Include Service in Your Business Plan

Author: Peter Gurney

Reprinted from Northwest Entrepreneur Network

March, 2002

Think about the organizations that stand out as leaders in customer service – companies like Southwest Airlines, Federal Express and Nordstrom. Now, contrast these companies with the parade of mediocre service providers we encounter every day as customers: the restaurant chains and retail stores, and the telecommunications companies that perpetually annoy us with long waits, uninformed personnel and self-serving policies (can you spell “Qwest”?). What the first group of companies has in common is that they planned for service excellence from the beginning. Good service is not something they tried to introduce after they were up and running; it is part of their DNA, an essential component of their business model.

These service leaders offer a valuable lesson for entrepreneurs. Business plans typically include details about how to attract customers, but little information about how to sustain and build relationships after acquisition. They often include platitudes like, “We are a customer-centric organization,” and “We create value for all of our stakeholders,” but seldom present a clear strategy that shows how customers will be retained, nurtured and made progressively more profitable over time.

There are many financial benefits to articulating and following a strategy of service excellence: lower customer and employee turnover, fewer complaints and returns, greater share of wallet, positive word-of-mouth endorsements. But good service costs money, and it is easy to invest in service standards and programs that do not provide a measurable return. The key is to form a clear strategy that links service investments with profit-based outcomes, and to make sure the service strategy aligns with other components of the business model.

Young companies with no formal service strategy frequently give the appearance of being “customer-centric” – first, because there aren’t many customers, and second, because the internal service providers tend to be owners or others who are heavily invested in the organization’s success. Over time, however, the responsibility for customer relationships will devolve to employees who are less invested and less empowered to take risks, solve problems and spend money on solutions. At this point a formal service strategy acts as a roadmap to keep the company true to its vision.

At the least, the service strategy should indicate how customers will be retained after acquisition. Many of the now-defunct dot-coms failed in part because they neglected to think through a retention approach after spending millions on attracting customers. Other companies suffer from chronic customer churn and low profitability because they have not aligned customer expectations with service delivery.

A retention strategy begins with an understanding of the typical customer’s lifecycle with the company. It identifies the points at which the customer and company interact, when and how often those interactions are likely to occur, and how they can best be used to advance the customer relationship.

In the book “The Loyalty Effect”, author Frederick Reichheld makes the case that the longer customers remain with a company, the more profitable they become. The loyalty effect works because long-term customers have more opportunities to learn about the company (and vice versa), allowing the relationship to become increasingly efficient and productive. But the benefits of loyalty do not occur simply because customers have more experiences with the company over time. To move up the loyalty/profit curve they need to have the types of experiences that will add to their knowledge and influence their behavior. Understanding the customer lifecycle allows the company to plan the right types of customer experiences at the right time.

Implementation decisions follow logically from the service strategy. By identifying when and how interactions occur, as well as what they should accomplish (both for the customer and the company), one can work backwards to design a service-focused organization. The service strategy helps define appropriate standards and policies, and also suggests how standards and policies can be supported through hiring practices, training content, research and measurement, business tools, etc.

Consider research and measurement. Many companies make a substantial investment in customer surveys, call monitoring, mystery shopping and other service-related research that generates reams of data reports — which sit, unread and unused, on the desks of overworked managers. But with a clearly articulated service strategy that is incorporated into the business model, companies can make much better decisions from the first about what data they should collect and how they should use it. For example, by mapping out the points at which service failures are most likely to occur, the company can create feedback channels that will identify at-risk customers, and service recovery mechanisms to prevent turnover. The service strategy will also suggest what data should be captured to ensure that standards are executed properly and that employees and managers are rewarded for the right outcomes.

Choices of business tools and systems also follow from the service strategy. Consider that in the past few years billions of dollars have been spent on Customer Relationship Management (CRM) systems that have under-performed or failed to produce a positive return. One of the primary reasons for this failure is that many systems were installed with no logical context: companies invested in improving customer relationships without defining what an ideal customer relationship should look like. A clear service strategy fills that void, allowing the company to invest in tools and systems that support a well-defined vision.

All of these details do not necessarily go into the business plan – they may go into the plan behind the plan, or emerge over time as the company evolves. What does go into the business plan is a declaration of the role that service will play in the overall offering of the company, and a description of how the service strategy will align with other components of the organization. Also included is a picture of what the relationship between the company and customer should look like as it advances through the customer lifecycle. Armed with this information, new companies can make service work for them from the outset.