Adventure of Strategy

Global strategy and management consultants Booz Allen Hamilton publish a journal called strategy+business that often contains very good material for the professional service firm strategist.

The latest edition contains an article titled The Luxury Touch, outlining the results of a current survey on what separates the truly great luxury goods and services companies from the simply good ones. Unsurprisingly, it is their superb level of customer service. The good companies really value and practice customer service of a high standard. The point is: the great companies go further, "beyond the call of duty" and attend to customers in a manner is is noticeably better than even the good companies. This places them in a different category, in the minds of their clients. In strategy terms: they are differentiated.

To do so requires more than commitment. The customer focus needs to be proactively embedded in the company's structure, systems and culture. The strategy+business article identifies four things that the truly great companies like Nordstrom and Ritz Carlton and Lexus actually do, to breathe life into their customer focus:

• They create a customer-centered culture that identifies, nurtures, and reinforces service as a primary value.

• They use a rigorous selection process to populate the organization with superior sales and support staff. The impulse to care about accommodating customers cannot be taught to people who are not predisposed to it.

• They constantly retrain employees to perpetuate organizational values and to help them attain greater mastery of products and procedures.

• They systematically measure and reward customer-centric behavior and excellence in sales and service to enforce high standards and reinforce expectations.

The Ritz Carlton employees are allowed an extraordinary level of discretion in solving customer problems without reverting to management. The same at Nordstrom. The article tells of a man walked into Nordstrom in Portland, Oregon, asking for an Armani tuxedo to wear to his daughter’s wedding. The sales representative took his measurements but said she’d need time to work on his request. She called later to say that the tuxedo would be ready the next day. As it turned out, Nordstrom did not carry Armani tuxedos at the time. The sales representative had found the tux through a distributor in New York and had it rushed to Portland and altered to fit the customer in time for the wedding.

Obviously, a very high level of trust is critical, where management looses the reigns like this. Extreme care needs to be taken with recruitment (see the second bullet, above.) Ritz Carlton has researched the cost of "mis-hired" employees, and concluded that, on average, a mis-hired hourly worker costs the company 2.5 x that worker’s annual salary; a mis-hired sales employee costs 8 x to 10 x his or her annual salary. Ritz’s staff turnover is one-seventh the industry average; this level of stability contributes to high profitability.

If we apply these figures to "mis-hiring" a law firm associate (in this case, one that is technically brilliant but lacking in inherent client service traits,) then the cost to the firm could be upwards of half a million to a million dollars, or more! (Mostly in "hidden costs," of course!)

There is obviously a world of difference between a shop assistant or hotel chambermaid and a lawyer, in terms of the complexity of the work and the requirement for technical brilliance.  But, the difference comes where the client can choose from a range of firms that are all technically adequate. (Otherwise, they would not be on the short list.) In the strategy+business survey, the "good" companies were not "bad" at client service. They were "good;" just not "great." If one adopts a 'net present value' view of clients, then a cost multiplier of up to 10 x annual salary may not be too far out, if the associate (even inadvertently) erodes client relationships from "delighted" to merely "satisfied" (to say nothing of "dissatisfied!)

Ritz Carlton ... "evaluates each applicant using scientific, behavior-based assessment tools  .... Potential hires are tested both for cultural fit and for traits associated with customer service excellence, including what Ritz calls an innate “passion to serve.” Says John Timmerman, vice president for quality and program management: “The smile has to come naturally.”

Which is not to say that one cannot grow a good firm with lawyers / accountants / consultants / engineers etc if they don't have a "natural smile" and a "passion to serve." It just means that one probably cannot  build a GREAT firm with them. My friend and colleague Gerry Riskin often applies the Pareto ("80/20") Principle to client service in law firms. 10% of lawyers, he says, are naturally gifted in this area. They are usually the firm's great rainmakers. 10% may be technically brilliant, but they are so socially dysfunctional that they should never be allowed to even meet a client! The remaining 80% have enough client-centricity in their DNA for them to be able to become far more effective, with proper skills training. I agree fully. Starting to move from "good to great" (with hat-tip to Jim Collins) can start today!

At the top end of the curve, clients don't care about how well their lawyers hold their hand. Like with brain surgeons, they have only one concern, and that is that you are the best lawyer around for their kind of matter. What would you rather have (if you needed one) : the best brain surgeon in the world, who was difficult to deal with, or a lesser surgeon that is friendly, empathetic with your needs, etc?

The big difference between a brain surgeon and a lawyer, of course, is that the client is unconscious while the surgeon does his/her work.

Right at the top of the curve, where the work is truly "bet-the-farm," obviously having the very best brains and skills in the business is more important than having a lawyer that is service orientated but less proficient. The same is true right at the other end of the scale, with highly commoditised, price sensitive services where additional client service is unwanted if it costs more so long as the standard is "adequate."

There is a huge area in the middle of the bell curve, though, where many lawyers / firms that the client can choose from are "good enough." Here, superior client service standards are a rich source of differentiation.