The Industrial Revolution

The beginning of our current situation can be found in the second half of the eighteenth century, and the arrival of machine-based manufacturing. This not only created an age where things were manufactured en masse, but also created the demand for these things through the massive economic expansion that took place. Many people could afford to have more than the bare essentials for the first time, and were keen to convey their new-found social standing through their material possessions.

For the first time, goods were no longer being produced solely by craftsmen as a direct response to a commission from a customer. In fact, it became entirely possible for goods to be produced in another part of the world. By separating those who were responsible for manufacture from the intended customer, the Industrial Revolution also gave birth to the professions of design and marketing as we currently understand them.

Mass production requires a logical, sequential process, rather than the more holistic approach used by craftsmen, and so design became critically important. Moulds and patterns needed to be made, and technical drawings were required to produce goods that were identical and, through the promise of economies of scale, affordable. Also, unlike items made by craftsmen as a response to a commission, mass produced goods were not immediately visible to potential customers. They couldn’t buy them if they didn’t know they existed, and so the requirement for marketing was born. Not only was design now a separate discipline from manufacture, but both design and manufacturing took place in isolation from the customer. To recover the heavy upfront costs associated with mass production, ‘A more aggressive approach towards marketing and selling needed to be developed … while production was the tail that wagged the dog.’⁹

The late nineteenth century saw the arrival of scientific management, an approach pioneered by Frederick Winslow Taylor that sought to improve efficiency and productivity in manufacturing. Taylor sought to standardise processes where possible, with the aim of increasing productivity while reducing the skill and effort required of the worker. This pushed the division of labour even further, with workers often performing highly repetitive tasks in sequence.

Taylor’s approach has had a lasting impact on the enterprise, and was really the great-grandfather of what we now refer to as operations management and business process engineering. A culture dominated by efficiency, rationality and an obsession with quantitative measurement lives on in modern business, a topic I will explore in more detail in the next chapter.

Of course, neither mass production nor a predominant interest in efficiency necessarily work in opposition to the interests of the customer. The industrialised age made things that would otherwise be prohibitively expensive affordable to everyone. Our standard of living is immeasurably better owing to these developments, and modern life as we know it is the product of this Industrial Revolution. Many mass-manufactured goods have had incredible longevity and been continuing sources of delight for billions of people.

Maximising shareholder value

The consumerism that became apparent during the Industrial Revolution reached a new high in the booming economy of 1950s and 1960s America. Stoked by the golden age of advertising, image was everything, regardless of reality. Writing in The New York Times Magazine in 1970, Milton Friedman – Nobel Prize winner and one of the most influential economists of the twentieth century – shared his belief that ‘There is one and only one social responsibility of business: to use its resources to engage in activities designed to increase its profits so long as it stays within the rules of the game, that is to say, that it engages in open and free competition, without deception or fraud.’¹⁰

Building on this sentiment, an article written in 1976 by two finance professors would go on to define the large-scale organisation as we see it today. The snappily titled ‘Theory of the Firm, Managerial Behaviour, Agency Costs and Ownership Structure’¹¹ proposed that there was an inherent conflict of interest between the executives of a company (the agents) and the shareholders (the principals). The executives, although hired by the shareholders to maximise their returns, are naturally inclined to work towards their own ends, putting their interests before those of the shareholders. This theory became known as agency theory or the principal–agent problem.

The authors echoed the words of Friedman in asserting that the primary purpose of a company was to maximise shareholder returns and concluded that to solve the principal–agent problem, the goals of the executive and shareholder could be aligned by compensating the executive through shares in the company. Logic dictates that this would massively incentivise them to increase shareholder value, since it would increase their own compensation in tandem.

In his fascinating book Fixing The Game, Roger Martin explains how the practical application of this theory not only led to the current crises in customer relationships, but also the financial meltdowns of the last decade, from the Enron accounting scam, through the options back-dating scandals and onto the recent sub-prime mortgage debacle that plunged the world into recession.

The problem with this theory in the real world is that it shifts the CEO’s attention away from the real market of customers, products and services and towards the expectation market of traders and analysts. Drawing a convincing analogy with American football, Martin explains that a CEO whose remuneration is strongly linked to share value is like sports teams being remunerated through gambling on the outcome of their own matches. It doesn’t take a vivid imagination to see how that would play out: it would destroy the game and cause outrage among fans, and yet this is often how the large-scale enterprise conducts itself.

Focusing on maximising shareholder value brings the CEO into direct conflict with the interests of customers, since it is not possible to fully satisfy both the real market and the expectation market simultaneously: I can’t seek to create the products or services that will most delight my customer while also trying to maximise my profit over the next three months.

Faced with a choice, the CEO’s attention is on the expectation market since not only are they incentivised to do so, but it is far easier to manipulate the expectations of the stock market, or ‘game the game’, than it is to create genuinely brilliant experiences for the customer. It’s not just the customer who loses, it’s the whole company. Research published in the Journal of Accounting and Economics points to an alarming discovery: ‘A majority of executives freely admit to sacrificing the future of their companies in order to meet the whims of the expectation market.’¹²

The inevitable consequence is that customers, employees and, ironically, even the shareholders lose out. Ethics and values evaporate and the long-term health of the organisation is sacrificed for short-term gains. ‘The moral authority of business diminishes with each passing year, as customers, employees and average citizens grow increasingly appalled by the behaviour of business and the abundant greed of its leaders.’¹³

Returning to the earlier themes, it is worth pointing out that although the shareholder value doctrine seems a prime culprit for the state of our current relationship with many businesses, it would not have occurred without the context created by the previous hundred years of evolution in the world of commerce. As corporations have grown, so too has the distance between the corporation and the customer. Many CEOs and senior management have little or no direct contact with customers, or many of their employees for that matter. They certainly don’t know many of either by name. With the customer out of sight, it is easy for them to be out of mind, and so decisions that conflict with their interests are much easier to make. It could also be argued that the prevalent marketing and advertising culture, with its focus on image over reality, naturally lends itself to the manipulation or even exploitation of the customer. Furthermore, the Taylorist focus on economic efficiency seems a natural bed-fellow of the shareholder value doctrine: at its heart lies the maximisation of profit.

As I’ve said, there is nothing inherently wrong with mass production or profit, a focus on efficiency or raising awareness of products and services through marketing – few businesses can function without these things. However, when they become the tools of a leadership whose sole focus is maximising profit in the short term, they can lead to the situation we find ourselves in at present, where predatory companies exploit their customers.

Back to the customer

Roger Martin is clear on one thing – that the future of capitalism depends on shifting the focus of companies back to the customer: ‘Customer delight is a more powerful objective than shareholder value … if you take care of customers, shareholders will be drawn along for a very nice ride. The opposite is simply not true: if you try to take care of shareholders, customers don’t benefit, and, ironically, shareholders don’t get very far either.’¹⁴

Not every business is of the scale where they are trading on the stock market of course, but businesses large and small have a choice whether they focus on immediate profit maximisation or on delighting the customer, as we saw with my own experience at the start of the chapter. The pub is going nowhere; the café, which opened at the height of the recent global economic crisis, is flourishing in a sector where most businesses are dropping like flies.

Although he provides a compelling argument for a shift back to the customer, Roger Martin’s argument is not the only reason for renewed interest in the customer experience. Other powerful technological and social forces, which are examined below, are leaving businesses without a choice.

The information revolution

If advances in technology during the Industrial Revolution swung the balance of power towards the corporation, those of the digital revolution have swung it back towards the customer. The world wide web rapidly evolved from being a series of linked static documents into a dynamic, highly interactive platform which has changed the face of commerce and communication for ever.

E-commerce and the rise of user experience

Once people were able to buy and sell online, the importance of the user experience became apparent almost instantly. The web created an environment where there was no switching penalty to buy from one supplier or another. There was no need to walk out of a shop and across town to another one. It became the norm to type the product you want into a search engine, visit a site shown on the results, and if you couldn’t get what you wanted within a few seconds, click back to the results and try another.

Companies that dominated, such as Amazon and Google, concentrated on ease of use, and everybody wanted to follow suit. Businesses started hiring usability consultants, and implementing user-centered design processes as we recognise them today.

User contributed content

A major turning point in the development of the web was when it became possible for the general public to contribute content. Discussion forums sprang up everywhere and customers were able to review products they had bought on retailers’ websites. The obvious upshot of this was that consumers were able to learn from the experiences of other customers and use this as the basis for a product choice, rather than going on the carefully crafted marketing messages of the corporation. No amount of marketing can compensate for an average one-star review on Amazon. You couldn’t just talk the talk anymore, you had to walk the walk.

Social media

If user contributed content started the shift of power towards the consumer, its evolution into what we now call ‘social media’ took things to a whole new level. In October 2010 a Dutch comedian Youp van’t Hek decided to share his frustrations with his audience of 45,000 Twitter followers: ‘The terror of T-Mobile is funny. For every mistake they apologise and they refer you to the customer service. Wait time 4 hours …’¹⁵ He had sent his son’s phone in for repair and weeks had passed without successful resolution of the problem. Within half-an-hour he was contacted by a T-Mobile representative with a solution to the problem.

This sounds like a triumphant implementation of a social media strategy, where a business responds through a plethora of modern channels, but here’s what happened next. Youp is even more upset that he has received preferential treatment because of his Twitter presence. He keeps up his Twitter offensive and also mentions the issue in his column in the Dutch newspaper NRC Handelsblad. By this point he has gained a further 10,000 followers since his first tweet on the subject, the story has caught the attention of the mass media locally and internationally¹⁶ and T-Mobile are forced to make an official statement.¹⁷ The story spreads to Belgium where a national radio station starts a programme inviting people to share their horror stories of dealing with customer service.

Youp keeps going, setting up an e-mail address where anybody can send in their customer service horror stories, with the view of publishing a book that will send a powerful message to large corporations that customer service really matters. The Belgian Federal Minister gets dragged into the fray, declaring the current state of customer service unacceptable. In June 2011 those companies with the biggest call centres in Belgium signed up to a charter to limit wait times to two-and-a-half minutes.¹⁸

There is no shortage of examples of how social media is changing the world by allowing the instantaneous formation of groups with any common interest, and giving anybody with an internet connection a giant digital megaphone to broadcast information. Social media is cited as playing a pivotal role not just in our role as consumers, but as citizens in general: it played a role in the toppling of dictators in the Arab Spring by allowing protestors to coordinate their activities, and played its part in helping Barack Obama become the first African-American President of the USA.

In his thought-provoking book Who Cares Wins, David Jones explains in simple terms how social media has empowered the consumer: ‘Brands are defined by what consumers say to each other about them, not what a brand says to consumers.’¹⁹ We now have open access to information which makes it impossible for a brand to tailor information to a particular audience such as investors, employees or customers, and we have the means to hold companies to account if they fail to live up to their promises. ‘In today’s open world it’s incredibly difficult for a company to pretend it is something it’s not … the key to today’s successful social brand is to create the best possible reality.’²⁰

Consumer design awareness

Ten years ago, when faced with confusing technology many would simply say ‘I’m not a technical person.’ Nowadays the consumer knows better. There are no technical and non-technical people, there are products that are well designed for their intended audience and there are those that are not, and we are now far more likely to blame the product than ourselves. This reflects a growing awareness of the role that design plays in our lives. Amazon was not the first online bookstore, Google was not the first search engine, and Ikea was not the first furniture manufacturer: their success is intrinsically linked to excellence in design.

We have a natural tendency to compare products or services with those that have set a standard rather than simply the direct competitors. I don’t care whether one online grocery shopping site is better than another. If it’s not as easy to use as Amazon I’ll still be disappointed (which I am). My reference point for Microsoft Outlook isn’t another desktop-based mail application, it’s Gmail. The bar for the customer experience often isn’t set by direct competitors, neither is there a clear distinction between consumer products and enterprise products like there used to be, it’s set by the experiences we have in our day-to-day lives. This raises some interesting questions about the validity of competitor analysis that are covered in the next chapter.

Every man-made object that we see or touch has been designed, even if we aren’t consciously aware of it. Somebody took the decisions that brought it into the world in its current form. According to designer Karim Rashid, we touch 600 such objects a day.²¹ It is no surprise then that not only is our design awareness increasing, our concentration spans and patience seem to be heading in the opposite direction. We don’t have the time, energy or inclination to use products or services that make our lives any more complex or stressful than they already are. These two phenomena go hand in hand. Our exposure to affordable, quality design has raised our expectations, and it’s no longer enough for a product to satisfy our functional requirements; it needs to be intuitive to use, fit into our lives effortlessly and please the senses. It needs to be wrapped in a great customer experience from start to finish.

From mass production to mass customisation

Technological advances have moved the focus from straightforward mass production to mass customisation and personalisation in both the digital and physical realms. Online retailers have long had the ability to recommend items of interest to similar buyers, and we can personalise news websites so that those topics we are most interested in are given priority. We are not even scratching the service of what is possible with GPS enabled smart-phones, for showing us information that is relevant to our particular location. In the physical world we can express our individuality by choosing from thousands of options when buying a car, ordering a coffee or anything in between. Technology has done a lot to raise the bar for customer experience – we don’t just want to be treated as individuals, we expect it.

Multi-channel

Perhaps the biggest challenge faced by the advances in technology isn’t getting them right in isolation, it’s tying them together into a consistent, holistic customer experience. The challenge is no longer simply to create a great product or service, with a good customer service offering and a useful website, it is to seamlessly join up an increasing number of different touchpoints. Many businesses find themselves having to integrate their products and services, physical shops (possibly with self-service kiosks), transactional websites, smart-phone apps, social media presence, and call centres, and not just in one country either.

Getting this kind of multi-channel experience right is an enormous challenge, but a necessary one. As we will see later, expectations are a huge aspect of the customer experience so consistency of information across the different channels is important. Pogo-sticking from the website to the call centre to the shop then back to the call centre again to solve a simple problem is infuriating, as Youp van’t Hek rightly points out. We don’t just want personalised customer experiences, we want them delivered in the channel that suits us best. Customer control is key to a great customer experience.

Conscientious consumption

The Industrial Revolution, design, marketing and the shareholder value doctrine are all united by the goal of economic growth through mass consumption. This model has not been without its negative consequences, as Harmut Esslinger, the founder of Frog Design, explains: ‘All of those “cheap” goods that we’ve churned out have proven themselves to be too expensive culturally, socially, and environmentally … The growing movement towards eco-capitalism isn’t an exercise in “do-goodism”. It’s driven by self-preservation.’²²

There has never been greater attention paid to the social and environmental cost of our consumption, and for a growing number of consumers the socio-environmental impact of a product is another rationale to throw into the mix when making a purchasing decision. While it is certainly not the only rationale, choosing organic food, fair-trade coffee, recycled and recyclable products, or a hybrid car are obvious ways that consumers are demonstrating their growing concerns.

In Who Cares Wins, David Jones argues that social media and corporate social responsibility are intrinsically linked, since social media has enabled the consumer to hold businesses to account. He starts by describing the three ages of the socially responsible business. The first, The Age of Image (1990–2000), was all about brands altering their outward appearance rather than making any real change to how things were done. It was about appearing to be green or ethical rather than actually doing it. The second, The Age of Advantage (2000–2010), was when businesses began to see genuine social responsibility as a source of competitive advantage. He concludes that we are now living in the third age, The Age of Damage, where businesses that are not socially responsible will be damaged as a result.²³

The increasing importance of corporate social responsibility perfectly illustrates how some of the factors we’ve already examined are playing out in the marketplace. A move away from Friedman’s absolute focus on profit is not just a response to growing customer outrage about service standards, it’s recognition that the social and environmental consequences of this mercenary approach are unacceptable. Social media has empowered the consumer to hold these businesses to account if they fail to deliver either on their responsibilities to society or on their obligations to their customers.

Finally, there is growing awareness that the environmental problems we face are as much a design issue as anything. So much of the waste that we experience is down to poor design: planned obsolescence, wildly excessive packaging, or products that break but end up in the landfill because they can’t be economically repaired. As we will see later in the book, reflecting the personal values of the customer through a product or service is fundamental to a great customer experience.

(R)evolution

What we are experiencing is part evolution part revolution. Technology is the great propeller of social change as it always has been, and emerging ‘green-blooded’ entrepreneurs are helping capitalism evolve in a more socially and environmentally responsible direction. Yet from the customer’s point of view this is a revolution in one sense of the word, since we now find the world of business turning back towards the customer. The gap between businesses and the customers they serve is being narrowed by social media: there is greater collaboration and a more bilateral dialogue than there has been for a long time. The power of traditional marketing has been curbed by user contributed content, and there is less and less choice but to commit fully to delighting the customer to stay in business.

The fact remains that this approach has always been the best way for businesses large or small to succeed in the long term. As management pedagogue Peter F. Drucker said in 1955, ‘The purpose of a business is to create and keep a customer.’²⁴ What we are experiencing is not a new discovery, it’s a renewal of interest brought about by a confluence of technological and social change, set against a backdrop of political and economic upheaval.

A great customer experience is good for business, and always has been – we reward those that provide them with loyalty, repeat business, and by doing their marketing for them – telling friends, family and colleagues about their products and services.

Business leaders have always been quick to extol the virtues of concentrating on the customer. Office walls and mission statements have always been covered with rhetoric: ‘Every customer counts’ … ‘Go the extra mile for the customer’ … ‘We need to be customer obsessed!’ The difference is that now they actually have to do it, and those that do are reaping the benefits.

In May 2011 a three-year-old girl wrote to UK supermarket Sainsbury’s, saying that one of their products, ‘tiger bread’, should be re-named: ‘Why is tiger bread called tiger bread? It should be called giraffe bread. Love from Lily Robinson age 3 and ½.’ She received a reply from a customer service agent that said, ‘I think renaming tiger bread giraffe bread is a brilliant idea – it looks much more like the blotches on a giraffe than the stripes on a tiger, doesn’t it? It is called tiger bread because the first baker who made it a l-o-o-o-ng time ago thought it looked stripey like a tiger. Maybe they were a bit silly.’ The letter was signed ‘Chris King (age 27 and 1/3)’.²⁵

I first heard about this story when it appeared on my own Facebook feed. It has been seen by hundreds of thousands of people and covered by BBC News. Most of the comments were hugely positive towards Chris King and the Sainsbury’s brand. A couple of examples: ‘That’s what I call good customer service!’ … ‘Simple gestures like this can and do generate immense goodwill for the brand, yet is still so rare’ … ‘If there were more Chris Kings working, bad customer service would be a thing of the past!’ Sainsbury’s were quick to capitalise on the coverage, promptly renaming the bread ‘giraffe bread’. No doubt thousands of people went to their websites and stores to see if they had in fact renamed the bread.

The topic of social media seems to have put marketers and public relations professionals in a bind. On the one hand they are scared stiff of the damage a concerted social media campaign against their brand could do, but on the other hand find the potential opportunities irresistible. There does seem to be one simple option: if you want your customers to tweet positive things about you, focus on creating a great customer experience, and like the example from Sainsbury’s, the customers will do the rest for you. By contrast, those businesses that have lost touch with the customers they serve will be rich pickings for entrepreneurs who put the customer experience at the heart of their business. It’s not if, it’s when.

Summary

• Create a great customer experience and profit will be a happy by-product of a successful business in a much broader sense.
• A blinkered focus on profit maximisation brings you into direct conflict with the interests of your customers.
• The Industrial Revolution that led to mass production and the division of labour brought separation between the manufacturer and the customer. Over time as companies grew and grew, so did the rift with the customer.
• Tying executive compensation to share price has shifted the leadership’s attention away from the customer and towards the stock market, a contributing factor to the current malaise.
• Social media is starting to empower the consumer, providing a largely unregulated, democratic means to hold businesses to account for disappointing or dishonest behaviour.
• Personalisation and customisation are becoming the norm, raising customer expectations.
• The profusion of new digital touchpoints – smart-phones, kiosks, websites – has created headaches for businesses that now need to join them up into consistent experiences.
• There is greater awareness and appreciation of good design. If we cannot work a product we are more likely to blame the design of the product than ourselves.
• There is increasing interest in the social responsibility of businesses as we grow more conscious of the social and environmental impact of our consumption.
• Businesses now have little choice but to concentrate on delighting the customer to stay in business.