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1© Frances X. Frei
Building Learning Organizations:
The Operations of Excellence
May 2010
2© Frances X. Frei
Principles of Service Excellence
Which specific attributes of service are you competing
on?
Are employees set up for success?
How is the excellence paid for?
ServiceOffering
EmployeeManagement System
FundingMechanism
CustomerManagement System
How are customers managed and
trained?
Create value for customers, employees, and shareholders.
3© Frances X. Frei
Targeting Specific Attributes
Conventional 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…
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
4© Frances X. Frei
Commerce Bank: Hard-Coded Tradeoffs
Convenientservice
Better customerinteractions
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
5© Frances X. Frei
Commerce Bank: Hard-Coded Tradeoffs
Convenientservice
Better customerinteractions
Spending moneyon service features
createspermits
Lower depositrates
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
6© Frances X. Frei
Commerce Bank: Hard-Coded Tradeoffs
Convenientservice
Better customerinteractions
Spending moneyon service features
createspermits
Lower depositrates
permits
Limited productset
Hire for attitude&
Train for servicecreates
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
7© Frances X. Frei
Labor Reality
Aptitude
Attitude
Low
Low
High
High
$$
$
$
8© Frances X. Frei
Commerce Bank: Hard-Coded Tradeoffs
Better customerinteractions
Limited productset
Hire for attitude&
Train for service
Aptitude
Attitude
Low
Low
High
High
$$
$
$
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
permits creates
9© Frances X. Frei
Commerce Bank: Hard-Coded Tradeoffs
Convenientservice
Better customerinteractions
Spending moneyon service features
createspermits
Lower depositrates
permits
Limited productset
Hire for attitude&
Train for servicecreates
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
10© Frances X. Frei
Commerce Bank Attribute Map
Convenience
Customer interactions…
Product range
Price
1 2 3 4 5
Relative Performance of Firm
Most important to target market
Least important to target market
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
11© Frances X. Frei
Low prices
Friendly service
Frequent departures
On-time arrival
Fast transport
Convenient airports
Extensive network
On-board amenities
Southwest Attribute Map
Most important to SWA target
market
Least important to SWA target
market
1 2 3 4 5
SWAFull-service airline
The bus
Relative Performance of Firm
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
12© Frances X. Frei
Wal-Mart Attribute Map
Low prices
Selection across categories
Rural convenience
Reliable prices
Merchandise quality
Suburban convenience
Selection within categories
Sales help
Ambiance
Mom & Pop
Sears
1 2 3 4 5
Wal-Mart
Relative Performance of Firm
Most important to Wal-Mart
target market
Least important to Wal-Mart
target market
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
13© Frances X. Frei
1 2 3 4 5
1 2 3 4 5
versus
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
Organizations Have a Choice to Make
14© Frances X. Frei
Multi-Focused Organization
Service model
Shared services
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
15© Frances X. Frei
Multi-Focused Organization
Service model
Shared services
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
Human resource processingExecutive trainingFinancePurchasingIT…economies of scaleeconomies of experience
16© Frances X. Frei
Furniture Attribute Map
Durability
Assembly
Sales assistance
Location
…
1 2 3 4 5
Relative Performance of Firm
Most important to furniture buyers
Least important to furniture buyers
TraditionalRetailers
IKEA
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
17© Frances X. Frei
IKEA Attribute Map
1 2 3 4 5
Relative Performance of Firm
Most important to IKEA target
market
Least important to IKEA target
market
Durability
Assembly
Sales assistance
Location
TraditionalRetailers
IKEA
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
18© Frances X. Frei
IKEA Attribute Map
1 2 3 4 5
Relative Performance of Firm
Most important to IKEA target
market
Least important to IKEA target
market
Durability
Assembly
Sales assistance
Location
TraditionalRetailers
IKEA
Ability to change!
Fun project!
Independence!
A destination!
TraditionalRetailers
IKEA
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
19© Frances X. Frei
Identify Funding Mechanism
Customer pays, in a palatable way
Convenientservice
Spending moneyon
service featurescreatespermits
Lower depositrates
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
20© Frances X. Frei
Progressive Insurance
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
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
21© Frances X. Frei
Identify Funding Mechanism
Customer pays, in a palatable way
Operations as value-added service
• Framing Operations: operational savings framed as value-added service
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
22© Frances X. Frei
Identify Funding Mechanism
Customer pays, in a palatable way
Operations as value-added service
• Framing Operations: operational savings framed as value-added service
Customer performs the work
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
23© Frances X. Frei
Funding MechanismServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
Can self-service lead to service excellence?
Yes, if…
readily availablefull service alternative
Self-service
24© Frances X. Frei
3. Employee Management System
Better customerinteractions
permits
Limited productset
Hire for attitude&
Train for servicecreates
Diagnostic Questions:Q: What makes employees reasonably able to achieve excellence?Q: What makes employees reasonably motivated to achieve excellence?
Design a system where typical employees have a reasonable chance of success
System = selection, training, job design, performance management
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
25© Frances X. Frei
Job Design at Large International Bank
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 front-line 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.”
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
26© Frances X. Frei
Job Design Common CulpritServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
OperationsMarketing
27© Frances X. Frei
Job Design Common Culprit
EmployeeSophistication
Operational Complexity
time
level
GAP Experienced by
front line
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
28© Frances X. Frei
4. Customer Management System
Which customers are you focusing on?
Which behaviors do you want?
Which techniques are you using to influence behavior?
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
29© Frances X. Frei
Which Behaviors?ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
30© Frances X. Frei
Influence in ActionServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
31© Frances X. Frei
Influence in ActionServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
32© Frances X. Frei
Principles of Service Excellence
Which specific attributes of service are you competing
on?
Are employees set up for success?
How is the excellence paid for?
ServiceOffering
EmployeeManagement System
FundingMechanism
CustomerManagement System
How are customers managed and
trained?
Create value for customers, employees, and shareholders.
33© Frances X. Frei
Steinway Pianos
Quality
Volume
“It’s ok, we’re a segmented market”
“Ouch! Let’s get serious”
Too late…
34© Frances X. Frei
Focus on Rate of Improvement
Time
Quality
Yamaha and Steinway pianosToyota and GM autos
Honda/Suzuki and Triumph motorcyclesSwiss and Hamitar watches
Korean and Japanese shipbuilders
Company A
Company B
At any point in time,benchmarks of absolute difference
can be very misleading for Company A
How does Company B improve faster? A story might help…
35© Frances X. Frei
Rock and Pond (A)
Point A
Point B
36© Frances X. Frei
Rock and Pond (A)
Point A
Point B
37© Frances X. Frei
Rock and Pond (A)
Point A
Point B
38© Frances X. Frei
Rock and Pond (A)
Point A
Point B
Continue to add water, and crossings will be possible. Or…
39© Frances X. Frei
Rock and Pond (B)
Point A
Point B
40© Frances X. Frei
Rock and Pond (B)
Point A
Point B
41© Frances X. Frei
Rock and Pond (B)
Point A
Point B
42© Frances X. Frei
Rock and Pond (B)
Point A
Point B
43© Frances X. Frei
Rock and Pond (B)
Point A
Point B
44© Frances X. Frei
Rock and Pond (B)
Point A
Point B
Remove as much water as possible and then cross.
45© Frances X. Frei
Root Cause Analysis
We’re having quality problems. Why are we having quality problems?
• Because people are not performing well. Why?
• Because they’re not being trained. Why?
• Because we’re hiring them too fast to keep up with the training. Why?
• Because we didn’t forecast demand well.
46© Frances X. Frei
Lessons from Steinway and Yamaha
Focus on rate of improvement
Relentless pursuit of surfacing problems
Incredible humility in addressing problems
47© Frances X. Frei
The Mind of the Customer
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
48© Frances X. Frei
Customer Perception
Customers do not attribute service performance evenly across employees and firm
• Positive experiences Employees
• Negative experiences Firm
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
49© Frances X. Frei
Lessons From Behavioral Science: 1 of 3
Beginning of service encounter
End of service encounter
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
50© Frances X. Frei
Lessons From Behavioral Science: 2 of 3
Win $10Win $5
Win $5or
Lose $10Lose $5
Lose $5or
Make winning last...
Get losing over with...
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
51© Frances X. Frei
Lessons From Behavioral Science: 3 of 3
Study found that blood donors perceived significantly less discomfort when
they were allowed to select the arm from which blood would be drawn.
ServiceOffering
EmployeeMgmt System
FundingMechanism
CustomerMgmt System
52© Frances X. Frei
Contact Information
My Contact info
• Morgan Hall 411, Harvard Business School
• 617.495.7968
• Blog: www.DecisionToLead.com
For Appointments
• Janelle Mills: [email protected], 617.495.6560