Why Smart Managers Make Stupid Mistakes

By CIOinsight  |  Posted 08-13-2007
Customer service horror stories are legion. Airlines are frequent offenders. And retailers—don't ask. It's difficult to find sales help in many stores, and if you do, the odds of the employees being able to actually answer your questions and resolve issues are almost infinitesimal. As an old cartoon once lamented, if we supposedly live in a service economy, how come there is so little service?

When companies do decide to act to build stronger relationships with their customers, they mostly emphasize the wrong approaches, seeking their salvation in technology instead of in their people. What companies appear to be doing in an attempt to increase service and improve customer retention is investing ever larger amounts in customer relationship management and automated customer service software, even though it is far from clear that such actions are going to make things better.

Spending on CRM dominates investment in categories of software. Retailers are particularly enamored of CRM technology, with one survey in 2003 finding that already 65 percent of retailers had implemented at least one CRM application and some 80 percent of those surveyed say that investments in CRM were a good way to build their business. Ironically, much of the investment in CRM software has been oriented toward reducing the costs of servicing customers, not building new or stronger customer relationships.

But before you can manage a customer relationship, you first need to build or create that relationship. And customer relationships are not really built by fancy data-mining and statistical analysis packages that track people's behavior, nor by the now ubiquitous automated phone systems that basically just irritate people. Rather, relationships and their quality are determined by what happens to customers when they actually make contact with the organizations that have so avidly sought their business through advertising and other promotions.

Interactions between companies and their customers are still, even in this Internet age, often conducted by, of all things, real live human beings. That's why successful organizations in industries such as airlines, hospitality, retailing, and financial services are relentless in their attention to hiring people who will fit into a service-oriented culture; diligent in inculcating— through extensive training—service skills and attitudes; and, most importantly, scrupulous in taking care of their people so they will feel good about and be proud of the company and want to deliver a great customer experience.

So maybe instead of splurging on automated phone systems and software to analyze people's buying patterns, or even on fancier robotic telephone answering technology, if companies want to invest in technology to actually improve customer service and retention they might be better served to first invest money in software that helps them hire better people who are more likely to stay.

Unicru (now part of Kronos) and Kenexa, for instance, are both organizations that sell systems that not only automate the hiring process, thereby saving money through enhanced efficiency, but also offer predictive models to select employees who are less likely to steal, less likely to quit and more likely to provide great customer service experiences. Widely adopted in the grocery industry by companies like Whole Foods Market and by retailers such as Nordstrom and the home improvement chain Lowe's, the evidence is convincing that these selection systems reduce turnover and turnover costs and help select better employees.

Reprinted by permission of Harvard Business School Press. Excerpted from What Were They Thinking? Unconventional Wisdom About Management,Copyright © 2007, Jeffrey Pfeffer; All Rights Reserved