CUSTOMER SERVICE
Service industries such as banking, retail, hospitality and public services are subject to increasing competition, deregulation, rising customer expectations and technological change. This has led them to become much more customer focused. Given the limits to the ability of many service institutions to differentiate their products or services, not least because of the ease with which competitors can match any innovation, individual organisations have attempted to differentiate themselves from their competitors by branding and advertising and improving the quality of customer service. Mission and vision statements and marketing and advertising policies proclaim the customer as the god to whom organisations must ritually genuflect. Just as zero defects is the goal of quality, zero defection is the sign of quality coming to services (Reichheld and Sasser, 1990). Organisations now have a whole host of mechanisms designed to elicit what customers want, including surveys and customer circles, for example. They have several methods of monitoring customer service quality such as mystery shoppers and the use of standard performance measures and procedures.
Hand in hand with these approaches have been attempts to change organisational values and culture, so as to encourage employees to identify with these ideals. The quality and performance of front-line staff has increasingly been seen as a key contributor to competitive advantage, especially when the service encounter, or 'moment of truth' (Carlzon, 1987) is seen as part of the act of 'consuming the product'. A barrage of initiatives such as team briefing, videos and house journals have been introduced by management to communicate information direct to staff as part of attempts to educate them more fully about the business position and to stress the importance of the customer. Similarly, information is provided about the current state of the business or future plans, a process designed in part to convince staff of the logic of management actions and to engender commitment to organization goals (Marchington et al., 1992). Clearly, the assumption behind this is that workers who understand the context of their work will be more committed and these workers will also perform more effectively, reflecting an underlying assumption that employees will derive intrinsic satisfaction from doing a quality job.
However, the evidence about the impact of such schemes tends to be no more than mildly positive at best (Marchington et al., 1992). A number of writers have argued that exhortation and communication are, at best, weak vehicles of change (Schein, 1985; Hill, 1991; Wilkinson, 1994). Hill (1991) argues that writers understate the difficulties of getting staff at all levels to buy into the ideals of quality and to make such ideals and changes stick, and that managers need to use a broader range of reward and punishment policies to underpin this. Schuler and Harris (1992) claim that appraisals may contribute to quality improvement for customer satisfaction by ensuring that employees are aware of the behaviours which contribute to quality, and they endorse the use of financial incentives as part of a quality-enhancement strategy, for example by linking pay to customer feedback on service quality (p. 129). Similarly, Snape et al. (1995) have argued that while organisations should avoid attaching a price tag to customer service improvement, there may be a role for financial incentives in raising awareness and highlighting key areas for improvement.
The case study of Richer Sounds will enable us to examine some of these issues in the context of a retail company committed to achieving high-quality customer service through staff.
The Company
Richer Sounds is the biggest hi-fi separates retailer in the UK with 15 branches, a warehouse and a head office, employing over 100 staff in total. The company is an unlisted plc, owned by a self-made entrepreneur, Julian Richer, who opened the first shop in 1978 on £20,000 borrowed from a photographic retailer. The company's success comes from high stock turnover combined with low ...
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The case study of Richer Sounds will enable us to examine some of these issues in the context of a retail company committed to achieving high-quality customer service through staff.
The Company
Richer Sounds is the biggest hi-fi separates retailer in the UK with 15 branches, a warehouse and a head office, employing over 100 staff in total. The company is an unlisted plc, owned by a self-made entrepreneur, Julian Richer, who opened the first shop in 1978 on £20,000 borrowed from a photographic retailer. The company's success comes from high stock turnover combined with low overheads. It made its name selling discounted, often discontinued end-of-line products in small shops in cheap locations. Richer operates very much in a niche market, focusing on a closely related, narrow product range to a targeted customer group. Richer has overcome the unwillingness of some major companies to deal with them, with a profit of £1.8 million on a turnover of £18 million in 1991/2. Indeed, the company is in the Guinness Book of Records for having the highest sales per square foot of any retailer in the world. It also has the highest sales per employee.
The Customer Service Philosophy
Customer service is seen as the driving philosophy behind the company. Officially, this is stated as 'providing second to none service and value for money for our customers'. More simply, the idea is that excellent customer service is not a sell-at-all-costs approach. The company say that employees are encouraged to 'help the customer buy' rather than go for the hard sell in order to develop longer-term customer loyalty. The company argues that its basic principles are quality products (branded names, and so on), value for money and customer service, and point out that while the first two can be controlled by head office, the latter is very much in the hands of the ordinary branch employee, and hence considerable attention needs to be devoted to this area. It is possible to trace a distinct American flavour of the type promulgated by Peters and Waterman's In Search of Excellence (1982). Indeed, the chairman claims that the book changed his life. Thus, staff are known as 'colleagues' and the organisation chart is presented in inverted form, with the customer at the top, followed by sales colleagues and middle management and ending with the top management.
The emphasis is very much on fun for customers. Customers are invited to bring their pets to help them choose their purchase. Those buying a hi-fl when it is raining receive a free umbrella, and scratch cards with free gifts are distributed. Even the warnings to shoplifters are made with humour: 'Free ride in a police car for shoplifters only'. Humour also pervades the company's advertisements in such media as Viz and Private Eye. Goods are promoted in a positive and light-hearted way by mixing illustrations, technical detail and often (particularly in the Viz adverts) toilet humour.
The company has a freephone 24-hour-a-day customer problem line and a main board director is responsible for dealing with customer queries. A 'We're listening' suggestion card scheme provides the opportunity for those who do not purchase to make comments, and this is sent directly to the chairman. Sales assistants are expected to make a number of customer telephone calls each week, aimed at older age-group customers and first-time buyers, to ensure that they are satisfied with the items purchased.
Management Style
Management style at the company has been described as 'fun but caring'. Influences include the American management gurus Peters and Waterman, and the UK retailer Marks & Spencer. The latter influence derives from the chairman's parents, who both worked there, and finds particular expression in paternalist attitudes. For example, 20 per cent of the profits are directed either to profit share (15 per cent), to charity (4 per cent) or to a staff hardship fund (1 per cent). Staff benefits include life insurance and a subsidised medical scheme. This paternalism is also reflected in the staff induction pack, which includes advice on health. In addition, there is an attempt to create a family feeling, with a bonus of £100 for staff introducing new employees to the company, and staff are provided with the chairman's home telephone number. The company provides subsidised outings for staff three times a year and training sessions take place twice yearly at the chairman's country home. Holiday homes are made available free to staff (a benefit which the Inland Revenue costs at £30 a day, on which the company pays tax).
Staff wear name badges to encourage greater individual accountability to the customer. Staff who perform above and beyond the call of duty (ABCD) receive gold aeroplanes as a recognition of their high achievement. Wooden spoons are given to staff for acts of amazing stupidity. On a more serious level, the company computes a customer service index (CSI) for each member of staff. Individuals are assessed monthly on a range of indicators with results related to payment (see below).
The array of incentives and innovations is quite wide and it is the management philosophy continually to develop these in a bid to maintain the sense of involvement and fun.
Managing Staff for Customer Service
For a small firm the company has quite a sophisticated range of personnel policies and practices, yet has no personnel department or manager. This is reflected in the induction booklet which includes details of the company philosophy, the organisational chart, company history, contract, 100 blank suggestion slips, an A - Z of hi-fl terms, health booklet and a 50-page staff training manual.
Staff turnover is very low, although there is what management calls a 'high infant mortality rate', that is, people who leave in the early months of employment because they are unable to adapt to the 'peculiar' culture. The company has a policy of promoting internally, as a way of rewarding loyalty, except for expert specialists at head office such as in marketing. Pay is above average for the industry. Sales assistants earn a basic rate of around £10,000 but commission, profit share and the customer service bonus raises this to around £15,000 (in 1994). Profit share alone has worked out at around £1,300 for each sales colleague in recent years.
Communications are seen as vital. A weekly video is produced with details of company performance. The company has a highly successful suggestion scheme, which has won the UK Association of Suggestion Scheme prize for the highest number of suggestions per staff: 1,500 from 70 staff in 1991. Staff are rewarded with up to £180 for each suggestion, with the best two each quarter receiving a day trip on the Orient Express. To facilitate suggestions there is a monthly £5 drink allowance so employees can go out as a group to discuss possible ideas. Many of the ideas are hard to quantify in terms of bottom-line impact (for example, a bell provided for disabled shoppers), but the scheme is seen in the broader context of building morale. All suggestions are seen and replied to by the chairman.
Another part of the motivational approach is a competition held between all the branches and departments. This is the Richer Sounds Way League which is based on customer service and profit, rather than sales, and provides a prize of the use of a Bentley (first prize) or Rolls Royce (second prize) for a week. The company also achieves considerable free publicity in the regional press as a result of a local branch winning the league.
Linking Pay and Customer Satisfaction
The company believes in making a direct link between individual pay and customer satisfaction. There is a customer service index (CSI) against which individuals are assessed on several indicators: how quickly they answer the phone, the number of customer complaints, quality of overall service, good and bad letters, positive and negative comments from questionnaires, and punctuality. Points are added and subtracted each month and reflected in a cash bonus paid with salary. Peer-group pressure is seen as critical, and CSI results are fed to managers on each individual's performance and then published and distributed internally.
The company believes in linking customer satisfaction and pay. Each customer receipt includes a freepost questionnaire mailed directly to the chairman, with the customer invited to assess the level of service provided by the salesperson, who is identified by payroll number on the form (see Table 20.1). Individual's bonuses are related to this feedback. Thus if a customer ticks 'excellent', the sales colleague receives an extra £3, if 'poor', a deduction of £3 takes place. These are totalled up at the end of each month and a bonus paid. The company is at pains to point out that any deductions are far outweighed by the bonuses. Indeed, it is unlikely that anyone with a stream of negative feedback would actually retain their job at Richer Sounds.
An analysis of the overall CSI results is performed by a customer services group which meets on a fortnightly basis. The aggregate results for June 1993 are in Table 20.1.
Table 20.1 Pay and Customer Service
How would you describe the overall level of
service you received?
Bonus to staff (£) Analysis June 1993 (%)
3 Excellent 71
0 Good 28
- 1 Mediocre 0.75
- 3 Poor 0.5
Conclusions
Richer Sounds provides a good example of how a wide range of HRM initiatives may be used to underpin the development of customer awareness and service quality. Much of the literature on TQM underplays the role reward strategies can play in developing a quality culture, but the Richer experience is that effective reward systems can supply a valuable change lever to focus employee attention on improving service quality.
Richer has achieved a considerable degree of success in matching its HRM practices to its business strategy with neither a personnel department nor a formal TQM programme. The success and relative sophistication (particularly for a SME) of Richer's people management strategy is indicative for the potential of general and line managers to devise and implement a strategic approach to HRM without the assistance of a specialised HR department, although the task may be made easier in Richer's case by the small size and youth of the organisation.
The success of the Richer's quality initiative without a TQM programme also echoes recent studies that suggest that a formal programme is not necessary to deliver quality improvement and competitive advantage. Powell (1995) found that success derives more from such HRM intangibles as executive commitment, open organization culture and employee empowerment, all of which we find in abundance at Richer, and less on such TQM staples as process improvement, improved measurement and benchmarking.
Much of the quality management literature, particularly that deriving from the quality gurus, has a bias towards the practices of manufacturing, and it is often to this sector that the quality management literature turns for evidence of good practice. We thus know rather more about world-class quality management practices in manufacturing (see, for example, Oliver et al., 1994) than in services. We offer this case study as a contribution to the debate.
Questions
. Should organisations pay for quality?
2. Discuss how customer satisfaction is embedded in the corporate culture at Richer Sounds.
3. What developments in human resource strategy could be utilised to support an intended shift to a corporate culture based on customer service?
4. To what extent does Richer Sounds offer useful lessons for organisations in, for example, the public sector and other retail companies?
References
Carlzon, S. 1987: Moments of Truth, London: Harper and Row.
Drummond, H. and Chell, E. 1992: Should organisations pay for quality? Personnel Review, 21(4), 3-11.
Hill, 5. 1991: Why quality circles failed but total quality might succeed. British Journal of Industrial Relations, 29(4), 541-69.
Marchington, M., Goodman, J., Wilkinson, A. and Ackers, P. 1992: New Developments in Employee Involvement. Employment Department Research Paper Series No. 2.
Oliver, N., Delbridge, R., Jones, D. and Lowe, J. 1994: World Class Manufacturing: Further evidence in the Lean Production debate. British Journal of Management, 5, June, 53-63.
Peters, T. and Waterman, R. 1982: In Search of Excellence, New York: Harper and Row.
Powell, T. C. 1995: Total quality management as competitive advantage: a review and empirical study. Strategic Management Journal, 16(I), January, 15-37.
Reichheld, F. and Sasser, W. 1990: Zero Defections: Quality comes to services. Harvard Business Review, Sept-Oct, 105-11.
Schein, E. 1985: Organisational Culture and Leadership, New York: Jossey-Bass.
Schuler, R. and Harris, D. 1992: Managing Quality: The Primer for Middle Managers, Reading, MA: Addison Wesley.
Snape, E., Wilkinson, A. and Redman, T. 1995: Cashing in on Quality: Incentive pay and the Quality Culture. Human Resource Management Journal (forthcoming)
Wilkinson, A. 1994: Managing human resources for quality. In Dale, B. G. Managing Quality, 2nd ed., Hemel Hempstead: Prentice-Hall.
