Zappos’ Achilles Heel
- July 1st, 2009
- Posted in Most Read . Systems Thinking Concepts . Systems Thinking and Contact Centers . Systems Thinking and Technology
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First of all, let’s not look at the cup as half empty for Zappos, because I believe it is two-thirds full. At the Economist Marketing Forum held in San Francisco this year Tony Hsieh (pronounced Shay) and two CMO’s from Del Monte and Frito Lay discussed the role of marketing in their organizations amongst other things (watch: Ties That Must Bind: Why CEOs Rely on CMOs More Than Ever). The poor guys in the traditional roles of CMOs (by function) had to listen to Tony say that they really didn’t have a marketing function at Zappos. They reinvested into customer service and the better service was the marketing for Zappos. I thought the others would spontaneously combust.
So yes, there is much to like about Zappos. Let me highlight a few other comments Tony Hsieh made that got my attention:
- Our culture (of customer service) is our brand
- Investment of surprise upgrades to customers
- Repeat customers from word-of-mouth (pull, not push)
- Investment in culture is not an immediate benefit like cutting costs, long-term thinking is necessary
- The use of the telephone as a branding device
- Allowing new hires to weed themselves out by offering significant money ($2,000) if they quit
- A lot of emphasis in getting the right people in the organization
- Leadership development and training
So why the heading about the “Achilles Heel”? What could possibly better than this. I got concerned when Tony started to talk about:
- Low Performers (and how they weeded out “Jack Welch” style the low 8%). I don’t know the nature of the 8% and it could be they hired the wrong people before they ”improved” the hiring process. But it brings up questions about having already invested in training and Tony said they were profitable when they did it and didn’t have to do fire the 8%. Who says that if they dip back into the pool of people available that they will find better employees than the ones they just let go and now they have to be trained. This “renewal” process is expensive.
- Call Monitoring. Call monitoring has a useful purpose if the agent is new or if the monitoring is for improvement efforts. Regulatory compliance is waste, but required and doesn’t always require monitoring that’s just they way people interpret it. Otherwise, call monitoring used as inspection comes too late and is costly. if the other elements like culture, hiring the right people, management thinking, etc. are correct do I really need to inspect?
- Performance Appraisal. I was disappointed to hear that performance appraisal was being used. My fear is that the worker is being managed command and control style. If I understand purpose “to serve the customer” what possible good can come from an appraisal of performance. It distracts the worker from “serving the customer” to “serving my supervisor or manager” or could over time . . . this is a type of waste.
- Financial Goals. If this means targets for profits that lead to scorecards, MBO or the like trouble is not far away. The targets (financial or performance) will ultimately become the defacto purpose of the organization and customer service will become secondary to the target.
- Failure Demand. How many phone calls are they getting that are follow-ups, wrong shipments, wrong billing, problems with the product, etc? This is failure demand and even if you have nice people and good service if failure demand runs high customers will eventually erode their advantage and go elsewhere. So, what percentage of calls are failure demand?
- Do they understand variation? Do they understand when a worker is statistically different from other workers? Do they understand how to use data for prediction? Do they understand the difference between “special” and “common” causes of variation that will help them continually improve their organization.
- How will they achieve continual or continuous improvement? “By what method” will they improve. Will command and control or will systems thinking prevail in their business improvement efforts?
I know he didn’t talk about the last three, but these are things that will play themselves out over time. There is much for Zappos to be proud of in its inception-to-date achievements and I can only hope that continue to maintain that innovation leadership that they have on their side now.
Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public). His organization helps executives find a better way to make the work work. Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about our intervention services at [email protected]. Reach him on Twitter at www.twitter.com/TriBabbitt or LinkedIn at www.linkedin.com/in/trippbabbitt.
I’ve read many of Tripp’s articles now, and one of the things that surprises me is the constant bashing of the performance appraisal as a tool of “command and control” thinking. I think it’s important that we remember that these are not a negative (or at least don’t have to be if done properly) tool used by management. Earlier in my management career I was asked to do performance evaluations for people that had been with the company longer than I had been alive. What could I possibly say that would have any effect on these people? The answer was very clear; how often do we stop and tell people that they’re doing a good job? In many of today’s businesses, it is often only the negative that is brought forward on any sort of consistent basis, but very few “Thank You’s” or “Great Job’s”. I don’t think it matters what level of an organization you are at, everyone needs to be reminded that they are doing a great job, even if they do it all the time.
Interesting views, which I support mostly (with caveat to some;-) : – re-hiring and re-training is indeed a very expensive process which should be prevented at (almost) any costs. Understanding what your customers need and how that translates into the competencies your people need is one of the most crucial (and difficult) parts of any business. The HR-competency is undervalued from my perspective. I also know that you mostly do not have the luxury of creating your own new team and if you did you would still have to learn. Nothing comes perfect the first time around. As long as you learn from it that is great. I think 8 % of bad hires is a luxury. Well done by Zappos in the “first” try. – Call monitoring should only be about improvement (both on agent-side as on the customer feedback side). The problem with call monitoring these days is that it is used as performance feedback all the time. In practice this means: one performance review per week/month. The worst method used is the one based on critical and non critical errors (COPC-based), only providing feedback on errors (made or not made). No wonder attrition rates are high in most call centers. – This brings me to performance appraisals (where we differ). I do think performance appraisals should be part of the manager-employee relationship. Most employees also want the appraisal (they want to know if they did well or not). It is all about the art of providing feedback. Managers who understand can motivate their employees to improve. Managers who do not perform (performance) appraisals will loose respect from their employees, because they seem careless. – Financial Goals (here we differ too): like it or not: most companies have shareholders that want a return on their investment, and usually they want more return than another investment can bring them. It is not the financial goals that worry me, it is the way people want to achieve them. – Failure demand: I really like the terminology. This (or whatever you call it) is definitely the most important metric in customer services, since its essence is about capturing customer feedback. I would be very interested to learn how you would define it and measure it. Feedback is welcome at http://bit.ly/1986ek – I will not go into this. My only understanding of variation comes from experience and back-to-front analysis. You do not agree with that, which I can accept. Maybe one time we can have a separate discussion about this in order to exchange knowledge &experience. I’m willing to listen and learn when you are. – This is the best question of all. This is what it is all about. Maybe you could write a post on your views on continuous improvement to share your views on how that’s done best. I would be very interested to read it. Thx for another interesting post.
Greg: Thanks for the comment. I consistently bash performance appraisals because of the typical ranking of employees that goes with it (1-5, above average/below average/average). Raise your hand if you think you are below average is something I ask at my workshops. The problem is the system (structure, work design, technology, rewards systems, etc.) and not the indivdual. I believe the operational definition I am using for performance appraisal fits most I see. You are correct if it is just to say “you did a good job”, but I rarely see that as the purpose of an appraisal. It is usually to rank for RIFs, or bonus or annual raises. Thanks, Tripp
Wim: It would be a boring world if we agreed on everything. You have to remember that I like intrinsic motivation over extrinsic. I believe that when the worker understands purpose (to serve customer) than customer metrics can be derived and innovation follows. Decision making is put back with the work rather separated from it. Workers when understanding purpose from the outside-in can help improve the system. The work itself becomes motivating and engaging. If I have to resort to “carrots and sticks” I can get people to move put purpose is loss to the carrot or the stick. No doubt carrots and sticks change behavior, but my point is they sub-optimize and create waste. Thanks, Tripp
Interesting post. Just a couple of comments about quality monitoring. As a contact center consultant for the past 15+ years, I’ve talked to lots of agents and management types about the subject. I agree that many organizations do it wrong. Having said that, I quality monitoring done correctly is an excellent tool. First, you need to do a sufficient number of monitors/agent/month. Based on benchmarking by a number of research organizations, doing 1/month puts you in the bottom 10%, even doing 4/month puts you in the bottom 40%. Feedback, to be effective needs to be provided immediately after the call, not provided on a weekly or monthly basis. (Frequent feedback is particularly important with Gen X and Y agents.) Also, try having both the agent and quality team member/supervisor score the call and discuss it afterward. That is much more effective than handing an agent their “report card” and asking them to sign it or contest it. Second, quality monitoring is more than a tool to correct agent performance (I’m a big believer in using good calls captured as part of quality monitoring in training modules). It also provides feedback on training, supervisor performance and contact center procedures. Bottom line, yes, lots of companies abuse quality monitoring, but it can be used to enhance the customer and employee experience
Lisa: Thanks for the comment. This is a very traditional response, but benchmarking is even more wasteful (if possible) and only surpassed by “best practice.” Feedback is valid while training, but once a call center worker comes into statistical control (understanding of variation needed) feedback does not do any good. Back to benchmarking, I say bologna to the bottom 10% do one monitor per month per person and 4 monitors per month for the bottom 40%, my only hope is that the top 60% is doing no monitoring . . . but I suspect that is not what the benchmark study would tell me. I am not sure what all this monitoring gets me, but more waste. How does this improve service? What if these calls are failure demand? If the calls being handled are failure demand (see article) am I not just adding more waste to the system? Am I perfecting how I handle waste? Aren’t I working on the wrong problem, shouldn’t I be working to improve the system rather than making sure I perfect my smile, my demeanor or how well I handle waste? What purpose is served other than prolonging bad service. The only thing all the monitoring achieves is compliance to someones interpretation of a “good call” and usually not tied to what a customer would define as a good call. In the command and control environment that you describe this monitoring probably results in scripts, standard procedures, coaching and the like even adding more waste. A better way is to understand that perfomance is 95% related to the system (structure, work design, technology, rewards systems, management thinking, etc) and only 5% attributable to the individual. So why are we working on the 5% and not eliminating failure demand? The better way includes taking a systems approach understanding customer demand, and improving by stopping unwanted calls (failure demand) from coming in. From there, we can learn how to best deal with the value demands and learn how to design their system against demand and achieve significant improvement by managing demand and flow. By removing the waste we can increase capacity and the cycle continues. The cost of service is in the flow and failure demand is poorly designed flow. Lisa, I do empathize with you as it wasn’t until about 4 years ago I discovered this better way. Thanks, Tripp
Hello Tripp, I’m really happy you had the chance to hear Tony speak a the Economist Marketing Forum! My name is Dylan, and I work with Tony here at Zappos. You bring up some really valid points about how we can manage our future. We wanted to provide some extra information that might help you understand the rationale behind some of our business decisions and how we hope to continue our improvement! In regards to your first point about our layoffs, this was a really unfortunate decision that had to be made in order to protect ourselves as a company. This was a completely proactive decision based on our business projections. Since this was a layoff versus a firing situation, many of these employees were and are welcome to return to the company once jobs became available again. We are very happy to say that we’ve already had some of our friends rejoin us! Since we took the initiative to make this difficult decision before being hit by the full weight of the economic slump, we were able to provide these employees with 2 months salary until the end of the year, along with an additional amount for employees who had been with the company for over 3 years. We were also able to provide 100% medical, dental, and vision coverage for employees for up to 6 months after the layoffs, and 50% coverage for spouses and dependents. We felt this was the only fair way to part ways with our friends who were part of our Zappos family. Without having tools like performance appraisal, we would have been forced to complete these layoffs based on seniority. Since Zappos is rooted so deeply in customer service, it did not seem in line with our culture to let go of employees based on seniority rather than performance appraisal, since the latter has a much closer connection to our customers. On the same note, we do not feel that performance appraisal is a perfect tool. Rest assured that each team member here at Zappos is not measured purely by one metric. In fact, 50% of each employee’s annual review, from the call center to our CEO, is based on how well that employee represents the Zappos core values. You can learn more about our core values here: http://about.zappos.com/our-unique-culture/zappos-core-values We continue to look for ways to improve this process and we are constantly modifying the performance goals for everyone within our company to reflect the needs and wishes of our customers and our culture. For example, our call center is appraised not just by how they are serving the customer on an employee/customer level (e.g. attendance, helping with customer issues, etc.), but also by establishing what we call a PEC (Personal Emotional Connection) with each customer. We provide performance appraisal in the interest of helping employees reach their potential as well as assisting management with tools that gauge how well we are serving customers on a day to day level. Performance appraisal is not a tool that we use to “frighten” employees to perform better, but one we use to help coach our employees to perform at their peak. I think we can all agree that a reminder every now and then of where we are doing well and where we can improve helps both Zappos and our customers. No one at Zappos is let go based solely on a subjective review of their job performance. In order to provide accurate performance appraisal for our call center, call monitoring is vital. We like to believe that we are unified in our culture, that we try to hire employees that are a culture fit, and manage in a way that is in line with our culture. However, we don’t feel in and of itself, these steps are enough to ensure our growth. In the end, we are not willing to settle. Whether this means settling for what is an employees current best without coaching, settling for current market standards, or settling for our current success; none of these options mesh with our culture. Call monitoring for performance appraisal purposes helps us to achieve our core value to “Pursue Growth and Learning”, and if we want to succeed at our core value to “Embrace and Drive Change” we cannot afford to settle for our current best. Our unwillingness to settle has taken form in what we carry on the site as well. We may have started with shoes, but we now carry all kinds of merchandise from apparel to housewares. We like to tell our customers that we are a service company that happens to sell shoes, apparel, bags, etc. With this mindset, we are not limited to a type of product as long as we are delivering on our service. Although our business model is fairly unique compared to our competition, for our company to be successful we must set lofty financial goals. We approach this process in a very careful way because we are cognizant of the fact that a company’s culture can sometimes fall victim to prioritizing profits first. Once a year we have what we call an “All Hands” meeting where we discuss the previous year and set goals for the current year. Our upper management team presents metrics representing where we stand in relationship to the goals we’ve set at the beginning of that same year. Every employee, from our Customer Loyalty Team to fashion buyers has an opportunity to hear what the plan is for the year and have the floor with the entire company if they have any feedback. One of our core values here at Zappos is to “Build Open and Honest Relationships with Communication”. We maintain that core value by making sure that everyone here is on the same page, including being on the same page with our financial plans. We also set milestones that we refer to as “B.H.A.G.’s” or Big, Hairy, Audacious Goals. These goals are five and ten year milestones that we look to accomplish. Our employees are all very passionate and determined about our success as a company, and we believe by setting these goals, we are defining the responsibility that everyone in the Zappos family has to the bigger picture. This feeling of responsibility allows employees to feel empowered since they are in charge of their individual contribution and know where we are headed as a team. Employee empowerment is fundamental here at Zappos. We empower each Customer Loyalty Team member to take action without needing permission from his/her supervisor. We believe that by empowering each employee, we allow them to create lasting and memorable relationships with our customers without defusing that experience by constantly seeking approval. Although we are very proud of our employees and the decisions that they make, every now and then we may have to apologize to our customers for errors we may have made. The truth is, our call center only has the opportunity to speak with 6-7% of our total customer base. The vast majority of our customers operate completely independently online without ever making contact with our call center. Out of the 6-7% of customers we do speak with, only a very small fraction of our conversations are conflict-oriented. We have built a warehouse that is one of the most efficient of its kind, so that we can avoid having to explain service errors. In fact, our warehouse has a 99% fulfillment rate. Our warehouse relationship with UPS allows us to have some of the best shipping in the world, and we like to think of our shipping as an example of excellent service. We also have a very strong Order Verification team here that helps us prevent any fraudulent transactions from taking place. We maintain one of the lowest fraud rates online (less than 2 tenths of 1 percent), and have since our inception. That helps us avoid having conversations with our customers apologizing for financial mistakes like identity theft. Along these prevention systems, one of our main goals as a customer service team is to help educate our customers on how to better navigate and use our website. We love to hear from our customers, but by empowering our customers to manage their own accounts and teaching them how best to do it, we also avoid becoming a strictly tech support hotline. By utilizing these service tools to both protect our customers and our Customer Loyalty Team, we find ourselves on the phone with customers doing personal s
hopping, helping them with sizing, and building relationships. We like to think that when a customer hangs up with us after a phone call, they do so with a smile. Of course, if we have made a mistake in anyway, we will do everything we can from arranging a UPS pickup on our bill to having a supervisor check all of a customer’s future orders to make sure that the customer is fully satisfied. We also use other tools to make sure our customers are getting the very best service and that our employees are pursuing growth and learning. These tools include technical seminars from different brands, training classes, and specialized skill sets. Technical seminars ensure that each employee is up to date on a brand’s technical information, so that they can provide this information to other customers. This information is also added to our internal “Wiki” so that all employees can have access to the same information. Our training classes, internally referred to as Pipeline classes, are created by our training team to provide Zapponians with knowledge that will help them move upward in the company or just perform their current role more effectively. Each class is different and can cover Zappos history, Zappos culture, communication tools and barriers, public speaking, reading financial reports, and many other topics! Our goal here at Zappos is to allow entry level employees to become senior managers within 5-7 years using the tools they gather through these training classes. Not only does this reflect our expectations for continued company growth, but also that we trust our employees to continue striving for new responsibilities. We want to make sure they are equipped with the knowledge that will help them attain those goals. Most importantly, we offer skill sets here at Zappos. These skill sets can be attained by spending time working in individual departments here within our call center. For example, you can earn a skill set by working on our Order Verification team that we mentioned earlier, working on our Scheduling team that does all of our employee scheduling, or on our Resource Desk that helps our Customer Loyalty Team with difficult situations and is a liaison between departments. Each skill set requires a time commitment to that team, that the team member learn all facets of that job, and requires a test to complete their rotation. These different classes, seminars, and skill sets are recorded on a file compiled by each Zapponian’s lead along with performance appraisal scores and his/her supervisor’s notes, so that each Zapponian can shine with their own individual merits! In this way, we can make sure that each Zapponian is fairly represented as an individual and we are not viewing our call center as a single entity where each employee is expendable. The policies, processes, methods, and tools discussed here only scratch the surface of the ideas that we have at Zappos to make sure we are pursuing constant improvement. We are always trying to find new ways to improve. Not all of those methods prove themselves successful, but then we move on a take a different approach. Zappos is founded in the philosophy that we have no ceiling, no point at which we can’t continue to do better. All we want is to make sure that when we do make changes, we aren’t doing them based on what works for other companies, but in a way that fits within the Zappos culture. I hope that this reply shows our passion and dedication to constant improvement and growth. There is no one strategy that we adhere to, just the actions we take everyday, on both the individual and company level, to strive for more. We hope you have a wonderful 4th of July and we thank you for taking the time to bring up these really important topics about our future! Feel free to contact us at 1-800-927-7671, by email at [email protected], or our CEO Tony Hsieh at [email protected], anytime if you have any questions for us or more feedback. By the way, Tony loves to get in touch with customers via Twitter, so feel free to follow him under @Zappos.
Dylan: Thank you for your comment. This gives us a little more information on how you operate. My favorite comment of all was “All we want is to make sure that when we do make changes, we aren’t doing them based on what works for other companies, but in a way that fits Zappos culture.” If there is a common thread that I see most organizations make is that they love to copy and I rarely see this work, but technolgy organizations and traditional consultants tout such things as best practices, and stories of how this worked at another company in their sales approach. Something you will never hear from our systems thinking consultants. Each organization is unique. I do see things that still concern me with Zappos: (1) You explained why you did the layoffs. However, I don’t know if you looked at reducing executive salaries first or an across the board 10% paycut as opposed to making the 8% reduction. Were there other things you looked at doing? I do see where you went above and beyond to make sure employees didn’t suffer, this is better than most US companies and will serve you well as they likely would become future customers. (2) The performance appraisals and call monitoring go together in your explanation. I understand better, but I found those reasons to bring more questions. If you have such innovative hiring practices (love this) than why do trained employees need to be monitored? I understand the untrained employees as they reach statistical control, but too much emphasis on the individual and waste from additional monitoring unless used to improve the system (structure, work design, measures, constraints, management thinking, etc.). Improving on skill sets is good, but monitoring for appraisal is waste once one achieves statitical control in their work. I do believe you when you say that you don’t use performance appraisals to scare workers (as most do), but the fact it was used as a tool to decide your lay-off can only remain in the worker psyche. (3) The financial goals are common in every US business, we take them as a “given.” Once they become targets (can’t tell from your description) they become the defacto purpose instead of serving the customer. This is an easy trap to fall into for any organization and most can’t even see that this has ruined their business. (4) Failure demand you didn’t directly address. You said you talked to about 6-7% of your customers and the things you do to achieve good service . . . all honorable. I read in Businessweek that you get 5000 calls/day. How many are failure demand phone calls? I still would be shocked if this “true” number was less than 25% and is a true test of the viability of your entire system. (5) I already alluded to statistical control with the worker, what about the customer demand is it statistically predictable by type and frequency? This is an important question for service industry that has ignored variation. (6) Thank you for the thread of continual improvement activities, it is easy to see it is inextricably part of your culture. I sense it in your writing. You are a committed individual and organization to finding new ways. I will send Tony a direct mail and attempt to send one to you as well. We have some different ideas (some say radical and controversial) around improving service that may be useful.
Sounds like Tony is taking Zappos in the same general direction that Ricardo Semler has taken Semco here in Brazil since the 1970s. they are very different businesses but The pay-off from Semler’s total commitment to ‘employee-democracy’ strategies for handling hiring and firing, and growth and diversification showed most dramatically when the company successfully rode out some appalling economic crises in the 1980s and 1990s.