Isn't the Customer the King (or is that history...)

All of us have been at the receiving end of some shoddy service. Restaurants, lounges, malls without parking, poor attention at hospitals, overflowing lines at airport check-ins etc. I recently was on a personal trip. This week, I travelled from one airport to another, waiting for my planes at lounges, and fueled myself at several restaurants at airports/traveler locations. I noticed a pattern that was consistent and worrying. Shoddy service - little or scant regard to customer's needs and fairly steep prices.

I wondered why this happened consistently, is it our culture or poor planning.? I structured my thought as a consultant would do and went through my experience at these outlets as though I was to solve the problem. Alas, I had the answer.

Service oriented businesses are evaluated by the degree of customer satisfaction delivered in the long run. It does not matter if you are multi-outlet brand or a simple single window outlet, the memory that lasts with a customer, is of the interaction they have with your business and the value you provided to them.

Customer satisfaction performance is typically evaluated using Key Performance Indicators (KPIs) and sometimes advertised as a brand promise. Customer satisfaction is a result of a process that is designed to deliver it. It does not happen by default.

Companies wanting to excel must specifically design a business model and engineer the customer facing processes to deliver these Customer satisfaction KPIs. If companies expect to deliver the KPIs in more than 99.5% of customer interactions, (6-sigma performance institutionalized by Motorola or GE) they must not only design, but also monitor, improve and control their promises regularly. Else, the performance is sure to fluctuate.

In essence, Operations design is critical. It involves planning a process that will deliver a service, for a given fulfillment rate (customers/hour, orders/day), using resources such as machines, space and lab our in the most optimal way. When designing an operation, the output target is set, and one works backwards. The output targets are usually 4 parameters.

A) Utility (Quality, value to customer)

B) Efficiency (Cost to service goods, utilization of asset)

C) Responsiveness (time to service order)

D) Variety (Choices and options available to customers)

Each of these 4 parameters can be interpreted differently for different business. The parameters sound generic by label. They actually are contextual for each industry and can be defined specific to an operation.

Designing an operation is essentially a tradeoff between these 4 parameters. Most times one unit of a parameter isn’t equal to 1 unit of another in the trade off, and hence finding the optimal operation performance targets are challenging. Compromises must be made.

To make things complex, the marketing team would like to offer a wide variety to accommodate varying customer preferences. Variety is marketing departments' friend and is operations enemy #1.

Once an operation is designed, simulations can be run and tested to prove it can deliver a level of service. Once operationalized, excellence is about pushing the boundaries to gain efficiencies in using the resources to fulfill more customers, without compromising on the 4 operations parameters. Layouts must be improved, staff trained, and workflows modified, all with an aim to get more out of the same system.

To illustrate the trade off, an outlet offering a 250+ made to order items for across the counter sale, will not be able to service all orders within the same time, and will have to compromise on cost & quality by holding a lot of semi prepared inventory and offering pre prepared food. If the number of customers at the outlet at a time exceeds capacity of the kitchen, you are certain to witness chaos. I hope you get the gist.

But every company wants to do well on all 4 levers. In B-School, the Ops Professor will teach you a tested theory that a company can only excel on two levers. Truth is...

Excelling on 4 is near next to impossible.

Excelling in 3 is tough but doable, great companies achieve this.

Excelling on 2 is a must for survival.

Excelling on 1, is hanging by a brittle thread that can snap at any time.

Most good companies excel on 2, while innovative companies excel on 3 parameters. Innovative companies have been able to challenge conventional wisdom by leveraging technology and with ruthless focus on execution.

Apple and Amazon are great companies, who have created a niche for themselves by pushing the limits of operations planning and business models. Subway and Indigo Airlines are operationally efficient businesses, that deserve mention. Let us study 4 examples.

1 _ Apple offers 4 fundamental products (Phone, iPad, watch, mac), each in a limited product variety. The products are tied together in an ecosystem, that runs on the same OS. This allows scale to achieve costs that are industry benchmark, and they design quality is far superior to competition. Apple's marketing (which you see very little of) sells this basket of services. They compromised variety vis a viz competition, designed a product that offers high utility, build it efficiently, with a very easy to buy / service business model. So, they excel in 3 parameters.

2 _ Amazon is another great example. Whilst they offer massive choices on their platform, their same day delivery promise applies to high moving items that are typically stock. Whilst their cost performance is a tradeoff between investing in warehouses and picking systems vs efficiency due their volume scale and repeat customer. Amazon will carefully market these items to you when you search using a science called Behavioral Economics. They offer you discounts for stocked items and tell you upfront the longer lead time for non-stocked items, tempting you to buy what is in stock. Customers go back to amazon because they deliver on time, and it is convenient = High utility value. Amazon have offset their operations cost to excel on Utility and responsiveness and have a business model to outsmart competition in providing utility to customers. So, Amazon excels at 3 parameters. I would argue 3.5 as they have an edge on costs as well.

3 _ Subway is a place most of us would have eaten atleast once. A roll of bread with veggies or meat patties isn't tempting, unless you are in a hurry, or you are cash strapped. All sandwiches come with similar fillings, and you can make permutations and combinations, but this is hardly inspiring. Variety is on show but limited to a few palatable options. However, they deliver on Cost and responsiveness. Their business model is simple, expect the same everywhere, we offer a palatable meal for a 2 $, that you will not complain about but equally will not rave about. Subway excels on 2 parameters.

4 _ Indigo Airlines is a company that has established benchmark performance in the airline industry with a frugalist approach and disciplined execution. Indigo is India largest airline; a low-cost airline operating at a high volume scale. They rank high on utility as the airline serves the purpose of moving from A to B at the lowest cost, with notable punctuality. However, to get there they have traded off on responsiveness and variety. Try and get the customer service agent to be flexible to change your seat or flight...!!! You would notice how their inflight meals and experience is designed, compared to other airlines. Their business model is clear, we are a no-frills functional airline, and we connect you to nook and corner of India but come to us without expectations. Indigo Airlines excels on 2 parameters and have a good business model.

You would notice that if you were to ever experience a service with the 4 companies, you would return with a satisfied feeling on most occasions. This is because there is a planned operation, there is execution, and you get to touch and feel this, and your expectations are vastly met.

Now, returning to shoddy service. Relate to your most recent experience of being unsatisfied with a service and go through a process of dissecting what you witnessed. It will be fairly evident.

1) There is little or no planning.

2) The onsite crew is tasked with achieving the impossible.

Every such example will surely be a case of operating to excel on 1 parameter (likely cost) or aiming to excel on all 4 and being master of none. I ask you to analyze the business mentally with the above model and you will soon understand.

Why else would you have an airport lounge with 75 seats, but have an inflow of close to 150 passengers an hour, eligible to enter because they possess a credit card? Lounges are meant to be a place to rest for those who access it, but most lounges operate now in an ambience akin to food court at most Indian malls,

Why else would you have Coffee vending outlet, but also sells hot wraps, grilled sandwiches, cold sandwiches, puffs, pastry all in one shop manned with 1 staff. You would notice the crew patiently putting together a sandwich in 1sqft space, juggling 100 items on the table, while a line of passengers wanting coffee wait for one customer to have his ordered serviced.

Why else would you have call center, and wait endlessly for an someone to answer or stand at the counter of a service desk for hours? Has choosing any of the menu options helped you get faster and immediate access to a customer service agent?

Isn't it evident? As a business it would be in their interest to put the customer first and design a service operation around customer service and satisfaction. However, as you will realize outlets get away because the competition is playing the same game, and the customers are usually transient and not demanding.

In essence, fundamentals of business excellence is down 2 things.

1) Excellence in delivery is what earns customer satisfaction.

2) This, combined with good with a great business model that markets and sells more product than customers at higher price earns higher profit.

And companies that do these things well, serve customers and reward themselves well. Be a good company. Innovate, and put the customer first.