From the Outside In: Supply Chain as Strategic Advantage

By Lisa Harrington

Even non-supply chain executives appreciate the value of flexible and agile operations.

Leading companies have come to realize that supply chain management is vital to success in the global market. Organizations now put logistics operations on the agenda for management discussion—including in the C-suite.

CEOs recognize that their supply chains are strategic assets, both for delivering on the customer promise and for fueling growth. Overall, they give their supply chains reasonably high marks for client satisfaction and operational efficiency, according to a recent study by IBM's Institute for Business Value.

Executives in outperforming enterprises, however, rate their supply chains even more highly. "Sixty-five percent say their supply chains are very effective at satisfying clients, and 62 percent say they are very effective at generating higher revenues, compared with just 42 percent and 27 percent, respectively, of executives in other organizations," the study reports.

To gain better insight into how "outsiders" perceive supply chain management, Inbound Logistics asked senior non-supply chain executives at two leading companies to share their views. They discuss the supply chain's role in business generally, and within their enterprises specifically; how that role has changed over the past few years; and how it contributes to profitability, success, sustainability, innovation, customer service, and competitive advantage. 

AT Unilever, flexible Supply Chain is The new table stakes
On any given day, two billion people use Unilever's products to look good, feel good, and get more out of life. From long-established names such as Lipton, Knorr, Lifebuoy, Sunlight, and Pond's to new innovations such as the Pureit affordable water purifier, Unilever's range of brands is as diverse as its worldwide consumer base.

The company markets more than 400 brands, ranging from nutritionally balanced foods to indulgent ice cream, affordable soap, luxurious shampoo, and everyday household care products. Many of these brands embrace long-standing, strong social missions, such as Lifebuoy's drive to promote hygiene through hand washing with soap, and Dove's campaign for real beauty.

In 2013, Unilever reported annual sales of $66.6 billion. Emerging markets account for 57 percent of its business. The company employs more than 174,000 people.

"Unilever sees the supply chain as strategic, driven through global scale and deep expertise, and fully integrated into the business strategy," says Kees Kruythoff, president, North America, Unilever. "Supply chain is absolutely critical to Unilever's success. Most importantly, it is about delivering value to customers. In an increasingly omni-channel environment, it becomes even more important to create a channel-segmented, responsive, and flexible supply chain—and to do so at the lowest possible cost. That has become the new table stakes."

Supply chain plays a lead role in supporting the global Unilever Sustainable Living Plan (USLP). Launched in November 2010, the USLP "sets out to decouple our growth from our environmental impact, while increasing our positive social impact," Kruythoff says. "It is our blueprint for sustainable business.

"By 2020, the plan calls for helping more than one billion people enjoy better health and well-being; halving our environmental footprint; and achieving 100-percent sustainable sourcing," he adds.

Supply chain has played a significant role in advancing the company's sustainable sourcing initiative. "We went from sourcing 18 percent of our commodities sustainably in 2011 to 48 percent in 2013," Kruythoff notes. "That strategy includes a big drive to source from small farmers.

"We've also realized an 18-percent improvement in CO2 efficiency since 2010," he continues. "By 2020, our goal is to have CO2 emissions from our global logistics network at or below 2010 levels, despite significantly higher volumes."

To achieve this, the company plans to reduce truck mileage, operate lower-emission vehicles, employ alternative transport such as rail or ship, and improve warehouse energy efficiency.

"Supply chain is strategic, critical, and an enabler of change," Kruythoff concludes. "As the world gets increasingly digital and connected, supply chain will only become more important."

Supply chain creates value in three key areas, according to Salwan Sumeet, Unilever's senior vice president, human resources, North America. "First, delivering cost effectiveness—the most obvious and direct benefit," he says. "Second, driving brand preference through product and service quality. Finally, driving growth, which is the most critical role.

"Customers are increasingly driving channel-specific business strategies, and adapting to a highly volatile world," he adds. "Being a partner of choice as they see opportunities or difficulties in the marketplace is a huge driver of growth."

Logistics operations also influence Unilever from within. "Nearly 65 percent of our employees work in supply chain," Sumeet says. "We can never underestimate this large and diverse workforce's impact on our culture, values, and implementation of broader company strategies."

Supply chain also plays a major role in business strategy. "Delivering reliable customer service is top priority, and a critical foundation to engaging in strategic joint business planning with customers," says Todd Tillemans, Unilever's senior vice president, customer development. "Supply chain is critical to our U.S. strategy, and especially to our goal of being our customers' choice for top strategic partner.

"A flexible and responsive supply chain enables us to be thought leaders for our customers, drives overall market development, and makes it possible to achieve consistent top- and bottom-line growth for us and for our customers," he adds.

"Supply chain is important to delivering our USLP goals—not only for Unilever, but also for our customers, through our Joint Sustainability Plans," Tillemans explains. "These wide-ranging partnerships include building a sustainable future via renewable energy initiatives, cutting greenhouse gas emissions, and reducing solid waste.

"We are investing heavily in supply chain infrastructure to continuously improve, add more value for customers, and create competitive advantage," he adds. 

Total Wine & More: Raising a Glass to Supply Chain Efficiency
Headquartered in Potomac, Md., Total Wine & More is the largest independent fine wine retailer in the United States. Its 105 stores across 16 states typically comprise 20,000 to 25,000 square feet.

Total Wine's business strategy is based on three pillars: selection, price, and service. The supply chain is critical to delivering on each of these value propositions, says Edward Cooper, Total Wine's vice president of public affairs and communications. Without an effective supply chain, the company would be hard pressed not only to meet the challenges of succeeding in this heavily regulated industry, but to deliver growth and profitability for today and tomorrow.

"We are committed to offering the best wine selection, with an emphasis on fine wines," Cooper explains. "This differentiates us from many U.S. retailers that specialize in one geographic area or price category. Our typicalstore carries more than 8,000 different wines from every wine-producing region in the world.

"Total Wine & More stores also carry more than 2,500 beers, and more than 3,000 different spirits in every price range and category," he adds.

Since opening its first store in 1991, Total Wine & More has focused on being the price leader in every community it serves. "Our tremendous buying power and special relationships with producers, importers, and wholesalers offers us considerable savings, which we pass on to customers," Cooper says. "This includes matching prices with such retail powerhouses as Costco, the largest seller of alcoholic beverages in the United States."

Because Total Wine is a direct-to-customer retailer, the company designs its stores to be welcoming and easy to navigate, with products displayed and organized clearly. Recent generation Total Wine stores, for example, offer beverage selection and wine/food pairing programs on iPads, as well as televisions broadcasting educational information. Its more than 2,000 store associates receive constant training to stay current on the latest wines, beers, and spirits offerings.

Managing large stores with extensive inventory requires an effective and efficient supply chain. "Our supply chain team facilitates product movement between suppliers and stores," says Cooper. "They work to ensure we have the right product in our stores at the right time for our customers by managing orders, inventory, and store replenishment functions."
This is no easy task, given the unusual complexities of alcohol control regulations and taxation in the United States. Alcohol distribution involves a three-tier system, comprising producers (wineries, breweries, distillers, and importers), wholesale distributors, and retailers.

Some states—or even counties—operate as alcohol beverage control (ABC) jurisdictions. Producers may only sell to distributors, who, in turn, may only sell to retailers. Distributors store product under strict security regulations, shipping it to restaurants for on-premise consumption, or locations such as ABC stores, Costco, Walmart, and other retailers for off-premise consumption. Internet sales of alcohol in the United States are low—just two percent of wine is purchased online—primarily due to these complex and strict regulations.
In the context of this arcane regulatory structure, Total Wine's supply chain team is charged with working with producers and distributors to ensure a smooth operation.

"Jay Clarke, senior vice president of supply chain, works with our partners in the two supply-side tiers to ensure we are rarely out of stock, and customers can get what they want," Cooper says. "They expect that of us, and we do everything we can to deliver. This includes managing seasonal and holiday sales peaks and valleys.

"In summer, for example, beer consumption in the United States jumps by 15 to 20 percent," he notes. "Our supply chain team has to coordinate closely with producers and wholesale distributors to ensure the products we need get to our stores.

"To deliver on our lowest-price promise, Total Wine must closely manage its cost structure—and the supply chain comes into play in a big way," he continues. "Having a mature supply chain capability helps make sure products move from one location to another effectively and efficiently. 

Supporting Small Business
"Our business model is to seek out new small brewers, vineyards, and artisanal spirits distillers, and bring these products to customers," Cooper says. "The big breweries have sophisticated distribution capabilities, but small companies do not. So our supply chain team works with them to design the logistics needed to support our stores."

Part of this forecasting support includes the craft beer market, which is expanding 20 to 25 percent year-over-year, making it the fastest growing part of the industry. It is also, incidentally, the sector of the industry that is most desired by customers, and most underrepresented in distribution. That's why Total Wine seeks out purveyors of the latest craft beers, and puts together schematics for their distribution.

"These beers—along with new brands of liquor and various types of cigars—are exactly what Total Wine's customers are looking for," Cooper says. "They are also the kind of business partners we want to build lasting and beneficial relationships with.

"Our supply chain team streamlines inbound-to-store deliveries to keep costs down—buying by the pallet load, for example, so we are not being inefficient by moving a few cases of wine on a big truck," he continues. "Supply chain takes our demand forecasts, determines what we need overall, how much inventory we can hold in our stores, and how we can move product efficiently to our locations."

Throughout all these activities, Total Wine's supply chain group tracks and manages compliance with federal, state, and local regulations. "Our supply chain team works closely with the state alcohol and tobacco regulators to ensure paperwork is done, taxes are paid, and product gets from Point A to Point B in the most streamlined way," Cooper says.

Total Wine's primary focus lies in being a brick-and-mortar retailer, and providing the in-store experience as a value-add to customers. But the company is also exploring the online channel. "We are looking at competitive threats such as Amazon, and the opportunities presented by Internet sales," Cooper says. "We are working with our supply chain group to work out compliance, taxation, and final-mile delivery issues. It's an ongoing exploration.
"We want to grow together with our producers and wholesalers," he adds. "We are big enough, and have enough heft to help build brands, and we like to do that. It's good for our customers, the producers, and wholesalers."

Total Wine's supply chain helps make this goal a reality.

Here's How to Actually Empower Customer Service Employees

There is perhaps nothing as fundamental for organizations as customer service. Any company in a truly competitive market suffers an inevitable decline if it ignores this basic discipline for too long. Take McDonald's for example—the organization's recent confession to franchisees that 20 percent of customer complaints are due to "unfriendly service," with "rude or unprofessional employees" as the number one complaint is a reminder that the final customer touch point often determines whether or not customers return. Despite spending nearly $2 billion annually on advertising, McDonald's service frequently leaves a bad taste.

Similarly, Brian Moynihan, CEO for Bank of America, one of the country's largest banks in both assets and branches, has implored employees to improve their relationships with customers. How committed is Moynihan to this? He mailed letters to the homes of 270,000 employees outlining the need to make it easier for customers to do business with the bank. This comes after nearly five years of internal discussions about becoming "customer centric"—more than three with Moynihan at the helm. 

The importance (and difficulty) of engaging an organization's "front line" to deliver on the customer strategy has been a recurring topic for HBR. It's one of the fundamentals that companies in all industries must remember to revisit and for some, resuscitate after periods of neglect. 

Our research into more than 20 front-line focused organizations (the basis for our recent book Judgment on the Front Line), led us to a set of principles for moving well beyond the basics of customer service by putting power, resources and trust in the hands of front line personnel. By doing so, an elite group of companies has enabled their employees to more rapidly address customer problems, anticipate unarticulated needs and drive customer-facing innovation.

We uncovered information about a variety of companies, ranging from the Ritz-Carlton and Yum! Brands to the Mayo Clinic and U.S. Navy SEALs. Consider what we can learn from the following examples:

• Amazon, where CEO Jeff Bezos often insists on leaving an empty chair at meetings to represent the "customer's voice," has a data-driven culture which actively encourages employees to build experiments based on customer insight. Innovations such as shopping cart recommendations have been the direct result of entry-level employees taking initiative. Behavior-based search was first implemented by an intern, resulting in a three percent revenue increase.
• Zara, the Spanish fast-fashion company, receives quantitative data and qualitative observations from store managers daily to better understand what customers want. Every day, store staff chat with customers, asking questions like, "What if this skirt was longer?" or "What other colors would you like for this item?" This has allowed Zara to limit failed product introductions to just one percent (the industry averages nearly ten percent) while producing nearly ten times the number of products as its largest competitors.

Even with these successes, we've found that no single organization has all of the answers. But combining effective best practices from these diverse organizations and others provides a methodology for building a front line-focused organization, as well as the leadership required to enable your front line to make real-time judgment calls. This process encourages leaders to break down the individual elements required to build and reinforce front line judgment while ensuring they provide an integrated, systemic framework for action rather than a pastiche of so-called empowerment initiatives overlaid on a command-and-control structure. As companies seek to get more contribution and creativity from frontline personnel, here's a five-step process for moving beyond a suggestion-box mentality.

Step 1: Get Started: Connect the front line to the customer strategy. Paradoxically, empowering the front line starts with senior leaders, who have the authority to ensure frontline voices are heard. Senior leaders need to help match their customer promise to the capabilities of the front line while listening closely so they can help align the culture, training, work processes and reward systems. Yum! Brands CEO David Novak, for example, has given every employee the latitude to spend up to ten dollars to fix any customer problem.

Step 2: Empower Your Workforce: Teach people to think for themselves. Employees at every level need to understand the customer strategy. They also need simple problem solving frameworks that are used throughout the organization to promote cross-hierarchical dialogue. We found that the methodology mattered less than having a shared language and thought process for diagnosing root causes or exploring unmet needs. For example, Ritz-Carlton uses MR BIV as a common framework for spotting mistakes, rework, breakdowns, inefficiencies and variations in work processes.

Step 3: Experiment to Implement: Grant front line workers latitude to experiment. Front line workers not only see service breakdowns but also opportunities for serving customers in entirely new ways. Teaching front line leaders the basics for designing simple experiments enables organizations to test many more ideas than could ever be orchestrated centrally. Facebook puts this into practice during "hack-a-thons" designed to unleash pent-up employee creativity. Vital features such as Facebook Video, which has garnered billions of views, have come from giving individual programmers the time and resources to put their customer insight into practice.

Step 4: Eliminate the Barriers: Break down the hierarchy. Nearly every organization has embedded assumptions about roles and power. Freeing front line capacity requires frequent, diligent effort to eliminate decision processes or administrative work that gets in the way of enabling the front line to expeditiously serve customers. For example, at the Mayo Clinic of Scottsdale, nurses have the power to question any doctor's decision or diagnosis through its "Plus One" protocol, completely breaking down the traditional hierarchy. If nurses - some of whom have far more experience than many doctors - fear for a patient's safety, they can move up the chain of command or bring in a specialist to consult and potentially override the initial care recommendation. The hospital was recently named by Consumer Reports as the safest teaching hospital in the U.S.

Step 5: Invest in Your Frontline: Put budget behind it. Too often, companies reserve big budgets for senior management training while spreading funding thin for front line personnel. Similarly, too many companies are content to hire front line staff without carefully considering whether they possess the right attitude and values to represent their brand. At Zappos, it's not unusual for someone interviewing for a $13-per-hour call center job to meet with 15 people before being hired. If they do get the job offer, they will be required to sit through several weeks of training, including listening to recordings of real customer interactions, before they ever work a full day.

Delivering a great customer experience is a fundamental that every company needs to practice, and organizations that excel in this area focus on how to get the most from their front line. As companies such as McDonald's and Bank of America reconsider how their employees interact with customers, they will be challenged to move beyond just rhetoric. If they are truly serious about turning their people into their greatest asset, they'll invest in the front line. 

Chris DeRose and Noel Tichy

Chris DeRose and Noel Tichy are co-authors of Judgment on the Front Line: How Smart Companies Win By Trusting Their People. They have advised CEOs around the world and worked with Royal Dutch/Shell, Ford Motor Company, 3M, and Intel.

Why Stellar Customer Service Is Key to Building Your Online Brand

Image credit: djwerdna on Flickr

In his book Tweet Naked, online marketing expert and Social Media Firm CEO Scott Levy provides the critical information entrepreneurs need to craft a social media strategy that will boost their brand and their business. In this edited excerpt, the author explains why the most important factor to succeeding on social media is exceptional customer service. 

Above and beyond anything else, I want to emphasize the importance of providing amazing customer service. If you adhere to the age-old adage, "The customer is always right" (even when you know they're wrong), you can build one hell of a successful brand, especially on social media. Huge brands have been built overnight because of incredible customer service. 

Zappos, the online shoe seller, offers an amazing example of how great customer service can lead to tremendous results. Selling just shoes, something you could buy anywhere and everywhere, Zappos broke the mold. Founded in 1999, under the name Shoesite.com, the Henderson, Nevada, company became Zappos a year later and topped the $1 billion valuation in less than ten years.

Zappos executives recognized that the number-one stumbling block to buying shoes online was the possibility that the shoes would need to be returned and that would cost customers money. With that in mind, Zappos built its brand around extraordinary customer service, offering customers a 365-day, no-cost return policy. It also offered free shipping.

In addition, employees are trained to go the extra mile to help customers on an "unscripted" help line. Zappos employees are taught to do whatever they can to ensure a satisfied customer. It's reported that one customer service professional actually spent eight hours on the phone helping a customer!

Reports of Zappos' amazing customer service spread like wildfire across social media, and word-of-mouth became the number-one manner of marketing for the shoe company, which grew by leaps and bounds.

If ever there was a company that knew the core value of customer service, Zappos is that company. Its slogan is "Powered by Service," and Zappos' top execs have been quoted as saying, "Everything we do is focused with our customer in mind. In fact, our call center has an entire team, called quality assurance, which focuses on making sure our customers' experience is the best it can possibly be."

What you can learn from the Zappos story is that if you want to build one hell of a brand, it should feature amazing customer service. Even though you know customers can be annoying, misuse products or abuse the return policy, you need to instill in your corporate culture that it's important for everyone to take good care of each and every customer. This way they will become a fan of your business and help spread the word via social media. While you may have more returns and may even have to spend a little more money to hire and train employees on how to provide excellent customer service at all times, that investment will pay off one hundredfold when people are talking about how much they love your brand.

At the root of customer service is caring about people. That's because social media has given customers a voice like they've never had before. The nameless, faceless company that didn't really care what the consumer thought of it can't avoid social media visibility today. A customer or potential customer could have 300,000 followers or know someone who does. Just as rave reviews about a company can travel quickly across social media, so can stories of rude service or a company being unresponsive to their customers.

Therefore, it's your job on social media to care about people and make them your friends and your fans. You want them to love your brand, share your passion for your company, and spread their enthusiasm across their social media channels. That's how brand champions are created and how you can enjoy an incredible amount of free marketing.

One of my favorite social media success stories is one that belongs to my friend, author, consultant and entrepreneur Peter Shankman. Peter was at an airport getting ready to board a plane. A huge fan of Morton's Steakhouses, he was craving some steak and jokingly tweeted about it: "Hey @Mortons - can you meet me at newark airport with a porterhouse when I land in two hours? K, thanks. :)" 

He was joking. He boarded the plane, shut off his phone, and landed at Newark International Airport two and a half hours later. He looked for his driver, saw his name, and waved to him. As Peter greeted the driver, he in turn was greeted by a guy in a tux carrying a Morton's bag.

Peter said, "Alex, from Morton's Hackensack, walks up to me, introduces himself, and hands me a bag. He proceeds to tell me that he'd heard I was hungry, and inside is a 24-ounce Porterhouse steak, an order of colossal shrimp, a side of potatoes, one of Morton's famous round things of bread, two napkins and silverware. He hands me the bag. I was floored."

So Peter proceeds to tweet out this: "Oh. My. God. I don't believe it. @mortons showed up at EWR WITH A PORTERHOUSE!"

Twitter and social platforms went crazy for the story. Peter was interviewed and told this story numerous times, on major news and TV networks, and at speaking engagements. Morton's probably received more than $5 million worth of free PR from this incident.

The moral of the story is that going above and beyond sometimes can give you a hundredfold ROI. Don't expect it to, but if it does, it could make for the greatest customer service story ever told.

Scott Levy

Scott Levy is the founder and CEO of Fuel Online, an online marketing agency that focuses on social media and SEO. He has been specializing in online marketing for more than 15 years and is a respected speaker, writer and consultant. Scott is based in Nashville.

What's the Point of Creativity?

Creativity and innovation are hot topics these days, and they are being studied more frequently and intensely. Great observations have come of the attention, as Will Burns writes for Forbes: A coffee-shop study from the University of Illinois concluded that moderate levels of noise, as opposed to high or low levels, foster greater creativity. A study from the University of Stuttgart found that low levels of lighting enhance creativity. And then there's my favorite, another study from the University of Illinois, that concluded that alcohol intoxication improves creative problem solving.

The attention is good, but too often creativity is studied and written about without examining context. Why would we want to be more creative? Why bother fostering the conditions for creativity? Why dim the lights, adjust the volume, and get drunk? What's the purpose of it all?

The unspoken assumption is that our goal is to gain competitive advantage, to crush the competition, to win. But I believe that the best creativity comes from a much deeper place than the desire to win. It comes from a desire to contribute to the lives of others, either by introducing something new that improves the quality of their lives or by showing people that something thought to be impossible is in fact possible. When you change people's perceptions about what can be accomplished or achieved, you contribute to their humanity in the richest possible way. You give them hope for the future — a sense that life is not the demoralizing, unchanging drudgery day after day that the world so often teaches us that it is. When you change the way people think about possibility, it is an existential experience. It makes them feel understood. More than that, it makes them feel loved. 

When JetBlue said it was going to bring humanity to its business, it reunited two worlds that had been estranged for decades. When it put those TV sets in the backs of the seats, upholstered the chairs in leather, and gave everyone a little more room, people felt loved. "You know what it's like to be crammed in one of those tiny seats for five hours going out of your mind with nothing to do! You're one of us! You understand me!" 

This, in a world in which people so often feel not just that they're misunderstood but that no one is even bothering to understand them. Have you ever been on hold with customer service and heard a recording that says, "This call may be monitored for quality assurance"? Have you ever once seen evidence of customer quality improving as a result of all of that monitoring?

Increasingly, creativity — and the study of it — is divorced from the real needs of real people. Adding ever more gimmicks to a smartphone in the interest of increasing market share, rather than giving people something revolutionary that will make their lives better, reeks of something other than love and has no power to stir peoples' enthusiasm.

So the question we have to ask ourselves in business is this: Why create? Are we doing it for the gratuitous sake of creativity itself, without any larger purpose? Are we doing it because Harvard Business Review writes about it all the time? Are we doing it out of fear? To make more money? To get on the cover of Wired? Or are we doing it out of a desire to improve people's lives and transform their sense of what possibilities life itself has to offer?

I write a lot about philanthropy. Philanthropy means, literally, love of humanity. You don't have to give a million dollars to charity to be a philanthropist. You simply have to actively demonstrate your love of humanity. Your empathy. If the purpose of our creativity is philanthropy — if it is love for our fellow man, an appreciation that people struggle in their lives, and a desire to somehow lessen that struggle and increase their joy, with a little more leg room or with an iPad — it will change the world. And that is the greatest competitive advantage of all.

Dan Pallotta

Dan Pallotta is an expert in nonprofit sector innovation and a pioneering social entrepreneur. He is the founder of Pallotta TeamWorks, which invented the multiday AIDSRides and Breast Cancer 3-Days. He is the president of Advertising for Humanity and the author of Charity Case: How The Nonprofit Community Can Stand Up For Itself and Really Change the World.

Here's How to Actually Empower Customer Service Employees

There is perhaps nothing as fundamental for organizations as customer service. Any company in a truly competitive market suffers an inevitable decline if it ignores this basic discipline for too long. Take McDonald's for example—the organization's recent confession to franchisees that 20 percent of customer complaints are due to "unfriendly service," with "rude or unprofessional employees" as the number one complaint is a reminder that the final customer touch point often determines whether or not customers return. Despite spending nearly $2 billion annually on advertising, McDonald's service frequently leaves a bad taste.

Similarly, Brian Moynihan, CEO for Bank of America, one of the country's largest banks in both assets and branches, has implored employees to improve their relationships with customers. How committed is Moynihan to this? He mailed letters to the homes of 270,000 employees outlining the need to make it easier for customers to do business with the bank. This comes after nearly five years of internal discussions about becoming "customer centric"—more than three with Moynihan at the helm. 

The importance (and difficulty) of engaging an organization's "front line" to deliver on the customer strategy has been a recurring topic for HBR. It's one of the fundamentals that companies in all industries must remember to revisit and for some, resuscitate after periods of neglect. 

Our research into more than 20 front-line focused organizations (the basis for our recent book Judgment on the Front Line), led us to a set of principles for moving well beyond the basics of customer service by putting power, resources and trust in the hands of front line personnel. By doing so, an elite group of companies has enabled their employees to more rapidly address customer problems, anticipate unarticulated needs and drive customer-facing innovation.

We uncovered information about a variety of companies, ranging from the Ritz-Carlton and Yum! Brands to the Mayo Clinic and U.S. Navy SEALs. Consider what we can learn from the following examples:

• Amazon, where CEO Jeff Bezos often insists on leaving an empty chair at meetings to represent the "customer's voice," has a data-driven culture which actively encourages employees to build experiments based on customer insight. Innovations such as shopping cart recommendations have been the direct result of entry-level employees taking initiative. Behavior-based search was first implemented by an intern, resulting in a three percent revenue increase.
• Zara, the Spanish fast-fashion company, receives quantitative data and qualitative observations from store managers daily to better understand what customers want. Every day, store staff chat with customers, asking questions like, "What if this skirt was longer?" or "What other colors would you like for this item?" This has allowed Zara to limit failed product introductions to just one percent (the industry averages nearly ten percent) while producing nearly ten times the number of products as its largest competitors.

Even with these successes, we've found that no single organization has all of the answers. But combining effective best practices from these diverse organizations and others provides a methodology for building a front line-focused organization, as well as the leadership required to enable your front line to make real-time judgment calls. This process encourages leaders to break down the individual elements required to build and reinforce front line judgment while ensuring they provide an integrated, systemic framework for action rather than a pastiche of so-called empowerment initiatives overlaid on a command-and-control structure. As companies seek to get more contribution and creativity from frontline personnel, here's a five-step process for moving beyond a suggestion-box mentality.

Step 1: Get Started: Connect the front line to the customer strategy. Paradoxically, empowering the front line starts with senior leaders, who have the authority to ensure frontline voices are heard. Senior leaders need to help match their customer promise to the capabilities of the front line while listening closely so they can help align the culture, training, work processes and reward systems. Yum! Brands CEO David Novak, for example, has given every employee the latitude to spend up to ten dollars to fix any customer problem.

Step 2: Empower Your Workforce: Teach people to think for themselves. Employees at every level need to understand the customer strategy. They also need simple problem solving frameworks that are used throughout the organization to promote cross-hierarchical dialogue. We found that the methodology mattered less than having a shared language and thought process for diagnosing root causes or exploring unmet needs. For example, Ritz-Carlton uses MR BIV as a common framework for spotting mistakes, rework, breakdowns, inefficiencies and variations in work processes.

Step 3: Experiment to Implement: Grant front line workers latitude to experiment. Front line workers not only see service breakdowns but also opportunities for serving customers in entirely new ways. Teaching front line leaders the basics for designing simple experiments enables organizations to test many more ideas than could ever be orchestrated centrally. Facebook puts this into practice during "hack-a-thons" designed to unleash pent-up employee creativity. Vital features such as Facebook Video, which has garnered billions of views, have come from giving individual programmers the time and resources to put their customer insight into practice.

Step 4: Eliminate the Barriers: Break down the hierarchy. Nearly every organization has embedded assumptions about roles and power. Freeing front line capacity requires frequent, diligent effort to eliminate decision processes or administrative work that gets in the way of enabling the front line to expeditiously serve customers. For example, at the Mayo Clinic of Scottsdale, nurses have the power to question any doctor's decision or diagnosis through its "Plus One" protocol, completely breaking down the traditional hierarchy. If nurses - some of whom have far more experience than many doctors - fear for a patient's safety, they can move up the chain of command or bring in a specialist to consult and potentially override the initial care recommendation. The hospital was recently named by Consumer Reports as the safest teaching hospital in the U.S.

Step 5: Invest in Your Frontline: Put budget behind it. Too often, companies reserve big budgets for senior management training while spreading funding thin for front line personnel. Similarly, too many companies are content to hire front line staff without carefully considering whether they possess the right attitude and values to represent their brand. At Zappos, it's not unusual for someone interviewing for a $13-per-hour call center job to meet with 15 people before being hired. If they do get the job offer, they will be required to sit through several weeks of training, including listening to recordings of real customer interactions, before they ever work a full day.

Delivering a great customer experience is a fundamental that every company needs to practice, and organizations that excel in this area focus on how to get the most from their front line. As companies such as McDonald's and Bank of America reconsider how their employees interact with customers, they will be challenged to move beyond just rhetoric. If they are truly serious about turning their people into their greatest asset, they'll invest in the front line. 

Chris DeRose and Noel Tichy

Chris DeRose and Noel Tichy are co-authors of Judgment on the Front Line: How Smart Companies Win By Trusting Their People. They have advised CEOs around the world and worked with Royal Dutch/Shell, Ford Motor Company, 3M, and Intel.

The True Story Of Amazing Customer Service From--Gasp!--An Airline

When Barbara Apple Sullivan, CEO of an eponymous brand engagement firm, accidentally dropped her passport in a Charles de Gaulle airport mailbox just before boarding a flight, she was certain she'd be stuck for days. But thanks to a Delta employee, she made it on board, and had her future travel plans transformed forever.

"Keep Climbing"
 That is the slogan for Delta Airlines’ latest advertising campaign, which highlights its promise for a “reinvigorated customer experience.” So often I have seen this television commercial and others like it, paying little attention to the message and the value proposition. My only takeaway was reassurance that the planes were pointed upward and not downward.

More than any advertising, more than an impactful website, more than those tasty biscotti cookies served on the plane, this really was a reinvigorated customer experience.

In such a saturated industry, it is difficult for any airline to differentiate the customer experience. The planes themselves are virtually identical. The food, if it exists, is universally awful. Airport security is conducted by an entity over which the airlines have virtually no control. And virtually everyone who flies has their own personal horror story. Is it really possible to redefine the customer experience?

 It was my personal experience with a single employee that emblazoned Delta’s value proposition in my mind forever. Their promise came to life in a real, tangible way. More than any advertising, more than an impactful website, more than those tasty biscotti cookies served on the plane, this really was a reinvigorated customer experience.

Allow me to set the scene. To my horror, I inadvertently dropped my passport in a mailbox at Charles de Gaulle airport last Sunday morning, as it was bundled with all my VAT refund envelopes. The instant the mail left my hand and dropped to the bottom of the mailbox, I realized my error. Two airport employees told me it was impossible to open the mailbox on a Sunday as postal workers, who do not work on Sundays, have sole authority to open the box. I was told I must wait until Monday, go to the U.S. Embassy in Paris, and request an emergency passport before I would be able to fly. In desperation, I approached the Delta ticket counter and told them I had a BIG problem.

One gentleman behind the counter, Mr. Karim Sayoud, took my problem as though it were his own. He calmed me in my increasing panic, explained what he could do and immediately called the U.S. Homeland Security Customs and Border Control representative station at the airport.

Mr. James Wilkinson from U.S. Homeland Security came to interrogate me. All I had was my passport number. I had nothing else. No copy of my passport, no social security card, and the address on my driver’s license did not match my passport. After providing enough correct answers to convince him that I was in fact who I said I was, he agreed to let me travel, subject to the French authorities that retain final approval.

Karim Sayoud left his position at the Delta ticket counter, escorted me to Delta check-in, and he convinced his colleagues to accept my baggage (without the certainty that I would be on the flight) and issue a boarding pass. He then escorted me through French passport control and security, encouraging the authorities to let me through, and ultimately to the Delta gate agents. It was there that I was finally able to breathe a sigh of relief.

Sayoud actually taped a hand-written note on the mailbox so the postal worker would see it and return the passport to Delta once it was retrieved.

Sayoud didn’t stop there. After I was successfully on the flight, he took it upon himself to make certain that my passport was retrieved from the mailbox the following day and returned to me in New York. He actually taped a hand-written note on the mailbox so the postal worker would see it and return the passport to Delta once it was retrieved. He phoned and emailed me multiple times each day updating me on the status. Lo and behold, my passport arrived to me by FedEx. A true customer service miracle made entirely possible by one dedicated employee.

So what essential lessons can a brand learn from this?

• Any and every interaction with your brand is meaningful, especially for a service brand. The service at the 6-foot level is just as important as the ad campaign at the 30,000-foot level because a customer truly experiences a brand on the ground.
• Employees must understand what their company stands for and how they are expected to behave as ambassadors to the brand. They are responsible for delivering the value proposition and even those performing the most mundane tasks must be trained accordingly.
• Employees should be given permission to use their judgment. Hire, train and empower them to represent the brand in the best possible way. Mr. Sayoud could have easily shrugged me off and told me to come back Monday, but instead he became invested in my problem and my Delta brand experience.
• Employees should be rewarded for demonstrating the desired behavior. I personally reached out to Delta in thanks for the service I was provided, and hope it impacts Mr. Sayoud’s life as it has mine.

As a marketer myself, I am both attuned to and immune to brand experience. Sure, I am a Delta gold medallion member and am already predisposed to fly this airline. However, this one experience has reinforced my decision to fly Delta at every possible occasion, because I know I’m in good hands. Thank you to Karim Sayoud and Delta for providing me with the ultimate gift of loyalty. May your brand continue to keep climbing.

--Barbara Apple Sullivan, is CEO and a managing partner of Sullivan, a multi-disciplinary brand engagement firm based in New York City. Follow them on Twitter at @sullivannyc

Have You Rewarded Your Fans Today? The Alarmingly High Cost Of Bad Customer Service

Some new stats are ugly: Nearly 70% of defecting customers would've stayed if a problem had been resolved with one call, instead of requiring multiple interactions. Here's Salesforce exec Peter Coffee on how to please the people you need most, and save your bottom line.

By: Peter Coffee

Customer churn is a headwind that companies can’t afford to continue fighting, especially as those winds are whipped by the power of social networks. Too many companies create that headwind themselves: a blowback from poor customer service and inadequate customer care. This tendency must not be merely minimized, but must be vigorously reversed.

It’s widely acknowledged that it costs six to 10 times as much to attract a new customer as it does to keep an existing customer, but a current report by Accenture finds roughly half of surveyed consumers saying that they had left at least one vendor because of poor service. More than half of those defecting customers say they would have stayed loyal if they had been rewarded for their loyalty; nearly 70% would have stayed if a problem had been resolved with one call, instead of requiring multiple interactions. Replacing these customers is commonly treated as an inescapable cost of doing business, in a classic case of failing to see a stationary object. It’s time for a different point of view.

"The urgency is increased when one considers that the typical customer tells an average of 16 other people about a poor service experience, but only tells nine about the good ones."

The urgency is increased when one considers that the typical customer tells an average of 16 other people about a poor service experience, but only tells nine about the good ones. This multiplier effect of poor service, combined with the high cost of replacing a lost customer, combine to make customer service improvement a strategic target: not only as an opportunity for existing companies, but also as an opportunity for innovators to devise and offer new tools that will soon become baseline capabilities.

From Damage Control to Affirmative Customer Care

The immediate priority is to get on the good side of the global conversations on social networks, where customers and prospects all connect. Ignored, the social community of billions of customers--an environment specifically designed to identify and highlight influential voices--is an echo chamber, where any dissatisfaction with a brand is reinforced and spread at pandemic speed. Engaged, that same community can be transformed from critics to advisers; when rewarded for their input, those advisers in turn become advocates or even zealots for a brand.

Don’t fight or evade the community: Play into it. It might be tempting, for example, to respond to an unhappy tweet with a deflection to email as the means of addressing the complaint, but this means that the Twitterverse only sees Act I of the play: “The Unhappy Customer.” Resolve the complaint in the forum where it was made: reply to a tweet on Twitter, reply to a Facebook update with a comment on that same post. The community surrounding the complainer then sees the speed and quality of the response, at minimum mitigating the harm; potentially, creating favorable buzz around the brand.

You don’t do this because it’s cool: You do it because it moves the needle of preference, leading to profit. American Express, in its 2012 Customer Service Barometer Study, found that 66% of U.S. consumers would spend more if they expected better service, with that group willing to pay an average premium of 13% to that end: Importantly, both of those numbers were up (from 58% and 9%, respectively) compared to the same questions asked in 2010.

These are not just hypothetical behaviors: The same study found 75% of customers saying they had already spent more with a company in response to superior service, up from only 57% in 2010. When people feel they have less time and money to spare, superior service has an increasing effect on where they spend both.

Transforming Customer Service Into Brand-Building

Increasingly, products are equipped with various means of network connection, for purposes ranging from smartphone-app remote control to routine updates of embedded software. Don’t stop with connecting products: Connect the company to the customer. For every product you make, ask how it might be possible to add a "Like" button (literally or figuratively) that would let customers tell you (and tell friends) when the product has delighted them; ask how it would be possible to give every customer, in the moment, a way to tell you when and how the product has disappointed.

Work by Eric Von Hippel at MIT has documented the growing expectation of customers that they will be able to engage directly in the process of product improvement; customers who do so become invested in the brand.

Again, this is not something that’s merely done because it’s cool. There are bottom-line incentives to do it. Connected products, wired with sensors and processors in the normal course of improving operational convenience, can generate vast amounts of data. These streams may reveal, using so-called “Big Data” techniques of exploration and association, unanticipated and useful pre-failure signatures. These can become a basis for voluntary service campaigns: acts of positive outreach made before a customer has even noticed a symptom (let alone experienced a breakdown).

Is this about “the cloud”? Only in the sense that a conversation about gourmet cooking is about running water, or a conversation about home entertainment is a conversation about electricity. Ubiquitous, affordable utility services disappear into the background as high-value markets build upon them.

It’s no longer novel to talk about a global web of connections, and a surging acceptance of delivering capability on that network rather than requiring people and companies to buy and operate their own infrastructure. What’s novel is to see the opportunity to stop treating service as a cost to be minimized, and see it as the next huge opportunity for competitive advantage.

"When people feel they have less time and money to spare, superior service has an increasing effect on where they spend both."

Incumbent market leaders must therefore get out of their comfort zone, and rise above costly mass-media marketing that maintains brand awareness but does not continually refresh customer delight. Social media engagement provides priceless, continual realignment of what the customer actually values with what the company’s marketing campaigns promise.

Industries with long supply chains must tighten and accelerate their feedback loops, using the potential of connected products to know more--and know it sooner, and far more accurately--about how their products are actually used, and how the customer feels about that experience.

Finally, new market entrants must recognize the opportunity and necessity to punch far above their weight, by being more accessible and far more responsive in making customers feel like clients and partners--rather than being merely buyers. Getting the buyer to invest in the vendor’s success, even if only psychologically, is the surest way to defy the winds of commoditization and create the next premium brand.

--Peter Coffee is vice president and head of platform research of Salesforce.com, Inc., an enterprise cloud computing company based in San Francisco, California. Follow him on Twitter at @petercoffee

Being Digital Demands You Be More Human

by John Winsor 

The halls of every marketing organization are filled with rumors about the new crop of hires — computer scientists, math majors and big data experts. For them, consumers are a mass of 0s and 1s that represent online behavior that can be collected, analyzed and targeted.

But the one thing companies seem to keep forgetting is that customers are actually human beings.

The chocolatier Ferrero Rocher learned that lesson recently from Sara Russo, a big fan of its Nutella brand. Such a big fan, in fact, that she started an annual World Nutella Day in 2007. The event, conceived by Russo to celebrate the hazelnut spread, was held in mid-February this year; more than 40,000 fans like the event's page on Facebook. But Ferrero hardly had a positive reaction to the publicity blitz — the company had its lawyers send Ms. Russo a cease-and-desist letter.

Of course, Ms. Russo blogged about the letter and drew a great deal of media coverage. An outcry spread through social media as Nutella fans wondered why Ferrero would want to stop the celebration. Ms. Russo reported on her blog, "They were very gracious and supportive and we were able to have a productive discussion about World Nutella Day living on for the fans, which is the whole point."

I was on the other side of the same kind of interaction a couple of years ago. My son Harry, then 8, sent an airplane drawing to Boeing to see if they'd build his design. We got a very similar letter to the one Ms. Russo received from Boeing asking Harry to stop using the Boeing trademark in his drawings.

I gave my take on the situation in a 2010 blog post titled, "Is Your Customer Service Ready for the New World of Openness?". The dilemma for me was whether to tell Harry about the letter and the cold, hard truth about corporate communications — or lie to him and tell him we didn't receive the letter with the hope of continuing to inspire his childhood creativity for as long as possible.

As you can imagine, the media world blew the story up with articles on thousands of blogs, in hundreds of magazines and even on ABC. While Boeing wanted the story to go away, Todd Belcher, the company's Director of Communications, reached out to Harry personally. After a few chats, Boeing invited the whole family to Seattle to watch planes being built. It was the trip of the lifetime for Harry and it has continued to inspire his creativity.

But Todd's actions weren't only beneficial to my son. By realizing that Harry was just a child with a passion for planes, Todd turned a potentially bad situation into a positive one and Boeing changed the way it responds to the public's ideas.

Nutella and Boeing aren't unique in trying to figure out how to balance their need to control their intellectual property with their desire to connect with fans that demand — and have — more access than ever to corporations and a passion for broadcasting their love of a brand in the age of democratized communications driven by digital technology.

In 2000, Metallica sued 30,000 fans for illegally downloading their music on Napster. Likewise, Mattel has battled fans over making their own versions of Barbies. Fedex even used the DCMA (Digital Millennium Copyright Act) to force Jose Avila to take down a web site that displayed furniture that he'd made out of FedEx boxes.

Like it or not, every brand that has a following will have to deal with this unique digital-age problem.

As companies become more digital and equipped with advanced marketing analytic tools that allow them to know and predict consumers' behavior even better than consumers themselves, they need to be more human as well. It's time to shift the paradigm. Brands need to not only connect directly with their fans but also rethink the concept of brand ownership. Brands can be owned by both the company and the community of customers, fans, and followers that rallies around them.

As new digital marketing tools and systems are implemented they must be balanced by even more analogue systems than before. The ability to reach out, in a human way, to a Sara or Harry can quickly create either positive or negative momentum for your brand. That makes human interaction more important than ever.

John Winsor

John Winsor is the CEO of Victors and Spoils.