Why Customer Service Fails to Rank Higher on the List of Corporate Priorities

Show Overview

Jaynie L. Smith interviews Raul Pupo, author of America’s Service Meltdown. Raul discusses the importance of good customer service, and why so many corporations fail at making service a top priority. Learn the answers to:
1. Is there a way that the organization can quantify the cost of poor service?
2. What are the potential consequences for the organization that fails to focus on the customer?
3. What is causing this loss in customer service?
4. What approach would you recommend a corporation take in order to improve its service posture?

The Interview for Your Reading Pleasure
Jaynie: I want to mention his book is called America’s Service Meltdown, Restoring Service Excellence in the Age of the Customer. You’re going to want to get this book after this interview, I’m sure. So Raul, tell us why did you decide to write this book?

Raul: Jaynie, I’ve been in service businesses nearly four decades, computer services specifically. And I think it’s fair to say that I have never seen service of the customer in a more calamitous state then it is in today. And as a result, I was motivated to want to deliver what I think is an urgent message for the Nation.

Jaynie: Yes, so as we’re slipping in so many categories, education and countless other ones in this country; now, we have to be worried about service. And if we don’t get our arms around this, we’re falling farther and farther behind. So who is the intended audience for your book?

Raul: The intended audience for the book are corporate leaders of all ranks in large companies and small, who are in the best position to influence the customer direction of their businesses.

Jaynie: And you’re not just talking about businesses that sell to consumers. You’re also talking about businesses that sell to other businesses. I read an interesting thing in your book that says some staggering number change vendors, because the vendors, in B to B purchases, are not even getting what their customers want.

Raul: A consulting giant, Accenture, has just conducted a customer satisfaction survey. And their survey discloses that 60% of all customers change suppliers for reasons having to do with poor service.

Jaynie: And how do they define poor service?

Raul: Well, poor service are any number of manifestations that force the customer to vote with his feet. And so it could be something as trivial as not helping the customer when he has a question about something that might have transpired on his account to issues of quality, of pricing, et cetera, et cetera.

Jaynie: Yes, I keep using the example of Hyundai. I love this new CEO, he talks to the five or six customers each week, and he will take any call. And that’s the CEO of a very big company. They’re trying to move this brand way up, and they’re doing a magnificent job, because that CEO gets it.

So what is the central premise of America’s Service Meltdown?

Raul: The central premise is that businesses, whether they’re technology businesses or not, start up businesses, or large companies can all operate more effectively, that is to say more profitably if they will heed the four critical success factors. So let me name them.

Number one is a leadership group that unequivocally believes that they are in business to serve a customer. You should know that in survey after survey, leaders are conflicted about really what their leadership role is.

The second factor is that the business planning process in the corporation must begin, not end, must begin with the customer. I know you are a big proponent of market research, but market research has to drive strategy, not the other way around. And I believe practically every business in our country has those two in reverse.

Jaynie: Hear, hear, that’s what I’m preaching just like you all over the country, and it’s staggering the number, as I go around saying something like 90% of small, medium sized businesses are not even asking their customers what they want. And the big companies are spending millions of dollars and they’re just not connecting the dots. And when I ask audiences, how do we know customer service is dead in America, it’s because we’re all customers, and we experience it day in and day out.

Raul: The third critical success factor is, and this has proved to be the most elusive of the four, is an ethic of service. An ethic of service begins when the business states, again, that customers are first, and then takes that belief with all of the enunciations, whether they be policies, procedure, et cetera, et cetera that do not support the mission.

Jaynie: Absolutely. So can you give us some other examples?

Raul: Well, and the fourth critical success factor is that the organization must have an empowered, motivated, educated, competent roster of front line workers with the tools, and with the information needed to render excellence and service.

Now, in my experience in the four decades that I’ve been in business, nearly every example of lousy service or other service mishap, you can trace right back to one of these critical success factors. All the more reason why I believe the organization needs to get the four right.

Jaynie: So why do you think services fails to rank higher on the list of corporate priorities? Why aren’t we making it a higher priority?

Raul: Well it gets back to a leadership group that believes they are in business to do something other than to serve the customer. So you know they’re in business to take their company public, they’re in business to grow market share, they’re in business to return extraordinary profits to their shareholders.

But if you ask the question, you know why does that happen? Well, the reality is that CEOs in our Nation don’t get bonused for how well they serve the customer.

Jaynie: Shareholder returns.

Raul: They get bonused for bottom line results.

Jaynie: Right. And I’ve seen that happen again and again.

So can you give me an example of one that you might have talked about in your book on that?

Raul: An example of how an organization loses its bearings?

Jaynie: Yes.

Raul: Well, there’s many examples cited in the book. Perhaps the most egregious is Wachovia Bank. Wachovia Bank is an organization, when finally it was sold, it was sold for pennies on a dollar, and the reason is that not once in all of the time that they were — they were beating up on the customer, bilking their accounts, selling products that they didn’t ask for.

In all of that time, not once did an executive at Wachovia Bank raise his or her hand to say, is this right? Or should we be doing this? Can you imagine a customer coming to Wachovia to say I’d like a mortgage, where if I pay the least amount possible, my principal will be higher next month than this month? No one raised their hand at the bank to help the customer.

Jaynie: I’m sure we’ve got a lot of companies we can point the finger at. This is so impressive to me that your book is on target, and it’s just so needed in this country today.

Is there a way that an organization can quantify the cost of poor service? I mean this is everything we’re talking about here from the dry cleaner to the Fortune 500 companies.

Raul: Yes indeed. If Accenture’s survey results are anywhere near correct, that is that 60% of customers walk for reasons having to do with poor service, well then do the math yourself. Let’s say a company has a marketing spend of say a million dollars. So how much of that million dollars goes to replace the customer if they have say a 20% attrition, well it’s $200,000. Well, of the $200,000 Accenture would say approximately $120,000, or 12% of your marketing spend, is going to replace your customers that have bolted. And that’s the nominal cost.

And I say nominal because it doesn’t include the management time, the management cost, credits issued to aggrieved customers et cetera, et cetera that are incremental to the $120,000, never mind that the reputational damage that’s done to the business by those aggrieved customers that will never, ever recommend your business again. Those costs are not in this calculation.

Jaynie: So if you focus on customer retention, it’s much more economical, much more profitable for the organization to keep the customers you have. Yet I always say to my clients, your customers are prey to the competition every single day. They’re knocking on your customers’ door. How do you know you’re keeping them happy?

Raul: The conventional wisdom in marketing today, the orthodoxy and it starts with graduates of schools of business, which focuses on customer acquisition.

Jaynie: Well, let’s talk about that a little bit. Take a little side trip here just for about a minute. We talked about this before the show, about universities teaching the next generation, what is you’re seeing relative to that?

Raul: Well, I now have made it my business to see what is being taught in many of these graduate schools of business, and of course I do have in my prior background, I have experience as an adjunct professor. And so what I’ve begun to do is I’ve begun to examine the course catalogues of graduate schools of business across the country; and the results are — they’re more stunning than I thought they might have been.

So you’ll find for example several courses in economics, several courses in accounting, several courses in marketing, et cetera, et cetera, and rarely will you see one course, Jaynie, one course on service management. So the disconnect begins with education. So you have graduates coming off the graduate schools of the Nation with little or no training for the challenges of the 21st Century.

Jaynie: And that’s who we’re faced with in the work place every day, and they just don’t get it. So what are the potential consequences when an organization doesn’t focus on the customer, I know we talked about it briefly, about the monetary loss, but what else?

Raul: The organization that fails to focus on the customer, I think then yields to an industrial age paradigm, where efficiency or looking internally where bottom line results are king; and then that — the pressure then is so intense that you begin to cut corners or worse. And in my estimation, look the subprime mortgage crisis which triggered a financial fire storm worldwide, the monstrous 65 billion dollar Bernie Madoff ponzie scheme, the demise of titans on Wall Street, the demise of titans in Detroit, despite all of the tortuous explanations you read in the media really come down to the collapse of an ethic of service.

Jaynie: None of them are living their brand.

Raul: That’s correct.

Jaynie: And they have completely tainted and/or destroyed their brand. And you see this again and again. I heard a speaker recently, who his whole theme is, and I have to get him on the radio show, I can’t remember his name at the moment, but he teaches companies how to live your brand. And that’s exactly what you started out saying, we — all day long we see mission statements, the vision statements, serve the customer, customer first, but they’re not living it, and they are hypocritical in what they convey, and the work place isn’t going to serve the customer if the CEO doesn’t get it, all crumbs lead to the top. And when senior management doesn’t get it, and then in your examples in all those companies senior management blew big time.

Raul: Yes, yes indeed.

Jaynie: So what approach would you recommend for a company to take in order to improve their service posture, and do me a favor, talk about this for the small, medium sized business, I mean everything from the dry cleaner all the way on up.

Raul: Yes, well there’s good news here. Despite my observation and I’m convinced that it is true that service to the customer is in its most calamitous state that we have seen in decades, despite that; the good news is that the leadership group that is committed to pointing the organization to compass, in the direction of the customer can do so. And you begin to do so by conducting what I would suggest is a diagnostic, let us say an assessment which takes the four critical success factors, and puts those critical success factors to the test with the employee base.

So if you’re a small business, you can take your entire company in a conference room and ask the question, do you believe that ours is a customer driven company? And then the respondents will say, you know I strongly agree or strongly disagree. So the upshot might be to the chagrin of the CEO that no, the employee base does not believe that they are customer focused, and that — then therefore some remediation is required.

But I would urge the leadership group that is serious about turning the company around in this sense, that they think twice before they do it, because more harm and good might be done but initiating this assessment process, and then letting it die on the vine. Once you get your employees in the room, and you ask for them to give you their unfettered responses, et cetera, et cetera, you better be prepared to follow through on them.

Jaynie: You know, Raul I have to tell you, I can’t help but smile as I listen to you because we have a similar question we ask our companies. We say what’s your number one competitive advantage? And literally on page 100 of my book, the number one most common response is customer service.

And yet, when I have 20 people in the room and I say what’s your number one competitive advantage in one company I get 20 different answers, or 30 people in the room, I get 30 different answers. So a handful of them, you know one or two of them may say customer service, but somebody else is saying reputation, innovation, good people, knowledgeable, so there’s not consistency there.

And I just did one company and when I said how many of you said customer service, not one hand went up. I turned to the CEO, I said, you got a problem. Not one person here thinks customer service is your competitive advantage. But that’s a reality isn’t it?

Raul: Jaynie, in the book we cite the work of Jeffrey Abraham: 101 Mission Statements. So I made it a point to go through the 101 mission statements, and I wanted to call out those mission statements where the commitment to the customer was made in the opening salvo of the mission statement; out of 101, I found nine.

Jaynie: Yeah.

Raul: I found nine. And just think about this, because Jeffrey Abraham probably gave us the 101 best mission statements he could find.

Jaynie: Yes, that’s pretty scary isn’t it?

Raul: Very disappointing.

Jaynie: So can you give us an example or two of what might be revealed in the diagnostic you referred to a minute ago?

Raul: Yes, in the — so in the broadest or most fundamental sense, again to the chagrin of the leadership group, the employee feedback might be, no, we’re not a customer-focused company. And then that’s going to require some very heavy lifting on the part of the leadership group to turn that around. And it’s doable, but again they must be committed to make something happen.

But there are more tactical things that might emanate from the diagnostic, the assessment. Also, for example, the employee feedback might be that, no we don’t have the access that we need to say sales practices, or credit practices, so that I can interact with a customer in an intelligent way, that the — the upshot of that of course is that a customer in his mind believes that the service worker is inept or nonresponsive.

Jaynie: Yes, and we do it another way. We ask what are your competitive disadvantages, and I’m always astounded at how many customer service things come up in competitive disadvantages to your point, there’s a lot of them alive and well in there.

So Raul, this has just been fascinating. I love your work. It’s right in align with what we talk about in trying to uncover competitive advantages.

About Raul Pupo

Raul Pupo is an entrepreneur, author, speaker, and consultant in the information technology industry who has done business throughout much of the world. He is currently Chief Executive Officer of Technology Infrastructure Solutions, Inc., a company known for its service practices in the field of systems integration to Fortune 1000 clients.
Pupo also serves on the advisory board of Blackhorn Capital, a boutique advisory firm working in the fields of general and financial strategy serving companies in the information technology industry. His business experience spans over 30 years founding and operating companies in the field of information technology.
In each case, these companies achieved success on the strength of Pupo’s service philosophy as they were all modestly capitalized while competing against the giants of the technology world. Pupo’s prior ventures have each been acquired by Fortune 500 companies.