When they get busy doing the technical things the business does i.e. the IN stuff, they take their eye off the ON things and the business stagnates.  Worse still it tends to drift towards mediocrity.  Growth comes from trying new things, getting out there, looking for and taking advantage of opportunities just like you did when you started your business.  If you are not the person who started the businesses you’ll have a special challenge to address and that is, you don’t really know what “growth hunger” is all about.

I have a simple (perhaps over simplistic) theory: the reason many, if not most, established practices hit a growth brick wall is that the people who inherit a leadership role have not been mentored and seasoned as “business growers”.  Their training, experience, performance expectation and financial reward has been as “business doers”.  So here’s a very simple thought: if you were able to grow your business at 40% a year from start-up and keep that up for 3-5 years, which is not at all unusual, then you should be able to do that from any starting base at any time BUT NOT IF YOUR TIME IS TOTALLY CONSUMED WITH DOING THE THINGS THE BUSINESS DOES.

And there’s a flip side to that theory.  The reason most most practices that were started by the present owner(s) hit a brick wall after a few years is that they start to make enough money to get by and are not willing to “risk” what they’ve built up in the pursuit of more growth.  This is rationalized by the statement “I’m too busy servicing my clients to get out and do the things I should be doing to grow the business.”  I would argue they face a much greater risk by standing still and the risk will become even greater in the future if only because:

(1) quality team members will not hang around in slow growth, no opportunity, environments and

(2) practice values in the future will increasingly be based on growth prospects (reflected by growth experience), client quality and loyalty, team member quality and loyalty, service design and margin.  These are not typically things that score very highly in slow (or no) growth firms.

Strategic planning is very important but it can also be very limiting. The key is to take the “limits” away and the most constraining limit is a mediocre growth target set in your plan. If you want to double the size of your business you need to start with that as your goal then ask yourself what will it take to do that?  Now, you might not do that overnight but at just 15% a year, you will do it in 5 years.  I’d add to that, if your practice revenue has not doubled in the past 5 years then it won’t double in the next 5 unless you start to do some different things.  And, I’d also add — 15% is nowhere near what I know you’re capable of doing!  To quote Herb Kelleher, when he was CEO of Southwest Airlines: “we have a strategic plan, it’s called doing things” which explains the amazing sustained success of that business despite it being in a horrible industry.

Here’s one more thought. Peter Drucker told us in 1973, there’s only one purpose of a business: to create a customer.  He goes onto say “the business has two–and only two–basic functions: marketing and innovation.  Marketing and innovation produce results; all the rest are ‘costs’.”

So here’s something for you to ponder: what marketing and innovating are you doing?  Those firms that are doing this, knowingly or otherwise, are stealing the march on the rest. Let me conclude with Michelangelo’s famous words.

The greater danger for most of us is not that our aim is too high and we miss it, but that it is too low and we hit it.

But I really do believe that everyone is born with a talent to be great at something and the only reason most people don’t realize their full potential is because our education system and the social pressure (from parents and peers) that is wrapped around it has caused us to go down the wrong path for us.  This video is not only amusing in the typical English style, it is very thought provoking.

Ken Robinson on creativity

I made the point that …

(1)   Change is what provides both threats and opportunities and unless an organization is changing at least at the same rate as its environment it has a bleak future, and

(2)   The difference between great organizations and mediocre ones can be tracked back to the quality of leadership and management.

The leaders of today’s accounting firms should take particular note of this.  Leadership is essentially about vision and vision is about the future.  When we are talking about the firm of the future we must therefore be talking about leadership.  David Maister, I believe, said somewhere that “most firms are over-managed and under-led.”  I agree with him.

One of the reasons for this is a natural tendency for those leading a business to orientate their energy and attention towards improving efficiency as the means of improving short term profitability.  This is totally understandable but to the extent that it diverts attention away from thinking about, and preparing for, the future it results in a loss of perspective that usually results in lost opportunities and stagnant growth.

Stephen Covey describes this natural characteristic of most businesses with the analogy of a team hacking it’s way through a jungle when the team leader decides to climb a tree to take a look at the environment.  On reaching the top he yells out to the people below “stop hacking, we’re heading in the wrong direction” to which the team below yell back in response “shut up we’re making great progress.”

Leadership is about getting up into the canopy of the jungle you’re in and taking a look at the environment.  From that vantage point you need to make choices as to where you actually want to be heading.  The vantage point takes the form of asking yourself questions that relate to the future of your business.  The big question is: What is the vision I have for our firm 10 years from now?  In framing that vision you need to be thinking about the following issues.

• In what ways are our clients’ businesses changing and what does that mean for the services we should be offering now and in the future?
• What do our clients value i.e. what is “value” to them?
• What are our strengths? Are they the right strengths to create and deliver value to our clients? Are we adequately endowed with these strengths? Are they currently deployed where they produce results?
• Who are our future competitors from within and outside the industry going to be? What are we doing today that will help us really stand out from these competitors?
• What technologies should we be using now to better service our clients, in particular how well appraised are we of what firms in adjacent industries are doing?
• What process, product or business model innovations have we introduced in the past three years to better service clients and offer a more valuable business value proposition?  Do we lead or follow the pack when it comes to introducing new ideas?
• To what extent are we really adding value to our clients, by that I mean, is their business performing better as a direct result of our firm’s involvement or are we simply providing a service that any accounting firm could do for them?
• Do we know the profit contribution made to our firm by each of our clients? What % of our clients are at break-even or below?
• To what extent are we being held captive by some of our clients who, for their own reasons, do not see any need to change their service requirements but who we allow to consume our valuable resources for fear of losing some short term revenue that has little or no growth potential?
• In what ways are we attempting to change the culture of our organization to better accommodate the work preferences and environment needed to attract and retain talented people?
• What are we doing now to implement re-training of our people to equip them with the skills that are going to be needed in the future?
• What are our plans to align with a network that will be able to provide back office research and development support, global reach and a source of colleagues we can collaborate with to quickly and effectively offer affordable solutions to our clients without risking them being lured away from our firm?
• How adaptive is our firm to change?  Specifically, based on our past behavior, have we been willing to cast aside legacy mindsets and systems so that we are better equipped to accommodate new opportunities?
• And the final but critical question: what resources in the form of time and money are we willing to invest to ensure that our firm not only transitions successfully to a new service model but takes rank with the top performers in the industry?

As you think about the above questions it might be useful to reflect on what Charles Darwin concluded in relation to species generally: “It’s not the strongest nor most intelligent of the species that survive; it is the one most adaptable to change.”

I’m in good company it seems.  A very similar view is delightfully expressed by Tom Peters in a presentation he gave recently- “Re-imagine! Business Excellence in a Disruptive Age”.  He says “you can’t be remarkable by following someone else’s remarkable.”  What makes firms great is being different in a way that customers value and then being able to capture that value through pricing and process.

Tom’s thoughts on this are worth listening to – click on the link.  Click here to listen to the audio.

Here’s a story from Christine Clifford Beckwith (co-author with Harry Beckwith, of You, Inc. The Art of Selling Yourself) that underlies what I’m talking about.

In 1994 Christine discovered that she had breast cancer which was successfully operated so it’s a good news story.  However, when she returned home from hospital with the “all clear” she received a letter from the hotel chain she regularly used notifying her how lucky she was to have achieved a special frequent guest status that carried some nice rewards.

Because she was advised by her physician to take it easy while  receiving post-operation treatments she realized she would not be traveling as much in the next 12 months so she wrote the hotel explaining that she was recovering from a cancer operation and requested that her benefits be deferred for 12 months.  Here’s the hotel’s form letter she received:

We received your request to extend your frequent guest benefits. While we regret what has happened to you, we also realize that things do happen, and we are unable to defer your benefits.  But we hope to see you soon.

The letter may as well have said: “we actually don’t give a damn about you or your illness, our frequent guest program is simply designed to give the appearance that we care about our guests and to keep up with the “value” offerings of other hotels.  Whenever possible we make it hard for our guests to actually benefit from the program.”

Now, in contrast, Christine also wrote to Northwest Airlines and requested a 12 month deferral of her loyalty benefits.  Here is the handwritten letter she received back:

How can we thank you for being one of our best customers? We are happy to defer your benefits for a year. In addition, we have enclosed four complimentary airline tickets to take you and your family away from the cold Minnesota winter and give you a break from your treatments. Thank you Christine, for your business. We will miss you this year.

Sincerely,

John Dasburg, CEO

Both of these organizations have records of her loyalty to them (share of wallet some people say) so both of them know what she is “worth” to them over a lifetime.  She is a public speaker and author who travels a lot, she is not a once-a-year holiday traveler who stays with relatives.  But even if she did fall into the latter category, she still talks to people about her experience.  She now only travels on another airline if Northwest does not service her destination and she never stays that the hotel chain that she was once a “loyal guest” of!  This is an example of the cost of the lost opportunity that I often talk about – it’s not only lost, it’s invisible because our transaction-based accounting system never reveals details of transactions that did not occur.

If the hotel have bothered to give the concept of lifetime value some attention and modified its systems to reflect the true value of a customer it would today be the beneficiary of Christine’s loyalty and not the victim of her negative testimonial.

After losing $60 billion in the last decade — and billions more recently when a cloud of volcanic ash grounded flights across Europe — airlines are looking to consolidate as a way to return to profitability amid continued struggles with high fuel prices, competition from low-cost carriers, and a limited customer pool that shriveled even more during the recession. But experts are skeptical about the “bigger is better” strategy. Many observers say the carriers have proved downright flighty at following through on making changes that improve operations and put the customer first.

After reading this I couldn’t help thinking, why don’t these guys take a leaf out of Southwest Airlines book.  That company creates a flying experience that consistently WOWs its customers and is very cost efficient to both customer and itself because it implements a sensible operational strategy, employs (and retains) amazingly loyal, engaged and empowered people, and makes air travel for both its customers and its team members a fun experience. It has an excellent on-time departure and arrival record and your bags practically always end up at the same airport that you do – sometimes even before you!

In my opinion consolidation will NOT make the airlines more profitable if past experience is any guide.  It will make air travel more expensive but that does not translate to higher profit. SWA consistently makes a profit because it has a superior business model.  It’s that simple.  What that means is they achieve higher utilization of their assets (they turn their planes and the team members in them) around faster than other airlines, and they have higher occupancy rates so their net margin is higher.  These two things result in significantly higher ROI (asset turn x net margin = ROI).  Simple isn’t it?  This is Business Finance 101!

Oh and one more thing, because they have more loyal customers and therefore higher capacity utilization they are able to articulate the customer value proposition that I have reproduced below.  I HATE HAVING TO PAY MORE FOR MY BAGS THAN I DO FOR MY SEAT (on a recent trip with Jetstar – an Australian airline, my seat cost $129 and my bag cost $300), AND SO DOES EVERYONE ELSE I’VE ASKED. I also hate it when I get severely penalized if I have to change my schedule — at SWA that does not happen.  Traveling with them is a pleasure.

Who we are determines how we see others. This principle says once we get our own act together, we will be able to help others get their acts together. It’s impossible, if I am an unhealthy leader, to have healthy followers. I have to fix myself. We don’t see others as they are; we see others as we are, because each of us has his or her own bent and that colors our view of everything. What is around us doesn’t determine what we see. What is within us does. For example, if I am an untrusting person, how you think I will see you? I will see you as untrustworthy. So anything that is unhealthy about me is going to spill onto you. That is what leaders have to understand. But as a leader, if I can get victory over myself, if I can fix John Maxwell, the odds are high I can help and fix others.

Ideally, a costing system for a service firm should be able to provide management with information relating to the profitability of different customers and different products or services.  It should also be able to be tied back to the firm’s budgeting system and I would expect it to be able to be used in pricing decisions and for determining whether to accept or reject engagements etc.  I have yet to discover a time-based “practice management” system that does more than price jobs.  If you know of one please tell me and I’ll do what I can to promote it to the world.

No matter what pricing methodology you decide to adopt you would be wise to know your costs.  That statement almost sounds trivial and yet I have come across very few people in professional service firms (PFS) who actually know their costs or show any real interest in them for that matter.  They are taken as a given because, at least in the short term, most costs are fixed and the gross margin is generally so high that any revenue is assumed to contribute something to the bottom line.

Your firm’s P&L will obviously tell you whether the aggregate of your revenues exceeds the aggregate of your expenses but it tells you practically nothing else of any significance. It’s a little like using a thermometer as the sole indicator of your current state of health.

Now let’s take this further. Your so-called “time costing” system will tell you what time went into producing your revenue, it will even tell you whose time it was and you’ll get a crude idea of what work was done for each of your clients.  However, for the most part, the “cost” attached to the “hours” will be the cost from the client’s perspective.  That is, the targeted charge rate for the time allocated to the task.  This is quite different to the cost of resources used by the firm to service its customers and therefore you will not know how profitable that work was.  This is why the vast majority of PSFs are harboring unprofitable customers without even knowing it.

If the cost of resources utilized to service a client is greater than the revenue generated then, unless there is a reasonably clear expectation of a future profit stream i.e potentially high lifetime value, it makes sense to implement one or a combination of the following strategies: (1) increase the price of the service, (2) re-allocate lower cost resources to the work process, (3) reduce the cost of resources used through negotiation with suppliers, (4) seek to  improve productivity of the work process, and/or (5) cease to service that client and redeploy the resources that are released to more profitable work.

If the published research conducted by people such as Fred Reichheld (Loyalty Effect guy) and Bob Kaplan (Balanced Scorecard guy) is any guide, the cost of unprofitable customers is likely to be very high in PSFs.   For example, the following graph relating to an insurance business is from an article written by Bob Kaplan that was published in the Balanced Scorecard Report (August, 2005) called “Add a Customer Profitability Metric to Your Balanced Scorecard”.

Commenting on the graph, Kaplan notes:

The shape of the curve occurs in virtually every customer profitability study ever done, (emphasis added)  in which 15 percent to 20 percent of the customers generate 100 percent (or more) of the profits. In this case, the most profitable 40 percent of customers generate 130 percent of annual profits; the middle 55 percent of customers break even, and the least profitable 5 percent of customers incur losses equal to 30 percent of annual profits. With its most profitable customers, the company worked harder to ensure their continued loyalty and to generate more business from them. For customers in the middle break-even group, it would improve its processes to lower its cost of serving them. It focused most of its attention on the 5 percent-loss customers, taking actions to re-price services and asking them for more business in higher-margin product lines. If the company could not transform these customers into profitable ones by these actions, it was prepared to drop the accounts.

My research confirms that Kaplan’s findings seem to be replicated in accounting firms.  With the cooperation of several members of the Principa Alliance I have generated a client profitability graph for their firms.  The diagram shown below is for one of those firms (a sole practitioner) and reflects the pattern that is typical for all the firms I analyzed. For this particular firm, 141% of its final net profit is generated from 53% of its clients.  The next 30% are approximately at break-even and the last 20% of clients “cost” the firm about 41% of its potential profit while utilizing 45% of its capacity.  Applying the Pareto Principle, 80% of the firm’s maximum profit potential is generated from 14% of its clients!

Before turning our attention to the loss makers, let’s talk about the ones at break-even.  This is an interesting group and may represent 40-50% of your clients.  Some of these clients will be your stars of tomorrow so they’re not candidates for firing.  However, the fact that they are break-even suggests that you should at least look at the effectiveness of the process you are using to service them, the services they are buying and especially the pricing of those services.

Now to the loss-makers.  Other things being equal, if you fire the bottom 20% of your clients the costs that they are now absorbing would need to be absorbed by the remaining clients so you’ll end up with another group of loss-makers and so on. This is the rationale that most people use to justify keeping these loss-makers on their books.  However, I will strenuously argue that is NOT usually the smart thing to do.  Here’s why. …

The clients I’m referring to are, for the most part, the most difficult to serve, they are the 20% who contribute to 80% of your challenges, they are probably small, have high write-offs, they only require low level services, they are uncooperative or your service protocols are not well suited to them.  In short, they are not a good fit for your firm but may be a great fit for a different firm.  Of course, some of this group may be new clients with strong potential who you see as being solid in the medium to long term in which case you’ll want to hold on to them and develop the relationship.

What is important is that the clients in this group are certainly consuming resources that could be better deployed if you could find more “better” clients and as long as you’re allocating capacity to them you will not have time to look for and attract “better” clients.  With the exception of the high potential group I previously mentioned, the gutsy strategy is to refer them to a firm that is better suited to their needs  and then go out and replace them with better quality clients.  Based on my experience this is the fastest way to improve the quality of your client base and I never cease to be amazed at how easy it is to implement.  My colleague and friend Ron Baker tells me that’s been his observation as well.

The less courageous, but nonetheless very sensible, strategy is to replace lower level revenue with higher quality revenue as it comes in.  That is, suppose, you sign up a new client with a revenue estimate of say $10,000. You then go to your unprofitable group and remove $10,000 worth of clients. That way you preserve your immediate revenue, increase your immediate profit and better position yourself for profit growth from that better quality client than was likely to be the case with the ones you got rid of.

You may be thinking “wait there, the people I have working on the low level clients will not be able to do the higher level work our new client requires.”  If this is in your mind then you’ve just fallen into a huge but common practice development trap.  The keys to developing a robust, profitable practice are to be found in client selection, service line offering (hence your pricing options), people development and delegation (hence your productive capacity leverage.)  It makes no sense at all to be looking for higher quality clients if you are not simultaneously creating higher quality team members and offering higher quality services. You will not develop (or keep) high quality people by giving them low quality, less challenging work to do.

I have also heard the argument that “we know some of our clients are not profitable and on a full costing basis, may even be unprofitable but we accept this on the grounds that some of these clients will blossom in the fullness of time.”  This is the “oak trees out of acorns grow” argument.  I don’t have an issue with this argument but I wonder if you should have 40-50% (and in some firms more!) of your clients in the “acorn” category or, more to the point, are you aware that this is in fact the case for many firms?

A healthy cumulative profit curve would be one that rapidly increased to say 80% of your final net profit (probably from 20-30% of your clients and 30-40% of your available capacity) and then steadily increased for the remaining 20% of your net profit.  This would be in keeping with Pareto’s Law — which, in my view, seems to be a natural law of business and it would reflect the fact that not all activities undertaken in a firm yield the same level of profit.  It would also serve the purpose of keeping attention on the return that the firm is getting from a very large proportion of its available capacity and in the process, remind management of the need to continually monitor not only value created by value captured.

A Simple Costing Model

The profit contribution graph illustrated above is a useful framework for analyzing the contribution clients make to a firm’s overall profitability.  Even in cases where there is no decline in the graph it will highlight what percentage of clients account for 80-90% of a firm’s profit.  This in turn raises the question of whether resources consumed in servicing the remainder of clients might be better deployed or, as Kaplan suggests, it indicates there is a need to improve your processes to reduce the cost of servicing these clients.

How long something takes to complete does not reflect what it is worth to a customer.  However, time is one of the major drivers of what it costs to provide the service and is therefore relevant from the perspective of the producer of the service.  The rationale for this is simple, if you are paying a knowledge worker say $30 per hour and that person takes 1 hour to complete a task, part of the cost of that task is $30 – this is payment for the intellectual capital provided to the firm by that team member.

In addition, the knowledge worker will utilize other resources that are provided by the firm to its knowledge workers e.g. application software, telecoms, paper, utilities, postage, internet access, library resources, office real estate etc.  Some of these resources are fixed costs and others are variable but they are an expense incurred by the firm and to determine the profit associated with the work done for clients they should be charged to that work in some way.  In a perfect world, we might use an activity based costing methodology to assign all of these costs.  However, we don’t work in a perfect world so we need to use an alternative simple approach.

I believe that the amount of time involved with each client is a good basis for determining the total cost.  To accomplish that it is obviously necessary to use timesheets.  I have built a spreadsheet costing model that determines client profitability in the following way:

Step 1: The total expense of the firm is determined.  Fully burdened labor costs are separated from other expenses. If owners are not paid a salary an imputed cost for owner salaries is determined and is reflected in the total labor cost – this will include both direct labor (i.e. people who work on client engagements) and indirect labor (i.e. support people.)

Step 2: An estimate is made of the firm’s chargeable capacity.  We start with an estimate of the number of hours that would be available in a standard work year by an effective full-time team member after allowing for annual vacation, public holidays, sick leave, training time and “other” time not available for client engagements.  We’ll call this available capacity for a client-facing team member.

Step 3: Not all available direct labor capacity can be expected to be engaged in client work.  For example, people need to attend meeting’s, they are involved in training, selling, general administration and a wide range of other activities associated with a normal accounting business.  Some people may refer to these activities as being non-productive but that is far from the truth.  They are an essential part of the business of accounting so there is little point pretending that all available time is potentially chargeable time. For costing purposes we use an average firm-wide estimate of the percentage of chargeable time that the firm targets and we apply that to the total available capacity for all of the people in the firm who are engaged in chargeable work. We’ll call this the firm’s Practical Attainable Capacity (PAC).  See the pop-up form used in the software to calculate this.

Step 4: We calculate an indirect charge per hour by dividing total non-labor expenses by PAC.  This is an hourly cost that we suggest should be added to the firm’s costing system so that the “cost” of a job will show separately, the fully burdened labor component and the indirect expense charge based on the number of hours.  When this is done the person responsible for billing can immediately see the cost of resources used.  If it is the firm’s policy to use cost-based pricing it will simply be a matter of applying a mark-up factor.  Alternatively, it may already have a fixed price agreement in place (or a value price in mind) in which case this information will enable it to review the profitability of the engagement and if necessary, revisit its work processes or its pricing next year based on this cost information.

Step 5: It is quite usual for a single client to be associated with several costing entities e.g. a company, trust, personal tax returns, audit, company secretarial services etc etc.  To determine overall client profitability, these need to be aggregated and placed in a spreadsheet that contains the information below shown below.  It is then imported into the costing model:

Client entity name
Total gross revenue
Write-(offs)/ons – if applicable
Total hours involved from all team members
Direct labor cost for all team members (including owner imputation if necessary)

Step 6: Once the data is entered, we simply click the analyze button and the estimated net profit for each client is determined and the client entities are sorted from highest net profit to lowest and the cumulative profit graph and calculations are performed.   An on-screen report pops up to deliver the verdict.

Timesheets, Profitability Analysis and Productivity Monitoring

This costing model requires the use of timesheets that some people consider to be not only a waste of time but, they argue, also negatively impact the firm. I don’t want to engage in this debate here other than to say that in my opinion time sheets used for service pricing are not only a waste of time and effort but have been a major reason why the profession has experienced a real income-per-partner decline of approximately 1% over the past 30 years despite being handed unbelievable commercial opportunities and access to amazing productivity-enhancing technologies during that time.  I refer to this as a Productivity Paradox and have addressed this in an earlier post in November, 2009.

Having said that, if timesheets are used for resource costing purposes as describe here they will provide useful management information.  I have heard of one consultant to the profession who has suggested that timesheets be used to monitor “productivity” but not for pricing and his recommendation was (is) to carry the “cost” at $1 per hour to effectively force a pricing strategy based on value or whatever he had in mind.  That doesn’t make much sense in that if you are already collecting data relating to time spent why not tie it to the direct labor cost and indirect enterprise costs so that you can get a comprehensive profitability picture to review. The “productivity” metric implied by his advice is irrelevant I believe – what’s the point having high levels of productivity on clients you are losing money on?  That’s like traveling faster in the wrong direction–you get nowhere quicker.

On reflection, the traditional concept of productivity being measured by the ratio of hours charged to hours available certainly tells us something about activity but very little about results.  In fact it doesn’t even tell us much about productive efficiency it just tells us how much time a person entered on a time sheet–the idea that the more time a person puts on the time sheet the more productive that person is but it might reflect how unproductive that person is in fact. By that I mean, suppose Bill and Mary each work on a task that is exactly the same and Bill does it in one hour and Mary completes it in two hours, who is most productive?  You might say “the answer is obviously Bill and this will be reflected by him creating more work output in an 8 hour day.”  But what if neither of them has any more work to do on a given day.  Whose timesheet for that day would indicate higher productivity?

A more useful concept of productivity might be one that talks to value created from the customers’ perspective and value captured from the firm’s perspective.  For example, we could say the firm described previously exhibited productivity of 55% that being the percentage of its capacity that actually yielded a profit.

If you would like to download and used the spreadsheet to analyze your own client base, click here.

I’m in Australia at the moment and I just returned from a visit to the Ballina’s Big W store owned by Woolworths (for the benefit of our readers abroad, one of Australia’s “leading” retailers.)  The experience I had was less than great.

Let me explain.

Yesterday I purchased a food steamer.  When I got it home and opened the box it was obvious that it had already been opened because the secondary wrapping was lying on the bottom of the box .  I noticed hat a critical part of the product was missing so I took it back to the store today and requested a refund.  This was a Moment of Truth. I was quite OK with the fact that the product was incomplete.  I was even OK with the fact that I had been inconvenienced by having to return it.  I wanted a refund rather than a replacement because I was not satisfied with the quality of the product after seeing it and sensing that the box had already been opened.

At that instant, things started to go downhill.  The store assistant who’s name was Ashleigh BTW, looked at the diagram on the box with her associate  and advised me that all of the components were in fact there.  I knew differently because I have several of these appliances and I knew how they work.  I told her that it was not complete and that I would like a refund at which point she advised me that it was “company policy not to give refunds when the box had been opened!”  In other words, even though I was not happy with the product that was now my problem because I had opened the box.  Unfortunately, I did not know I would be unhappy with the product UNTIL I had opened the box. Her associate went off and looked at the product display and discovered to her surprise (but not mine) that there was in fact a part missing. Ashleigh then told me they’d give me the missing part but could not give me a refund because of company policy.

I advised Ashleigh that I would like to speak to the store manager about it.  After a surly expression and some raising of eyebrows she advised her associate to get the store manager.  The store manager was not willing to come and meet with me (another MOT) which confirmed that s/he wasn’t really interested in talking with a customer but s/he must have told the store associate to go ahead and give me a refund together with a lecture on what the refund policy is and to advise me that “they will refund it on this occasion but next time they will not do so!”  So we have yet another MOT – this time a really bad one.

I said to Ashleigh that with the greatest respect I was not interested in being lectured on their store policy, all I wanted a refund so that I could get on my way and the Woolworths folk could get on with their work.  At that point she threw the box that the the appliance came in down on to the counter and proceed to process the refund.  All in all it was a very unpleasant experience.  I asked her not to be rude to which she responed with: “you are being rude to me!”  Wow!  What great customer service training they have in that store — argue with customers if you believe you are right!  Interestingly, it is the Coles-Myer Group (Woolworths direct competitor) that has been using Principa’s Towards Awesome Service training program with 20,000 of its team members.

Now let’s think about this for a moment.  In the US, where I live most of the year, if I’m unhappy with a store purchase for any reason from practically any store, and certainly from all of the major retailers, I simply take it back and a refund is processed immediately, without any questions or any unpleasantness.  If I don’t have the receipt they will give me a store credit.  The result of this “policy” is that I have no hesitation going back to that store over and over again to buy merchandise in the full knowledge that if I’m not happy for any reason the store will refund me.  In other words, the store understands the concept of risk reversal, the concept of the lifetime value of a customer (which in my case is several thousand dollars with Woolworths) and the power of a guarantee for building customer loyalty.  As a relevant aside, I also own several thousand shares in the company which I’m now considering selling because this returns policy does not auger well for long term growth in shareholder value.

Woolworths clearly do not understand these concepts.

The experience I had today is NOT Ashleigh’s fault.  She is simply following company policy.  The fact that the store manager could not be bothered to visit with me is appalling and probably reflects the culture that Woolworths has developed.  This is turn reflects top managements’ real view how to treat customers–a necessary evil.  After all, a fish stinks from the head down so responsibility for what a customer experiences at store level comes to rest at the foot of the CEO.

May I suggest that you talk to your clients about their customer service policies and perhaps pull out TAS as a catalyst to help then re-define the concept of customer centricity in their business.  People notice these things but they don’t necessarily make much of a noise about them.  They just don’t come back to the business  and an opportunity is lost.  The cost of lost opportunities (read lost customers and/or lost transactions) is one of the biggest expenses incurred by businesses and they don’t even realize it because there is nothing that shows up on heir P&L.

1. Before you attend a networking event find out as much as you can about what the theme of the event is, who is likely to be there, give thought to who you would like to meet and what you would like to discover by attending. Do your research on the people (and their organization) who you expect to be there – when you get to meet them you will seem well-informed an on the ball. What better credential could you have as a representative of a professional service firm in the knowledge industry?
2. Never be late for the event. If necessary get up 30 minutes earlier that day! When you’re early you can scope out the room, learn the names of people, get comfortable with the group and decide where you want to sit and who you want to get to know.
3. Do NOT try to use the occasion to sell anything. Your purpose in being there is to meet people and to establish rapport through learning as much about them and their needs as you can. That means take your business cards by all means but do not take your brochures – if someone wants to learn more about you and your services, set up a later meeting (perhaps over a meal) and talk shop there.
4. Take a small pocket notebook to make a note of things your discover, people you meet, promises you made etc. On this point take note of Stephen Covey’s 5th Habit – seek first to understand before being understood: develop your listening skills rather than your talking skills. You’ll be amazed at how fruitful this turns out to be for developing strong relationships.
5. Never sit next to one of your associates. The purpose of attending the event is to meet people, why on earth would you want to sit next to someone you already know?
6. Dress appropriately for the event. What is appropriate should have been determined as part of your discovery process that I discussed in point 1 above. Need I add, comb your hair, brush your teeth, polish your shoes, change your shirt if necessary – sorry, am I sounding like your mother?
7. Follow up the people you met who you would like to form a relationship with.