and your competitors can actually undermine performance, turning a well-intentioned improvement effort into a strategically dangerous paint-by-number exercise

For example, a widespread rule in the construction business states that a customer can expect two of the following three things: speed, quality, and price. You can get good quality built quickly, but it will cost you. You can get something built fast and cheap, but the quality will suffer. Or you can get good quality for a competitive price, but the wait will be painful. This is also known as the impossible triangle. It’s considered irrational; to ask for all three.

Many managers also believe that they're inspiring the troops hv demanding it all. In our experience, the opposite often occurs. Cynicism can build quickly" among frontline employees who are confronting the trade-offs every day, while their managers continue to deny reality.

We have come to describe the way most companies segment their customers as marketing segments — the buckets used to identify and communicate with different kinds of customers. We call the classifying of customers by service priorities operating segments. The vertical axis created in an attribute map can be thought of as an operating segment. The goal of the diagnostic stage is to reveal all the different operating segments — that is, all the different orderings of attributes that you are currently serving.

Don't guess; ask them. Not surprisingly, our clients then realize that their company is getting business from the operating segments that it is optimized for, whether or not the clients fully understand their own optimization and design choices. When their customers fall into another operating segment (e.g., when these same customers need something done fast), the work goes to someone else. Many people use the U.S. Postal Service regularly for routine mail, but when they need guaranteed, mistake-free delivery, they'll pay a serious premium for FedEx. Same people, two operating segments.

As we mentioned before, if your customers don't all fall in the same operating segment — if they don't all want the same things, in the same order of priority — you have two basic choices. Your first choice is to focus without apology on one operating segment, to build a single service model around one segment's needs and keep your finger on its pulse. That's what Walmart and Southwest do. If a customer outside these companies' core constituency wants to do business with them, Walmart and Southwest will certainly take the money. But the companies won't contort their service models to also meet the needs of these secondary customers. Your second choice is to build different service models for the operating segments you uncover. Think emergency rooms and outpatient clinics within a single hospital.

But it's important to stay tethered to reality. Nothing strengthens that connection more than an ongoing dialogue with your customers. Don't outsource this to the marketing department. Don't consume your customers' frustration in sanitized slides delivered by direct reports with little incentive to deliver bad news. Pick up the phone, and confront the truth.

The good news (figure 1-9) here is that you have an advantage, but you're getting no return on it. We call it a waste wedge. You're investing in service features that your customers don't truly value, and it's not translating into profitability or market share. Your decision point: shift resources to attributes your customers value more, or get customers to care more about the things in which you excel. For example, our tap water was fine until bottled water made us want to drink from an obscure Swiss spring.

IKEA achieved what few companies have achieved, but what we believe is a powerful model: the company changed its customers' relationship with the category. It reordered its customers' attribute list, and then some.

UNCOMMON TAKEAWAYS

• To achieve service excellence, you must underperform in strategic ways. This means delivering on the service dimensions your customers value most, and then making it possible — profitable and sustainable —by performing poorly on the dimensions they value least. In other words, you must be bad in the service of good.

• The primary obstacle to service excellence is not the ambition to be great, but the stomach to be bad. This is an emotional obstacle.

• It's difficult to compete without understanding your customers' needs and how well your competitors are meeting those needs. Fortunately, customers are typically very willing to give you that information. And it's cheap and easy to ask them for it.

• There is an important distinction between marketing and operating segments. Marketing segments tell us how to identify and communicate with different kinds of customers. Operating segments tell us how to serve customers differently.There is rarely a one-to-one mapping between these segments.

• There are two key ways to improve service: (1) meet your customers' existing needs more effectively, or (2) convince your customers that they need something you already do well.

• There is a difference between financial models and service models. Service companies need to be "bi-lingual" to excel.

Chapter Two: Truth Number 2: Someone Has to Pay for It

“Or is this an example of what we call gratuitous service, service nice-to-haves donated to customers, with little chance of recovering their costs?

Without a reliable funding source designed directly into the model, organizations risk delivering service that customers happily consume but never pay for. In our experience, four funding mechanisms can be used to sustain your premium offering — and only one of them requires that you charge premium prices. Said another way, there are four ways to pay for excellence:

1. Charge customers extra for it — in a palatable way.

1. Make cost reductions that also improve service.

1. Make service improvements that also reduce costs.

1. Get customers to do the work for you.

We call this palatable pricing.

Transparency matters when it comes to pricing — it's part of the palatability calculus — and it matters even more if you're competing on a straight-up, no-frills, adult-to-adult relation-

ship with your customers. Palatable pricing depends heavily on the deal you're making with your customers. At US Airways, the expectations for customer care are much higher than at a discount carrier, mainly because the ticket price is higher. As a result, bag fees are a source of incessant complaints.

When companies pay customers through discounts to remain customers, it's a customer retention program. When companies pay customers to try out their products and services, it's a customer acquisition program. When companies invest in activities that increase customers' willingness to pay a premium price, then they have a loyalty program. A successful loyalty program increases the chance that your customers will choose you over a lower-priced competitor. The confusion of terms wouldn't be a big deal, except that a mislabeled loyalty program can get in the way of creating a real one.

The point here is that improving service in one part of your business can substantially lower costs elsewhere — thereby funding the premium experience.

Step 1: ExamineYour Cost Structure

The place to begin your search for ways to fund uncommon service is with your biggest buckets of costs, which often represent your biggest buckets of potential savings. (When people get stuck here, we suggest starting by reducing the time involved in a customer-facing process. This will often yield better experiences at a lower cost to the organization.)

Step 2: MonetizeYour Strengths

In addition to looking at your largest cost drivers, ask yourselves, "What can we do better than anyone else?" That is, beyond the rhetoric of annual reports and marketing collateral, what makes you really and truly superior? Start here, and think about a value-added service that allows you to benefit operationally from your excellence — bonus if you can make your competition uncomfortable along the way…

Interestingly, the obstacle to innovation at this company was its confidence that it was already capitalizing on its strengths. As soon as its managers had the courage to acknowledge the gap between chatter and truth — between what they were vaguely promising and what they were explicitly delivering — we were able to make progress in relatively short order. The security company is not alone in this. We often find the obstacle to innovation is an unwillingness to acknowledge reality, including the hard truth that you're not creating the value you claim to be creating. Once we establish that there's more to be done, the brainstorming is often fast and furious. Without that acknowledgment, however, organizations can retreat to a defensive and reluctant crouch.

Step 3: Unleash Your Customers

The move to self-service is usually a cost-cutting initiative. But as we've discussed, it's not enough to just cut costs. Again, the goal here is self-service that's so good that you can cut costs while raising prices. When we ask organizations how much extra they charge for self-service, they often look at us as if we're crazy.

UNCOMMON TAKEAWAYS

• Service excellence must be funded in some way. If not, you risk delivering gratuitous service, service features that are donated to customers but never paid for in any way.

• There are four ways to fund a premium service experience: (1) get customers to pay you extra for it, (2) reduce costs in ways that also improve service, (3) improve service in ways that also reduce costs, or (4) get customers to enjoy doing some of the work for you.

• Method 1 is the simplest, at least from a design perspective. Methods 2 and 3 are the most reliable. Method 4 gets the most attention.

• Extra service fees aren't inherently good or bad. Their success depends on the specific contract you have with customers.

• A loyalty program is one way to get paid for a premium service experience. True loyalty programs —programs that increase customers' willingness to pay a premium price — are rare, largely because most loyalty programs are mislabeled retention programs.

• For self-service to be part of an uncommon service experience, customers must prefer self-service to a full-service alternative.

Chapter 3: Truth Number 3: It’s Not Your Employees’ Fault

If your company delivers disappointing service on a consistent basis, or even excellent service but only in fits and starts, it's not because you've somehow managed to hire an entire company of people who just don't get it. The problem is much more likely to be that you've built a service model for phantom employees you wish you had — but actually don’t.

First, not all of your employees are superheroes. Most companies have a continuum on the payroll, from the exceptionally talented to the should-definitely-be-doing-something-else- with-their-lives. This isn't easy to acknowledge. Any number of things can get in the way of doing so, from the role you played in hiring someone to good, old-fashioned conflict aversion. Here's a safe assumption: unless you have the resources and capacity to systematically attract, reward, and unleash the very best in your industry, some of the people now reporting to you cannot be objectively characterized as outstanding. Second, you're probably making your employees' job harder. The hunt for new sources of revenue within organizations often leads to an increase in operational complexity. New products and services — or even new variations on old ones — lead to new processes, policies, and regulations; new organizational structures and technologies; new customers with new needs being channeled toward new touch points. In one quick-service restaurant we studied, the menu had grown from twenty-five items to more than a hundred in just a few years.

In short, the average employee is drowning in complexity. And the outstanding employee, the one who has a chance of keeping up, is a much scarcer resource than many managers are willing to acknowledge. We're designing jobs for superhumans, and it turns out our people are flesh and blood.

How did Commerce handle selection? The bank literally needed fifteen seconds in an interview to know if someone would be a good fit. Within fifteen seconds, the Commerce interviewer could tell if prospective employees smiled in a resting state. Commerce Bank understood that most of us smile when provoked, but we spend most of our day with a more neutral or even negative expression on our face. A subset of human beings, however smiles as a default position. Since an eight-hour day at Commerce required eight hours of smiling, the company looked for people with this "smiley gene." Of course, first the bank had to get these happy people into the job interview. Commerce Bank decided to leverage its best asset for this task: a payroll already filled with happy people. Like any tribe, smilers are great at recognizing themselves in other people. And so Commerce distributed handfuls of laminated cards to new employees with a printed message inviting people to join the Commerce family. Itthen instructed new hires to hand out a card to anyone who gave them a great service experience. Literally anyone. Commerce told them — whether it was a great toll booth operator or librarian or convenience store cashier. With one exception — no one in the financial services industry, including another re- tail bank. The effort it took to deprogram these employees was too high, and they were likely to be too expensive, given the aptitude requirements of most banks and brokerages.

Job Design

The alternative to rigorous training, of course, is a job design that is so intuitive that employees can do it on day one. Think of it as the anti-BBBK approach, a route to service excellence that is no less viable. It won't work in every industry, but the logic of it will: simplify the job so that your people can focus on service.

Because of its IT platform, LSQ has the freedom to focus on identifying traits like cultural fit, service orientation, and attitude, the traits that distinguish the company in its client interactions.

Again, the nemesis of good job design is complexity. Complexity has a bad habit of creeping into your systems and jobs over time, as you respond to dynamic market conditions and chase new sources of revenue. You may have tamed complexity five years ago with roles and responsibilities that matched your world of five years ago and your employees of five years ago. But the threat requires constant vigilance. What matters is whether your current job designs match the people who are doing them right now.

IT tools that work are deeply thoughtful about the user experience, including how and when data is entered in the rhythm of a particular job. Ideally, they're developed in tandem with the role itself. This rarely happens. Typically, a job is designed, technology advances, and then the technology is piled on as an afterthought. The result — predictably — is an increased operational burden on employees and its familiar by-product: widespread resentment. In an excellent, ongoing discussion presented in his blog, Andrew McAfee of MIT discusses how to mitigate this risk and integrate IT productively into your organization.

Here's the basic message: be prepared to go all the way in integrating technology into job design, from great software and functional hardware to effective training and regular user feedback. Stopping short can be a disaster. And the value of reaching the finish line may surprise you.

Job design is mostly about designing tasks so that they match a typical employee's attitude and aptitude. Performance management is about creating incentives to do a job well — and disincentives to do it poorly. These are the carrots and sticks that keep your employees on track, but they can also include controls such as scripts and checklists that make it difficult for employees to stray too far.

Scenes like this played out across the country. And they did because BBBK's incentives to excel not only worked for individuals, but they also worked seamlessly with the rest of its employee management system. We're not suggesting that the company's approach is somehow universal, although its deliberate balance of "trust and verify" shows up in the management systems of many other successful service companies.

Customize your strategy to the unique needs and opportunities of your own company. Resist relying exclusively on standard performance levers, no matter how entrenched they are in your industry.

Our central point here, as elsewhere, is that your performance management system has to be both internally consistent and integrated well into the rest of your business model. All the parts have to work together.

Verizon needed to hire new people who could help them to learn — a critical distinction in

organizational goals that our colleague Amy Edmondson has articulated.'' And there was no use putting these hires through a three-month training program when the company did not yet know what the job would actually entail.

Sound at all familiar? If so, we advise companies to first try to get a sense of the size of the employee-job gap. We suggest two diagnostic steps that will produce some intuition about the magnitude of the problem. If you have a few days to study the question, start with the approach described below. If you only have a few minutes, skip to the second step.

A hidden identity isn't easy to pull off in most companies, but the next best thing is almost as effective: talk frankly with your people about their experience on the job, what makes it easy or hard, and how their roles have changed over time. Watch them in action. Try to do an average employee's job for a day, and see how you fare. Take a seat at your call center, and try to respond to eight screens of information at once.

1. Chart Complexity overTime

(Estimated Time: Fifteen Minutes)

Once you have some intuition from going undercover, try to graphically plot how the operational complexity experienced by your employees has changed over the past five years (this can be done for any job). Then plot the change in employee sophistication over the same time span. If your graph looks something like figure 3-2, then you have a problem.

1. Close the Gap

When a company identifies a gap between its people and the jobs they're doing, it essentially has two choices: reduce operational complexity or increase employee sophistication. Said differently, change the people or change the job. On the people side, the two levers you have are selection and training. Selection might work in a high-turnover business, but it's usually a daunting solution for any other organization…

The goal is to get a closer match between employee sophistication and operational complexity. Go as far as you can on the people front, and then address system complexity. You can address complexity either by decreasing it outright or by decreasing the amount of complexity experienced by each employee. For the latter, it may be possible to more thoughtfully break up who does what — break down a Job into smaller tasks and assign them to specialized employees. Take inspiration from a hospital: one person takes blood pressure, another does anesthesia, and another performs the surgery. The system itself is complicated, but each employee only experiences a portion of it.

Ready to take on system-wide complexity? We suggest starting with back-end complexity that's adding little to the customer experience. Reduce those fifty-five ways your employees can ring up the same drink, since numbers 2 through 55 do nothing to make the drink experience more enjoyable.

UNCOMMON TAKEAWAYS

• The goal of an excellent service organization is to deliver outstanding results with average employees.

• Many companies design service models for employees they don't have — for a payroll filled with superstars when, in fact, there's a healthy range of talent and initiative on the team. Capture this reality in the design of the business model.

• Successful employee management systems have four main components: selection, training, job design, and performance management.These components must be internally consistent and aligned with the rest of the service model. There's no such thing as good or bad selection, for example. The issue is whether it's consistent with the rest of the employee management system and whether the system is consistent with the rest of the service model.

• IT solutions can help or hurt your employees' productivity, often in dramatic ways. IT tools that work are sensitive to the employee experience, including how and when data is entered in the rhythm of a particular job.The best solutions are developed in tandem with the role itself — not piled on after a job design is already in place.

• The average service employee is overwhelmed by the increasing complexity of his or her job. When a company identifies a gap like this between operational complexity and employee sophistication, it has two choices: change the people or change the job. In other words, (1) train and hire differently or (2) redesign the job so that your current team can do it.

Chapter Four: Truth Number 4: You Must Manage Your Customers

“Said differently, customers don't just consume service; they also participate in creating it. And they're not always good at their job.

Here's one way to think about it: if you run a service business, then your customers "work" for you in many of the same ways that your employees do. But these aren't your average employees. They're erratic, unskilled, and entitled. Their interests and your interests regularly diverge. Employees are contractually bound to work on behalf of the firm, but customers operate under no such constraints. Customers are looking out for number one, as they have every right to do.

Here's the basic message: if you're in the service business, you essentially don't know which people are on your team, when they're showing up, and what they're going to do once they get there. And so you need a plan for managing this uncertainty.

Managing the Chaos of Customers

In other words, variability is a fact of life with customer-operators. Here are the different forms it can take:

• Arrival: Your customers don't all want service at the same time or at times that are necessarily convenient for you. Grocery stores find themselves swamped during the evening rush hour, while the lines at Dunkin' Donuts can extend for half a block at

8:00 a.m.

• Request: Not everybody orders the same thing. Each client of an advertising agency is executing a unique marketing strategy, and vacationers at a resort want different amenities. Even customers of a single-service business like Jiffy Lube show up in different makes and models of cars.

• Capability: Customers have different knowledge, skill, physical abilities, and resources, which means that some customers perform tasks easily while others need hand-holding. In a medical setting, the ability of a patient to describe symptoms can greatly affect the quality of care. But so can the person's ability to negotiate the medical bureaucracy.

• Effort: Customer-operators decide for themselves how much effort to invest in production tasks. Company controllers don't always hand over well organized files to independent auditors, and shoppers don't always return their shopping carts to the store.

• Preference: Even customers who want the same service may have very different definitions of quality. One diner appreciates the servers' introducing themselves by name; another resents the presumption of intimacy. Some clients of a law firm might construe a top partner's attention to detail as reflecting the importance of their case; others might complain that those expensive billable hours could be doled out more Judiciously to less costly associates. Subjective preference adds a multiplier effect to all other forms of customer variability.

There are more aspects of the variability question, but our point here is fairly simple: customers can wreak havoc on your operations. It's what makes us hesitate when we hear "the customer is always right" or that the path to service excellence is to simply delight your clients. Performance can't be sustained by placing customers on a pedestal and indulging their every desire.' To create a system in which excellence is the norm, you need to manage your customers every bit as much as you manage your employees.

The Successful Customer

Management System

In designing a customer management system, we propose many of the same strategies that we used for employee management.

Customer Selection

By narrowing its focus on a particular procedure for a particular kind of patient, Shouldice Hospital achieves a highly predictable work environment with just the kind of low-risk, high-reward "customer" that every surgeon dreams of.

Think of all the resources you devote to hiring good employees: interviews; background checks; references; tests for ability, motivation, and cultural fit. Now think of the energy you spend on "hiring" the right customers. In most companies, there's no comparison, even though customer behavior can have just as much of an operational impact as employee behavior. Customers can play a defining role in your ability to deliver great service at a sustainable cost. And the greater your expectations for your customer-operators, the more time you need to devote to choosing the right people for the job.

We love the Starbucks example because it spotlights the attributes of a good customer-training experience: quick, easy, and palatable, if not downright fun. Your training program has to feel good to customers, whose tolerance for discomfort is reliably low, despite any well-earned fantasies you might have of becoming Seinfeld's iconic Soup Nazi, a service provider who gets his customers to behave by screaming at them.

Innovating without empathy rarely delivers the same kinds of results, particularly when it comes to customer-operators. Technology makes it possible to dramatically expand the customers operating role, but that doesn't necessarily translate into better numbers. Many banks learned this the hard way in the 1990s. As retail banks increased the number of low-cost channels for customers to use to serve themselves —voice-recognition systems, ATMs, online banking — the institutions inadvertently undermined their margins. That's because customers didn't necessarily migrate to the lower-cost solutions. Instead, many simply increased their numbers of transactions overall, still coming to the teller window to deposit their weekly paychecks while also hitting the ATM and checking their balance online. In some cases, these high-tech tools enabled customers to engage their finances at a deeper level, which then increased their demand for traditional, high-cost banking services. Here's the irony: these banks were trying to save money with online tools, but instead, they designed a more costly model. Customers became much more expensive to serve, which wasn't sustainable. When your goal is service excellence, we suggest taking the opposite approach. Customer job design, especially self-service design, works best when you first work to increase the quality of the service experience, to make the service more convenient or customized (or whatever drives value in your business).

Service Excellence = Design x Culture

Putting It into Practice

We tend to think of managing customers in phases. First, you need to get control. Find out how your customers are influencing the cost and quality of your service today, and then nudge them in a better direction. In our experience, almost all service organizations can benefit from some version of this exercise, if only to bring sunlight and confidence to your assumptions. Even the most basic of assumptions can turn out to be startlingly wrong when it comes to customer operating behavior. The next phase involves actively deploying customer-operators, but in a targeted way. Get them to help you improve your current processes, for example, or add customers to the design team as you start mapping out a new service offering. This is the walk-but-not-run phase, the first tentative steps toward tapping the operating value of your customer base. Start to blur the boundaries between employees and customers. The final phase is what we call going all the way, embracing your customers as very central producers of the services you provide. Think of it as the eBay way. This phase carries tremendous potential upside. And a meaningful amount of risk.

Let's look at these three phases in more detail.

The hard part was reframing the certainties in managers' minds as hypotheses that needed confirmation. It turns out that this is the hard part in most organizations. And for whatever reason, this is particularly true for customer behavior. At the risk of sounding melodramatic, we would suggest that there's an epidemic of overconfidence in service companies when it comes to predicting the operating behavior of their customers. Fortunately, the treatment is cheap and effective: surface your operating assumptions. Get in touch with whatever conclusions you've reached about the impact of customers on your operations.

Now test your assumptions with data you probably already have.

In the world of the customer-operator, the analog to the andon cord is the customer complaint. We've studied patterns in complaint letters and e-mails, which give you a fascinating window into how businesses manage their customers and whether companies view customers as operating assets. A generic response sends a clear message, as does detailed engagement from the chief operating officer. Not responding at all — a notorious habit of a shocking number of industries —sends another kind of signal.

UNCOMMON TAKEAWAYS

• Service customers don't just purchase a service; they also participate in creating it. Among other things, they make the service faster or slower, better or worse, cheaper or more expensive to deliver — for themselves and for other customers. They are active producers (and detractors) of the value they end up consuming.

• For example, a customer at a salad bar affects the quality of his or her meal, whereas patients who skip dental appointments drive up the costs of running the entire practice. When customers are influencing the service experience in ways like these, we call them customer-operators.

• Customers can be more or less involved operationally, depending on your industry and on your specific design choices — for example, how much self-service you build into your model and whether you involve your customers in your improvement efforts.

• The more dependent your service business is on the behavior of customer-operators, the more important it is to manage them successfully. Similar to employee management, the four components of a successful customer management system are customer selection, training, job design, and performance management.

• Not all customer-operators are alike. When compared with each other, they are faster, slower, smarter, pickier, later, earlier, or more or less prepared to perform their operational roles. This diversity increases the cost and complexity of running a service business.

• Assume that you don't know exactly how your customers are affecting your operations or how well your efforts to manage them are really going. Reframe any certainties as hypotheses that need confirmation. Test them. Fortunately, the data you need is usually right at your fingertips.

Chapter Five: Now Multiply It All by Culture

“Imagine yourself walking around an empty building. The lay-out is intuitive, each room surrendering easily to the next one. You feel strangely reassured, even optimistic. You sit down on a bench that you hadn't really noticed before, but which suddenly seems to be in exactly the right place. And you find yourself lingering, again an unfamiliar impulse. You feel the volume of the noise in your mind start to lower. That's the feeling of great design. When a service model is designed right, it produces the same sensations among the people who interact with it —energy, reassurance, the sense of calm that comes from being deeply respected as a living being. But like an empty building, a well-designed service model is still missing the critical element that brings it to life on a functional level: the people, or more specifically, how the people interact with each other. When we're talking about organizations, we call that element culture. A great service organization needs to get both right, the service design and the culture that animates it.

Southwest has a greater number of unionized employees than any other airline, yet it also has better employee relations than any other airline. Why isn't that a contradiction? It turns out that unions love Southwest because, unlike other airlines, it has never had a layoff. Southwest didn't expand as much as traditional airlines did during good times, which means that it doesn't need to cut back quite so much during bad times. This policy is designed to maintain good employee relationships, and it is these good relationships that allow Southwest to include the team-late provision in employment contracts, as well as put the phrase "and everything else" into all of Southwest's job descriptions. Whatever needs doing, you simply do it, without having to locate, for instance, a qualified master electrician to screw in a light bulb. And this chain of interlocking trade-offs — expansion limits to preserve job stability in return for flexibility in job descriptions — all leads directly to faster turnaround, the key to Southwest's success.

Why it works at IDEO — and what allows the company to churn out excellence at a regular clip — are what Schein calls the "shared basic assumptions" that drive all of these seemingly odd choices. If you want to change culture, then you have to start there, by influencing the thought patterns that drive your employees to act.

We are not those people. We do recommend Hidden Value: Getting Extraordinary Results with Ordinary People, by Charles O'Reilly and Jeff Pfeffer, as well as Amy Edmondson's research on organizations that create psychological safety for their employees, which is some of the most exciting work we've seen in this space. There are many others who deserve to be on that list.

More specifically, we've seen three distinct patterns in these organizations' relationship to culture. All demonstrate high levels of the following:

• Clarity: knowing exactly what kind of a culture you want to build, and how this culture is critical to achieving your most important performance objectives

• Signaling: relentlessly communicating the organization's core values, particularly.in moments when people are likely to be most receptive to these messages, such as during recruiting and orientation

• Consistency: reinforcing the culture at ever turn and rooting out cultural violations, that is, misalignment between the desired culture and organizational strategy, structure, and operations

Hsieh is crystal clear on the culture he needs to make the company thrive, and he and his team have broken it down into ten core company values:

1. Deliver wow through service.

1. Embrace and drive change.

1. Create fun and a little weirdness.

1. Be adventurous, creative, and open-minded.

1. Pursue growth and learning.

1. Build open and honest relationships with

communication.

1. Build a positive team and family spirit.

1. Do more with less.

1. Be passionate and determined.

1. Be humble.

But it's not just management that gets it. The conviction that culture is key is embraced throughout the ranks at Zappos. It's so central to the company's belief system, in fact, that the company publishes the Zappos Culture Book, which is updated regularly and contains hundreds of unscripted comments and essays written by Zappos employees and vendors about the company's culture, why it matters, and how it affects what they do every day. It was conceived as a training tool for new hires and partners, but consumption of the book has gone way beyond that internal circle. Ringing in at 348 pages in the 2009 edition, it's a moving and persuasive testament to the power of employee engagement ("happiness" in Zappos-speak), and the role of culture in eliciting it. We recommend buying it and just paging through.

The quote that moved us most was from Ryan A.: "At my last job I was afraid to be anything: right, wrong, smarter, dumber ... At Zappos being yourself is the best thing you can do." Perhaps the cultural feature we observe most often is unproductive fear, fear of looking bad or doing something wrong. If organizations did nothing else but address that part of their environment, we're confident that the creativity and engagement of their people would have a real chance of being unleashed. Human beings are not at their best in a defensive, self-distracted crouch.

a. This anecdote was documented in Joseph Carvin, A Piece of the Pie: The Story of Customer Service at Publix (Nashville, TN: Favorite Recipes ~Press, 2005), a fantastic resource used to clarify the culture for new Publix employees and share the company’s values with the larger business community.

The organizational equivalent is the training experience. In the beginning of a new job, everything is unfamiliar. People's minds are open and eager, working hard to make sense of the things they observe. Whatever they internalize in those first few moments sticks — and, more important, is hard to unstick.

At Commerce Bank, if you recall, within the first ninety seconds, new hires learn that they (1) are part of a crazy tribe of congenitally happy people, (2) have a responsibility to go find others like them, and (3) must answer the phone with an attitude of "Wow!" In these three simple gestures, clocking in at less than two minutes, employees internalize what matters to the company. The firms that hand out binders in the first ninety seconds of orientation — what have they communicated as being important? The bureaucracy? Companies that really get it start the imprinting process in the recruiting phase. At this point, of course, it's part communication and part alignment. You want to identify people who are likely to be good cultural fits, but you also want to start making it clear what you're all about.

At Sewell Automotive, the hundred-year-old network of Texas car dealerships famous for its outstanding service, orientation doesn't start with a tour of the office. It starts with story time. New recruits gather around, and a member of the senior team conjures up strange, but true tales of service excellence, narratives that bring Sewell’s culture to life in vivid detail.

“Consistency: Walk the Walk

One of our favorite management books that got far too little attention was Management Lessons from Mayo Clinic. It's a magnificent chronicle of how one of the best hospitals in the world delivers excellence by putting patients first and innovating around the still-revolutionary notion of team-based medicine. The book also speaks to the leadership philosophy of former CEO Glenn Forbes. Forbes fiercely protected and grew the Mayo Clinic's culture of excellence. And he summed up the challenge this way: "If you've just communicated a value but you haven't driven it into the operations, into the policy, into the decision making, into the allocation of resources, and ultimately into the culture of the organization, then it’s just words.

And not unlike Commerce Bank, Zappos has an unstructured peer recognition program. A certain number of "Zollars" are allocated to each department, which the teams can then award to members who have made specific contributions to core values. These are redeemable at the company "Zollar" store.

When they are in constant contact with customers, employees often get a disproportionate exposure to the bad. When things are going great, customers rarely call their car company or cell phone provider to let it know. And what this disproportionate exposure to the bad means is that calcification often sets in. Employees become hardened toward customers and start treating them as two-dimensional entities. But it's impossible to deliver excellent service when you've dehumanized your customer. So cultures not only have to get the norms and values right, but also have to provide for what we call regular decalcification. How much decalcification you're going to need will depend on how much hardening has occurred.

In most organizations, it's behaviors we want to change, and so the questions that matter are these:

• What's the problematic behavior?

• What are the shared basic assumptions driving that behavior?

• What can we do to change those assumptions?

In most cases, the culprit is good people behaving badly, not bad people behaving badly. If it's the latter, no cultural shift is going to help, by the way. Toxic or ineffective people simply need to be extracted, in part because of the cultural damage they will do. Keeping them around is an implicit endorsement of their behavior. But if you've got a team of good people and you know what kind of culture they need to deliver your version of excellence, now the fun starts: how exactly are you going to build it?

UNCOMMON TAKEAWAYS

• It's not enough to design your service model right. Uncommon service is achieved when great organizational design meets a culture of service excellence. A basic way to think about it is this: service excellence is a product of design and culture.

• The right culture is not a universal concept. Your right culture is a distinct asset that must be consistent with your organization's service model.

• One way to understand culture is to break it down into its relevant components. We like Edgar Schein's culture framework, which loosely divides a culture into artifacts, behaviors, and shared basic assumptions. As Schein argues, to change behavior (a company's typical goal), you have to change the way people think. To change the way people think, start with the underlying assumptions that drive that thinking.

• Great service organizations tend to do three things well in their relationship with culture. They have deep clarity about the organizational culture they must cultivate in order to compete and win. They are effective in signaling the norms and values that embody that culture. And they work hard to ensure cultural consistency, alignment between the desired culture and organizational strategy, structure, and operations.

Chapter Six: Getting Bigger

“Generally speaking, a company can grow in two ways. The first is to do more of what you're already doing (or closely related to it). The second is to do different things.' In the language of this book, doing more of what you're already doing is growing the existing service model. Doing different things means building new service models.

Here's a common pattern: You're new. You're scrappy. You'll do whatever it takes to meet the needs of your clients, which means growth by any means necessary. If a customer wants to give your standard offering a slightly different spin, sure, you'll give it a try. Your effort is also known as customizing your product or service. At this point, there's such a premium on developing customer relationships that you're not thinking about how to pull this off in a profitable way. Instead, you're thinking about survival. If you can keep a growing number of customers happy, then good things are more likely to happen.

When these kinds of questions start to haunt you, it's typically a good sign. It signals a pivot from the kind of customization we just described to some level of standardization. The trigger for this switch is usually the realization that it's not sustainable to keep delivering one-of-a-kind, made-to-order service. Your margins can't take it anymore. Moreover, the complexity of maintaining a wide range of distinct offerings makes the business difficult to scale operationally.

A major driver of increasing customization is simply listening to, and trying to please, your customers. Of course, the answer is not to ignore them. It's to listen to them strategically and to customize where it counts. Customize where you can deliver real value and get paid for it without wreaking havoc on your operations — but not where you make a few customers happy at the expense of large swaths of employees, stock-holders, and other customers.

Our point here is to not run your business by the comment box. It may feel good, at least at first, but here's the catch: customers typically don't understand the implications of their requests. It's your obligation — to them and to you — to put their demands in context, to evaluate the trade-offs of expanding your offering.

In our experience, a shared characteristic of successful, fast-growing companies is a relentless curiosity about what's not working. These companies aren't politically conflicted about how to acknowledge or discuss problems.They welcome them, openly, as opportunities. Again, Toyota was among the most visible organizations to celebrate this mentality, until it lost its way (hopefully, briefly) when it shifted its focus to growth rather than improvement. When new managers at Toyota got hired, their first assignment was to stand in a box outlined on the floor with red tape, facing the assembly line. The recruits weren't allowed to leave that box until they saw something that could be improved in the process. Keep in mind that this was the celebrated Toyota production system, perfected over more than a decade, and so some new hires spent their entire first week on the job just standing in that red box. Others spent less than an hour. Either way, it was seared into their souls that their responsibility as an employee was to make the place better.

If you're preparing for significant growth, we recommend paying loving attention to even the small problems. Most organizations have an implicit 80-20 rule, a belief that 20 percent of the problems are causing 80 percent of the harm. The built-in assumption is that if you can resolve the big ones, you'll be OK. But an HBS colleague, AnitaTucker, has found that it's the small problems that often cripple companies. Small problems often don't get addressed, because they don't seem significant enough to warrant focus. But because they don't get addressed, they always require a work-around, and that work-around can consume 20 percent of an employee's day. People can spend 20 percent of their time on the job working around problems that will never make it onto the priority list to be fixed. Tucker conducted a study of a nursing unit and found that on average, each employee wasted one hour per day working around problems that could be fixed, but that no one deemed important enough to address. An hour every day. What could your company achieve if it gave an extra five hours a week to every employee?

In our work with companies that successfully withstand the onslaught of focused competitors, we've found that most organizations aren't terribly resilient in the face of the challenge. When a focused competitor comes into an industry, incumbents tend to suffer. And they often respond with a buying spree. Acquisitions mask many sins. You feel better because you're bigger, but it often means your company is weaker. That strategy only lasts so long.

Here's the trick for incumbents: the experiences we just described feel very different to consumers, but they share lots of back-end processes. The Best Buys and Armanis of the world can compete with players that are more focused, because the two companies gain certain advantages by linking multiple models together. In other words, each service model in the company somehow makes the other service model better off. In Best Buy's case, for example, two distinct models share one location (a very tricky thing to pull off), which achieves economies of scale on real estate.

We will not go so far as to say that a dominant leadership style is necessary to make a shared-services model work, but empirically, where we find success, we also tend to find leaders who are willing to make powerful people in their organizations uncomfortable. And when the power brokers push back, as they often do in a reshuffling of decision rights, these leaders unapologetically hold their position. Some do it with a smile, others with a scowl, and still others with just the right amount of disinterest in the approval of others. But they all draw the line firmly. The same thing could be achieved theoretically through persuasion and consensus-building; we just haven't seen it yet. So if you find you're getting stuck in a shared-services showdown with the rainmakers in your organization, you may have to channel that internal kindergarten teacher (or drill sergeant) who is unambiguously large and in charge.

Conclusion

“People ask us all the time where they should begin. Our advice is to first believe in an alternate reality, where ordinary people create extraordinary value for customers ready to take on the world. Like Rodriguez-Pastor, you must believe in the possibility, and then look fearlessly at your distance from it.

Appendix

“a. Dan Ariely, "The Customers' Revenge,” Harvard Business Review, December 2007, 31-43

Uncommon Service - Frances Frei and Anne Morris

Introduction: If This Is a Service Economy, Why Am I Still on Hold?

“Here's what we've learned: uncommon service is not born from attitude and effort, but from design choices made in the very blueprints of a business model. It's easy to throw service into a mission statement and periodically do whatever it takes to make a customer happy. What's hard is designing a service model that allows average employees — not just the exceptional ones — to produce service excellence as an everyday routine. Outstanding service organizations create offerings, funding strategies, systems, and cultures that set their people up to excel casually.

Charismatic leaders sometimes assume that they can avoid this trade-off by sheer force of personality. If they just get everybody fired up, the kinks will work themselves out. But you can't design a system that is based on the faith that all of your employees will perform heroically, all day, every day, for an indefinite period. For a system to work, excellence must be normalised. And you don't get to that point by demanding extraordinary sacrifice. You get there by designing a model where the full spectrum of your employees — not just the out- standing ones — will have no choice but to deliver excellence as an everyday routine. You get there by building a system that just doesn't produce anything else.

Great service, it turns out, is not made possible by running the business harder and faster on the backs of a few extraordinary people. It's made possible — profitable, sustainable, scalable — by designing a system that sets up everyone to excel.

Leadership, at its core, is about making other people better as a result of your presence — and making sure that the impact lasts in your absence.

Culture not only guides individual decision-making, but also provides the foundation for all other organizational behavior and action. In other words, culture doesn't just tell you what to do — it shows you how to think. We see it this way:

Service Excellence = Design x Culture

Chapter One: Truth Number 1: You Can’t Be Good at Everything

“Notice what Commerce has done. It's worst in class on some service dimensions (rates and product mix) so that it can be best in class on others (hours and attitude). Bad in the service of great. It sounds simple, but the courage to choose low deposit rates and poor cross-sell performance seemed crazy alongside the desire to grow. These choices worked because being bad was not a missed opportunity, but rather was the fuel to create an exceptional service experience.

Notice that Commerce is indeed a collection of 5's (best) and I's (worst). The bank was so successful because it had the wisdom to know the difference, to know where it should be winning and losing. Being worst in class on the things that were least important to its customers allowed it to be best in class at the things that were most important to them. That's the trick. You have to be bad in the service of great — and you have to be very smart about which is which.

(Frei & Morris, “Uncommon Service”, p.20)

Walmart executives aren't likely to be shocked to learn that their stores are harshly lit environments with sporadic sales support. These choices reduce the cost of operations, which gives the stores the flexibility to charge customers less for a wide range of products. These choices funded the company's excellence in other, more important dimensions. Walmart had the stomach to let its customers solve their own problems in an uninspired setting in exchange for "always low prices," a deal their customers were happy to make.

Everything at the Cipriani is exquisite and made to order according to local traditions that date back centuries. But here's the catch: OEH hotels such as the Cipriani charge a 50 percent price premium over the number two competitor in their local markets. And the number two competitor might be the Four Seasons. If your market will give you a 50 percent price premium on the service you're offering, then you, too, can deliver perfection across the board. In this economic moment, however, we found very few companies that live in that world.

Beyond risk aversion, there's another psychological pull toward option B. It's simply human nature to want to avoid weakness or to use your weaknesses as a guide for where to improve. Indeed, most gap analyses are built on this idea and then color-coded to reinforce the point: hunt down your biggest flaws (the red ones), and improve them; now move quickly on to the yellow ones. But this approach can be a disaster. When your weaknesses are enabling your strengths, reducing the gaps between you and your competitors can actually undermine performance, turning a well-intentioned improvement effort into a strategically dangerous paint-by-number exercise

For example, a widespread rule in the construction business states that a customer can expect two of the following three things: speed, quality, and price. You can get good quality built quickly, but it will cost you. You can get something built fast and cheap, but the quality will suffer. Or you can get good quality for a competitive price, but the wait will be painful. This is also known as the impossible triangle. It’s considered irrational; to ask for all three.

Many managers also believe that they're inspiring the troops hv demanding it all. In our experience, the opposite often occurs. Cynicism can build quickly" among frontline employees who are confronting the trade-offs every day, while their managers continue to deny reality.

We have come to describe the way most companies segment their customers as marketing segments — the buckets used to identify and communicate with different kinds of customers. We call the classifying of customers by service priorities operating segments. The vertical axis created in an attribute map can be thought of as an operating segment. The goal of the diagnostic stage is to reveal all the different operating segments — that is, all the different orderings of attributes that you are currently serving.

Don't guess; ask them. Not surprisingly, our clients then realize that their company is getting business from the operating segments that it is optimized for, whether or not the clients fully understand their own optimization and design choices. When their customers fall into another operating segment (e.g., when these same customers need something done fast), the work goes to someone else. Many people use the U.S. Postal Service regularly for routine mail, but when they need guaranteed, mistake-free delivery, they'll pay a serious premium for FedEx. Same people, two operating segments.

As we mentioned before, if your customers don't all fall in the same operating segment — if they don't all want the same things, in the same order of priority — you have two basic choices. Your first choice is to focus without apology on one operating segment, to build a single service model around one segment's needs and keep your finger on its pulse. That's what Walmart and Southwest do. If a customer outside these companies' core constituency wants to do business with them, Walmart and Southwest will certainly take the money. But the companies won't contort their service models to also meet the needs of these secondary customers. Your second choice is to build different service models for the operating segments you uncover. Think emergency rooms and outpatient clinics within a single hospital.

But it's important to stay tethered to reality. Nothing strengthens that connection more than an ongoing dialogue with your customers. Don't outsource this to the marketing department. Don't consume your customers' frustration in sanitized slides delivered by direct reports with little incentive to deliver bad news. Pick up the phone, and confront the truth.

The good news (figure 1-9) here is that you have an advantage, but you're getting no return on it. We call it a waste wedge. You're investing in service features that your customers don't truly value, and it's not translating into profitability or market share. Your decision point: shift resources to attributes your customers value more, or get customers to care more about the things in which you excel. For example, our tap water was fine until bottled water made us want to drink from an obscure Swiss spring.

IKEA achieved what few companies have achieved, but what we believe is a powerful model: the company changed its customers' relationship with the category. It reordered its customers' attribute list, and then some.

UNCOMMON TAKEAWAYS

• To achieve service excellence, you must underperform in strategic ways. This means delivering on the service dimensions your customers value most, and then making it possible — profitable and sustainable —by performing poorly on the dimensions they value least. In other words, you must be bad in the service of good.

• The primary obstacle to service excellence is not the ambition to be great, but the stomach to be bad. This is an emotional obstacle.

• It's difficult to compete without understanding your customers' needs and how well your competitors are meeting those needs. Fortunately, customers are typically very willing to give you that information. And it's cheap and easy to ask them for it.

• There is an important distinction between marketing and operating segments. Marketing segments tell us how to identify and communicate with different kinds of customers. Operating segments tell us how to serve customers differently.There is rarely a one-to-one mapping between these segments.

• There are two key ways to improve service: (1) meet your customers' existing needs more effectively, or (2) convince your customers that they need something you already do well.

• There is a difference between financial models and service models. Service companies need to be "bi-lingual" to excel.

Chapter Two: Truth Number 2: Someone Has to Pay for It

“Or is this an example of what we call gratuitous service, service nice-to-haves donated to customers, with little chance of recovering their costs?

Without a reliable funding source designed directly into the model, organizations risk delivering service that customers happily consume but never pay for. In our experience, four funding mechanisms can be used to sustain your premium offering — and only one of them requires that you charge premium prices. Said another way, there are four ways to pay for excellence:

1. Charge customers extra for it — in a palatable way.

1. Make cost reductions that also improve service.

1. Make service improvements that also reduce costs.

1. Get customers to do the work for you.

We call this palatable pricing.

Transparency matters when it comes to pricing — it's part of the palatability calculus — and it matters even more if you're competing on a straight-up, no-frills, adult-to-adult relation-

ship with your customers. Palatable pricing depends heavily on the deal you're making with your customers. At US Airways, the expectations for customer care are much higher than at a discount carrier, mainly because the ticket price is higher. As a result, bag fees are a source of incessant complaints.

When companies pay customers through discounts to remain customers, it's a customer retention program. When companies pay customers to try out their products and services, it's a customer acquisition program. When companies invest in activities that increase customers' willingness to pay a premium price, then they have a loyalty program. A successful loyalty program increases the chance that your customers will choose you over a lower-priced competitor. The confusion of terms wouldn't be a big deal, except that a mislabeled loyalty program can get in the way of creating a real one.

The point here is that improving service in one part of your business can substantially lower costs elsewhere — thereby funding the premium experience.

Step 1: ExamineYour Cost Structure

The place to begin your search for ways to fund uncommon service is with your biggest buckets of costs, which often represent your biggest buckets of potential savings. (When people get stuck here, we suggest starting by reducing the time involved in a customer-facing process. This will often yield better experiences at a lower cost to the organization.)

Step 2: MonetizeYour Strengths

In addition to looking at your largest cost drivers, ask yourselves, "What can we do better than anyone else?" That is, beyond the rhetoric of annual reports and marketing collateral, what makes you really and truly superior? Start here, and think about a value-added service that allows you to benefit operationally from your excellence — bonus if you can make your competition uncomfortable along the way…

Interestingly, the obstacle to innovation at this company was its confidence that it was already capitalizing on its strengths. As soon as its managers had the courage to acknowledge the gap between chatter and truth — between what they were vaguely promising and what they were explicitly delivering — we were able to make progress in relatively short order. The security company is not alone in this. We often find the obstacle to innovation is an unwillingness to acknowledge reality, including the hard truth that you're not creating the value you claim to be creating. Once we establish that there's more to be done, the brainstorming is often fast and furious. Without that acknowledgment, however, organizations can retreat to a defensive and reluctant crouch.

Step 3: Unleash Your Customers

The move to self-service is usually a cost-cutting initiative. But as we've discussed, it's not enough to just cut costs. Again, the goal here is self-service that's so good that you can cut costs while raising prices. When we ask organizations how much extra they charge for self-service, they often look at us as if we're crazy.

UNCOMMON TAKEAWAYS

• Service excellence must be funded in some way. If not, you risk delivering gratuitous service, service features that are donated to customers but never paid for in any way.

• There are four ways to fund a premium service experience: (1) get customers to pay you extra for it, (2) reduce costs in ways that also improve service, (3) improve service in ways that also reduce costs, or (4) get customers to enjoy doing some of the work for you.

• Method 1 is the simplest, at least from a design perspective. Methods 2 and 3 are the most reliable. Method 4 gets the most attention.

• Extra service fees aren't inherently good or bad. Their success depends on the specific contract you have with customers.

• A loyalty program is one way to get paid for a premium service experience. True loyalty programs —programs that increase customers' willingness to pay a premium price — are rare, largely because most loyalty programs are mislabeled retention programs.

• For self-service to be part of an uncommon service experience, customers must prefer self-service to a full-service alternative.

Chapter 3: Truth Number 3: It’s Not Your Employees’ Fault

If your company delivers disappointing service on a consistent basis, or even excellent service but only in fits and starts, it's not because you've somehow managed to hire an entire company of people who just don't get it. The problem is much more likely to be that you've built a service model for phantom employees you wish you had — but actually don’t.

First, not all of your employees are superheroes. Most companies have a continuum on the payroll, from the exceptionally talented to the should-definitely-be-doing-something-else- with-their-lives. This isn't easy to acknowledge. Any number of things can get in the way of doing so, from the role you played in hiring someone to good, old-fashioned conflict aversion. Here's a safe assumption: unless you have the resources and capacity to systematically attract, reward, and unleash the very best in your industry, some of the people now reporting to you cannot be objectively characterized as outstanding. Second, you're probably making your employees' job harder. The hunt for new sources of revenue within organizations often leads to an increase in operational complexity. New products and services — or even new variations on old ones — lead to new processes, policies, and regulations; new organizational structures and technologies; new customers with new needs being channeled toward new touch points. In one quick-service restaurant we studied, the menu had grown from twenty-five items to more than a hundred in just a few years.

In short, the average employee is drowning in complexity. And the outstanding employee, the one who has a chance of keeping up, is a much scarcer resource than many managers are willing to acknowledge. We're designing jobs for superhumans, and it turns out our people are flesh and blood.

How did Commerce handle selection? The bank literally needed fifteen seconds in an interview to know if someone would be a good fit. Within fifteen seconds, the Commerce interviewer could tell if prospective employees smiled in a resting state. Commerce Bank understood that most of us smile when provoked, but we spend most of our day with a more neutral or even negative expression on our face. A subset of human beings, however smiles as a default position. Since an eight-hour day at Commerce required eight hours of smiling, the company looked for people with this "smiley gene." Of course, first the bank had to get these happy people into the job interview. Commerce Bank decided to leverage its best asset for this task: a payroll already filled with happy people. Like any tribe, smilers are great at recognizing themselves in other people. And so Commerce distributed handfuls of laminated cards to new employees with a printed message inviting people to join the Commerce family. Itthen instructed new hires to hand out a card to anyone who gave them a great service experience. Literally anyone. Commerce told them — whether it was a great toll booth operator or librarian or convenience store cashier. With one exception — no one in the financial services industry, including another re- tail bank. The effort it took to deprogram these employees was too high, and they were likely to be too expensive, given the aptitude requirements of most banks and brokerages.

Job Design

The alternative to rigorous training, of course, is a job design that is so intuitive that employees can do it on day one. Think of it as the anti-BBBK approach, a route to service excellence that is no less viable. It won't work in every industry, but the logic of it will: simplify the job so that your people can focus on service.

Because of its IT platform, LSQ has the freedom to focus on identifying traits like cultural fit, service orientation, and attitude, the traits that distinguish the company in its client interactions.

Again, the nemesis of good job design is complexity. Complexity has a bad habit of creeping into your systems and jobs over time, as you respond to dynamic market conditions and chase new sources of revenue. You may have tamed complexity five years ago with roles and responsibilities that matched your world of five years ago and your employees of five years ago. But the threat requires constant vigilance. What matters is whether your current job designs match the people who are doing them right now.

IT tools that work are deeply thoughtful about the user experience, including how and when data is entered in the rhythm of a particular job. Ideally, they're developed in tandem with the role itself. This rarely happens. Typically, a job is designed, technology advances, and then the technology is piled on as an afterthought. The result — predictably — is an increased operational burden on employees and its familiar by-product: widespread resentment. In an excellent, ongoing discussion presented in his blog, Andrew McAfee of MIT discusses how to mitigate this risk and integrate IT productively into your organization.

Here's the basic message: be prepared to go all the way in integrating technology into job design, from great software and functional hardware to effective training and regular user feedback. Stopping short can be a disaster. And the value of reaching the finish line may surprise you.

Job design is mostly about designing tasks so that they match a typical employee's attitude and aptitude. Performance management is about creating incentives to do a job well — and disincentives to do it poorly. These are the carrots and sticks that keep your employees on track, but they can also include controls such as scripts and checklists that make it difficult for employees to stray too far.

Scenes like this played out across the country. And they did because BBBK's incentives to excel not only worked for individuals, but they also worked seamlessly with the rest of its employee management system. We're not suggesting that the company's approach is somehow universal, although its deliberate balance of "trust and verify" shows up in the management systems of many other successful service companies.

Customize your strategy to the unique needs and opportunities of your own company. Resist relying exclusively on standard performance levers, no matter how entrenched they are in your industry.

Our central point here, as elsewhere, is that your performance management system has to be both internally consistent and integrated well into the rest of your business model. All the parts have to work together.

Verizon needed to hire new people who could help them to learn — a critical distinction in

organizational goals that our colleague Amy Edmondson has articulated.'' And there was no use putting these hires through a three-month training program when the company did not yet know what the job would actually entail.

Sound at all familiar? If so, we advise companies to first try to get a sense of the size of the employee-job gap. We suggest two diagnostic steps that will produce some intuition about the magnitude of the problem. If you have a few days to study the question, start with the approach described below. If you only have a few minutes, skip to the second step.

A hidden identity isn't easy to pull off in most companies, but the next best thing is almost as effective: talk frankly with your people about their experience on the job, what makes it easy or hard, and how their roles have changed over time. Watch them in action. Try to do an average employee's job for a day, and see how you fare. Take a seat at your call center, and try to respond to eight screens of information at once.

1. Chart Complexity overTime

(Estimated Time: Fifteen Minutes)

Once you have some intuition from going undercover, try to graphically plot how the operational complexity experienced by your employees has changed over the past five years (this can be done for any job). Then plot the change in employee sophistication over the same time span. If your graph looks something like figure 3-2, then you have a problem.

1. Close the Gap

When a company identifies a gap between its people and the jobs they're doing, it essentially has two choices: reduce operational complexity or increase employee sophistication. Said differently, change the people or change the job. On the people side, the two levers you have are selection and training. Selection might work in a high-turnover business, but it's usually a daunting solution for any other organization…

The goal is to get a closer match between employee sophistication and operational complexity. Go as far as you can on the people front, and then address system complexity. You can address complexity either by decreasing it outright or by decreasing the amount of complexity experienced by each employee. For the latter, it may be possible to more thoughtfully break up who does what — break down a Job into smaller tasks and assign them to specialized employees. Take inspiration from a hospital: one person takes blood pressure, another does anesthesia, and another performs the surgery. The system itself is complicated, but each employee only experiences a portion of it.

Ready to take on system-wide complexity? We suggest starting with back-end complexity that's adding little to the customer experience. Reduce those fifty-five ways your employees can ring up the same drink, since numbers 2 through 55 do nothing to make the drink experience more enjoyable.

UNCOMMON TAKEAWAYS

• The goal of an excellent service organization is to deliver outstanding results with average employees.

• Many companies design service models for employees they don't have — for a payroll filled with superstars when, in fact, there's a healthy range of talent and initiative on the team. Capture this reality in the design of the business model.

• Successful employee management systems have four main components: selection, training, job design, and performance management.These components must be internally consistent and aligned with the rest of the service model. There's no such thing as good or bad selection, for example. The issue is whether it's consistent with the rest of the employee management system and whether the system is consistent with the rest of the service model.

• IT solutions can help or hurt your employees' productivity, often in dramatic ways. IT tools that work are sensitive to the employee experience, including how and when data is entered in the rhythm of a particular job.The best solutions are developed in tandem with the role itself — not piled on after a job design is already in place.

• The average service employee is overwhelmed by the increasing complexity of his or her job. When a company identifies a gap like this between operational complexity and employee sophistication, it has two choices: change the people or change the job. In other words, (1) train and hire differently or (2) redesign the job so that your current team can do it.

Chapter Four: Truth Number 4: You Must Manage Your Customers

“Said differently, customers don't just consume service; they also participate in creating it. And they're not always good at their job.

Here's one way to think about it: if you run a service business, then your customers "work" for you in many of the same ways that your employees do. But these aren't your average employees. They're erratic, unskilled, and entitled. Their interests and your interests regularly diverge. Employees are contractually bound to work on behalf of the firm, but customers operate under no such constraints. Customers are looking out for number one, as they have every right to do.

Here's the basic message: if you're in the service business, you essentially don't know which people are on your team, when they're showing up, and what they're going to do once they get there. And so you need a plan for managing this uncertainty.

Managing the Chaos of Customers

In other words, variability is a fact of life with customer-operators. Here are the different forms it can take:

• Arrival: Your customers don't all want service at the same time or at times that are necessarily convenient for you. Grocery stores find themselves swamped during the evening rush hour, while the lines at Dunkin' Donuts can extend for half a block at

8:00 a.m.

• Request: Not everybody orders the same thing. Each client of an advertising agency is executing a unique marketing strategy, and vacationers at a resort want different amenities. Even customers of a single-service business like Jiffy Lube show up in different makes and models of cars.

• Capability: Customers have different knowledge, skill, physical abilities, and resources, which means that some customers perform tasks easily while others need hand-holding. In a medical setting, the ability of a patient to describe symptoms can greatly affect the quality of care. But so can the person's ability to negotiate the medical bureaucracy.

• Effort: Customer-operators decide for themselves how much effort to invest in production tasks. Company controllers don't always hand over well organized files to independent auditors, and shoppers don't always return their shopping carts to the store.

• Preference: Even customers who want the same service may have very different definitions of quality. One diner appreciates the servers' introducing themselves by name; another resents the presumption of intimacy. Some clients of a law firm might construe a top partner's attention to detail as reflecting the importance of their case; others might complain that those expensive billable hours could be doled out more Judiciously to less costly associates. Subjective preference adds a multiplier effect to all other forms of customer variability.

There are more aspects of the variability question, but our point here is fairly simple: customers can wreak havoc on your operations. It's what makes us hesitate when we hear "the customer is always right" or that the path to service excellence is to simply delight your clients. Performance can't be sustained by placing customers on a pedestal and indulging their every desire.' To create a system in which excellence is the norm, you need to manage your customers every bit as much as you manage your employees.

The Successful Customer

Management System

In designing a customer management system, we propose many of the same strategies that we used for employee management.

Customer Selection

By narrowing its focus on a particular procedure for a particular kind of patient, Shouldice Hospital achieves a highly predictable work environment with just the kind of low-risk, high-reward "customer" that every surgeon dreams of.

Think of all the resources you devote to hiring good employees: interviews; background checks; references; tests for ability, motivation, and cultural fit. Now think of the energy you spend on "hiring" the right customers. In most companies, there's no comparison, even though customer behavior can have just as much of an operational impact as employee behavior. Customers can play a defining role in your ability to deliver great service at a sustainable cost. And the greater your expectations for your customer-operators, the more time you need to devote to choosing the right people for the job.

We love the Starbucks example because it spotlights the attributes of a good customer-training experience: quick, easy, and palatable, if not downright fun. Your training program has to feel good to customers, whose tolerance for discomfort is reliably low, despite any well-earned fantasies you might have of becoming Seinfeld's iconic Soup Nazi, a service provider who gets his customers to behave by screaming at them.

Innovating without empathy rarely delivers the same kinds of results, particularly when it comes to customer-operators. Technology makes it possible to dramatically expand the customers operating role, but that doesn't necessarily translate into better numbers. Many banks learned this the hard way in the 1990s. As retail banks increased the number of low-cost channels for customers to use to serve themselves —voice-recognition systems, ATMs, online banking — the institutions inadvertently undermined their margins. That's because customers didn't necessarily migrate to the lower-cost solutions. Instead, many simply increased their numbers of transactions overall, still coming to the teller window to deposit their weekly paychecks while also hitting the ATM and checking their balance online. In some cases, these high-tech tools enabled customers to engage their finances at a deeper level, which then increased their demand for traditional, high-cost banking services. Here's the irony: these banks were trying to save money with online tools, but instead, they designed a more costly model. Customers became much more expensive to serve, which wasn't sustainable. When your goal is service excellence, we suggest taking the opposite approach. Customer job design, especially self-service design, works best when you first work to increase the quality of the service experience, to make the service more convenient or customized (or whatever drives value in your business).

Service Excellence = Design x Culture

Putting It into Practice

We tend to think of managing customers in phases. First, you need to get control. Find out how your customers are influencing the cost and quality of your service today, and then nudge them in a better direction. In our experience, almost all service organizations can benefit from some version of this exercise, if only to bring sunlight and confidence to your assumptions. Even the most basic of assumptions can turn out to be startlingly wrong when it comes to customer operating behavior. The next phase involves actively deploying customer-operators, but in a targeted way. Get them to help you improve your current processes, for example, or add customers to the design team as you start mapping out a new service offering. This is the walk-but-not-run phase, the first tentative steps toward tapping the operating value of your customer base. Start to blur the boundaries between employees and customers. The final phase is what we call going all the way, embracing your customers as very central producers of the services you provide. Think of it as the eBay way. This phase carries tremendous potential upside. And a meaningful amount of risk.

Let's look at these three phases in more detail.

The hard part was reframing the certainties in managers' minds as hypotheses that needed confirmation. It turns out that this is the hard part in most organizations. And for whatever reason, this is particularly true for customer behavior. At the risk of sounding melodramatic, we would suggest that there's an epidemic of overconfidence in service companies when it comes to predicting the operating behavior of their customers. Fortunately, the treatment is cheap and effective: surface your operating assumptions. Get in touch with whatever conclusions you've reached about the impact of customers on your operations.

Now test your assumptions with data you probably already have.

In the world of the customer-operator, the analog to the andon cord is the customer complaint. We've studied patterns in complaint letters and e-mails, which give you a fascinating window into how businesses manage their customers and whether companies view customers as operating assets. A generic response sends a clear message, as does detailed engagement from the chief operating officer. Not responding at all — a notorious habit of a shocking number of industries —sends another kind of signal.

UNCOMMON TAKEAWAYS

• Service customers don't just purchase a service; they also participate in creating it. Among other things, they make the service faster or slower, better or worse, cheaper or more expensive to deliver — for themselves and for other customers. They are active producers (and detractors) of the value they end up consuming.

• For example, a customer at a salad bar affects the quality of his or her meal, whereas patients who skip dental appointments drive up the costs of running the entire practice. When customers are influencing the service experience in ways like these, we call them customer-operators.

• Customers can be more or less involved operationally, depending on your industry and on your specific design choices — for example, how much self-service you build into your model and whether you involve your customers in your improvement efforts.

• The more dependent your service business is on the behavior of customer-operators, the more important it is to manage them successfully. Similar to employee management, the four components of a successful customer management system are customer selection, training, job design, and performance management.

• Not all customer-operators are alike. When compared with each other, they are faster, slower, smarter, pickier, later, earlier, or more or less prepared to perform their operational roles. This diversity increases the cost and complexity of running a service business.

• Assume that you don't know exactly how your customers are affecting your operations or how well your efforts to manage them are really going. Reframe any certainties as hypotheses that need confirmation. Test them. Fortunately, the data you need is usually right at your fingertips.

Chapter Five: Now Multiply It All by Culture

“Imagine yourself walking around an empty building. The lay-out is intuitive, each room surrendering easily to the next one. You feel strangely reassured, even optimistic. You sit down on a bench that you hadn't really noticed before, but which suddenly seems to be in exactly the right place. And you find yourself lingering, again an unfamiliar impulse. You feel the volume of the noise in your mind start to lower. That's the feeling of great design. When a service model is designed right, it produces the same sensations among the people who interact with it —energy, reassurance, the sense of calm that comes from being deeply respected as a living being. But like an empty building, a well-designed service model is still missing the critical element that brings it to life on a functional level: the people, or more specifically, how the people interact with each other. When we're talking about organizations, we call that element culture. A great service organization needs to get both right, the service design and the culture that animates it.

Southwest has a greater number of unionized employees than any other airline, yet it also has better employee relations than any other airline. Why isn't that a contradiction? It turns out that unions love Southwest because, unlike other airlines, it has never had a layoff. Southwest didn't expand as much as traditional airlines did during good times, which means that it doesn't need to cut back quite so much during bad times. This policy is designed to maintain good employee relationships, and it is these good relationships that allow Southwest to include the team-late provision in employment contracts, as well as put the phrase "and everything else" into all of Southwest's job descriptions. Whatever needs doing, you simply do it, without having to locate, for instance, a qualified master electrician to screw in a light bulb. And this chain of interlocking trade-offs — expansion limits to preserve job stability in return for flexibility in job descriptions — all leads directly to faster turnaround, the key to Southwest's success.

Why it works at IDEO — and what allows the company to churn out excellence at a regular clip — are what Schein calls the "shared basic assumptions" that drive all of these seemingly odd choices. If you want to change culture, then you have to start there, by influencing the thought patterns that drive your employees to act.

We are not those people. We do recommend Hidden Value: Getting Extraordinary Results with Ordinary People, by Charles O'Reilly and Jeff Pfeffer, as well as Amy Edmondson's research on organizations that create psychological safety for their employees, which is some of the most exciting work we've seen in this space. There are many others who deserve to be on that list.

More specifically, we've seen three distinct patterns in these organizations' relationship to culture. All demonstrate high levels of the following:

• Clarity: knowing exactly what kind of a culture you want to build, and how this culture is critical to achieving your most important performance objectives

• Signaling: relentlessly communicating the organization's core values, particularly.in moments when people are likely to be most receptive to these messages, such as during recruiting and orientation

• Consistency: reinforcing the culture at ever turn and rooting out cultural violations, that is, misalignment between the desired culture and organizational strategy, structure, and operations

Hsieh is crystal clear on the culture he needs to make the company thrive, and he and his team have broken it down into ten core company values:

1. Deliver wow through service.

1. Embrace and drive change.

1. Create fun and a little weirdness.

1. Be adventurous, creative, and open-minded.

1. Pursue growth and learning.

1. Build open and honest relationships with

communication.

1. Build a positive team and family spirit.

1. Do more with less.

1. Be passionate and determined.

1. Be humble.

But it's not just management that gets it. The conviction that culture is key is embraced throughout the ranks at Zappos. It's so central to the company's belief system, in fact, that the company publishes the Zappos Culture Book, which is updated regularly and contains hundreds of unscripted comments and essays written by Zappos employees and vendors about the company's culture, why it matters, and how it affects what they do every day. It was conceived as a training tool for new hires and partners, but consumption of the book has gone way beyond that internal circle. Ringing in at 348 pages in the 2009 edition, it's a moving and persuasive testament to the power of employee engagement ("happiness" in Zappos-speak), and the role of culture in eliciting it. We recommend buying it and just paging through.

The quote that moved us most was from Ryan A.: "At my last job I was afraid to be anything: right, wrong, smarter, dumber ... At Zappos being yourself is the best thing you can do." Perhaps the cultural feature we observe most often is unproductive fear, fear of looking bad or doing something wrong. If organizations did nothing else but address that part of their environment, we're confident that the creativity and engagement of their people would have a real chance of being unleashed. Human beings are not at their best in a defensive, self-distracted crouch.

a. This anecdote was documented in Joseph Carvin, A Piece of the Pie: The Story of Customer Service at Publix (Nashville, TN: Favorite Recipes ~Press, 2005), a fantastic resource used to clarify the culture for new Publix employees and share the company’s values with the larger business community.

The organizational equivalent is the training experience. In the beginning of a new job, everything is unfamiliar. People's minds are open and eager, working hard to make sense of the things they observe. Whatever they internalize in those first few moments sticks — and, more important, is hard to unstick.

At Commerce Bank, if you recall, within the first ninety seconds, new hires learn that they (1) are part of a crazy tribe of congenitally happy people, (2) have a responsibility to go find others like them, and (3) must answer the phone with an attitude of "Wow!" In these three simple gestures, clocking in at less than two minutes, employees internalize what matters to the company. The firms that hand out binders in the first ninety seconds of orientation — what have they communicated as being important? The bureaucracy? Companies that really get it start the imprinting process in the recruiting phase. At this point, of course, it's part communication and part alignment. You want to identify people who are likely to be good cultural fits, but you also want to start making it clear what you're all about.

At Sewell Automotive, the hundred-year-old network of Texas car dealerships famous for its outstanding service, orientation doesn't start with a tour of the office. It starts with story time. New recruits gather around, and a member of the senior team conjures up strange, but true tales of service excellence, narratives that bring Sewell’s culture to life in vivid detail.

“Consistency: Walk the Walk

One of our favorite management books that got far too little attention was Management Lessons from Mayo Clinic. It's a magnificent chronicle of how one of the best hospitals in the world delivers excellence by putting patients first and innovating around the still-revolutionary notion of team-based medicine. The book also speaks to the leadership philosophy of former CEO Glenn Forbes. Forbes fiercely protected and grew the Mayo Clinic's culture of excellence. And he summed up the challenge this way: "If you've just communicated a value but you haven't driven it into the operations, into the policy, into the decision making, into the allocation of resources, and ultimately into the culture of the organization, then it’s just words.

And not unlike Commerce Bank, Zappos has an unstructured peer recognition program. A certain number of "Zollars" are allocated to each department, which the teams can then award to members who have made specific contributions to core values. These are redeemable at the company "Zollar" store.

When they are in constant contact with customers, employees often get a disproportionate exposure to the bad. When things are going great, customers rarely call their car company or cell phone provider to let it know. And what this disproportionate exposure to the bad means is that calcification often sets in. Employees become hardened toward customers and start treating them as two-dimensional entities. But it's impossible to deliver excellent service when you've dehumanized your customer. So cultures not only have to get the norms and values right, but also have to provide for what we call regular decalcification. How much decalcification you're going to need will depend on how much hardening has occurred.

In most organizations, it's behaviors we want to change, and so the questions that matter are these:

• What's the problematic behavior?

• What are the shared basic assumptions driving that behavior?

• What can we do to change those assumptions?

In most cases, the culprit is good people behaving badly, not bad people behaving badly. If it's the latter, no cultural shift is going to help, by the way. Toxic or ineffective people simply need to be extracted, in part because of the cultural damage they will do. Keeping them around is an implicit endorsement of their behavior. But if you've got a team of good people and you know what kind of culture they need to deliver your version of excellence, now the fun starts: how exactly are you going to build it?

UNCOMMON TAKEAWAYS

• It's not enough to design your service model right. Uncommon service is achieved when great organizational design meets a culture of service excellence. A basic way to think about it is this: service excellence is a product of design and culture.

• The right culture is not a universal concept. Your right culture is a distinct asset that must be consistent with your organization's service model.

• One way to understand culture is to break it down into its relevant components. We like Edgar Schein's culture framework, which loosely divides a culture into artifacts, behaviors, and shared basic assumptions. As Schein argues, to change behavior (a company's typical goal), you have to change the way people think. To change the way people think, start with the underlying assumptions that drive that thinking.

• Great service organizations tend to do three things well in their relationship with culture. They have deep clarity about the organizational culture they must cultivate in order to compete and win. They are effective in signaling the norms and values that embody that culture. And they work hard to ensure cultural consistency, alignment between the desired culture and organizational strategy, structure, and operations.

Chapter Six: Getting Bigger

“Generally speaking, a company can grow in two ways. The first is to do more of what you're already doing (or closely related to it). The second is to do different things.' In the language of this book, doing more of what you're already doing is growing the existing service model. Doing different things means building new service models.

Here's a common pattern: You're new. You're scrappy. You'll do whatever it takes to meet the needs of your clients, which means growth by any means necessary. If a customer wants to give your standard offering a slightly different spin, sure, you'll give it a try. Your effort is also known as customizing your product or service. At this point, there's such a premium on developing customer relationships that you're not thinking about how to pull this off in a profitable way. Instead, you're thinking about survival. If you can keep a growing number of customers happy, then good things are more likely to happen.

When these kinds of questions start to haunt you, it's typically a good sign. It signals a pivot from the kind of customization we just described to some level of standardization. The trigger for this switch is usually the realization that it's not sustainable to keep delivering one-of-a-kind, made-to-order service. Your margins can't take it anymore. Moreover, the complexity of maintaining a wide range of distinct offerings makes the business difficult to scale operationally.

A major driver of increasing customization is simply listening to, and trying to please, your customers. Of course, the answer is not to ignore them. It's to listen to them strategically and to customize where it counts. Customize where you can deliver real value and get paid for it without wreaking havoc on your operations — but not where you make a few customers happy at the expense of large swaths of employees, stock-holders, and other customers.

Our point here is to not run your business by the comment box. It may feel good, at least at first, but here's the catch: customers typically don't understand the implications of their requests. It's your obligation — to them and to you — to put their demands in context, to evaluate the trade-offs of expanding your offering.

In our experience, a shared characteristic of successful, fast-growing companies is a relentless curiosity about what's not working. These companies aren't politically conflicted about how to acknowledge or discuss problems.They welcome them, openly, as opportunities. Again, Toyota was among the most visible organizations to celebrate this mentality, until it lost its way (hopefully, briefly) when it shifted its focus to growth rather than improvement. When new managers at Toyota got hired, their first assignment was to stand in a box outlined on the floor with red tape, facing the assembly line. The recruits weren't allowed to leave that box until they saw something that could be improved in the process. Keep in mind that this was the celebrated Toyota production system, perfected over more than a decade, and so some new hires spent their entire first week on the job just standing in that red box. Others spent less than an hour. Either way, it was seared into their souls that their responsibility as an employee was to make the place better.

If you're preparing for significant growth, we recommend paying loving attention to even the small problems. Most organizations have an implicit 80-20 rule, a belief that 20 percent of the problems are causing 80 percent of the harm. The built-in assumption is that if you can resolve the big ones, you'll be OK. But an HBS colleague, AnitaTucker, has found that it's the small problems that often cripple companies. Small problems often don't get addressed, because they don't seem significant enough to warrant focus. But because they don't get addressed, they always require a work-around, and that work-around can consume 20 percent of an employee's day. People can spend 20 percent of their time on the job working around problems that will never make it onto the priority list to be fixed. Tucker conducted a study of a nursing unit and found that on average, each employee wasted one hour per day working around problems that could be fixed, but that no one deemed important enough to address. An hour every day. What could your company achieve if it gave an extra five hours a week to every employee?

In our work with companies that successfully withstand the onslaught of focused competitors, we've found that most organizations aren't terribly resilient in the face of the challenge. When a focused competitor comes into an industry, incumbents tend to suffer. And they often respond with a buying spree. Acquisitions mask many sins. You feel better because you're bigger, but it often means your company is weaker. That strategy only lasts so long.

Here's the trick for incumbents: the experiences we just described feel very different to consumers, but they share lots of back-end processes. The Best Buys and Armanis of the world can compete with players that are more focused, because the two companies gain certain advantages by linking multiple models together. In other words, each service model in the company somehow makes the other service model better off. In Best Buy's case, for example, two distinct models share one location (a very tricky thing to pull off), which achieves economies of scale on real estate.

We will not go so far as to say that a dominant leadership style is necessary to make a shared-services model work, but empirically, where we find success, we also tend to find leaders who are willing to make powerful people in their organizations uncomfortable. And when the power brokers push back, as they often do in a reshuffling of decision rights, these leaders unapologetically hold their position. Some do it with a smile, others with a scowl, and still others with just the right amount of disinterest in the approval of others. But they all draw the line firmly. The same thing could be achieved theoretically through persuasion and consensus-building; we just haven't seen it yet. So if you find you're getting stuck in a shared-services showdown with the rainmakers in your organization, you may have to channel that internal kindergarten teacher (or drill sergeant) who is unambiguously large and in charge.

Conclusion

“People ask us all the time where they should begin. Our advice is to first believe in an alternate reality, where ordinary people create extraordinary value for customers ready to take on the world. Like Rodriguez-Pastor, you must believe in the possibility, and then look fearlessly at your distance from it.

Appendix

“a. Dan Ariely, "The Customers' Revenge,” Harvard Business Review, December 2007, 31-43