2-Frei - Service Learning Organizations

Building Learning Organizations: The Operations of Excellence
May 2010
Frances X. Frei
Principles of Service Excellence

Create value for customers, employees, and shareholders.
Funding Mechanism How is the excellence paid for?
Service Offering
Employee Management System
Are employees set up for success?
Which specific attributes of service are you competing on?
Customer Management System
How are customers managed and trained?

2
Frances X. Frei
Targeting Specific Attributes

Conventional
Funding Mechanism
Service Offering
Employee Mgmt System
Customer Mgmt System
Wisdom in Retail Banking
Growth comes from attractive rates or acquiring other banks
Commerce offers the worst rates, avoids acquisitions, yet

became the fastest growing bank in the US
Frances X. Frei
Funding Mechanism
Commerce Bank: Hard-Coded Tradeoffs
Service Offering
Convenient service
Better customer interactions
Frances X. Frei
Funding Mechanism
Service Offering
permits
Spending money on service features
creates
Lower deposit rates
Convenient service
Frances X. Frei
Funding Mechanism
Service Offering
permits
creates
Lower deposit rates
Convenient service
permits
Hire for attitude & Train for service
creates
Limited product set
Frances X. Frei
Labor Reality
High
$$
Aptitude
Low
$
Low High
Attitude
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High
Funding Mechanism
Service Offering
$$
Aptitude
Low
$
Low High
Attitude
permits
creates
Limited product set
Frances X. Frei
Funding Mechanism
Service Offering
permits
creates
Lower deposit rates
Convenient service
permits
creates
Limited product set
Frances X. Frei
Commerce Bank Attribute Map
Funding Mechanism
Service Offering
Most important to target market
Convenience Customer interactions Product range
Least important to target market
2 3 4 5 Relative Performance of Firm 1
Price
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Southwest Attribute Map

Most important to SWA target market
Low prices Friendly service Frequent departures On-time arrival Fast transport
Convenient airports Fullservice airline
Funding Mechanism
Service Offering
SWA
The bus
Extensive network
Least important to SWA target market
On-board amenities
1 2 3 4 5
Relative Performance of Firm

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Wal-Mart Attribute Map

Most important to Wal-Mart target market
Low prices
Funding Mechanism
Service Offering
Wal-Mart
Selection across categories Rural convenience Reliable prices Merchandise quality Suburban convenience Selection within categories
Sears
Least important to Wal-Mart target market
Sales help Ambiance

1 2 3 4
Mom & Pop

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Organizations Have a Choice to Make
Funding Mechanism
Service Offering
1 2 versus 3 4 5 1 2
3 4 5
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Multi-Focused Organization
Funding Mechanism
Funding Mechanism
Service Offering
Service Offering
Service model Shared services
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Multi-Focused Organization
Funding Mechanism
Funding Mechanism
Service Offering
Service Offering
Service model Shared services
Human resource processing Executive training Finance Purchasing IT {economies of scale} {economies of experience}
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Furniture Attribute Map

Most important to furniture buyers
Durability Assembly Sales assistance Location
IKEA
Funding Mechanism
Service Offering
Traditional Retailers
Least important to furniture buyers

1 2 3 4 5

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IKEA Attribute Map

Most important to IKEA target market
Funding Mechanism
Service Offering
Durability Assembly Sales assistance
IKEA
Least important to IKEA target market
Location

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IKEA Attribute Map

Most important to IKEA target market
Ability to change! Fun project! Independence! A destination!
Funding Mechanism
Service Offering
IKEA
Durability Assembly Sales assistance
IKEA
Least important to IKEA target market
Location

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Identify Funding Mechanism
Funding Mechanism
Service Offering
Customer pays, in a palatable way
permits
creates
Lower deposit rates
Convenient service
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Progressive Insurance
Funding Mechanism
Service Offering
Insurance Economics
Firms lose money on insurance - make money investing pre-paid

premiums
Customers are extremely price sensitive
Progressive Insurance
Progressive spends more on service features, yet the company

makes more on insurance.
Framing : operational savings framed as value-added service

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Customer
Funding Mechanism
Service Offering
pays, in a palatable way as value-added service
Operations
Framing Operations: operational savings framed as valueadded service
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Customer
Funding Mechanism
Service Offering
pays, in a palatable way as value-added service
Operations
Framing Operations: operational savings framed as valueadded service

Customer
performs the work
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Funding Mechanism
Funding Mechanism
Service Offering
Can self-service lead to service excellence? Yes, if
Self-service
readily available full service alternative

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Frances X. Frei
3. Employee Management System
Funding Mechanism
Service Offering
permits
creates
Limited product set
Design a system where typical employees have a reasonable chance of success System = selection, training, job design, performance management
Diagnostic Questions: Q: What makes employees reasonably able to achieve excellence? Q: What makes employees reasonably motivated to achieve excellence?
Frances X. Frei
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Job Design at Large International Bank
Funding Mechanism
Service Offering
A senior manager complained that no matter how the incentives or training were changed, the customer experience in the branch would not improve. We suggested that the manager spend time working as a frontline employee in the branch.

She reported back after her first day of work
From the time the doors opened, customers were yelling at me. By the end of the day, I was yelling back.
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Job Design Common Culprit
Funding Mechanism
Service Offering
Marketing
Operations
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Job Design Common Culprit
Funding Mechanism
Service Offering
Operational Complexity
level
GAP Experienced by front line
Employee Sophistication
time
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4. Customer Management System

Which
Funding Mechanism
Service Offering
customers are you focusing on?
Which
behaviors do you want?
techniques are you using to influence behavior?
Which
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Which Behaviors?
Funding Mechanism
Service Offering
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Influence in Action
Funding Mechanism
Service Offering
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Influence in Action
Funding Mechanism
Service Offering
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Principles of Service Excellence

Create value for customers, employees, and shareholders.
Funding Mechanism How is the excellence paid for?
Service Offering
Employee Management System
Are employees set up for success?
Which specific attributes of service are you competing on?
Customer Management System
How are customers managed and trained?

32
Frances X. Frei
Steinway Pianos
Too late
Quality Ouch! Lets get serious
Its ok, were a segmented market
Frances X. Frei
Volume
33
Focus on Rate of Improvement

Company A
At any point in time, benchmarks of absolute difference can be very misleading for Company A
Company B
Quality
Time
Yamaha and Steinway pianos Toyota and GM autos Honda/Suzuki and Triumph motorcycles Swiss and Hamitar watches Korean and Japanese shipbuilders
How does Company B improve faster? A story might help

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Rock and Pond (A)
Point A
Point B
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Rock and Pond (A)
Point A
Point B
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Rock and Pond (A)
Point A
Point B
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Rock and Pond (A)
Point A
Point B
Continue to add water, and crossings will be possible. Or

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Rock and Pond (B)
Point A
Point B
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Rock and Pond (B)
Point A
Point B
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Rock and Pond (B)
Point A
Point B
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Rock and Pond (B)
Point A
Point B
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Rock and Pond (B)
Point A
Point B
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Rock and Pond (B)
Point A
Point B
Remove as much water as possible and then cross.

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Root Cause Analysis

Were having quality problems. Why are we having quality problems?
Because people are not performing well. Why? Because theyre not being trained. Why? Because were hiring them too fast to keep up with the training.
Why?
Because we didnt forecast demand well.
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Lessons from Steinway and Yamaha

Focus
on rate of improvement pursuit of surfacing problems
Relentless Incredible
humility in addressing problems
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Funding Mechanism
Service Offering
The Mind of the Customer
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Customer Perception
Funding Mechanism
Service Offering
Customers do not attribute service performance evenly across employees and firm
Positive experiences Employees Negative experiences Firm
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Lessons From Behavioral Science: 1 of 3
Funding Mechanism
Service Offering
Beginning of service encounter
End of service encounter
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Funding Mechanism
Service Offering
Win $5 Win $10 or Win $5 Make winning last...
Lose $5 Get losing over with... Lose $10 or Lose $5
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Funding Mechanism
Service Offering
Study found that blood donors perceived significantly less discomfort when they were allowed to select the arm from which blood would be drawn.
Frances X. Frei
51
Contact Information
My Contact info Morgan Hall 411, Harvard Business School 617.495.7968 ffrei@hbs.edu Blog: www.DecisionToLead.com For Appointments Janelle Mills: jmills@hbs.edu, 617.495.6560
Frances X. Frei
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Building Learning Organizations: The Operations of Excellence

Principles of Service Excellence

Employee Management System

Are employees set up for success?

Which specific attributes of service are you competing on?

Customer Management System

How are customers managed and trained?

Targeting Specific Attributes

Employee Mgmt System

Customer Mgmt System

Wisdom in Retail Banking

Growth comes from attractive rates or acquiring other banks

Commerce offers the worst rates, avoids acquisitions, yet

Commerce Bank: Hard-Coded Tradeoffs

Employee Mgmt System

Customer Mgmt System

Better customer interactions

Commerce Bank: Hard-Coded Tradeoffs

Employee Mgmt System

Customer Mgmt System

Spending money on service features

Lower deposit rates

Better customer interactions

Commerce Bank: Hard-Coded Tradeoffs

Employee Mgmt System

Customer Mgmt System

Spending money on service features

Lower deposit rates

Hire for attitude & Train for service

Limited product set

Better customer interactions

Commerce Bank: Hard-Coded Tradeoffs

Employee Mgmt System

Customer Mgmt System

Hire for attitude & Train for service

Limited product set

Better customer interactions

Commerce Bank: Hard-Coded Tradeoffs

Employee Mgmt System

Customer Mgmt System

Spending money on service features

Lower deposit rates

Hire for attitude & Train for service

Limited product set

Better customer interactions

Commerce Bank Attribute Map

Employee Mgmt System

Customer Mgmt System

Most important to target market

Convenience Customer interactions Product range

Least important to target market

2 3 4 5 Relative Performance of Firm 1

Southwest Attribute Map

Employee Mgmt System

Customer Mgmt System

Least important to SWA target market

Relative Performance of Firm

Wal-Mart Attribute Map

Employee Mgmt System

Customer Mgmt System

Least important to Wal-Mart target market

Sales help Ambiance