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Learning from the customer.

Simply satisfying the customer will no longer ensure competitiveness. Companies must learn what the customer wants - preferably before the customer realizes he or she wants it.

Competitiveness demands that every company get as close as possible to its customers. The problem is that markets move too quickly for all decisions to be bucked to the top. Employees must grasp the importance of changing conditions and act immediately. In short, all companies must become learning organizations. To do that, a company needs to learn first from its customers. If a customer doesn't care about a feature, it's probably not important. Every company claims it is customer-focused - and many are. But attentiveness is one thing, anticipation is another. A company that creates an internalized process of learning from its customers sometimes will know what's important before the customer articulates its importance. The critical element, however, goes beyond knowing; it's transferring and institutionalizing the new knowledge.

Sometimes the learning process can be highly developed, as it is at British Airways and Southwest Airlines. Sir Colin Marshall, former CEO of British Airways, argues that only the customer can really design a company's product. BA's sleeper seats in first class, Marshall says, were developed from the carrier's close communication with its long-distance business travelers.

Learning from the customer also can be disarmingly simple, yet effective. Sam Walton, founder of Wal-Mart, insisted that Wal-Mart associates participate in their customers' culture. To this day, corporate officers stay at places such as Motel Six and eat at places such as Denny's. No matter how far up the ladder an employee gets, he or she is expected to relate to Wal-Mart customers' lifestyles. "We are merely buyers for our own customers," says Wal-Mart Vice Chairman and COO Don Soderquist.

CE conducted the following roundtable in partnership with Arthur D. Little to explore how CEOs can make the connection between learning and business operations. Some companies find it's not as easy as it sounds. British automaker Rover, for example, found it difficult to convince employees of organizational learning's worth until it set forth some measurable benefits. On the other hand, Northwestern Mutual Life InSurance long has institutionalized customer-driven learning. Each year, the life insurer invites five Northwestern Mutual policyholders - a Policyowner Examining Committee - to spend five days at its Milwaukee headquarters, giving them free rein to review all aspects of its operations. According to CEO James D. Ericson, "Nothing and no one is off-limits. If the committee chooses, it can even hire technical help at our expense."

The committee's written report, uncensored and unedited, is required by company bylaw to be published in NML's annual report and mailed to 2.5 million policyowners. The scheme is not for everyone, allows Ericson, who concedes that answering strangers' questions about every company detail is a task few CEOs would welcome. Nonetheless, he maintains, it is a strong reality check for himself and Northwestern Mutual management that has led to changes. In 1970, the committee included consumer-products giant S.C. Johnson & Son's Sam Johnson. Johnson, whose company remains a national advertiser, told the insurer's board that its national print ad campaign was like "spitting in Lake Michigan." In response, the company changed its strategy to include television advertising. Consumer awareness zoomed from 38 percent to 80 percent. More recently, the committee seconded management's decision to remain a life insurance specialist, thus avoiding many of the costly diversifications that plagued other insurers during the 1980s.

CEOs naturally must lead the process by demonstrating the link between continuous learning and continuous improvement. By focusing on continuous learning rather than one-time training, CEOs can forge a new relationship with employees. In 1991, Whirlpool CEO David Whitwam announced that measures of his company's efforts in cost, quality, productivity, and customer satisfaction would be benchmarked and publicly announced. These nonfinancial measures then were used by board directors and the front-line managers who utilize learning groups to train employees to capture knowledge in each of the four areas and relate it to specific improvements. Whirlpool's annual report cites employees for how their knowledge and initiative benefited Whirlpool customers.

When asked to rate their organizations' ability to learn from the customer, roundtable participants gave themselves an average 8.5 on a 1-to-10 scale. Most said the greatest obstacle was a lack of clear focus in understanding who the customer is. Poor performance led the list of the top three reasons for customer defection. Poor product diversity or innovation was second; price was third.

BEYOND CLIENT SERVICE

Eliot A. Daley (Innovation Associates): All CEOs have responsibilities that go beyond simply knowing how to learn from the customer. First, they must champion the notion that it matters to learn from the customer. For example, Johnson & Johnson's credo - which was created by Gen. Robert Wood Johnson in the 1920s - proclaims that "everything the company does, it does for the customer to serve the mothers and fathers and the professional healthcare people in this country." And that credo isn't just on a shelf somewhere: It hangs in corridors, factories, offices; it's on desk blotters and plaques. No decisions are made at J&J without someone saying, "Let's bounce it off the credo."

On the flip side, Sears dominated retailing in the early 1970s because it listened to its customers, but fell down in the 1980s when it shifted subtly from serving its customers to trying to outsmart them. Sears figured the core of its customers' wealth was in their homes and home equity, so it bought Coldwell Banker and Dean Witter and juiced up AllState. The retailer aimed to finance its customers' houses, insure them, and furnish them. Today, Sears is the fourth-ranking retailer; it has spun off all those companies and is putting its energies into a renewed customer focus.

CEOs also are responsible for providing their organizations with the capacity to change in response to learning. Most organizations understand changing products in response to market research or sales surveys, but that's not enough. To succeed, you have to forge strategic alliances - which means being flexible enough to adapt to your partner's needs in order to satisfy your customers' demands. For example, Procter & Gamble and Wal-Mart had the opportunity to make sweet music together, but they operated on different premises. Sam Walton went with everyday low prices, while P&G preferred to set higher prices and offer coupons. Sam Walton said, "I don't want your damned coupons." Ultimately, P&G changed its corporate culture to do business with discounters such as Wal-Mart. Today, Wal-Mart is P&G's biggest customer.

Sponsoring such a capacity for change must be done in a way that enables everyone in the organization to recognize and respond to these changes. People must be taught to construct a shared vision with their internal colleagues from sales, marketing, operations, finance, etc., that reflects the external customer's needs. They also must learn enough about systems thinking and the complexity of the force field their organization is creating to identify the high-leverage opportunities for change and avoid the land mines of unintended consequences.

Some new tools are coming down the road. Electronic performance-support systems provide expert thinking programs that can be loaded onto employees' PCs, so they all understand the priorities. This tool reminds them of the company's vision and tests their work against it.

J.P. Donlon (CE): Do these systems really work?

Daley: Yes. Before Innovation Associates, I worked at an interactive computer software development company whose initial core product was a computer program that does psychotherapy. It actually works as well as or better than face-to-face therapy for about 85 percent of the people who use it, according to the double-blind clinical studies we did. I realized that the same technology could be brought to the workplace, so I entered into a joint venture with Johnson & Johnson. We created a PC-based "thinking" template that contains the organization's overall vision and goals.

This electronic performance-support system walks the user through a series of questions about the outcome of a strategy. It asks if it's an end or a means to an end, if the user really cares about it or is just going through the motions. It asks who the stakeholders and customers are and how well-aligned the user's ambition is with the customer's criteria. It gives the user an opportunity to anticipate obstacles and restructure the job. Then it does some work planning.

The goal of such systems is to help everybody in the company sing off the same song sheet, so that in the midst of the nonstop, spontaneous change happening throughout the organization, employees have access to a "thinking" template that represents companywide issues and considerations, captures results, and helps analyze them.

FEEDBACK FOCUS

Marvin L. Mann (Lexmark International): Our global computer system enables us to track, sort, and respond to customer feedback. Every time one of our sales reps makes a sale - or fails to make one - a report is entered into the system with the reasons behind the sale or non-sale. We also have a large and growing technical support organization both on call with a customer and on telephone help lines. Each call is logged, entered, sorted, and sent back to whomever can solve the problem, so the customer doesn't have to call again.

Kenneth J. Gorman (Atlantic Mutual Cos.): About four years ago, I gave one of our executive vice presidents the job of policyholder relations. That allowed us to become more focused and cognizant of the customer, to listen more, to centralize receipt of complaints, and coordinate our response through one person.

Mann: We also have "mirror teams." That means, for example, our distribution guy interfaces with our customer's guy who manages the warehouse operation and receiving. We do the same for finance. We try to understand how we stack up against our competitors in terms of the profit the customer makes off our products, the revenue he's getting, and the growth he's getting. Then we try to understand what prevents him from making as much money off our products. Boy, you learn there's a lot you can fix.

Donlon: Is it a temporary or permanent change?

Mann: The teams make the decisions and the changes in their organizations. I don't get involved. I learn from them.

Donlon: Don't you want to know about it?

Mann: Not at the level of detail they know about it. I just want to know they are continuing to do it and getting results from the customer.

Josh S. Weston (Automatic Data Processing): I find it's useful for the CEO to go to every operating location and talk one-on-one with people, including general managers, rank-and-file employees, clients, and even ex-clients. It really helps for employees to see the CEO, who allegedly has many other things to do, getting off his or her duff and going to Kansas City in the winter to talk to individual customers.

James R. LymBurner (LymBurner Eedy & Co.): That's right. Get the chief executive out of the limousine and onto the street. That goes for employees, too. I force all our people whenever possible to ride the bus and subway, to hit the pavement. That's where the customers are. Wal-Mart's Sam Walton was pretty good at that. He never lost touch with his customers.

Steven D. Goldstein (American Express Bank): CEOs should be visible and willing to step in and change a process that does not work. Often, if you monitor telephone calls and hear something that strikes you as strange, the representative gives you chapter and verse on how to fix the problem but explains that the company's ingrained bureaucracy precludes the solution. I tell that person, "OK, you can fix it." It's amazing what happens when you let people reengineer a solution.

Nevertheless, I've found a real dilemma in employee "empowerment." We tell people they're empowered, but they keep asking permission to do things. We had a minor dispute with a customer that took more than six months to resolve. The ultimate amount of money involved was a couple hundred bucks, but we probably spent thousands of dollars handling it. One person came up with a simple idea: If it's less than $100, the employee can make the decision, thus saving a customer relationship and avoiding all this extra work. That sounded good, but it took a while before the organization felt comfortable enabling someone to do that.

People felt they had to protect the bank's assets, perhaps at the customer's expense. The problem is that we don't have that many customers - and the ones we have bring in a fairly large amount of money. So losing one customer is a big deal, particularly if it could have been avoided with a judicious response to a problem.

Daley: We worry that if we honest-to-God empower employees, they are going to take this sucker someplace we don't want them to. You must trust that you have the right people, who, with some guidance and a clear vision, can take the company to new heights. It all comes back to the question of how you equip the organization with the capacity to change spontaneously, sure-footedly, quickly, and in line with the company's overall vision and direction.

LymBurner: One big problem is that companies are caught in the historical web they've spun over the last 60 or 70 years, and they can't move forward. Look at General Motors. It has an enormous critical mass that's very difficult to move. It's like taking the Queen Mary up a creek and trying to turn it around. You can't do it. There must be some fast way to disassemble it and go the other way before the competition catches up. I'm afraid many industries are caught in this situation, and that dynamic may make all previous strategies relating to customer service obsolete.

Daley: For many years, change happened as an episode; for example, you had to respond to a new technology or regulation. It's sort of like golf: I stand still, the ball stands still, and only the club moves. I knock the ball somewhere, and it waits for me, so I can contemplate the situation.

Today, the perfect metaphor for business is polo. Not only are the ball and you moving, but you're sitting on top of a horse. And it's not a solo sport; you have three teammates, and you're trying to figure out when to pass the ball to them and when they're going to send it to you. All this is going on while four other players are trying to knock you off both the ball and your horse.

Extending the metaphor further, to coach a golfer, you just stand next to him or her and say, "No, no, widen your stance and straighten your shoulder." But for polo players, it's too late to show them what to do once the game starts. You have to equip them with the competencies they need to get the job done. Just as in business, they have to know how to work with teammates who are not under their control, what the overall strategy is, and how to communicate with each other in the midst of all the sturm und drang.

DISASTROUS OPPORTUNITIES

John A. Boland III (Dominion Textile): Organizations do have the capacity to learn, but unfortunately, we sometimes only discover that when we're faced with a crisis. Companies seem to get more efficient in a crisis; perhaps this is a way to institutionalize learning.

Charles R. LaMantia (Arthur D. Little): People change when they're dissatisfied with the current situation. That means we have to create a vision that is somewhat distant from the current reality and a tension that makes people want to move toward that vision.

Mann: Crisis situations are some of the best opportunities to establish yourself with the customer as a valued partner. A company's response to the crisis can make or break the partnership.

Weston: That's why it's vital to have established a relationship of trust and reliability before the calamity occurs. That creates a shock absorber, a tolerance level, for disaster. The other part is responding immediately to the problem. Clearly, nobody's going to be perfect, but if you make an honest, immediate effort to respond, customers give you a little leeway.

Donlon: Does a learning organization make fewer mistakes or does it simply recover better from the mistakes it makes?

Daley: It makes fewer mistakes. When you are skilled at systems thinking, you get fewer unintended consequences, or mistakes. You're better aligned from the get-go, so you're less likely to disappoint because you didn't ask the right questions or create the right strategy.

LaMantia: But you're also liable to experiment more and not be afraid to get it wrong, because you learn from that, too - particularly if you're confident of your ability to recover. You don't have to get it perfect before you try it.

SATISFACTION PLUS

Boland: We have to move beyond simply satisfying customers. We're really seeking a new level of understanding, one that allows us to anticipate what customers require.

To do that, we have to understand the customer's investment in terms of fixed and variable proportions and how value is created. Then we have to figure out how the things we do affect that.

LaMantia: About six years ago, we started to interview our clients after each engagement to find out how well we satisfied their needs. The killer question is always, "What kind of value did you receive for the money you spent?"

Today, at the beginning of an assignment, we talk with the client about the value-creation opportunities. Then we address those in a proposal letter to the client, so we can focus on our goals and measure against them as we go along. At the end of the assignment, we hope everyone has a clear feeling about the value that was created over the course of the project.

James L. Wareham (Wheeling-Pittsburgh Steel): We're constantly trying to add value for our customers. The problem is that in a commodity business such as steel, we often deal with our customer's customer rather than the customer directly.

Mann: We had a similar problem. When we were spun off from IBM, we were focused on a fairly narrow set of products and solutions: printers. Almost all our products were sold through resellers, dealers, value-added remarketers, or retailers. This created a distance between Lexmark and its customers. In the end, we opted not to use remarketers, but rather to have our people around the world work with large corporations, telling our story, learning customers' needs, and feeding them back into our system.

Allen Karp (Cineplex Odeon): As a movie-theater chain, our customers comprise 85 million patrons and seven film studios. Our discipline focuses on identifying the company's mission and how the customer fits in. Next, we look at the message of change and try to find out how to get that message from the customer. Then we have to process the message and finally, apply it to change our business style.

Getting input is tough, because patrons only spend $7 and a couple of hours in the theater. We constantly battle the challenge of getting them to invest the time to give us a real sense of why they came, what they liked or didn't like, how much value they got out of the experience. Unlike most other businesses, the primary reason a patron comes to one of our theaters is to see a movie, not to visit the theater in which it is playing. I didn't make the movie. It is either good or bad because the director was successful or not. But my theater is showing the film, and it's tough if the movie's message is unhappy, and the patrons are unhappy when they walk out. We worry that they will take the bad experience out on us by not returning to our theater.

It's a double-edged sword, because our other customer - the studio that provided the film - has certain expectations from us, and we want to fulfill them, so that when the studio's next big movie comes out, it will come to us first.

Thus, we try to make the movie-going experience as pleasurable as possible. We ask our patrons: Did you like the popcorn? Was it fresh? Was it served well? Were you greeted with a smile when you bought it? We benchmark our peers in this business and also those companies that are icons in the service/entertainment industry such as Disney, McDonald's, and Four Seasons Hotels. In fact, we recently sent all our operations people and employees who interface with patrons to a course at Disney in Orlando.

Donlon: What was learned through the Disney program, and did you implement any internal changes as a result?

Karp: We learned that with 85 million patrons, we can't respond to every customer's complaint; we must be able to recognize when a complaint may be justified but is simply the result of a bad night or bad staff person. We have to categorize the feedback and focus on the hot buttons.

To do this, survey print-outs are flowed monthly to one person, who funnels the information to the teams that need it. For example, if we find out that our cleanliness scores are way too low in Washington, we develop a strategy to address that concern in that market. Of course, some strategies cover all geographic areas. For example, we recently inaugurated a program we borrowed in part from Disney, which requires a staff person to inspect the bathrooms every half hour, fill in the date, sign off, and report back to the manager.

REACHING OUT

Donlon: In this world of globalization and dissolving borders, companies have to reach and learn from geographically and culturally diverse customers. Steve, how does American Express Bank do that and change its own processes as a result?

Goldstein: It's not easy. We haven't cracked the code yet. There was a paradigm that said Third World countries had certain capabilities and OECD countries had different capabilities.

Until recently, in each country we operated in, our trait functioned as almost a separate company. And the country head was the big man on campus; he didn't really care much about what was happening in another place, because he was measured by the bottom line in that country. So, many things were done that might not have been in the customer's interest to maximize income in a particular country.

Today, the world has changed. In Bangladesh now, for example, many people have Bloomberg screens on their desks. That means spreads and prices come down. To some degree, our people were caught flat-footed, because the quality of the relationship gave them the right to be called first for a shot at the business, but they had to perform to get it. Nothing could be taken for granted anymore.

As I visited employees in different countries, I found that our people viewed what they did more as an art than a science. We have had to try to convince people that it's both. It all boils down to our leaders in the field: They have to be committed to the organization and to the changes that must be made.

Donlon: Do you compensate your senior people in these different regions and countries accordingly?

Goldstein: We have changed our compensation policy continually. Currently, we're basing a fairly large chunk of compensation for the senior people on the total organization's results. They used to be completely compensated based on their unit's performance, which did not promote global enterprise goals. Now, if you have a customer in Taiwan who wants to open up a Swiss bank account, we encourage you to persuade him to do that. You'll make it up if the bank does well. That's a leap of faith for many people.

Donlon: What about using incentives to spur better and faster learning from customers?

LaMantia: I think business tries to do too much with compensation. People think if you dangle enough carrots, employees will do anything. It's a coin-operated mentality that doesn't work. I believe people want to do the right thing - and will do it - if you pay them fairly and allow them to get satisfaction from the work they do.

Daley: Paying for learning is an ill-conceived notion. It betrays an assumption or conviction on management's part that there is no inherent thrill in learning, that people don't really want to carry the company and succeed personally, organizationally, and as a team. That's a terrible mind-set that says you have to con people into performing.

SCHOOL'S IN SESSION

Donlon: On a scale of one to 10 (with 10 being absolute and one marginal), how important is it to be a learning organization? And what do you see as your role as CEO to facilitate it?

Wareham: I rank it a seven. I don't assign it the top priority, because we are a large, critical-mass organization, so the change has to be a bit slower. We have to maintain some of the past, because we have too much invested in equipment, people, union contracts, and liabilities. My role as CEO in that is higher than a seven, because it has to be a lead function.

Arnold B. Pollard (CE): Learning is critical at a small company, because if it isn't learning a little faster and better than the elephants, it'll get stepped on by one of them. The chief executive has to be at the radar station making sure the organization adapts and, equally important, has the people who can learn and adapt.

R.B. Cameron Jr. (Maritime Steel and Foundries): It's a nine for my company. It's vital for us to learn all the time, particularly in this age, when we're adding more value for our customers. Our customers are doing less, forcing us to take over much of the engineering and planning for them. For a CEO, it's probably a nine as well, because people tend to resist change, and I have to spread the message throughout the organization.

Robert W. Lear (CE/Columbia Graduate School of Business): I'm a cynic. I give it at best a five. First, we have to figure out how to deal with the overload of information we're facing. The CEO's job is interpreting that data, getting the right information to the right place at the right time to the right people, then putting together programs to activate it into a solid, useful return on capital investment. In learning, the company itself is an accessory after the fact in that the program is already in place, but must be continually updated.

Karp: In our particular business, the importance of the issue depends on who the customer is. People go to movies, not movie theaters. Therefore, our relationship with studios comes close to a 10. The patron is important, but not as important, so that's closer to a six or seven.

Mann: I have several 10s, and this is one of them. My industry - and most others - is constantly changing. You have to be a learning organization, and a changing, adaptive organization to survive.

The CEO's role is to ensure that the company hires and retains people who are capable of learning. The other part is providing a structure for people, so they learn without being spoon-fed. Finally, the CEO must support the vision people develop and make sure he or she is helping them continue to focus on and accomplish it.

Daley: I'd probably hang a 10 on the importance of a learning organization. It's "learn or die" in my business. My job as managing director is to make sure we don't just fall in love with the content of what we do, but that we continue to be sensitive to the form in which our knowledge is absorbed and implemented by our clients.

Fred N. Pratt Jr. (Boston Financial): For us, it's also a 10. Our business is changing rapidly - not simply because the environment is changing but because we're intentionally changing it - and we must be able to anticipate what we're going to learn from customers. We must be able to change the business and how we operate and respond to customers. My role within that likewise is a 10. I have to create the tension. If I don't believe in this, people will just do their day-to-day jobs and not worry about it. I must be demanding and lead the process.

LaMantia: It's a 10 for us. It's vital. I continue to underestimate how important it is to repeat the same message over and over again. Sometimes I think everybody's going to jump out the window if I say one more time that the CEO has to promote the development of a broadly shared vision. But at least half the people look like they've never heard it before. You can never overdo it.

Robert A. Spira (Chapman Spira & Carson): I give it a 10. We're pretty small, and that makes us flexible, but most of the time, I don't go out of the office. At times, we turn off all the phones and ask the client to give us a lecture on what's happening out there - and the biggest thing I've heard today is that they have Bloomberg screens in Bangladesh.

I don't think we've reinvented the wheel in any of these discussions; a lot of what we've heard could have been heard 30 years ago. However, we must realize that selling to the customer is going to change drastically in the future. Relationships that meant a lot in the old days aren't going to mean as much anymore. To buy a car, you're going to get on the Internet, get a picture and video of the car, and ask questions about it online. On the other side, CEOs will be able to find out more quickly what the competition is doing regarding pricing and marketing strategies. Elasticity will go away. Just as those people in Bangladesh now know what the price really is, they are going to get to our markets much faster. The CEO's job is going to get bigger, more complicated - and he or she will have to learn to deal more with the PR staff, advertising companies, and the Internet.

Goldstein: Giving learning the applied science definition, it is the lifeblood of an organization. The whole business context is changing because of the Internet, tabulations, and greater performance demands made by customers. You can't keep operating the way you used to and hope to not only succeed but to remain competitive. You either grow or perish, and to grow, you have to learn.

RELATED ARTICLE: A Who's Who Of Roundtable Participants

John A. Boland III is president and chief executive of $1.05 billion Montreal-based Dominion Textile.

R.B. Cameron Jr. is president and chief executive of Maritime Steel and Foundries, a subsidiary of Cameron Corp. Ltd. in New Glasgow, Nova Scotia.

Eliot A. Daley is managing director of Innovation Associates, a Framingham, MA-based consulting subsidiary of Arthur D. Little, a $514 million management consulting firm in Cambridge, MA.

Steven D. Goldstein is former chairman and chief executive of $640 million American Express Bank in New York.

Kenneth J. Gorman is chairman and chief executive of Atlantic Mutual Cos., a New York-based property and casualty insurer with premiums of $700 million.

Allen Karp is president and chief executive of Toronto-based Cineplex Odeon, an $820 million cinema chain.

Charles R. LaMantia is president and chief executive of Arthur D. Little.

Robert W. Lear is an executive-in-residence at Columbia Graduate School of Business, former chief executive of F.&M. Schaefer, and CE Advisory Board chairman.

James R. LymBurner is chairman of LymBurner Eedy & Co., a merchant banking firm in Toronto.

Marvin L. Mann is chairman and chief executive of Lexmark International in Greenwich, CT, a $2.2 billion information-products company.

Fred N. Pratt Jr. is chairman and chief executive of Boston Financial, a real-estate investment company with $6 billion in assets under management.

Robert A. Spira is chairman, president, and chief executive of Chapman Spire & Carson, an investment banking consulting firm in New York.

James L. Wareham is chairman, president, and chief executive of $1.2 billion Wheeling-Pittsburgh Steel in Wheeling, WV.

Josh S. Weston is chairman and chief executive of Roseland, NJ-based Automatic Data Processing, a $3 billion-plus computer services company.

RELATED ARTICLE: LESSON NO. 1: LEARNING FROM THE CUSTOMER

PIZZA With CHEESE, PLEASE!

When Continental Airlines eliminated first-class service on one-third of its domestic routes in June 1994, plenty of top-dollar travelers - who filled 20 percent of the seats but brought in 40 percent of revenue - sent angry letters. And, as CEO Gordon Bethune relates with characteristic candor, most of them began, "'You dumb S.O.B.s. You took away first-class seats, and I'm your best customer.'"

Chastised by increasingly vocal customers, Continental learned its lesson real fast. And Bethune ensured that his company made the appropriate changes in response. To begin, every irate letter-writer received a telephone call from a Continental official; every qualified customer got a free upgrade coupon and a letter from Bethune.

But the major change came in November 1994: Continental restored first-class service, and permitted frequent fliers once again to upgrade to first class with a full-fare coach ticket. Bethune's explanation: "We had to put cheese back on the pizza. We have to do the things our customers value."

Learning from customers has never been more crucial to a company's success. Companies that ignore this fact of life do so at their peril. The issue is not blithely giving customers what they want; it's anticipating their needs and making fundamental changes in how they are served - through technology, innovation, and leadership. "Designing a good business process really isn't all that hard," says Richard Lochridge, a Boston consultant who specializes in helping companies do a better job for customers. "Changing the corporate culture is the hard part. Once you get away from having a powerful organization structure, and get people linked to different strategies for different customers, it's not so hard. Experiment. Trying new things is a great way for both you and your customer to learn a lot."

When Tim Tuff became chief executive of Augusta, GA-based Boral Industries, a subsidiary of Australia's Boral Ltd., nearly three years ago, the largest U.S. brick manufacturer supplied whole bricks as samples to customers. "They ended up as doorstops," Tuff says. After talking with customers, Tuff switched to brick pieces that architects and custom builders - which together account for roughly 60 percent of Boral's brick sales - could easily view. Brick samples, of which Boral has more than 300 different kinds, now are delivered overnight, guaranteed. Toll-free customer service can pinpoint an order's production progress. New product development, which once took up to three years, takes six months; Tuff is aiming for three months. "Every idea I've implemented came from a customer," says Tuff, who visits his best clients at least twice a year to get input on Boral products and processes.

Maintaining constant customer contact is the best way to learn, as Boral and Continental have discovered. "You can't take your girlfriend for granted, and you can't take your customer for granted," Bethune says. "Every time, it always works out the same: Somebody else gets them."

- Jonathan Burton

RELATED ARTICLE: LESSON NO. 2: UNLEARNING FROM THE CUSTOMER

TOO LITTLE, TOO LATE

"Dear Apple Customers," began the letter from then-Chief Executive Michael Spindler. The full-page mea culpa ran in The Wall Street Journal and The New York Times in late January, as consumer, investor, and supplier confidence in Apple Computer rotted away. Spindler promised the 22 million users of Macintosh systems that Apple would not let them down. "Apple's continued growth," Spindler wrote, "depends on constant and direct communication with you."

Mighty Apple Computer reduced to a public apology and a plea for customer patience? What happened? For one thing, Apple seems to have forgotten how to learn from its customers and anticipate their needs. Spindler's message, coming just days before he was forced out of a job, was too little, too late.

Apple's customers have been the most fiercely loyal bunch in the computer business, but Apple has severely tested that fealty in recent years. During the 1980s, Apple fulfilled its customers' need for user-friendly machines and software programs bolstered by help lines. In return, users entranced by Apple's innovative way of looking at a computer screen paid the Macintosh's higher prices and endured Apple's lack of compatibility with much of the world's software and nine of every 10 personal computers.

However, during the 1990s, users found they needed more than pretty graphics and customer support; they wanted computer system integration. Apple's stubborn refusal to change its business process by licensing its coveted Macintosh operating system to outside manufacturers cost it an untold number of new customers - particularly since other PC makers were learning from their customers about the wisdom of a universal operating system such as Microsoft Windows. Had Apple chosen differently, it might well have vanquished Microsoft. Instead, Apple painted itself into a corner.

That corner got tighter in the summer of '92, when price wars ravaged the personal computer industry, pushing machine prices down to bargain levels. Apple executives believed the battle would have greater impact on IBM and the makers of IBM clones. Buyers, after all, paid a premium for Apple products.

Not anymore. Given a chance to buy cheaper IBM-compatible machines, both first-time and corporate customers shunned the pricier Apples. But Apple held fast to the facade. As Windows-based computing became the business-software standard, Apple retreated to the more genteel education and publishing markets.

"There's been sort of a collective delusion going on there," says Ron Zemke, president of Performance Research Associates, a corporate consulting firm in Minneapolis and a leading expert on customer service. "Everyone [at Apple] believes that the emperor is indeed clothed."

Unable to communicate the benefits of its uniqueness, Apple quickly lost that distinction. Though the PC wars finally compelled Apple to slash prices, the race, by then, was essentially over. Apple couldn't produce its machines cheaper without crushing its margins, and without a mass-produced operating system, Apple couldn't boost sales enough to offset the cuts. Macintosh certainly won't fade away; there are too many users for that. But "the computer for the rest of us" has become the computer for the rest of them.

- J.B.

RELATED ARTICLE: LESSON NO. 3: NOTHING TO LEARN

GRIN AND BEAR IT

Many have heard the horror story of the customer who demanded that Starbucks Coffee fund a runaway youth center and publish a two-page apology in The Wall Street Journal in recompense for selling him two allegedly defective espresso machines last April.

But the scariest part for the Seattle-based coffee retailer is that the only lesson to be learned is that even if you play by the rules, some customers simply can't be appeased. They are, in short, "customers from hell." Starbucks faithfully followed the customer etiquette manual, sending Jeremy Dorosin of Pinole, CA, a letter of apology, a full refund for both machines, coffee, and related items. The 38-year-old former scuba shop owner returned everything, and spent $20,000 of his own money on a toll-free telephone number and newspaper advertisements seeking other dissatisfied Starbucks customers. He claims he's received 4,000 supportive calls so far.

Could Starbucks have applied any of the lessons it had learned from other customers to avoid the Dorosin debacle? Probably not; it was a rather unique situation. Would changing the manufacturing process eliminate defective machines? Perhaps, though Starbucks disputes the fact that the products were actually defective. Would changing the way the company handles complaints prevent a repeat of the Dorosin saga? The vagaries of human nature make it impossible to tell. Would caving in to the customer's demands early on have avoided the highly publicized saga that dragged on for months? Maybe, but at what price to Starbucks?

Of course, the big problem Starbucks faced with its customer from hell was where to draw the line: How do you determine when there is simply nothing to learn from the experience, and how do you behave accordingly?

"You can't tell the difference between the customer from hell and the customer who's been through hell, so you have to treat them all the same," says service expert Ron Zemke, who heads Performance Research Associates in Minneapolis.

"Absolutely," agrees Allan Milham, a vice president at human resources consultant TMI North America in San Francisco. His advice for dealing with disgruntled customers: First, say, "Thank you. I appreciate it, and I'm sorry it happened." Next, promise it won't happen again. Then ask what happened and follow through. Finally, check back with the customer and try to implement new ideas and policies in response to his or her input.

In fact, Milham believes companies should be grateful to complaining customers. "Complaints are the cheapest kind of market research," he explains.

Then again, some customers can go a little over the top. Milham admits, "Some people are saying, 'I want justice,' and they're seeking revenge."

Dorosin, who says he's writing a book about "social morality," now contends he wants nothing from Starbucks. Instead, he says, "I would like to get as high a profile as I possibly can and let people know they do make a difference. If companies ignore them, then those companies shouldn't be patronized. And the bigger a company you are, the more you have to lose."

For its part, Starbucks continues to defend its strong tradition of community service and customer relations, though it has given up the ghost in the Dorosin case. In a statement released last July, the company said, "As we have become convinced that Mr. Dorosin does not desire to resolve this matter constructively, we do not plan to pursue it further."

- J.B.
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Copyright 1996, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Title Annotation:CE Roundtable; includes related article; customer satisfaction
Author:Burton, Jonathan
Publication:Chief Executive (U.S.)
Article Type:Panel Discussion
Date:Mar 1, 1996
Words:6977
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