There's a fraction too much friction! Customers, service, and staff.

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While trawling around on YouTube recently I came across a 1980s video of Tim Finn’s There’s a Fraction too much Friction and it got me thinking about the things that annoy me  in dealing with businesses. I concluded that the source of my irritation is friction.

I have long observed that business has many things in common with war, and friction is probably the thing that most comes to mind as significant in both business and war.

The problem with friction is nicely put by Clausewitz:

“Everything in war is simple, but the simplest thing is difficult. The difficulties accumulate and end by producing a kind of friction that is inconceivable unless one has experienced war.”

This description of the effects of friction in war are eerily reminiscent of dealing with a large business (say for example, one of our large telecommunications companies).

The huge opportunity that the digital revolution offers is to remove friction between different parts of businesses – between customers and staff, between operational silos within the organisation, between groups who are internal and external to the organisation.

Organisations that see and act on this opportunity are the ones that will triumph in the hyperconnected future.

People who see a dedicated niche that they can service seamlessly and effectively will grow their businesses almost without trying, and customers will flock to them.

In this milieu the one-stop-shops that try to do everything – those who previously leveraged scale and centralization – are likely to suffer.  This is because scale creates and does not reduce friction. Only in the past when the friction in having services and products delivered from many smaller suppliers was so great did the one-stop-shops have an advantage.

But now even small organisations can remove friction and deliver seamlessly to their customers using web and mobile applications.

Now organisations are liberated to serve customers in ways that were impossible before ubiquitous internet connected mobile devices.

Big companies that are not already offering effective online services are the new dinosaurs.  It will take only the slightest change in their terrestrial trading conditions for them to sicken and die. Two examples of this phenomenon  worth keeping an eye on are Harvey Norman and David Jones . It will be very interesting to see if they can evolve their business models sufficiently fast to survive.

Reduced information asymmetry is another opportunity offered by this reduction in friction.  In the past companies, especially retailers, had better information about pricing of the good they sold.  Now this asymmetry in access to pricing information is dying. A recent tweet from my friend Mark Pesce exemplifies this new trend:

And US retailer J.C. Penney recently launched a new pricing model:

“J.C. Penney (JCP) is permanently marking down all of its merchandise by at least 40% so shoppers will no longer have to wait for a sale to get the lowest prices in its stores.

Penney said Wednesday that it is getting rid of the hundreds of sales it offers each year in favor of a simpler approach to pricing. On Feb. 1, the retailer is rolling out a three-tiered strategy that offers “Every Day” low pricing daily, “Monthly Value” discounts on select merchandise each month and clearance deals called “Best Price” during the first and the third Friday of each month when many shoppers get paid.”

Source: Daily Finance, 25 Jan 2012 

The results of this pricing experiment are just starting to flow in.  There has been an initial drop in sales revenue but analysts note:

“We believe our findings demonstrate that the strategies announced to transform (Penney’s) business are the right actions to take and will resonate well with consumers over time” (Source: MSNBC, Penney’s pricing strategy takes a toll on sales, 30 Mar 2012)

Against this backdrop it is amusing to see an Australian retailer’s response to market conditions – “David Jones Outlines Strategic Plan to Cut Costs” along with their very late in the day online shopping initiatives. It is especially amusing when one observes one of their chief competitors, Net-a-Porter – saying:

“It’s very easy to copy the look and feel, which people have helped themselves generously to,” Massenet said. “But we have 12 years of building ahead [of other sites] and we are sending out 5,000 orders a day as opposed to 20 orders a day and I think it’s very difficult for a business to keep up with that operationally.”

Source: Sydney Morning Herald, How to create an e-empire, 29 Mar 2012

Net-a-Porter is an excellent example of an organisation that has nailed servicing a niche, delivering good product, and ensuring a good customer experience supported by excellent customer service.

The bar has well and truly been raised for traditional organisations. And only those who work out how to reduce friction and deliver seamless service will survive.

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Worth thinking about: Seven social sins (not about social media) | via M. Gandhi

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No, I’m not talking about social media. This is about real life. And I think that Gandhi summed up a lot of what the #Occupy movement is on about in his note on the Seven social sins.

Politics without principles
Wealth without work
Pleasure without conscience
Knowledge without character
Commerce without morality
Science without humanity
Worship without sacrifice

Naturally, the friend does not want the readers to know these things merely through the intellect but to know them through the heart so as to avoid them.”

Source: Young India, 22-10-1925, p.135 (opens pdf)

For those interested in protest and the #Occupy movement it is really worth reading the writings of Gandhi. He grappled with many similar problems with regards to protest and resistance to civil authority.

This is worth thinking about given the situation we find ourselves in today in the world. At this festive season for many of us it is an interesting question to consider how can we shift away from these seven social sins?

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A tech revolution that changes the way we organize work & the danger of digital serfdom

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The old style company, that is the company circa 1880-2000, had firm boundaries and fixed hierarchies in order to function efficiently. But with the advent of digital technology and the consumer social computing revolution there is a seismic shift in how technology is used within companies. There are also significant changes in worker expectations and, as a corollary, companies are changing their demands upon workers. Huge power shifts are underway and it is important that we start analyzing them now.

The Past

The technology that enabled communication and control of large and dispersed groups of workers was inefficient and required supplementation by human resources in the form a supervisory and managerial hierarchy. Computer resources were initially tightly held by a few individuals within an organisation due to their high capital cost to acquire. And companies had access to much better technology resources than the average individual could ever hope to acquire.

For example, in 1956 a 5MB hard drive from IBM cost US$50,000, and in 1981 a 5MB Apple hard drive cost US$3,500. At prices like these the average person had little opportunity to acquire such technology.

It was this technology asymmetry that also contributed to the non-porous boundaries of the firm. Information stayed inside the firm and was not easy to share. Instead companies were in charge of their information and shared it only on their own terms. And usually that sharing of information occurred through bought or earned media and through ‘official’ news media channels.

The Present and Near Future

Today companies are grappling with the huge shifts in communications. Newspapers and other news media no longer hold the preeminent position they once held. Corporate communications are no longer about faxing out a press release.  Companies are developing their owned media resources and learning to use the diverse earned media opportunities available now via the internet.

Increasingly companies are requiring workers to develop their own social media and social networking personas on behalf of the company.   Also workers are being required to manage corporate social media channels as part of their jobs.  One challenge with this shift in work to social media channels is that they often need tending 24×7. Thus other workers are beginning to feel the operational demands of 24x7x365 operations that those of us in the IT department have felt for many years now.

Another shift is the control over technology within an organisation. In the past centralized control of technology resources was easy due to high cost and complexity to implement. But now with cloud computing as a commoditized service we see the real risk that other departments can go around centralized procurement and IT to implement whatever takes their fancy.

Gartner has just released their vision for 2012 and note that in 2012 we can expect more cloud and consumerization, less IT control.

Increasingly we are seeing workers bringing their own technology into the workplace – smart phones, tablets, and social computing. And articles directed at CIOs are saying: IT’s future: Bring your own PC-tablet-phone to work.

Thus we are at the beginning of a technology revolution in the office that will see the centralized control that was necessary to achieve economies of scale in the last century wane.

Instead we will see the growth of decentralization driven by cost and user demand pressures.  We will also see increased attempts to control behaviour through data and  monitoring due to the growth in the panopticon as I’ve discussed previously.

The Dangers of Digital Serfdom

My buddy Ray Wang posted recently on the right to be offline. We are facing a world of hyperconnectedness in which we can evolve into digital serfs tethered by our digital devices and an un-free as a slave in ancient times.

The risk is that the boundaries between work and personal time become so blurred that they cease to exist. The risk is that employers consider that, with a wage, they have bought our time as and when they choose to consume it any time of the day or night.

The moves to remove penalty rates for IT workers and others also support this trend. Once the unit cost of a worker is standardized an employer does not care what time of day or night they work.

I cannot articulate the concern we should have for retaining this right to be offline any better than Ray:

“There is one thing that I am very worried about actually, is I think it is of the uttermost importance that we preserve the right to be offline. If we don’t preserve that we’ll loose all our freedoms. It starts with ability to be able to escape … of being offline. And so we can be punished for not being offline. For not being online we cannot be punished. It’s happening right now. We are recreating Skynet, we are recreating Matrix, we are recreating all the things that we would fear on our own. And if we can’t protect that basic right of being able to be offline, and being able to conduct a life offline, we’re in trouble. We are in big trouble.”

I commend Ray’s thoughts to you, check out his video:

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Leadership, personality traits, and success: Do nice guys really finish last?

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I came across an article in Wired Science by Jonah Lehrer titled Do Nice Guys Finish Last?. It had plenty to get me thinking.

Apparently:

“… levels of ‘agreeableness’ are negatively correlated with the earnings of men”

Then:

“There are six facets to agreeableness: trust, straightforwardness, compliance, altruism, modesty and tender-mindedness. “

Also:

“Women were slightly less likely to get picked for promotion regardless of their personality.”

But:

“Agreeable women weren’t nearly as bad off, earning only 1,100 less.”

This research seems to be anchored in personality trait theory (Costa & McCrae, 1992); and there’s been a lot of theorising around trait theory and leadership over the years. That the facets of agreeableness – trust, straightforwardness, compliance, altruism, modesty and tender-mindedness – might not be considered helpful in some contexts sounds bad.

Why wouldn’t high levels of agreeableness be a good thing?  But when it comes to getting things done being agreeable is not always helpful.

For example, scientific advances rarely come to light from agreeing with everyone else. Instead they come from fighting against the current flow of ideas and consensus.

Getting a new business or new business model off the ground requires something different to agreeableness. It requires passion and vision, it calls for team-building and collaboration, it requires dedication and persistence. And, while some of the facets associated with agreeableness are helpful, they alone will not drive the change through to fruition.

Think about many of the leaders of history, for example: Steve Jobs, Jack Welch, Margaret Thatcher, Mohandas Gandhi, Mother Theresa, or Winston Churchill.  Not one of them was reputed to be easy to get along with.  They were each, in their own way, not very agreeable. But, love them or not, they got things done.

But perhaps the agreeable people, who didn’t get promoted, are happier?  Where’s the research on that?

However, it is interesting to note that women displaying agreeableness are less badly off than those not displaying it. Thus it seems powerful women remain undervalued, unlike powerful men.

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Friction, hypereconomics, and social intercourse

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Friction is one of the more important concepts in the world. Many things are either made possible or impeded by friction.

Strike a match and the friction creates a flame. Yet that same kind of friction stops other things from flowing smoothly.

Perhaps the best description of the challenges that arise from friction is from the well known military strategist, Clausewitz:

“Everything is very simple in War, but the simplest thing is difficult. These difficulties accumulate and produce a friction which no man can imagine exactly who has not seen War . . . in War, through the influence of an infinity of petty circumstances, which cannot properly be described on paper, things disappoint us, and we fall short of the mark.”

From: Clausewitz, On War, Book I, Ch. VII

Recently Mark Pesce asked “What happens after we’re all connected?“, and he came up with the answer: “hypereconomics”.

Economics, fuelled by hyperconnectivity and enabled by the removal of friction in processes between people, equals hypereconomics.

And it is this removal of friction in processes, enabled by the internet and mobile technology, that creates the next frontier of opportunities for business.

The combination of mobile accessible applications and peer-to-peer social networks offers an astonishing array of new business opportunities.

In the Arab Spring and Occupy movements we have already begun to see the social and political shifts that are enabled when citizens can communicate and organize effectively through use of mobile technology coupled with social media.

The impact of these political and social movements will necessarily flow on to economic structures. This will create a gap for development of new business models based on removing friction and leveraging peer-to-peer capabilities offered by mobile devices.

Also people are getting used to helping themselves and each other, and the technology is enabling them to act collectively without a great deal of effort. This is the big shift.

We can now collaborate and act collectively even though separated geographically. No longer do we need to meet face-to-face to act. Collective action is enabled and made more efficient with mobile technology in so many hands. And it even facilitates better face-to-face meetings and action (viz. Occupy and the Arab Spring).

I am expecting to see a lot of disintermediation – shifts in the supply chain that that remove some existing intermediary players.

One of the first areas I expect to see this in is new mobile and online peer-to-peer payment models. Another area is aggregation of service providers and potential customers. Up until now aggregating those types of services required large capital investment, but now it just needs a peer-to-peer smart phone application.

If you are an existing economic or financial intermediary it’s time to start planning for this new reality. If you don’t then the dispersed peer-to-peer linked mob might just eat your lunch.

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Navigating the New World of Hyperconnectivity

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This week I spoke at the Recruitment Technology Evaluation Convention in Sydney. The topic was navigating the hyperconnected world from a recruitment and human resources perspective.

The key issues facing businesses now include:

  • Hyperconnectivity and the digital revolution
  • New rules for engagement and recruitment
  • Why community matters more than ever

The proliferation of social computing and huge growth in smart phones means that the communication landscape is changing. No longer are people tied to desk to access applications and the internet. And the high usage of social networks is driving different expectations in our user communities.

Further, there is an increase in social recommendations as an engine of business. The workplace is changing. We are changing both the physical experience of the workplace, with creation of collaborative spaces for people to gather in as well as traditional work stations. Along side the changes in the physical work spaces we are seeing a rapid evolution in social business practices and platforms that mirror the experience of public social networks.

The challenge for businesses today is how to engage and retain staff, and to build a culture that supports the creation of value for all stakeholders. Maintaining relationships with current and former staff members (through alumni communities) and other stakeholders is becoming critical. This is where community management becomes increasingly important.

Also, for many years, employers have taken it as their right to undertake surveillance of various kinds in respect of their current and potential employees. Now we are seeing the rise of sousveillance or ‘inverse surveillance’, where the watchers become the watched.

This phenomenon of sousveillance is merging with the trend towards social recommendations to create reputation networks that not only encompass the personal brands of individuals, but also include corporate brands. This is changing the rules of engagement for all parties. Employees are increasingly likely to bring with them a fully fleshed personal brand and a propensity to use social media as part of their daily lives.

Companies are increasingly demanding that their employees participate in social media on behalf of their brands. This means that the boundaries between personal and corporate brands are likely to blur, and we can expect to see skirmishes along those boundaries. Questions such as who really owns the contacts made via social media that an individual has made during their employment will need to be resolved. We are already seeing legal cases testing this question.

The big challenges that I see (from a company perspective) within the new hyperconnected landscape include:

  • the need to master complexity;
  • finding ways to deal with shifting or blurred boundaries between the public and private or between business and personal;
  • the need to remove friction in processes across silos and boundaries;
  • continued demands to deliver value to all stakeholders; and
  • the increased need to build and maintain relationships and the growing visibility of those relationships via social channels.
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When robots rule the world – the future of jobs in a hyperconnected world

UNSW CSE robot
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Steve Hopkins was telling me recently about an interesting law firm he’d come across in San Francisco – it’s called Robot. Where lawyer and junior partner Tim Hwang and his senior partners, Apollo Cluster and “Daria” XR-1029, work to merge legal and technical systems.

It was this law firm, and an interesting conversation Steve had with Tim Hwang, that sparked the idea for Steve’s session at last Saturday’s Social Innovation Unconference at Barangaroo.

We discussed the time in the future when robots run everything. And it got me thinking just how much robots already do for us. For most people the robots that run things are unknown and operating below their level of consciousness.

But let’s consider some of the work that robots already do for our society:

  • manufacturing – e.g. assembly lines for things like cars and packaging, quality control, building electronics components such as circuit boards
  • call centres – e.g. automated voice response systems
  • financial services – e.g. business decision support systems, straight-through-processing trading systems
  • the internet – e.g. search engine bots or those annoying Twitter bots
  • military – e.g. unmanned combat air vehicles (aka drones)
  • home and industrial cleaning – e.g. vacuum cleaners

I’ve been personally involved in developing and implementing intelligent business systems for a long time. Starting in the early days of voice automation and straight-through processing of financial transactions in the 1990s, through to the present day.

A large part of my work during the late 1990s and early 2000s was automating business processes and removing human beings from business processes. It was a huge shift in labour from human beings to robots. Those were mainly clerical jobs where a computer with a decision engine could easily replicate the work done by people.

Consider the productivity savings achieved by many of those projects; for example one project halved the number of call centre operators through the use of automation. That saving was achieved by addressing throughput constraints in both the inbound and outbound queues.

Firstly savings were achieved through the use of automated outbound calling technology – not waiting for the humans to dial a number but rather having the system start making the new outbound call while the earlier call was finishing. It also improved throughput by automatically bringing up the data entry screens for the call centre staff.

Secondly savings were achieved by adding customer self help options at the start of the inbound call process and by providing support to move customers to online self service. Instead of a human being tied up on the phone for 2-5 minutes with a customer trying to ascertain their needs the IVR and the customer did that work thus freeing up the operators to take more calls.

Arguably these improvements through increased automation were not as good for customers as they were for the bottom line of the companies, nor were they very good for the call centre staff that became redundant. And many would argue (as do I) that shifting the business processing efforts to consumers does not always make for excellent customer experiences. But cost and process optimization is a fundamental business practice.

It’s interesting to consider what other jobs will be removed from people via the next rounds of automation. The jobs that will go next are most likely to be middle class and white collar jobs.

The jobs that could go include: journalists, lawyers, managers and supervisors, warehouse personnel, sales staff (if the sales are all online how many do you need in a store?). Fundamentally, if your job or substantial parts of your job,  can be defined by means of a decision tree then your job is at risk of a robot taking over.

Welcome to the brave new world of work. What’s your plan to survive when robots rule the world?

Note: I’ve left out the entire area of robots for health since I don’t know much about it – but I reckon that will be huge too.

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Maximizing shareholder value should NOT be the only goal of the corporation

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It is interesting to think about this now that we see Occupy Wall Street spreading around the world (even to Occupy Sydney).

Back in 1976  Michael Jensen and William Meckling argued that the solution to the principal-agency problem — business leaders advance their own interests not those of shareowners — was to make the goal of the corporation the highest return to shareholders and to align shareholders and business leaders through granting stock options. Today this remains the prevalent model of organizing and motivating people within organizations in the western world.

I have long argued that this approach evokes extremely dangerous behaviours in companies – creating corporations that are run as if they are peopled by soulless automata.

The construction of reward systems that prioritize shareholder value as the sole objective of the corporation encourage risk taking, little focus on other concerns (such as social and environmental good), and poor treatment of human resources.

Dan Ariely has written about Better (and more) Social Bonuses – it is worth reading. Bonus scheme incentives encourage unhealthy competition and can drive unintended outcomes, such as ignoring due process (as in the various bank scandals such as the recent UBS rogue trader).

One characteristic of the shareholder value model in action is the objectification and monetization of things – people, environment, social good.  This attitude has inherent problems for all stakeholders in a business, even for the shareholders. Shareholders are people too, they live within a society and an environment.  Thus prioritizing shareholder value over social and environmental good is not necessarily good for shareholders.

As a senior manager in large corporations I often found myself referring to people as FTE (a.k.a. full time equivalents). This objectification of the people within the organization – treating them as if they are mere machines – is a characteristic of this shareholder primacy model.

Once the people who work in the business are successfully objectified it is much easier to treat them in ways that previously impossible. It is easier to implement inhumane or unsafe work practices. It is easier to fire people. It is easier to ask people to do things that are unethical.

The other part of this unhealthy equation is the large institutional shareholders in corporations.  Because they represent interested parties at second or third hand again we see objectification of the process.  They too seek only to maximize benefit for the shareholders that they represent.  But  because they represent those shareholders at arm’s length they do not understand the needs or wants of those shareholders.  Thus the real people who are shareholders are assumed to only seek maximum value no matter how that is achieved.

The common thread in all of this that real people with real desires to create a good world for themselves and their grandchildren do not have their interests adequately represented.  Instead we all suffer – people, planet, nature – because of this single-minded pursuit of maximal shareholder benefit.

 

 

 

 

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Building community #sibsyd #sydstart

Social Innovation Sydney
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On Thursday I spoke about Social Innovation Sydney at SydStart along with Selena Griffith, Michelle Williams, and Kim Chen.  Apart from the Social Innovation Sydney team there was an illustrious line-up for SydStart – you can see the list here.

My brief talk was focused on the approach taken to build community around social innovation, and I will expand on it a little here. As I said:

“Our approach is simple. Community is about real people making real connections in real life. We use technology to enable those connections.”

I firmly believe that the power of online connections and networks is given a new depth when we meet in real life. Social networks are wonderful, and I find them to be amazingly useful. But it is when we finally meet the real human being and look into their eyes that the real magic happens. It is when the heart-to-heart connection between genuine people takes places that we see the alchemy.

Looking to the meaning of the word community gives an insight into what I’m talking about:

community
late 14c., from O.Fr. comunité “community, commonness, everybody” (Mod.Fr. communauté), from L. communitatem (nom. communitas) “community, fellowship,” from communis “common, public, general, shared by all or many,” (see common). Latin communitatem “was merely a noun of quality … meaning ‘fellowship, community of relations or feelings,’ but in med.L. it was, like universitas, used concretely in the sense of ‘a body of fellows or fellow-townsmen’ ” [OED]. An O.E. word for “community” was gemænscipe “community, fellowship, union, common ownership,” probably composed from the same PIE roots as communis. Community service as a criminal sentence is recorded from 1972, Amer.Eng. Community college is recorded from 1959.
Source: Online Etymology Dictionary

Thus community is about building “fellowship” and is something that is “shared by all or many”. To achieve it we must bring people together. And one way to bring people together is to have them all focus on an object or objective, in much the same way as we have with Social Innovation Sydney.

Our use of social media and social networking is merely part of the mechanic. But these tools are not the focus, instead they are a mechanism for reinforcing the community that is formed through action, and by conversation and exchange of ideas.

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Customer service in the digital age – what changes?

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During an exchange on Twitter earlier this year with some folks who were attending #scrmsummit we chatted about customer service and about how costs are a real focus for most customer service activity. Thus, rather than focusing on excellent customer service, most organisations focus on the cheapest and most efficient form of customer service.

But it seems to me the starting point must always be understanding what value customer service delivers to your business.

For most businesses customer service – during the purchase decision making process, during purchase, and afterwards – is critical.

Then the question that a business must answer is: how important is customer service to driving sales, and how important is it to drive repeat business? But it is also necessary to understand what form that customer service ought to take to delight customers.

Based on my experiences as a customer in the ‘real’ world many organisations see me as a bother or an annoyance that gets in the way of something more important. It certainly makes switching to an online shopping context rather easy. Mostly there’s no special customer service person with whom I have a relationship. That lack of a relationship makes switching to another supplier very easy. Especially when the main differentiator is service.

However, a personal relationship is not necessarily fundamental to excellent customer service.

There are a few notable example of this.

Sharon, at the local general store, has built up a great relationship with us. We often choose to shop with her rather than at a larger store in town, even though her prices are slightly higher. Because of the relationship we have (and that relationship might just be in my head, I might actually be just another annoying customer, but she never lets me know that). I often choose to shop there rather than buy something online or at another store.

Net-a-Porter is a great example of how to do online customer service. I have never spoken to them, I just order products online. But if there is a problem with fit the return process is so smooth and easy – usually the replacement item is in my hands within 48 hours of sending the return. No questions asked. This makes me happy.

Another example is the guys who just painted my house (for those on the Sydney north shore KMK Painters = highly recommended). They did a fantastic job. Not because they painted the house (although they did that well). It was the little things like turning up when they said they would, cleaning up really well afterwards, patting my dog when she came sniffing around, and helping me to carry stuff from my car. Those little extras were not part of their core mission – painting the house – but these little extras made them stand out from the last lot of painters. It means they’re top of mind for any more jobs.

Three quite different models of customer service. Each good. Each satisfying in their own way. Each earning and retaining my repeat custom. It seems to me that customer in the digital age does not differ much from customer service in any preceding age.

Some thinkers who have interesting ideas about customer service in the digital age include:

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