Building a High Performance Service

Culture: Successful and Sustainable

Examples
Presented to the attendees of the Asian Pacific
Conference on Quality and Service, Singapore
September 27, 1999
By
Leland L. Nicholls, Ph.D.
Dahlgren Professor and Director
Service Management Program
Wisconsin Institute for Service Excellence
International
College of Human Development
University of Wisconsin-Stout
Menomonie, WI 54751
Office telephone:
(715) 232-2542
Office fax:
(715) 232-2366
Email:
nichollsl@uwstout.edu

Leland L. Nicholls is Dalhgren Professor in the College of Human Development at the

University of Wisconsin-Stout. He holds a Ph.D. in economic geography from the
University of Tennessee. His research interests are in the areas of service management
curriculum development, servicescapes, high performance service operations, and
management. He has been extensively involved with curriculum development and holds
the position of program director. Professor Nicholls also serves as director of the
Wisconsin Institute of Service Excellence-International. His research has appeared in a
wide-variety of academic, business and government publications. He is an active
international consultant and speaker.

I.

ABSTRACT
The primary goal of this paper is to develop a level of internal and external
service, which reaches what Stanley Brown calls Stage III of customer care
development or strategic customer care. Stage I, Customer Acquisition, and Stage
II, Customer Relationship Management, account for 94 percent of todays
businesses. Stage III exemplifies best practice organizations. In what stage is your
company? Are you sure? Is there room for improvement?
To begin the introduction of my presentation, I offer you the following
observations about the state of service in my part of the world.

II.

INTRODUCTION
Since 1957, the United States has gradually evolved from service stations to a
strong service sector. Service now accounts for nearly 80 percent of the nations
output. Eighty percent of Americans make their livelihood providing services.
There are five times more service firms than goods. Services have grown onethird faster than goods producers since 1980. Average wages in services
(excluding retail) are five percent higher than manufacturing. Most of the new
research and development focuses upon the service sector. Services have the most
self-employed, moonlighters, people working at home, stable jobs, best working
conditions and shortest workweeks. Most new jobs are in the service sector.
Services are also most maligned and misunderstood part of our economy. In
summary, the service sector is a study in diversity, reflects our changing tastes,
and incorporates improved methods and tools of production.
The challenge according to W. Michael Cox, Vice President and economic
advisor at the Federal Reserve Bank in Dallas, Texas, will be to give workers the
service-oriented skills needed for the 21st century. Service jobs of today and
tomorrow require higher skill levels and more education. Education will become
even more important as the shift to the service economy continues. As services
become more important, though, productive assets are shifting away from physical
capital and toward intellectual capital. A term for what workers know that allows
them to create value for consumers, including abilities to communicate, research,
analyze, market, solve problems, teach, comfort, serve and entertain.
To get the most out of the new economy, the country must pay attention to the
quality of its workers. The spotlight will be on education, including retraining.
Education is not just studying hard. It is studying the right subjects, adopting the
curriculum to meet the needs of business and industry, paying attention to market
signals on what society values.
Education is not just accumulating knowledge and cognitive skills. It includes
developing personal skills and sensitivities to others needs, learning how to give,
take and embrace the idea of customer service. We are all in the people business
now, and serving each other is everybodys business. The question is not, will
there be any good jobs? It is whether our educational system will prepare workers
to fill them.

Now, what are the forces of change in service management impacting the creation
of high performance service organizations? According to Lovelock and Wright
these change agents are as follows:
Figure 1: Forces for Change in Service Management

changing patterns of government regulations

relaxation of professional association restrictions on marketing
privatization of some public and nonprofit services
technological innovations
growth of service chains and franchise networks
internationalization and globalization
pressures to improve productivity
the service quality movement
expansion of leasing and rental businesses
manufacturers as service providers
need for public and nonprofit organizations to find new income
hiring and promotion of innovative managers

Source: Lovelock and Wright, 1999.

In a recent article in the Wall Street Journal, Tom Petzinger, noted a new model
for the nature of business. This model notes the move away from the mechanical
toward the biological. The paradigms lost and gained are as follows:
Figure 2
Paradigms Lost . . . and Gained: The Near Future Business Model
Two business-world views and what they mean

Mechanical Model

Natural Model

Scientific Leaders
Newton
Galileo
Descartes

Einstein
Quantum physicists
Chaos, complexity theorists

Central Metaphors
Machines
Clocks

Organisms
Ecologies

Strategic Objectives
Optimum design
Consistency of operation

Adaptation
Continuous improvement

Mechanical Model

Natural Model

Cultural Expressions
Classical music
Renaissance painting

Blues and jazz

Postmodern art

Leadership Implications
Command control

Autonomy for employees

Articulation of vision

Sources of Value
Information
Knowledge

Land
Energy
Materials

Management Objective
Economies of scale

Unity of purpose

Structure
Hierarchies

Self-organizing teams

Organizing Principles
Division of labor

Synthesis of minds

Source of Economic Authority

Producers

Consumers

Principal Economic Constraint

Capital

Creativity

Source: Petzinger, 1999.

In a recent article in Service Management, management consultants predict the
following issues will become more visible within organizations in the near future.
Your goal, should you chose to accept it, is to become the point person in your
company for these initiatives.
1.

Intellectual Capital
Large companies are losing ground to small, start-up companies.
Financial capital and physical assets are losing ground to intellectual
capital. Workforces of the future will focus on innovation, not just
incremental improvement-breakthrough ideas. Cultures will be created
based upon innovation and leverage intellectual capital by
encouraging internal entrepreneurship or intrepreneurship. Companies
must give people the freedom, time, and money to take on a project
they have brainstormed. Large companies must be able to adopt to the
changes in the market as quickly as small companies. The key,
providing people access to the information gathered by every
department in the company.

2.

Beyond Team Building to Team Effectiveness and

Communities of Practice
Empowered teams have been micro managed to a point of
ineffectiveness. Organizations of the future will need to move from
people being assigned to specific teams or tasks, to people prepared to
be team members whenever the need for a team arises. The key is to
create a uniform concept of what good teamwork entails not individual
team members definition of good teamwork. Effective teams evolve
into communities of practice. These are teams that form
automatically. It is the natural response to the needs of a task or
project. Organic forming teams cant be managed. The job of mangers
is to make sure people in these free forming teams have the resources
to make such communities work time/space, when, and where
knowledge sharing leads to team empowerment.

3.

Finding New (Servant) Leaders within the Organization

The recent strong economy and downsizing have led to a shortage of
middle managers to bridge the gap between frontline and senior
managers. Nearly half of the Fortune 1000 executives think the
leadership skills at their companies are fair or poor. Whats more, only
eight percent said their companies stress leadership development for
frontline managers according to a recent Conference Board survey and
report.
There is a need for better identification and training of current
frontline people to be leaders. Also, leadership fundamentals, such as
individual motivation and development, performance enhancement,
coaching, mentoring, facilitating, team dynamics and leadership style,
and self-assessment must be taught to leadership candidates.

4.

Preparing the Sales Force for the Inevitable: Moving

from Selling to Serving
Business must be prepared for the cyclical nature of the economy. In
1998, the big issue in sales training was selling value and competing
against price. In 1999, the issue has been red-hot cold calling. They
are making a push to make their sales people more active. The
beginning of the next century will require a greater movement from
selling to serving or moving from promise making to promise keeping.

5.

The Feminine of Work Culture

Any dog a tiger dog, a leopard dog becomes tame when given food.
But the longhaired tigress of the tavern becomes more vicious when
tamed.
Lovesong of the Sixth Dalai Lama who lived in the seventh century.
The greatest threat to business is the feminine. Avram Miller, a Silicon
Valley business developer whose eye habitually roams five years into the

future has noticed this trend: The greatest force pushing on American
business in the late 20th century is female.
Business, he says, tends to imagine challenge coming from the outside,
from competition. But now the challenge is inside us, and it concerns the
question of who we are, not just what business are we in. The masculine is
all about focus, division, and change. Those qualities govern our
crumbling organizations. The feminine is all about acceptance, unity, and
a respect for what stays the same in the midst of change. The feminine
operates on the sense that power can not exist outside you. Power is in the
individual not in organization or hierarchy. The feminine is where the
energy in todays culture is.
The more organizations try to tame this tigress, this trend, the wilder she
becomes. The trappings of masculine institutions are failing
hierarchy
worship of control
linear analysis
corporations themselves
Arising from the remains is a growing emphasis on relationships,
an intimacy in product design, a playful lightness in decision
making, and a new respect for uncertainty. In these areas, women,
it just so happens, are the experts, not men. Now their values will
determine organizational success and failure.
According to Harriet Rubin, other sightings of the feminine are showing
up in:
n

Entrepreneurs and the New Business Angles.

These new heroes of business are the most feminine creatures on
the planet. They care less about making a profit than about making
a difference. They are people in headlong love with an idea. But
their relationship to what they do is pure love. Lovers know that
effort is delicious and sweat is sweet. The faster their hearts beat,
the more alive they feel. First on every entrepreneurs wish list is
affirmation of themselves: I made a difference. What could be
more feminine?

Relationships.
Entrepreneurs are guided principally by how they feel about others.
They want to work with people they like, not always those who
can be most useful.

Product and Service Design.

Leading edge products and services are becoming brazenly
feminine: intimate, individualized, and playful. What could this
change mean for the relationship between the sexes?
Entertainment (Disney Institute).
Entertainment (Rainforest Caf).
Customer Experiential Ribbons (Bellagio).

6.

New Business Ideas.

Factories, retail outlets, widgets dont count for much these days.
Businesses that convert matter into energy own the future. Take
Federal Express. They convert goods into energy, movement, at
overnight speed. The masculine, associated with strength, is over
as more and more businesses convert to energy right now
services instead of goods. Old business is all about structure.
New business is all about circulation. Old business is all about
production and repetition; new business is all about movement and
chaos.

Success.
Career paths are becoming career palettes: The best jobs increase
self-expression even at the expense of title or salary. Outmoded is
the idea that you are something a doctor, a train conductor, and a
cartoonist. Instead, you have to become everything:
a communicator
a magician
a relationship-builder
a rainmaker
a sage
a seer.

Power
The more you give, the more you get. Giving people the freedom
to pursue an idea or project of their own is more potent than trying
to get people to buy into or come aboard your vision. All these
are traditionally feminine points of view.
Emergence of Experience Economy
(Excerpted from The Experience Economy: Work is Theatre and Every
Business a Stage, Harvard Business School, March 1999.)
Joseph Pine and James Gilmore observed the following about
emerging economic trends:
Experiences represent an existing but previously unarticulated genre
of economic output. Decoupling experiences from services in
accounting for what businesses create opens up possibilities for
extraordinary economic expansion just as recognizing services as a
distinct and legitimate offering led to a vibrant economic foundation
in the face of a declining industrial base. And a new base is
emerging. Ignore the familiar hype: Information is not the foundation
of the New Economy, for information is not an economic offering.
Only when companies constitute it in the form of information
services or informational goods and informing experiences do
they create economic value. Economic offerings, not forms of
intelligence, comprise the substance of buying and selling.
Recognizing experiences as a distinct economic offering provides the
key to future economic growth. Economic pessimist Jeremy Rifkin is
right to suggest that businesses will need fewer workers to deliver

services in the future, just as in the past due to innovations and

higher productivity they needed fewer factory workers to produce
goods, and before that fewer farm workers to harvest agricultural
commodities. But Rifkin, neo-Luddite Kirkpatrick Sales, political
pundit Pat Buchanan, and others like them who decry the automation
of jobs are wrong in asserting that the overall demand for labor will
decrease. Future waves of economic growth based on new economic
offerings will provide ample opportunities to generate more wealth
and create jobs if only businesses remain free to compete,
unencumbered by governments view of what constitutes appropriate
economic offerings to promote or protect. Those businesses that
recognize this dramatic shift and respond to it effectively both are
requiredwill forestall the forces of commoditization and create
new economic value.
Of course, not everyone will agree that we are shifting to an
Experience Economy or that such a development is a good thing.
Consider Las Vegas, the experience capitol of America. Virtually
everything about Vegas is a designed experience, from the slot
machines at the airport to the gambling casinos that line the Strip;
from the theme hotels and restaurants to the singing, circus, and
magic shows; and from the Forum Shops mall that recreates ancient
Rome to the amusement parks, thrill rides, video arcades, and
carnival-style games that attract the twenty-something and give older
parents a reason to bring their kids in tow.
Of course, there is another side to the Vegas experience: the readily
available alcohol, drugs, nudity-filled nightclubs, and prostitution.
Unfortunately, these are every bit as much a part of the Experience
Economy as any other entertainment or escapist fare. True, as we
shift to this new economy, some people will make unwise and
immoral choices due to the ready availability and slicker staging of
prurient experiences. And most of the experiences mentioned above,
while engaging and memorable, are certainly not virtuous. Further,
many people object, with reason, to the artificiality of Disney World,
the simulated nature of various motion-based attractions, and the
techno-centric remoteness of the Internet.
Despite the great improvements in working conditions, health, life
expectancy, and the standard of living associated with each of the
previous economic shifts, those shifts were not without their
dislocations and negative effects; we should not expect otherwise in
the shift from the Service to the Experience Economy. All the issues
mentioned above are real and worthy of debate. But it is clear that we
cannot retreat from the impending reality of the Experience Economy
surrounding us. Commendable or deleterious, virtuous or immoral,
real or artificial these are all choices we make as together we
create this new economy.

Those who decried previous economic shifts failed to stop the

progression of economic values to higher-echelon offerings. It
happened despite their protestations. Therefore, we believe that the
moral emphasis should not lie on whether commerce should shift to
experiential offerings. If societies are to seek continued economic
prosperity, they must stage experiences to add sufficient value to
their economies to employ the masses (commodities, goods, and
services alone cannot sustain the needed growth). The moral
emphasis must be placed instead on what kinds of experiences will
be staged. The business executive, like everyone else, must in the
end concern himself with the ultimate aims of man.

III. FOUNDATIONS OF SUSTAINABLE BUSINESS

SUCCESS
A.

Strengthening the Service Brand

We tend to think of branding primarily in the context of goods, especially
packaged goods. Yet, branding is critically important in services as well.
The basic focus of brand impact in services is different in goods. In
packaging goods and marketing, the primary brand is the product brand
Kleenex, Pampers, Head and Shoulders. In services marketing, the
primary brand is the company brand Federal Express, H&R Block,
CNN. Because we ask customers to buy our service we in effect ask them
to buy more or less invisible product, and to pay for it before they
experience it. Thus, inexperienced customers have very little to go on, the
presented brand company controlled communications such as the name,
logo, slogan, advertising is dominant in influencing brand meaning.
That changes, as the inexperienced customer becomes an experienced one.
Southwest Airlines mediocre name, pigeonholed geography, ugly
brown planes is a power brand. More than 100 cities sought their
service in 1998. Customers experienced-based beliefs will over take
packaging, positioning, logo development, slogans, names and visual
presentation of services. So, the question becomes how do you sustain a
strong service operating effectively when growing rapidly, operating
effectively when focusing on price competition, and remaining
entrepreneurial.

B.

Berry Model
1.

Execution vs. Growth

Balancing the need for growth with the requirements for execution is
one of the most difficult challenge managers faces. During periods
of rapid growth, adhering to original operating standards becomes
problematic. Relaxing standards is common when fast growing
companys select, orient, train, and educate many new managers and
employees. Maintaining effective internal company communications,
reinforcing the companys vision and culture, and delivering
consistency high quality service essential success factors are
challenged by expansion. Not allowing the pressures of growth to

undermine the effectiveness of labor-intensive value creation requires

a higher level of leadership and discipline than exist in many
companies.
No matter how brilliant a company strategy, it still must be executed.
Otherwise, the strategy is simply being advertised for competitors to
imitate, execute better, and win away the market. Service companies
create value through performances. Product quality is function of
performance quality, which, in turn, is a function of the ability and
motivation of performers. Performance suffers when growth
weakness organizational practices that promotes employee ability and
motivation.
Service companies sell and promise. The customers confidence is the
most precious asset for any company that sells promises for a living.
Suburb execution of the service day after day after day is a
cornerstone of confidence building. Strengthening the customers
confidence is not about making promises but about keeping them.
Example: Value Jet vs. Southwest Airlines
2.

Execution vs. Price

Managers often overuse price as a marketing tool. Price cutting often
leads to cost cutting and may weaken execution. Although managers
could strive to differentiate their services with higher quality rather
than lower price, price cutting is a favored path because it can be
implemented quickly and may be deemed more valiant with targeted
markets.
One of the biggest mistakes managers make is assuming that value
and price mean the same thing to customers. They do not. Price is part
of value, but not its equivalent. To customers, value is the benefits
received for burden experienced; it is what customers receive in
exchange for what they must endure to receive it. Burdens have both a
monetary component (price) and a non-monetary component (for
example, unknowledgeable service providers, inconvenient service
location or hours of operation, busy telephone lines). Price is price;
value is the total experience. The tougher the price competition in a
market, the more important quality of service is to sustainable success.
Example:

3.

NYNEX, in 1996, rebated $50 million dollars to five

million customers because of slow repair and
installation services.

Entrepreneurship vs. Maturity

Inspired service providers are most likely to invest the personal
energy and induce the risks of improvement seeking. They are most
likely to identify better ways to perform their service and to speak-up
when they see their company going in the wrong direction. Yet,
inspiration is jeopardized as the business grows and adds employees,

locations and more formalized operating policies and systems. Rules

replace the informality that nurtures personal interaction throughout
the organization. Turfism replaces teamwork. Memos replace face-toface communications. Supervisory layers replace impromptu visits
with the owner. The power of the dream, the sense of mission, can
easily fade, as a company not only becomes more successful but also
bigger, more complex, spread-out, and bureaucratic.
Most service positions involve significant discretionary effort, which
is the difference between the maximum amount of energy an
individual employee can bring to the service role and the minimum
necessary to avoid penalty. The difference between the maximum and
minimum energy investment is discretionary to the individual
employee. Personal entrepreneurship is a discretionary act; the
individual service provider decides whether to try something new,
whether to risk helping a customer with an unusual or difficult
request, whether to assume the mantle of leadership in solving a
company problem. One of the principal differences between
outstanding and mediocre service companies is that the former
receives far more discretionary effort from employees. Personal
entrepreneurship a discretionary act is jeopardized as firms grow,
ages, become more complex, and changes leadership. And yet
sustained success requires continual innovation and improvement.
Execution versus growth
Execution versus price
Entrepreneurship versus maturity
These perils may simultaneously contribute to a companys decline.
Companies frequently become less effective strategically and
executionally because strategy affects execution and vice versa and
because both are a function of the quality of leadership in the
company. A weak strategy drains the commitment of the service
providers who are supposed to implement it. It is difficult for
employees to be excited about a strategy that doesnt excite
customers. Conversely, poor execution undercuts even the most
brilliant strategy. Customers cannot receive the full benefits of a
companys service strategy if the performers do not perform it well.
Eventually, the strategy loses its luster because it is not producing the
expected results.
4.

Drivers of Sustainable Success in Services

Sustaining the skilled actions, personal innovation, and emotional
commitment of people in service businesses as time passes and the
organizations change is a tall order. The quality of machine-produced
products is far less dependent on the actions, creativity, and
commitment of individual employees perhaps hundreds or
thousands of them than the quality of people-produced products. In
services performed directly for customers, such as in retailing,
education, health care, and transportation, the service is inseparable
from the people performing it. An inept salesperson is an inept store; a
nurses personality may send patients in search of a new doctor.

IV. CONCLUSIONS
In 1983, Royal Dutch Shell commissioned a study on corporate longevity. The
purpose of the research was to identify the success drivers of firms older than
Shell, which was then 100 years old. The study focused on 27 companies in North
America, Europe, and Japan that ranged in age from 100 to 700 years. The
findings from the research, discussed in a 1997 book, The Living Company, are
fascinating. The books author, Arie de Geus, makes a strong point when he
argues that most companies are underachievers and do not come close to realizing
their full potential. In an article on his findings, de Geus writes:
The high corporate mortality rate seems unnatural. No living species
suffers from such a discrepancy between its maximum of expectancy and
the average span it realizes. And few other types of institutions
churches, armies, or universities have the abysmal record of the
corporation.
Why do so many companies die young? Mounting evidence suggests that
corporations fail because their policies and practices are based too heavily on the
thinking and the language of economics. Put another way, companies die because
their managers focus exclusively on producing goods and services and forget that
the organization is a community of human beings that is in business any
business to stay alive. Managers concern themselves with land, labor, and
capital, and overlook the fact that labor means real people.
Companies need not die young. What came from intensive study of truly
outstanding service companies is the most exciting discovery of Berrys research
career to date:
The drivers of sustainable success in labor-intensive service
businesses are common across the different businesses.
The portraits of success sustainability for 14 distinct companies ranging from a
supermarket chain to an airline to a furniture manufacturer to a baseball team are
virtually identical.
Berry contends that he need not draw multiple success models for different types
of service companies; if a company creates customer value through laborintensive performances, he needs to draw only the one picture shown as Figure 3.
This figure is a comprehensive, accurate portrait of each sample company Berry
studied. This is what a world-class service company with sustained success looks
like.

Figure 3
Drivers of Sustainable Success in Service Businesses

Strategic
Focus
Executional
Excellence

Generosity

Brand
Cultivation

ValuesDriven
Leadership

Control of
Destiny

Trust-Based
Relationships

Acting Small

Investment in
Employee
Success

V.

ACKNOWLEDGEMENTS
Dr. Leonard L. Berry, Stanley Brown, Dr. William Cox, Steve Tyink, Richard
Roman, Dr. Christopher Lovelock, Jim Sullivan, Dr. James Heskett, and Harriet
Rubin have all been personal inspirations in the pursuit of service excellence. I
am grateful for their sharing of personal and virtual theoretical and applied
models of service excellence.