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What has Value – From a Customer Perspective?

March 20, 2017By Mike Hohnen

Why Value Is Not about Money

In the old economy – the one dominated by goods – value was created through the transfer of ownership. I create or produce something; and when I transfer the ownership to you, you give me money in return. The way you check the value of what you bought has to do with the specifications. Whether you are looking for strawberries or a new car, it is about product attributes. This ‘widget’ is _______ (stronger, faster, slimmer, tastier…) than the other ones you have looked at.

In the new economy – the service economy – value is created in use.
When I rent a car, use a consultant, or search for a great place to stay for my vacation, there is no transfer of ownership. It is all about utility – I need something, and my preferred service is the one that best takes care of that need. When my need is met, it translates into a result for me. And most of us are more than happy to pay for getting the result we need.
So, if our aim is to create a great customer service experience, the starting point is to make sure that what we are offering matches the value expectation of the customer.

In order to do that, we use the Value Equation – a tool that originates from the research conducted to produce the Service Profit Chain framework. The Value Equation has four elements:

R Is for Result

What is the result that the client is expecting or looking for? Do we understand the need? If I buy an airline ticket from Paris to Rome, and we end up in Berlin, the airline did not deliver the result that I was expecting. So, no matter how cheap the ticket is or how many drinks they serve, it is a lousy service experience. Do you book a table in a restaurant because you are hungry? Maybe. More often, you have a different need. Maybe you are looking for a special moment, an occasion to celebrate or an ideal setting for a special conversation. Whatever it is, the food is just an instrument in providing the real result that you are looking for.
This means that for every service product we create, we need to ask ourselves, “What is the result they are looking for?”

P Is for Process.
You can fly from A to B with many different airlines. In general, they will all get you to where you planned to go; but each one does it their way. The difference comes out in their process.
From a customer point-of-view, a process has five elements. Each plays a part when evaluating to what extent the value proposition actually covered their needs.

Time. How does time play into the need or result that they have? Is it important that we are on time? Is it important that we are fast or slow? If my wife and I are having dinner before the cinema, we are looking for one kind of time experience. If we are celebrating her birthday the following week, we are looking for a different kind of time experience. Same people, same restaurant, but different situations.

Reliability. Do we do what we say we will do? Are we consistent?
Competence. How does the customer experience the competence level of our employee at a given touchpoint? How well do our frontline teams respond when asked a question or a request for help?

Empathy. To what extent are our employees able to see the situation from the client’s point-of-view? When a customer feels understood, we are more than halfway to solving their needs.

Proof of service. Do we provide a service that the client does not notice – are there ways that we could remind the client that we are servicing them?
Under the fraction line we have –

$ for price and E for effort
The client pays a price for our service; but depending on the service package, they also put in more or less effort themselves. If you buy a sofa from IKEA, the price is low; but you put in quite a bit of effort yourself. If you fly Virgin Upper Class, they will pick you up at your office and take you and your stuff right to the plane. A different experience than flying Ryanair – and, to be fair, also at a different price point.
So, there you have it.

If you want to understand how customers perceive value, the value equation is your key. And, your starting point for developing a great customer experience is to understand how you tailor your customer value proposition to each segment using the Value Equation.

Simply enter your email below to download the Value Equation

The Frontline Manager Makes the World go Around

April 13, 2022By Mike Hohnen

Despite the fact that we read stories that companies such as Zappos and others are abolishing the role of middle management, the reality out there is that the vast majority of companies rely heavily on middle managers to keep the wheels moving.

So, unless you have embarked on the experiment of abolishing middle managers, there is a high likelihood that you recognize that your frontline managers are crucial to your business.

Take one metric. Staff turnover.

A controllable cost that also has a high impact on your customer loyalty and satisfaction. It is widely recognized that employee turnover is linked to the management style of the immediate supervisor.

Or, change management.

Whatever customer satisfaction strategy and tactics you are developing – the effort is wasted if your frontline is not implementing according to that plan.

The Frontline Manager is the Linchpin

But, how much attention are you giving the growth and development of those frontline managers?
If you are like most of the companies recently surveyed by HBR, not much.

What that same survey shows is that, paradoxically, the same companies that say the frontline manager is a linchpin in the organization also say that the same frontline managers need to develop a number of crucial skills, including organizational savvy, leadership, and talent development.

But they recognize that not much is being done in the company to actually develop those people – go figure.

The reality out there – still according to the HBR survey – is that most development for this level of management tends to be ad hoc, sporadic, or just too brief to actually make a difference.

In general, it seems that leadership development follows the trickle-down model. Most gets invested at the top; and if there are resources left, they are spent on the frontline managers – sometimes.

So, once again, we have a classic knowing – doing gap. The problem is recognized – but somehow nothing gets done.
I wonder why.
Let’s just recap why frontline leadership is crucial to your service organization. We live in a world of Hypercompetition. Customers are flooded with offers and messages. In every imaginable category, supply outstrips demand.

So, if you are not just going to live a mediocre existence trying to survive, you need to stand out and be, if not the absolute best, then at least among the best.

Your aim is customer loyalty. If you can get that right, you will drive profits and growth as a result. This is the basic learning from the research done that led to The Service Profit Chain.

The best starting point for developing your frontline managers is to introduce them to the Service Profit Chain framework.

If you would like a refresher course on the mechanics of the Service Profit Chain and how employee engagement ultimately leads to profit and growth, check out my free video course here:

A Managers Guide to a Dream Team

April 14, 2022By Mike Hohnen

The Service Profit Chain is a well-documented concept.

Since the original research was published in 1989, hundreds of articles have promoted the original findings which essentially boil down to the fact that happy employees create happy customers – and the happier the customers you have, the more money you make –
Yes, I know that was a very simplified version.

What not so many people talk about, or even document, is that this concept of ‘happy employees’ is not so much a question of employee satisfaction but, to a much higher degree, a question of employee engagement.
So, what are the steps to producing a high level of engagement on a service team?
According to the original research in The Service Profit Chain, there 8 steps in a self-reinforcing cycle called the dream team cycle.
Look closely and you will recognize that this is exactly what the best high profile service companies do:

The Right Team
Careful selection of new recruits. Hire for attitude. Train for skills.Coach for performance and that includes dealing with the bad apples.
Continuous Improvement
Best in class training and development at all levels in the organization. Continuous improvement is considered one of the great benefits of the job. “In this job, I grow”…
Great Support Systems
Service is not just something the frontline does for our customers. Service is our culture. Employees and managers who do not have customer contact service the employees that do. (Our IT department is not the IT-Police – it is an internal service department that supports the frontline in getting the job done.)
Empowerment
The best service employees take pride in solving the problem on the spot. So the freedom to act is hugely motivating. Southwest Airlines famously tells its employees, ”You may do anything you are not uncomfortable doing to solve a passengers problem.”
Clear Expectations
In the same way that anyone who has made it to a great sports team knows what is expected of them, employees in the best service organizations also know what is expected of them. It is part of their motivation to be part of a team that is not afraid to set the bar high.
Appropriate Rewards and Recognition
Focusing on what works, celebrating success, and acknowledging each others contributions makes work meaningful.
High Levels of Satisfaction and Engagement
As a result of Steps 1-6, we generate not just higher levels of satisfaction, but also real engagement – Service work becomes fun and meaningful.

Employees Recommend New Employees
When we need to recruit new team members, our best employees recommend friends and previous colleagues from other organizations because these are the people they would like to work with. Gradually we become the preferred employer in our region – which means we get the pick of the crop.

And that takes us back to Step 1 – The Right Team.
Done consistently this 8-step cycle become a self-reinforcing process that propels our service delivery capacity to higher and higher levels – and we all know what that does for our customer satisfaction and loyalty.

——

Building a great service business begins with understanding the Service Profit Chain framework. In my view, that is the foundation. Check out my free introduction here

Management Team or Just Heads of Tribe?

April 14, 2022By Mike Hohnen

Often when I work with a GM and the department heads, I will start by asking each of them to write down the name of a person on their team – just the first name that comes to mind. Then I ask them who in the group has written the name of a person who is in this room now on their piece of paper. And invariably, it will always be only the GM who raises his hand. The GM sees the other people in the room as his team. But, the department heads seldom see each other as the team.

Department heads tend to see themselves as Indian chiefs. Each represents his or her tribe; and when they meet, it is about defending territory and resource allocation, not about collaboration.

Two Different Cultures: Taking Responsibility and Being held Responsible –

They key to understanding why department heads end up as heads of a tribe and not as the team we dream about has to do with how we work with responsibility.
If we spend our time at management meetings trying to identify who was responsible for ‘That’ when something goes wrong, then each department head learns that the only way you can play that game and not get hurt is to create clear boundaries. ‘This is what I am responsible for – and that is what you are responsible for. Just make sure you don’t cross that line.’
The savviest department heads also learn not to stick their necks out and take on more responsibility than they need to.

Responsibility means trouble.

So, over time leaders (and their teams) become more and more passive and reactive.

But, we all know that being passive/reactive is not what gets us raving customer reviews. In order to rise to the top in our category, we need to be proactive. Managers and their teams need to take initiatives and anticipate needs in order to delight customers.

But, they will only do that if:
a) it is accepted that boundaries between departments are soft and
b) that we do not ‘punish people’ for taking initiative even when they are not successful.
That means a different culture.

Taking Responsibility

The alternative to being held responsible is to develop and encourage a culture where we take responsibility.

But that is a completely different culture; because, if you think about it, no department is an island. The boundaries we have created between departments are, in reality, just here for our own sake so that we can organize stuff in a meaningful way. From the customer’s viewpoint, these boundaries should be invisible.
The customer is looking for a total experience – the whole.
And because no department is an island, when something goes wrong, in most cases it goes wrong for a number of reasons – not just for one reason.

So, the question we need to always ask ourselves when something goes wrong is: “What could WE have done to prevent this happening?” Then, maybe department head A immediately jumps in and says: “That was my fault. I screwed up, and I will do my best not to make that mistake again.” Case closed and we can move on to the next item on the agenda.

If that does not happen, we need to analyze what happened, not to place the blame, but to learn how we could have prevented this… most probably, with better collaboration at some level.
Because – if you remember – the definition of a team is:

A group of people with a common goal and who feel mutually responsible for reaching that goal.

Feedback Drives our Behavior.

Everything that we do is based on our previous experiences or our beliefs about what an experience will be. So, as the leader, your feedback to your team governs their behavior, and over time they become a reflection of your feedback.

And, they will either become a team or they will default to heads of tribe – it’s up to you.

Building a great service business begins with understanding the Service Profit Chain framework. In my view, that is the foundation. Check out my free introduction here:

The Asymmetric Nature of Services

April 21, 2016By Mike Hohnen

In my previous blogposts, we started looking at this whole concept that we have labeled “The Experience Economy” and why the shift towards a service-dominant logic is raising the bar for everyone involved in service.

So, if we can agree that there is a shift from focusing on goods to focusing on needs, we need to spend some time understanding the concept of needs as seen from the consumer’s perspective.

Many hotels, restaurants, or other traditional service providers forget that they are in the needs business and fall in love with their own products. They mistakenly think that it is the product the consumer is actually interested in and do not understand that the product is just a translation of their needs into something more tangible.

Loving the product and missing the need is also what happens every time a company or industry is disrupted. The needs shift or someone sees a totally different way to fulfil those needs – and titans of industry get washed away. Kodak never believed for one moment that we would ever drop Kodachrome and replace it with pixels.

Services are Asymmetric

So, when we look at the nature of services, it is important to remember that there is this phenomenon of asymmetry – what you sell and what the consumer buys are often two very different things. If you are an airline, you will have a tendency to think of your product as Seat 7A on Flight AB1234. That is what you have sold to that passenger. But the passenger doesn’t think of it that way. What they have purchased is transportation from A to B. That is the need they have.

If you take the restaurant industry, you don’t go to a fine dining restaurant because you are hungry. The restaurant may see itself as providing food and drink…that is its product. But, you are presumably there for something completely different. Something that has to do with atmosphere, occasion, or whatever.

In the hotel industry, they see themselves as providing you a room with certain specifications. But in many cases, you are not in that market for that product specification. You are in the market for a good night’s sleep…that is your need. If the ventilator on the ice machine rattles all night and prevents you from sleeping, then all the beautiful treats and frills in your room are not going to help one iota – you will hate the experience.

So, in that way, traditional service providers also need to make sure that they don’t fall into the trap of seeing themselves as product providers fixated by their own product specifications, to the extent that they forget about what the need is that they are supposed to fulfill.

Now, the problem this surfaces is that needs are deeply personal, subjective, and situational. So, when the travel industry talks about pax – we have 50 pax next week and then 200 pax on that flight – or the restaurant industry talks about covers – we will be doing 145 covers for dinner and then 85 covers for lunch – it is an insult to the individuality of their customers.

What pax and covers implies is that they are all the same – a flock of sheep that all need a standard shearing.

In the next blog post, we will take a closer look at how we can get better at understanding what needs are all about and maybe, more importantly, how to better get a grip on the fact that different people have different needs

– welcome to the age of mass-customization.

The Big Shift – Products to Services

April 13, 2022By Mike Hohnen

This is the second post in a series on the new service economy. You will find the first post here.

Before we start dissecting what it actually means to create fantastic experiences and great services, I think it’s useful to take a step back and try to understand the big picture on how the world that we are operating in, as service providers, is changing quite dramatically.

There is a big shift taking place world-wide, and it is a shift that moves away from a focus on producing stuff to delivering services. It is also described as the move from a goods-dominate logic towards a service-dominate logic.

What that basically means is that for thousands of years, we have been used to creating value by taking something, adding to it, and then exchanging it with somebody else in return for their money. The focus has been on the functionality, the specifications, and the quality of the actual product. The better the specifications, the more money we have been able to obtain for that product.

What is happening now is a gradual shift away from a focus on products towards a focus on needs.

Recently I realized I needed go buy a new power drill in order to put a cupboard up on the wall. My old drill doesn’t work very well anymore because it has been lying at the bottom of my cupboard for the past ten years without being used. So, I decide to go get a better drill. But, do I really have a need for a drill? My next drill is probably also going to lie in the cupboard for a few years before I use it again. What I really need is two holes in a very hard wall. If somebody could provide those holes for me in a faster, easier way that would require less effort, less resources, or less trouble for me, I would grab that opportunity immediately.

If you are in the service industry, you may not have paid attention to this because, in the service industry, one has been, in a certain respect, in the service-dominate logic forever. But what is happening is that a lot of traditional manufacturers and producers are also moving away from their traditional goods-dominate logic, and instead they are thinking about how they can make that shift from product specifications to needs fulfillment.

In a service-dominate logic, the value is not created by a transfer of ownership, value is created in use. When I use your product or service, it brings value to me; and the minute I am not using it, it no longer provides value for me.

A great example of this is Mercedes-Benz, their smart car, and the service they have now created in more than 30 cities called “Car2Go”. You can grab the car off of the street with just your membership card and drive from A to B and then leave the car. Most of us living in big cities don’t need to own a car – in fact, it is a downright nuisance. What we do need is flexible transportation at our fingertips. There are lots of other examples of this new trend if you start looking around.

Why do I think this is important?

Because, what this means for the traditional part of the service industry is that more and more consumers are going to experience higher and higher levels of service. Great service is going to be the new normal.

And, that is going to raise the bar…the level of service expected across the board…is my prediction.

In my next blog post, we will examine the concept of value.

In a Sea of Sameness, We need to Manage the Experience

May 17, 2015By Mike Hohnen

We have been talking about the experience economy for years, but what does it mean to create an experience?

And, have you ever wondered who is responsible for the total experience in your company?

Most companies I work with have subdivided the responsibility for the experience into various sections – the kitchen is responsible for the food experience, the restaurant for the table service, the reception desk for the welcome.

When doing it that way, we hope that if each of them do it well, then the total experience is going to be the best possible experience.

But if we were to apply that principle to manufacturing, we would be calling it sub-optimization. Ensuring that the parts are fantastic doesn’t guarantee that the total becomes fantastic. Purchasing the 11 best soccer players in the world does not guarantee a championship.

If you take your family to a theme park for the day – does it end up being a fantastic day because of one or two rides, or is it the integration of all the different experiences that blend into what you all feel was an exceptional day?

So, how do we ensure that the overall experience is fantastic?

I became curious about all this because I came across an article that stated that 69%of major UK companies have a customer experience manager.

The financial sector and the telecom sectors seem to lead the way. In retail, we don’t see many; and I struggled to find any in the hospitality sector at all.

Interesting.

Why have people in finance and telecoms seen the need before everyone else to appoint someone senior to take responsibility for the total experience of our customers?

I think this has to do with the fact that in the financial sector and the telecoms sector, they have a huge challenge in differentiating their product.

Once you have obtained your overdraft facility or your loan or whatever it is you want from a financial company, the difference in the actual product is not clear. A loan is a loan. The same applies to the telecom sector. If I send you an SMS, it’s difficult to know if it has been sent through Telia or Orange or whoever it is. The quality of the SMS doesn’t vary from one telecom provider to the other – although the content may vary… but that is another story.

What does vary from company to company is the actual experience you have when applying for your loan or creating your mobile phone account. Paying your bill etc.

This is something that Virgin understood years ago.

They took boring industries and tried to see if they could improve the experience. Not a cheaper experience but a more interesting or fun experience. They did it to the airline industry, they did it to trains, they’ve done it in the banking sector, telecoms, and fitness centers.

So why is the retail sector or the hospitality sector not concerned about the total customer experience – they stand out as the two sectors who don’t seem to employ customer experience managers?

They don’t see the need because when you have a shop or a hotel and you stand inside your own business and look out into the world, you are convinced that what you have is very different from any of the other products out there. Furthermore, you are convinced that, of course, the customers can tell the difference between your beautiful shop and all the other mediocre shops that are out there. It is obvious. But if you switch perspective and look at the marketplace through the eyes of the customers, what they see is a sea of sameness.

From the customer’s point of view, in each category they are all similar products that do the same things at the same prices, etc.

Which is why we have now come to a point where customer service is probably the last frontier of a sustainable competitive advantage. Products are very similar; process – the way we do things – is the differentiator.

So, if you want to out-perform your competition, you need to focus on your processes. How do all the things we do blend into that great total and unforgettable experience?

In the following blog posts, we will take a closer look at what that means.

Potential ÷ Interference = Performance

May 17, 2015By Mike Hohnen

I am a great believer in this simple formula:

Potential ÷ Interference = Performance

Fundamentally, all individuals, teams, and organizations have huge potential. They don’t always realize it – but they do. If they are not reaching that potential, it is because something is getting in the way. We call that interference.

If you don’t feel that you or your team are achieving your full potential, it is probably due to some form of interference.
Maybe you know the cause, but often it is a question of a blind spot.

In either case, you are stuck until we can get whatever it is out of the way.

And that is what I, as a coach, can help you with.