A Big Bale ‘o Fail

Every year around this time, the Fox News Business Page outlines a half-dozen or so of the year’s biggest business failures, and every year I find at least one product that I predicted would fail big in one of these posts has ended up in the listings. This isn’t that surprising in itself – I’m a failure analyst by vocation, and occasionally profession, and I enjoy the odd bit of schadenfreude as much as the next guy. But when you consider that I don’t work for any company that produces or distributes consumer goods, and haven’t for over a decade, I think it says something about my natural affinity for trouble that I keep spotting these turkeys. Troublemakers know trouble, I always say, and some of the things on this list were obviously trouble coming down four lanes of highway. Although, in fairness, I suspect than the average ten-year-old would have reached the same conclusion…

Consider, for example, the Fiat 500 (number 6 on this year’s list), the subject of the laughably bad CGI commercial I wrote about a few weeks back. It might surprise you to learn that the commercial wasn’t the worst thing about the product, but consider this: the vehicle is smaller than a Mini, gets lower gas mileage than a Honda Civic twice its size, and costs nearly $20,000 for the fully loaded version and $15,000 for the stripped version. It’s hard to say if the new version will be more reliable than previous iterations of the design, but the original was so problematic that Fiat actually discontinued them for several years, and the company is still trying to improve its image in the U.S. after years as a laughingstock…

Then there’s the RIM Playbook, a tablet device that is supposed to do all of the things that an iPad does, but doesn’t have any applications available (compared to the tens of thousands available on the famous Apple product), and the HTC Status, a rather expensive web-enabled cell phone that has, as it’s only major selling point, a special button that allows the user to access their Facebook page. Since you can get to the Facebook mobile site just as quickly from any other smart phone, it’s hard to imagine why this feature would be worth extra money to the purchaser (it doesn’t offer any added value, you see) but somebody at HTC evidently thought it did – and somebody at AT&T thought enough of it to offer the thing through their resale units…

I don’t think we can, in reason, be quite as harsh on some of the other items on the list. The Chevy Volt, as noted elsewhere, has the potential to bring the new General Motors into the hybrid market and actually take on the Toyota and Honda products on even terms. It’s unfortunate that GM is still having problems getting enough of them to the dealers, getting the price down to a competitive level, and dealing with safety issues (the battery pack is said to catch fire without warning) and image issues (people keep talking about the supposed battery fire issues), but I don’t think the Volt is an actual failure yet. And the 3-D film “Mars Needs Moms” had a disappointing reception, but compared to “Water World” or any number of other expensive failures, it’s hardly an Epic Fail…

The real prize on the list, at least from where I’m sitting, is the “Ashley” Push-Up Triangle from Abercrombie Kids, a division of Abercrombie & Fitch geared towards children ages 8 to 14. This one is something a ten-year-old might have missed; kids in that age range DO want to dress increasingly like grown-ups, and they probably would like the product. That didn’t keep parent groups from having what Fox calls “a violent reaction” to what is effectively a padded bikini top, or keep child development experts from blasting the whole concept. Fortunately, the company was able to sweep the whole line under the rug before things got any worse, but the potential for self-immolation here exceeds most of the other entries; this could easily have destroyed the entire division, if not the whole company…

Anyway, that’s a wrap for this year. Check back next December, folks, and we’ll see what they come up with next...

There’s Still Time

I read in the Los Angeles Times today that the company that owns Sears and K-Mart is going to shut down 120 locations this coming year in order to save money. It seems that their holiday-season performance was disappointing, and they’re trying to eliminate the stores that are losing money. This trend is disturbing to a lot of people associated with the company, not least of all because that’s what happened to Circuit City and Borders over the last few years, and both companies just entered a death spiral that wiped them out completely. But while it’s hard to deny that Sears has image problems with both their brick-and-mortar stores and their online services, I can’t help thinking that my recent experience with them shows they still have time to pull back from the brink…

A few weeks ago I went online looking for a new piece of exercise equipment. There aren’t that many sporting goods stores in East Lansing, and none of them had the model I wanted, so I turned to Amazon to see what they could do for me. Sure enough, Amazon had the product I wanted, and even with shipping could match the best price anyone locally could order it for. I went ahead with the purchase, and a week or two later the product showed up at my house – except that what arrived was not the product I’d ordered. I had purchased a Schwinn recumbent bicycle; what they took off the truck was a Nautilus treadmill. We refused delivery of the product (since it wasn’t what we had ordered), and I called Amazon to find out what was going on…

The Amazon telephone rep was polite and competent; there was no problem finding my order, and he said I was correct in refusing the delivery. Unfortunately, he couldn’t tell me where my purchase had gone. I asked him to just send us another unit, and after a longish delay, he came back and told me that they couldn’t. The machine I wanted was backordered, and would not be available until the end of February – more than three months away at that point. He couldn’t tell me if mine had been the last one in the warehouse, or if their website had failed to tell me that the item was backordered, or what the failure might have been, but there was nothing he could do about it. He also made no effort to resolve the situation (beyond a rather lame apology); he said there was nothing he could do at his level, and on consideration I believe him. But that still left me without the merchandise I wanted, or any way to get it…

I told Amazon to cancel my order and went on the Sears website, where I found the same machine in less than a minute of searching. The list cost was similar, and while Sears normally charges more for delivery, they were having a special that made the whole purchase comparable (if not as cheap). Sears has not had a good reputation lately, especially in terms of their online service, but I took a chance on them anyway; it would be hard to do any worse than sending me the wrong product and not doing anything to correct the problem. Surprisingly enough, they had the product in sale, set up the delivery correctly (and on time), and were willing to carry the product downstairs to the room we wanted it in (which the delivery people from the air freight company Amazon uses were not)…

Now, I’m not saying that every online competitor is going to lie down and let Sears run right over them the way Amazon did in this story. I’m not even suggesting that Sears doesn’t have problems; their stores are run-down and out-of-date, and their customer service and online ordering have been less than stellar. What I’m saying is that no one out there seems to be providing what I would call first-rate service on large items purchased online – which means that if Sears can do so reliably, there is still a place for them in retail, and there is still a market segment they can not only compete in, but dominate…

If they bother to try, of course. Time will tell…

Writing a Business Plan: Summing It Up

If you’ve been following along at home through the last eleven installments, you already know most of the major steps involved in writing a business plan. Once you start actually doing the legwork – gathering the information, developing a budget and a timeline, working out your mission and vision, and deciding where to base operations and what those operations should be, and so on – you may find yourself revisiting different aspects of the plan in light of your new information. It isn’t unusual for people to reach the point where they are actually generating text for the business plan before they realize that some aspect of the venture won’t work, or won’t work as well as something else they’ve encountered along the way. In fact, if you’ve made it all the way through this process without changing anything from your original concept, it was either an exceptionally good idea, or else you’re kidding yourself about something fairly major, and probably need a wake-up call…

The real problem at this point in the proceedings isn’t changing the direction of your business model, its being too fixed on your original concept to make such a change. If, during the course of this adventure, you’ve identified something that will generate a much higher profit margin, require a fraction of the start-up funding, or generate far greater real wealth than your original business concept would have, you’d have to be out of your mind not to change your plans to incorporate whatever that something is. Or, alternately, you’d have to be the sort of egotistical idiot who would rather make less money, pay higher interest, or end up with less than admit that your ideas are less than pure genius. Unfortunately, that description fits far too many of the entrepreneurs I have met in my travels…

Astute readers (assuming I have readers) will recall that at the beginning of this 12-part series I told you that the most important reason for writing a business plan isn’t about showing it to anyone else; the business plan is your plan for what you will actually be doing, and all of the things you intend to accomplish. Writing it clearly and convincingly enough that a potential investor would be able to make an investment decision about your project may help you to attract venture capital, but I have urged people who don’t even plan to look for funding to create such a document anyway. In fact, I have encouraged clients and students to create multiple drafts, work through every possible detail until they are sure that they’ve accounted for every possibility and selected the options they like the best – and now I’m advocating that you do the same…

Once you have done so, you will be ready to write that last piece of the actual business plan: the Executive Summary. This isn’t usually a point-by-point summary of the entire work, although it can be if you feel that’s the best approach. What you are looking for here is a short explanation of what the project is about; what you are trying to accomplish, where you will operate, who you will employ, when you plan to begin, and why (if that isn’t obvious) you are doing these things. There’s some debate about how much detail to get into, and I won’t settle that question here, but a rule of thumb I’ve seen used to good effect is the “5-minute” rule. Let’s suppose you ran into somebody who could fund your project (at a party, in a coffee house, at the supermarket, doesn’t matter), and you had five minutes to tell him or her about the venture before one or both of you had to rush off. What would you say?

There’s also no way for me to settle all of the debate about how to print the final product, what sort of binding to use, how many colors of printing to use, whether or not to use graphs, charts, drawings, photographs, clip art, or any other form of styles or accessories; I can’t even tell you for sure that the business plan will be a physical document and not simply a .pdf file that you send by email (or post on your website) as we move further into this 21^st Century. What I can tell you for certain is that you don’t want to be doing that final production step bare minutes before you go into a key meeting with your top prospect – and you don’t have to go about this alone. My final advice to you is: Don’t be afraid to ask for help. Get all of the input you can; gather all of the opinions you can find; get as many eyes on the final product as possible. And then, make your own decision. It is only the first of many…

A New Twist on an Old Crime

One of the reasons why relations between business owners and employees have always been problematic is the suspicion that theft is going on – employees are generally convinced that the ownership is trying to screw as much work out of them for as little money as possible (which is generally the case), and owners are usually convinced that the employees are slacking off, taking longer than necessary to complete tasks, demanding more assistance than they need to complete tasks, and making off with anything that isn’t nailed down (which is also frequently the case). Probably the ultimate expression of both concerns is the issue of embezzlement; loyal employees who have never taken advantage of the company despite decades of opportunities (and despite being sorely tried) find it outrageous that owners don’t trust them, while owners feel outraged that after years of paying salaries on time, offering competitive benefits and opportunities for advancement, and maintaining workplace standards that are safe enough to avoid sanctions from OSHA, they still have to worry about their employees dipping into petty cash…

A new chapter in this centuries-old cold war appears to have turned up in Maine last week. According to an article in the Kennebec Journal online page, a woman who had until recently been employed by the Maine Trial Lawyers Association pleaded guilty this week to embezzling $166,000 from the organization over a four year period, mostly in small amounts ranging from $2,000 to $6,000. This by itself isn’t remarkable – embezzlement is almost as common in America as employers think it is, and while trial lawyers may be assumed to be highly intelligent, there is no reason to believe that they know more about accounting (or audit their books more often) than any other advocacy group. What makes this case so remarkable is that the defendant apparently spent the entire $166,000 on in-game purchases in Farmville and Mafia Wars…

If you’re not familiar with these games, the basic concepts are simple enough: build up your own enterprise (either a farm or a criminal enterprise) through the use of repetitive activities (raising crops and committing crimes, respectively). But these activities take a great commitment of real time on the part of the player, and contribute nothing to the software company that wrote the programs (since the games are offered for free on Facebook), so the designers included the opportunity to buy certain achievements and accessories using real-world money. Thus, you can spend actual dollars to purchase an entirely imaginary sheep, pig, or mob enforcer, assuming you have the funds to do so. We’ve discussed the concept of paying real money for imaginary products in this space before, but this is the first case I can remember of a person committing felonies in the real world (and eventually going to jail in the real world) in order to enhance their online life…

From a business standpoint this case isn’t really important – the crime of embezzlement is as old as commerce itself, and it really doesn’t matter to the organization being robbed what the thieves do with the money once they have stolen it. Nor can we reasonable expect the software company to do anything about the situation; they make perfectly innocent (if somewhat dull) entertainment software, and no one could blame them for either making money or offering virtual products for sale. Still, I think it bears mentioning that along with drugs, alcohol, gambling, and the other traditional illicit behaviors that people will embezzle money to support, there is a new addiction we have to worry about. It probably wouldn’t hurt to review your company’s anti-theft measures now, before somebody you employ makes off with a pile of company funds in order to buy their own herd of cows…

A Bad Name

Some time ago I shared some thoughts in this space about the fracas between the American Cancer Society (ACS) and an atheist group calling itself the Foundation Beyond Belief (FBB). If you weren’t with us in October, the problem started when the FBB offered to sponsor a team in the National Relay event the ACS puts on each year, and provide matching donations for whatever the team made, in exchange for being named one of the National Sponsors of the event. This, as I noted at the time, was farcical. The FBB was asking for the same level of recognition given to major corporations (Delta Airlines, Wal-Mart, etc.) that sponsor hundreds (or in some cases, thousands) of teams nation-wide for fielding a single team – or, if you prefer, demanding the same recognition for raising a few thousand dollars that a real National Sponsor receives for fundraising efforts that bring in millions each year…

When the ACS politely declined this demand, and suggested that the BFF instead join one of the regional Relay events, these so-called humanists started screaming about being discriminated against because they were atheists, and accusing the Society of only wanting donations from Christians. They then began pushing this nonsense far and wide across the Internet, attracting the sort of people who don’t like organized religion, enjoy a fight, or like to stir up trouble, including a fair number of trolls (who know a good spectacle when they see one). I even got a bit of push-back when I suggested that this was a particularly reprehensible attempt to generate publicity by creating a scandal. It’s a tactic that can be made to work, and can be cost-effective, depending on the issue and the organization which is using it, but I’ve always felt that the risk of backlash makes its use unwise. In this particular case, it can be argued that the tactic gave both the FBB and atheists in general a bad name – at least for the few days before it submerged into the great cesspool of Internet news…

This seems even more likely when you consider the more recent activism by unaligned atheists on the Internet, as reported by Reuters last week. A large atheist group on Redit decided to band together and raise money for Doctors Without Borders – each member chipping in whatever he or she could spare. In about 24 hours they had collectively raised in excess of $180,000 using firstgiving.com, without demanding any special recognition for any group or agenda. Many of the individual donations were tagged with messages like “Good without God” (or, in at least one case, “Good without Zeus”), but none of them were reported as requiring that the recipient group do anything in particular – except continue travelling around the world helping people, of course, and even that was more of a polite request than an actual demand…

This type of activity is usually referred to as “crowdsourcing,” and we’ve seen it used for a variety of business and social applications recently; it’s an excellent way of using a potentially huge pool of collective knowledge and experience to solve problems, gain information, or simply ask people for their opinions on social or business issues. Attempts to use this technique to raise money for charity or capital for small business ventures have met with mixed success, possibly because it is difficult to reach enough people on line, or perhaps because people on the Internet tend to be wary both of scams and of people pushing an agenda. But apparently it is possible to get a large group of people who are generally believed to have a humanist agenda to rise up in support of an actual humanist cause, if you try…

From a business standpoint, these events would appear to confirm that the theories we’ve been hearing about using Internet connections – and social media sites in particular – to spread information or shape public opinion are correct. Whether they are used for good – to heal the sick, feed the hungry, or bring understanding between people – or for evil (to defraud, take advantage, or push a selfish agenda) is up to us…

Writing a Business Plan: Budgets

Of all of the things that go into a business plan, the budget is probably the easiest – and yet it’s the part that most people are terrified by. Some of this we can probably put down to common math anxiety, but the truth is there is very little arithmetic, let alone mathematics, in assembling a budget section, and none at all in creating the narrative that goes with it. If you have done the research, figured out what resources your new venture will require and how much your employees should be paid, then you already know everything that will go into this section – and if you haven’t, how do you expect to set up a business in the first place? The only hard part is getting the information into a form that your readers can understand, and all you need for that is a spreadsheet and a text file; you don’t even have to be particularly convincing. You do need to be accurate, however…

First, gather up all of the costs you’ve worked out to set up your business. This might include real estate, building costs, building-out costs, equipment, fixtures, telephones, computers, inventory, or anything else that you need to have purchased and/or installed by the time you open for business. The level of detail you go into is up to you, but here again you want to try to see this document from the other side of the table. If you were lending someone money for a start-up business, how much detail would you want to see? A line item for “Computers” probably isn’t enough, but a detailed accounting of each of the 12 workstations you’re going to have, down to the last piece of software and the type of ergonomic accessories is probably excessive. It’s also helpful to group them, so that all of your office supplies and equipment are together, services and insurance are together, permits and applications fees are together, and so on…

Next, you need to work out what your monthly expenses are going to be, once the company is up and running, and group those into logical sections. At the very least, you’ll want to have a payroll section (broken out by individual for a small company, or by division/group for a large one) containing salary and benefit information, a section covering supplies or products you purchase, a section covering utility and telephone expenses, a section covering office supplies and equipment, and a section covering insurance, financial services, and anything you outsource to a subcontractor (including shipping and delivery, if applicable). Some people advocate producing two separate budgets: one for your standard month, and one for all of the things you plan to do before you start operations (sometimes called a “Time Zero” budget); you may also want to compile operating budgets for Year 1, Year 2, and so on that compile 12 months worth of budget and make provision for growth (e.g. Year 2 includes 20% more money for salaries, in case you hire more personnel and/or offer raises). As usual, it depends on your audience…

Once you have developed your budget spreadsheet – or sheets – it’s time to start on the narrative that goes with them. In this section, you will briefly explain the categories that appear on the spreadsheet and the amounts you have allocated to each one. Itemizing the individual purchases probably isn’t necessary for minor expenses; a few hundred dollars per year in office supplies for a company of a dozen people isn’t remarkable, but a few hundred dollars worth of paper clips per person per month probably requires an explanation. Keep in mind that for the most part no expense is out of the question if you can explain why you need it. If your field equipment is going to be struck by lightning, destroyed by vandals, or eaten by wild pigs, there’s nothing wrong with budgeting for replacements as often as you expect to need them. But you can’t automatically expect someone reading the business plan to know that there are wild pigs in your area of operations, or that you can reasonably expect them (the pigs, not the readers) to eat about 10% of your field equipment per month…

Some experts will suggest that you add a set of projections to the budget section, explaining how many sales you expect at which points, how much revenue you expect to generate, and how much profit you expect to have left; combined with your budget, this will give you an approximation of a profit and loss statement, and give your readers the basis for breakeven, net present value (NPV) and income analyses. If you elect to go that way, you’ll want to follow a similar style to your budget sheet; you’ll also want to include an explanation of how you intend to sell your products or services, and why you expect to realize those specific amounts of income and profit. Everyone knows that you can’t be precise about these estimates, of course, since the company isn’t in operation yet, but you can use the written section to explain why you are making these assumptions, and how confident you are that you’re right. And, of course, what you plan to do if you’re wrong…

Getting What You Paid For

A British philosopher of some renown once wrote: “You can’t always get what you want, but if you try, sometimes, you get what you need.” I’ve always felt that he had a point, at least as far as life in general is concerned, but in business the distinction is usually between what you want and what you have actually contracted to buy – and if what is specified by your contract isn’t what you want, it’s no one’s fault except your own. But what happens when you did specify what you expected, and ended up with something unacceptable anyway? For example, what if you tell your caterer that your guests include a large percentage of practicing Muslims, and therefore it is critically important that nothing on the menu include pork – and you end up with large quantities of pork anyway?

Well, before you answer that, you might want to consider a case that appeared on the Consumerist website last week, about a couple who had exactly that experience. In planning for their wedding, the bride and groom told the wedding coordinator that it was vital that nothing with pork in it be served at the reception, but in the event, almost everything on the menu did end up with the offending substances. This is a real problem when a large number of the guests are practicing Muslims, and according to the online account, this resulted in some hard feelings (and expressions of offense) from various in-laws. When the couple in our story complained (repeatedly), the facility with which they were doing business changed its story repeatedly, and then offered them 30% off on the food bill (or about 18% on the overall price of the wedding package). The organization also failed to provide replacements for the unusable food…

Now, a lot of the people who commented on the story pointed out that the couple should have written this provision into their contract, and insisted on sampling anything that was going to be on the menu well in advance of the event; they would then be able to sue without any further discussion, and might even be able to use anyone who attended the food tasting as a witness. I think we are justified in questioning how useful that would have been, however. A successful day in court will not replace a successful wedding day, nor will it mend fences with any of the family members who feel that they have been intentionally insulted by this incident. And even if it would, a contract does not quite guarantee that everything would have gone smoothly; it only ensures that the court case will be easier to try if the vendor doesn’t comply…

I felt that an ever better point that could be drawn from this story is the ways in which a contract can protect the vendor. The couple in this story seem reasonable enough, but not all people are going to be rational about their wedding preparations, and a signed contract would keep someone who didn’t specify “no pork” from suing over the inclusion of pork – or, for that matter, keep someone who didn’t specify anything about meal from suing over a minor detail of it being “wrong.” All too often in my working life I’ve seen people avoid formal agreements and written contracts because they want to “keep things casual” and “avoid bad feelings” between the parties, and wind up with a lawsuit because each party remembers the agreement differently and is therefore convinced that the other party is trying to screw them…

An American poet of an earlier period once wrote that “Good fences make good neighbors,” and while this is almost certainly correct, it’s amazing to me how even people who should know better will ignore that advice. Of course, this event is also an example in how not to handle a customer complaint – the facility is going to be sued over this, at a cost that will almost certainly exceed any profit they could possibly have made on the event. If the court approves punitive damages, this simple case of bone-headed carelessness could cost the organization dozens of times what they could possibly have made on the transaction, and that doesn’t even consider what the bad publicity and public relations may end up costing them. It also doesn’t consider the even more serious charges of racism and deliberate malfeasance which could be brought against them (serving pork to Muslims really IS a vicious cultural insult), possibly even resulting in criminal charges – but that’s a story for another day…

A Call For Action

I don’t usually editorialize in this space; I feel that I have a few worthwhile observations to offer on business and management topics, based on 20+ years in business and 6+ years in graduate school in Management, but outside of that specialty I don’t know that my opinions are any better than anyone else’s. However there are some social, environmental and consumer issues on which I feel very strongly, and after the experiences of the past few months I feel that I need to call one of them to your attention. This is a terrible scourge that has the potential to inflict massive financial and environmental damage on the United States, and indeed, anywhere else that this issue is left unchecked. I refer, of course, to flame-retardant junk mail…

I recently had occasion to round up the junk mail that had accumulated in various corners of our house, and I found myself truly appalled at both how much there was, and by how difficult much of it was to destroy. I typically use a small document shredder to reduce all of the junk mail to small, confetti-like pieces, and then scatter the pieces further by mixing them randomly together with the remains of many other junk mail pieces and other waste paper (also reduced to confetti). I will then attempt to find some way to re-use the paper (cat litter, bedding for pet rats or hamsters, fodder for critters that eat wood fiber, compost and such) or else recycle it. When neither of these options is available, I will usually just take the simplest route and use the paper shreds for kindling (they are an excellent way of starting a fire). Unfortunately, the recent trend toward plastic-coated and vinyl-coated mail pieces makes it unsafe for most animals, and many recycling centers are refusing to accept it either. Worst of all, however, the plastic coatings make these shreds unsafe to burn…

As I went through the piles of junk mail I was amazed at their variety. In some cases, a single monthly file would contain as many as two dozen offers for the same junk offer or credit card; some for Max Belin, some for Max P. Belin, some for Max Paul Belin, some for M.P. Belin, some simply for Mr. Belin, one or two for Professor Belin (which I am not), and in one remarkable case, one for Jqs G3o8h, which I assume was the result of somebody trying to spell my name while being one row above the home row on their keyboard (look it up). My wife’s name appeared in similar variations, including at least two or three cases with the wrong middle name, a considerable number under her previous married name, and one that misspelled her first name as well. This does not even consider the very large number of mail pieces addressed to people who do not live at this address, and as far as I can tell, never have….

Now, I don’t wish to appear insensitive to the junk mail industry. I know that printing and mailing such offers provides jobs to thousands of people all over the world, and that millions of Americans make their living extending credit that people can’t afford, charging them interest of up to 120% per year, repossessing their belongings, foreclosing on their houses, and garnishing their wages. And I realize that all of the people working in the luxury car, private airplane and yacht-building industries would be ruined if the executives and corporate attorneys working for these financial institutions were denied the chance to drive more people into soul-crushing, life-destroying debt. I’m just saying that they should have the decency to use environmentally correct junk mail pieces – and if possible, ones that can be used for fires as well. It’s going to be a cold winter, and a lot of people in this country are going to need all of the fuel they can get if they want to stay warm…

Good Customer Service Part 4

By the time you get to the Fourth Echelon of the company you’re not really dealing with customer service management anymore; people at this level are probably also tasked with supervising other functions, and may regard customer service as just a nuisance, since it’s a cost center that can’t usually generate revenue. However, the customer service department has the ability to save the company significant amounts of money (by preventing lawsuits and detecting fraud) and to enable other divisions to make significantly more money (by improving customer relations and corporate image) – and if the customer service units are used for any significant order capture function, this kind of thinking is just absurd. However little corporate management may care for it, the customer service personnel are generally the first – and frequently the only – connection the customer will have with your company, and managing them can have an enormous impact on whether the company survives or fails…

The executives tasked with managing the customer service function have several important roles, including adopting policy, developing strategy, and setting up the rules and boundaries that the lower echelons will work from. For example, how much authority do you intend to give the first two levels of customer service? Should the First Echelon have the ability to reverse $100 worth of charges, or is $10,000 more appropriate? Or should all of the financial approval come from the second or third echelon levels? The less power you give the lower levels the more important it becomes to give them the ability to pass decisions up the chain of command – and the more time your second and third level personnel will spend answering questions and making financial decisions. No one is going to suggest that you should have decisions that could bankrupt the company made by a CSR making $14 an hour (even if that is double the industry-standard wage), but no one at the Director or Vice President level should have to sign off on a $20 refund, either…

That sort of trade-off occurs in every industry, and in every company that is big enough to have multiple levels of management. In some industries the level of autonomy you can extend to lower echelon personnel may be limited by law or safety regulation, while in others it may be unavoidable due to distance or isolation of various units from higher headquarters. But regardless of the external conditions, the approach you have chosen is part of your vision of the company, and it needs to be communicated to all of the people who will be charged with making it happen. Does your company want to present itself as an egalitarian organization, where you might find the CEO unloading suitcases from an airplane if you’re short on baggage handlers (the CEO of Southwest Airlines actually does this from time to time)? Are you a collection of the best and the brightest, where even the CSRs are technical geniuses (Apple did this from the start, but it has been adapted to other models; Men’s Wearhouse uses a similar approach)? Is your company a strict, well-run hierarchy, where higher management approves everything – but is always there to take your call if the CSRs can’t help you (IBM did this for years, and a lot of companies still do)? Any of these strategies can work, but only if senior management supports them – and you still have to decide which one will serve you best…

In my travels, I have noticed that the dominant company in every field – and generally the most profitable one, as well – is the one with the best customer service. I don’t believe that this is a coincidence. Good customer service can make the difference between making your customers happy and handing them over to your competition. But only if you’re willing to take the time and expend the resources to make that happen…

Good Customer Service Part 3

At the department or group level, the manager’s role is mainly about analysis and problem solving. It’s the Level 3 manager’s responsibility to track what kinds of problems the CSRs are dealing with and look for patterns that indicate a larger problem may exist. If calls about a specific problem breaking or failing are being received, for example, the Customer Service Manager (hereinafter CSM) should investigate to determine the nature of the failures, the percentage of units sold that are failing, and if possible the demographics of the customers who are reporting the failures. If all of these failure complaints are coming from people with some form of visual impairment, perhaps the design needs to be adapted to make it less visually complex; if all of the complaints are from a specific age group the product may be too technical, or not technical enough; if all of the products come from Michigan during the months from November to May, the product may not be sufficiently winterized…

Once a problem has been detected and verified, the CSM should be given the authority to pass along the nature of the problem and recommendations for its resolution to the appropriate department. This might mean quality control issues for the Manufacturing/Production people to work on; supply issues for the Logistics personnel to try to resolve; design issues for R&D to work out; offensive advertisements or obnoxious salespeople that Marketing should try to reign in; or even price or policy issues that will require changes to the Company’s operational strategy and general policy. However, the CSM should not be the one making policy or developing strategy, anymore than he or she should be down in the Engineering shop telling people how to improve the product’s features. As the name implies, the CSM’s primary role is managing the customer service function, and any related order capture, delivery, dispatch, logistics, public relations or promotional functions that are attached to his or her department. If a specific CSR or team of CSRs in consistently failing to resolve problems; if a specific delivery office isn’t getting orders to the customer on time; if orders are not being input correctly, or bills can’t be sent out in time because the orders are backlogged, it’s the CSM’s job to figure out why these things are happening – and prevent them…

Recruiting Third Echelon personnel from existing employees is often problematic, simply because many of the skills involved have nothing to do with the functions of front-line customer service personnel. Working directly with customers will not teach you anything about cost-benefit analyses, for example; or about accounting, marketing, finance, logistics or any number of management topics. If you want to promote from within – if having senior personnel who began at the bottom is important to your company image, your strategy, or your personal beliefs – then you need to institute personnel development programs that will prepare your people for more advanced positions, and you should at least consider tuition reimbursement programs for employees who want to study management (or any other topic that your company could use). This may sound expensive, but by the time we reach Third Echelon personnel the costs of recruiting and training are already non-trivial; if combined with other employee retention programs, tuition reimbursement and training can be surprisingly cost-effective…

It’s also important to consider that if the Third Echelon manager you assign to supervise the customer service function has the ability (and the resources) to do the job properly, he or she can provide information and analysis that will be invaluable to your quality control, engineering, logistics, marketing, finance and operations personnel, as well as providing your strategic planning shop with everything they will need to develop strategy and craft corporate policy…