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Culture as a business accelerator

Building a billion dollar culture

Our hero: Tony Hsieh. CEO of Zappos

Tony Hsieh. CEO of Zappos, online shoe and clothing retailer.

He built his company around a strong culture of customer service.

If you want to take a company from zero to a billion dollars in 10 years, what should you make your number one priority?

The surprising answer is culture.

Their story: If you get the culture right, the rest will follow

Set up in 1999 by Nick Swinmurn, Zappos' revenue at the end of 2000 was of USD 1.6 million. By 2001 it had risen to USD 8.6 million. By 2008 it was a staggering USD 1.6 billion. Tony sold the company the following year to Amazon for USD 1.2 billion.i

It grew mainly by word of mouth. They invested in customer experience rather than advertising. And concentrated on managing the culture of the business.

'At Zappos, we really view culture as our number one priority. We decided that if we get the culture right, most of the stuff like building a brand around delivering the very best customer service, will just take care of itself,' Tony told the New York Times in January, 2010 .ii

'Our whole philosophy is: let's take most of the money we would have spent on paid advertising and marketing, and rather than buy our exposure, instead let's invest it into customer service and the customer experience and let our customer do the marketing for us by word of mouth.' The proof that it works is that on any given day 75% of Zappos' orders are from repeat customers.

They got serious about customer experience

Zappos offer free delivery and returns. They encourage customers to order as many items as they like, try on at home, and send back what they don't want. They gave their customers 365 days to return anything they don't want.

They located their warehouse in Kentucky next to the UPS hub. This enabled them to give 'surprise free upgrades' to overnight delivery when the customer was expecting 2─5 days. Even orders placed at midnight could be delivered by 8.00am the next morning.

Their contact centre handles 5,000 calls a month and 1,200 emails a week. Some 95% orders are online, so the call centre is all about customer service.

Unlike many sites where you have to dig through five layers, a FAQ list, and a user forum before you can find a number you can call, they put their 1-800 number at the top of every web page. Because they actually want to talk to their customers.

Call centre agents don’t have scripts and there’s no handle time target

‘Low-tech as it might sound,’ Tony says, ‘we find the telephone is one of the best branding devices out there. We have the customer’s undivided attention for 5─10 minutes. If we get the interaction right, we find the customer remembers that for a very long time and tells their family and friends. We’re not trying to maximise for efficiency, we’re trying to maximise the customer experience.’iii

Call centre agents don’t have scripts and there’s no handle time target. The longest call on record is apparently over 10 hours.

When a woman called Zappos to return a pair of boots for her husband because he died in a car accident, the next day, she received a flower delivery, which the call centre rep had billed to the company without checking with her supervisor.

Tony also encourages employees to use social media to put a human face to the company and engage with customers.

And chased their vision, not just the money

Tony's advice is: chase the vision, not the money. 'What would you be passionate about doing for 10 years, even if you never made a dime?' he asks.iv

He believes that 'great companies have a higher purpose beyond just profits or being number one in a market. By not making profit the number one objective, it actually enabled these companies to generate more profit.'

Of course, building and sustaining Zappos' culture meant making sure they hired the right people. 'We do two sets of interviews,' Tony explains. 'The hiring manager and his or her team will interview for the standard fit within the team, relevant experience, technical ability and so on. But then our HR department does a separate set of interviews purely for culture fit. They actually have questions for each and every one of the core values.'v

They also used the shuttle driver test. Interviewees would be picked up and dropped off from the airport in a Zappos shuttle. Afterwards, the driver was asked how he’d been treated. If a candidate had been discourteous in any way, the company wouldn’t hire them.vi

‘It actually doesn’t matter what your values are,’ argues Tony. ‘What matters is that you have them, and that you align the organisation around them. The power comes from the alignment not the actual values.

‘So we’re not out there telling people “oh, you should adopt the Zappos values and culture”, because that would probably not work in most cases. Our message is: you should figure out what your values are and then align the organisation around them.’

Tony suggests that leaders spend 10─20% of their time outside the office, building relationships with their people. Is that really productive? Tony believes so. ‘People are willing to do favours for each other because they’re doing favours for friends not just a co-worker. Estimates of increased productivity range from 20% to 100%. So worst case scenario you break even.

‘At Zappos, we focus on work-life integration. We strive to create an environment where people are comfortable just being themselves.’vii

The wider issue: Building a strong culture that fits your business strategy

Most experts agree that building a strong culture that fits your business strategy, and cultivating it with a few key interventions, is the route to business success.

Kotter and Heskett, in the definitive work Corporate Culture and Performanceviii , show that it's not just about having a 'strong' culture, i.e. one which is cohesive, clearly defined, and persistent. They agree that the 'content' of a culture 'is as important, if not more important, than its strength'.

Almost every enterprise that has attained peak performance sees culture as a competitive advantage

'There is no such thing as generically good cultural content. There is no one-size-fits-all "winning" culture...a culture is good only if it fits its context,' they say.

The theory is borne out by present day practitioners. Jon R. Katzenbach of consulting firm Booz and Company, wrote in the Harvard Business Review in 2012ix , ‘Almost every enterprise that has attained peak performance sees culture as a competitive advantage – an accelerator of change, not an impediment.’

His five principles of managing culture for peak performance are:

  1. Match strategy and culture.
  2. Focus on a few critical shifts in behaviour
  3. Honour the strengths of your existing culture.
  4. Integrate formal and informal interventions
  5. Measure and monitor cultural evolution

He asserts that it’s not enough just to change reporting lines, decision rights, processes, and IT systems… leaders shouldn’t overlook informal mechanisms like networking, communities of interest, ad hoc conversations, and peer interactions.

Targeted cultural intervention, designed around changing a few critical behaviours at a time, can energise and engage your most talented people, he claims.

Our opinion: Culture is something to be nurtured and protected

Jason Goodall, Dimension Data's CEO, agrees. 'If your culture is distinctive and an accelerator of your success, you need to put a great deal of effort into nurturing and growing it – and also communicating it across your organisation,' he says.

‘If you speak to any of the senior leaders in our organisation they’re always talking about their people – how they’re developing them, what they’re doing to attract the best people, and keep them passionate, motivated, and incentivised.’

Jason Goodall

Jason believes that nurturing and protecting your culture means not being afraid to call out any kind of behaviour that's not aligned with your values.

'Dimension Data's strong culture is built around the values that we've embraced as an organisation and I believe we must intensely protect those values. Inevitably there'll be circumstances that bring out behaviour in people that we don't agree with. We need to have the courage of our convictions to deal with those situations appropriately.'

Differentiating through client experience

Jason believes that every business needs one thing that makes clients want to do business with them, and not somebody else.

Every company needs to choose that 'one' thing ... is it brand, price, process, or product? You need to make your pick. And we have,' he explains. 'At Dimension Data, we've made client experience our number one priority, and our key differentiator. While we have a strong brand, a world-class set of operations in every geography, and a highly competitive set of products and services, those aren't areas where we truly differentiate. Yes, they're still important ... but our true differentiation lies in the client experience.

'This comes naturally to us – the notion of wanting our clients to succeed has been part of our DNA since we started 33 years ago. And so it makes complete sense for us to select this as our area of differentiation.'

How do you drive customer service in the digital age?

Customer service is an ageless value. But is digitalisation changing that?

Dimension Data’s Contact Centre Benchmarking Reportx this year concludes that digital technology is fast transforming the global contact centre industry. Joe Manuele, the company’s Group Executive for Customer Experience and Collaboration explains:
‘Today’s contact centres are built to support customers no matter how they want to interact.

They’re offering on average nine channel choices including telephone, email, integrated voice response (IVR), website, social media, SMS, web chat, mobile app, service kiosk, video chat, and other automated services like the Internet of Things and proactive messaging.’

Today’s contact centres are built to support customers no matter how they want to interact

Technology designed by people, with people in mind

However, according to Joe, the Report confirms that ‘digital needs a human touch’. ‘Organisations now recognise customer experience as a key differentiator. It’s become the top indicator of strategic performance in the boardroom. Yet this year’s Report highlights that digital channels could be more powerful if they show more of a “human touch”.

‘The Report says that “Good” customer experience is designed by people, with people in mind. “Good” is not a standalone technology channel. So “Good” is a customer experience that provides customers with highly productive choices that are impressively easy to access and deliver,’ he explains.

Key findings from this year’s Report:

  • 82.5% of companies recognise customer experience as a competitive differentiator
  • 74.1% say it increases company revenue/profits
  • connected (omnichannel) customer journeys is the number one industry trend for 2016
  • omnichannel capability is set to rise from 22.4% today, to 74.6% in the next two years

Back to Tony – where's he today?

Despite an estimated personal net worth of USD 840 million, Tony has chosen to live in a 200 square-foot Las Vegas trailer park. With his pet alpaca.

In 2013 he tried a radical experiment. He made Zappos a holacracy – an organisation with a totally flat structure, no hierarchy, job titles, or bosses. A lot of employees didn’t like the uncertainty and loss of a ladder to climb, and took the company’s pay-to-leave ‘offer’. Employee turnover shot up to 29%.

But Zappos’ management didn’t seem to mind. In a statement they said, ‘We have always felt like however many people took the offer was the right amount of people to take the offer, because what we really want is a group of Zapponians who are aligned, committed, and excited to push forward the purpose and vision of Zappos.’xi

At the time of writing, Tony has just stepped down as CEO from Zappos. The company joked that it was due to an irreversible holacracy error…

They are currently recruiting a replacement, and among the applicants are skateboarder Tony Hawks, whose main qualification is that he wears shoes all the time; and Sir Richard Branson, head of Virgin, who says he would launch spaceships from Zappos’ headquarters in Las Vegas.

If you want to apply, load a video covering letter to your social channels with #zapposceo.

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References
i Wikipedia, accessed June 2016, https://en.wikipedia.org/wiki/Zappos
ii Adam Bryant, On a Scale of 1 to 10 How Weird Are You?, The New York Times, 9 January 2010, http://www.nytimes.com/2010/01/10/business/10corner.html?_r=0
iii Tony Hsieh’s Top 10 Rules For Success, YouTube, 25 November 2015, https://www.youtube.com/watch?v=49kJE4HJb_w
iv ibid
v ibid
vi Wharton University of Pennsylvania, For Zappos’ Tony Hsieh, ‘Holacracy’ Is the Right Fit, 7 July 2016, http://knowledge.wharton.upenn.edu/article/zappos-tony-hsieh-holacracy-right-fit/
vii ibid
viii Corporate Culture and Performance, J. P. Kotter & J. L. Heskett, The Free Press, New York, 1992.
ix Cultural Change That Sticks by Jon R. Katzenbach, Ilona Steffen, and Caroline Kronley, Harvard Business Review, July-August 2012 https://hbr.org/2012/07/cultural-change-that-sticks
x 2016 Global Contact Centre Benchmarking Report, http://www.dimensiondatacx.com/
xi Bourree Lam, Why are so many Zappos Employees leaving?, The Atlantic, January 15 2016, http://www.theatlantic.com/business/archive/2016/01/zappos-holacracy-hierarchy/424173/

 

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