AlastairThomson.com

Bigger. Better. Faster. Stronger. Cheaper.

No, not that’s not a Kanye West song (although it nearly is…). Today’s article is about what makes us human…and why that should matter for your business.

Given a chance, humans like to -er things. Take something that exists now, and make it into something more than it is now, on some dimension.

Got a car with a top speed of 30mph…how do we get it to 40mph?

Got a machine that churns out 100 widgets a day…how do we get that to 200?

Got a product that costs £100…how do we make much the same thing for £50?

Bigger, better, faster, stronger, cheaper – anything we can do on any of those dimensions means a better product we can sell more of, right?

And we also get a marketing advantage – at least in the short-term while our competitors work out how to copy what we’ve done. Given the choice between trying to sell a product that potential customers see as indistinguishable from every other product on the market and trying to sell a product that’s different from every other product on the market in at least one of those dimensions…I’m taking the product that’s different every day of the week.

Not least because now you’ve given your customers some logical basis to post-rationalise their decision, and head off a bit of buyers’ remorse.

While it’s fashionable to think otherwise, we all buy everything emotionally first and then post-rationalise why we bought it with logic. So you can’t just sell the dream – you have to back it up with logic.

“No, dear, I didn’t waste money buying that fancy car. I bought it because it will get me home faster so I get to spend more time with you.”

Please note I didn’t say the post-rationalisation was actually objectively rational. Just that it provides a framework for the little lies we like to tell ourselves ever since the Victorians rediscovered the ancient Greek philosophers and decided that logic was the purest form of decision-making.

Which is weird, because logic often throws up the very worst decisions imaginable. But then the Victorians – and the ancient Greeks for that matter – never seemed to have any trouble with, for example, supporting slavery or treating women as second-class citizens.

Once you accept the (offensive and wildly incorrect, let me say) position that straight white men are superior to the rest of humanity, then logically slavery and oppression are perfectly justifiable.

There is no purity in logic. It’s just one of the circuits we can use in our decision-making. Which is why wise people recognise the best answers sometimes come from a source other than pure logic.

That said, if you want to sell something to someone, it’s a lot easier if you can sell them emotionally first, and then drop in a logical basis for them to post-justify their decision.

And although I’d recommend only doing that ethically, all of history’s biggest scam artists – up to and including some of the people selling AI solutions today – aren’t especially troubled by ethics.

That’s the pitfall with logic…once you’ve decided logically that stealing as much money as possible from as many people as possible to enrich yourself is a good thing, then logically you should steal from as many people as possible as fast as possible because that takes you closer to your end-goal of living the rest of your life in comfort in a country which doesn’t have any extradition treaties.

And, to be absolutely fair to the ancient Greek philosophers – Aristotle, specifically, in this case – even they recognised that logic wasn’t the be-all and end-all.

I realise if you run a tech business, or work as a politician, it will come as news to you that Aristotle talked about how a blend of ethos, logos, and pathos – broadly, ethics, logic and emotions – were essential to good communication, and by extension to life itself.

The “logic” bit was only one element out of three. Not the only basis for interacting with humanity and making decisions.

Change management

One place all these factors often bump into one another, like a multiple car pile-up on a motorway, is when it’s time to change something inside a business.

You know the sort of thing – sales aren’t where we need them to be, profitability has taken a hit, our costs are too high relative our competition. So it’s time for change.

The wisest words I ever heard on the subject of change management were from an early boss of mine, who used to say, “Changing things is easy. It’s knowing what to leave the hell alone that’s difficult.”

His view was that any idiot can throw everything up in the air and make whatever they were doing before different.

Often that’s why people who are described as “having a bias for action” are so highly prized in organisations, because they throw everything up in the air and make changes everywhere.

To the uninitiated, that looks like a real go-ahead guy or gal…someone we ought to be giving a promotion to.

More often, in my experience, it’s a sign of someone you should be demoting, if anything, because they don’t understand the situation they are changing well enough to make more intelligent decisions.

To channel my old boss’s sentiment – they don’t know what to leave the hell alone.

You see, change management (despite the name) isn’t actually about changing things willy-nilly.

Its about getting a better answer – typically, in my case, an improvement to a business’s bottom line, but the concept applies equally to making more sales or engineering a more reliable product. Once you get your head around that concept, it becomes more obvious that getting a better answer might, at least in principle, be a blend of things you do differently and things that stay the same.

That’s why the term “change management” sets my teeth on edge. “Business Improvement” would be a much better term, but we are where we are in a world that thinks change for its own sake must necessarily be a good thing.

But there’s a flip side to this as well.

As Albert Einstein supposedly said, according to a number of sources on the internet, the definition of insanity is doing the same thing over and over again while expecting different results.

So if you want to improve your business results, leaving everything the same is not likely to be a successful strategy. It’s much more likely that you’ll want to change some things, but not others.

Change everything

One of the many reasons I know AI will never work is that it comes from a “throw everything up in the air and change everything” place.

And that includes changing the things that work perfectly well now which, ironically, usually comes with significant downsides to your business in terms of reduced revenues or increased costs – the precise opposite of what you hoped to get from your AI Transformation Project.

To understand this, you have to put yourself in your customers shoes, first and foremost. You can change anything you like inside your business, but if it’s a “meh” to customers – or, worse, a distinct turn-off – then you’ve wasted your time and money, and ended up in a worse position than where you started.

That’s not smart, but it’s what every AI transformation specialist is doing every day of the week at the moment.

Let’s look at an example.

It’s partly a generational thing, I accept, but I like being able to pick up the phone to suppliers to get problems sorted out on the spot, when possible.

I do not like having to raise a ticket on some soulless interface which promises me that someone will get back to me within the net 48-72 hours. By then my business might be irreparably damaged.

Now, I get it that a soulless interface for raising a ticket is a lot cheaper to operate than having someone available to take an inbound call within a reasonable period of time. I used to run a large call centre operation, so I know how the economics works.

However people working in call centres are not usually paid life-changing amounts of money, so the actual cost of having someone take a call – assuming they are kept reasonably busy – is only a couple of quid a call.

If I’m spending £000s with your business and you’re not prepared to reinvest a couple of quid to pick up the phone every now and again to help me solve my problem, then that’s a sure sign of a supplier I don’t want to deal with if I can possibly help it.

“Oh, but Gen Z prefer interacting via digital methods”, people selling tech solutions often say.

That might even be true (although I doubt it). But not many Gen Z people run £million budgets where they need a key supplier to respond to their queries in less than 48-72 hours. Odds are most of the people who do would prefer to talk to someone on the phone and get an instant answer.

So you have to start where your customers are, not where you would like them to be, or where you were told they would be in a fever dream inspired by the glossy slide deck some sharp-suited salesman took you through the other week.

I can’t say this strongly enough – you will lose business from me if I can’t pick up the phone, speak to someone, and get my problem solved in less than 48-72 hours.

By definition if I’m calling you, it’s not because I’ve run out of things to spend my day on. Its because there’s a major issue and we need support right now.

So if you’re making me raise tickets or chat with some AI tool, I can save you a lot of time trying to pitch me. I’m not interested.

It’s not insanity

That doesn’t mean you need to keep things the same.

When I ran a large call centre, we made no end of changes to our service inside the call centre which made us more resilient, more efficient, and helped us provide a better service to customers.

The difference is that, outside the call centre, you’d never know. Or if you noticed anything at all, you’d just be impressed by the speed and efficiency with which we solved your problem.

We didn’t focus on implementing a change from a customer perspective. We focused on leaving the things the customers liked the same.

But what was going on under the bonnet? That was fair game.

So, if I was running an AI transformation, I’d leave the element people liked the same (ie, picking up the phone to an actual human, if that was my preference, and getting my problem solved) and I’d use technology to enable my call centre agents to service clients better.

I might, for example, make it easier to access the details of a customer account with a single click rather than making the call centre agent tab through several different screens on a piece of helpdesk software to find the details they were looking for.

The “making information easier to access bit” – sure, make changes to your systems. The “people pick up the phone and answer your calls” bit – leave that alone.

Generally the problem with change management as a discipline is that its shorn of any responsibility for, or even concern about, the end-result beyond “change everything”.

That’s partly by design, because otherwise AI transformation people (and their predecessors in areas like digital-first transformations, TQM, and Taylorism) need to find as big a cost base as possible to start with so their fees sound like a bargain by comparison.

If you want to sell a service costing £500k, you ideally want a £5m budget to hack away at, because that way you should be able to find enough ways of saving 10%+ of that £5m budget, thereby justifying your fees. (Mind you, I could probably do that right now without an AI transformation, but that’s not my point here.)

It’s not because that’s necessarily the right answer – it’s entirely about making eyewatering fees look like they’re good value, in the context of the budget they’re starting with.

Frankly, saving £500k out of a £1m business is just as valuable. It’s still £500k. It still lands on the bottom line the same way.

But that pitch is much more high-risk for the change management and transformation community, because that means they’ll have to come up with some really exceptional ideas. The odds of them finding something you don’t already know yourself to the tune of making £500k savings out of a £1million budget are very much against them.

That’s why, even though the right answer from a customer perspective is to leave their ability to call up and speak to a human intact, the change management and AI transformation folks need to get to as big a starting point as possible, because then their £500k fee looks like a bargain by comparison.

“Give us £500k and we’ll sack everyone in your call centre, which costs £10m a year to operate and replace it with an AI-powered customer service system costing just £3m a year” sounds like a bargain, but it’s very likely to be the worst decision you could take.

If you sell low-cost B2C products, that might be OK. Necessary, even, in the face of steep competition. And if someone is spending £50 a year with you, that doesn’t leave much of a margin for high levels of customer service or a high-cost infrastructure.

In B2B – and especially if you deal with senior people – that same strategy is likely to be pretty dumb, no matter what the tech folk tell you about people preferring to interface with suppliers via an app on their phone.

Switching costs

Part of the reason you should leave some things “the hell alone”, in my old boss’s words, are that even if the proposed strategy is reasonable enough on some level, the cost or risks of getting there are out of proportion with the benefits.

This is another way the AI magic beans crowd demonstrate they don’t really understand what they are doing. That’s why they are dangerous.

But, despite my long-held scepticism about AI, the same thing applies to any strategy which boils down to “we need to do X everywhere”.

To quote Abraham Maslow – or at least the version of him that pops up on internet quote sites – “When all you’ve got is a hammer, everything looks like a nail.”

In change management if, before you’ve even started a transformation process, you’ve already decided the only acceptable answer is “AI”, then the likelihood of you reaching the best possible solution is precisely zero.

Not just because I think AI is over-hyped (although I do). But if you’re reading this article in a few years’ time after the AI bubble has burst, this applies equally to anything anyone ever tries to convince you is the single magic answer you need to deploy everywhere in your business.

There are many reasons why any “everything everywhere” strategy is bonkers, but it boils down to the fact that when all you’ve got is a hammer, bashing everything on the head as if they were a nail isn’t always the best solution.

If its the only solution you’ve got, you’ll end up doing plenty of things that backfire on you and your business.

Often that’s because, in a “change everything” world, people forget about switching costs.

What I mean by that is, notwithstanding the theoretical attractions of an idea, making it happen in practice would be so expensive, that the smartest thing to do for your bottom line is not to make the change and leave things as they are.

The best example of that I’ve seen was on a visit to Nissan’s Sunderland car plant a few years ago.

Volume car manufacturing is, as I’m sure you know, fiercely price-driven and hugely competitive. Car factories are full of robots because that means a higher line speed and more efficient production.

But Nissan didn’t have a “robots everywhere” strategy. They had a “lowest cost manufacturing strategy”.

So, after going through a number of robotic processes, the production line snaked through an area where 6 or 8 people are all over the car, putting in the seats, making sure the trim is in the right place, doing the final fit on the windscreen, and so on, before going back into a mostly robot-led phase.

I’m sure it’s theoretically possible to get robots to do all those things. And I’m prepared to bet that the people at Nissan know exactly how to make that happen.

But they wanted the lowest cost solution. Not the most robotic solution.

With that objective, there were just parts of their production process where it was more efficient and cost effective to get a human to do the work than to spend tens of millions on more robots.

The people at Nissan understood the brief.

They weren’t people armed only with hammers walking around looking for nails to bash. Their focus was on low-cost production and they understood that sometimes low-cost meant “robots” and sometimes it didn’t.

When they were building their shiny new factory – one of the world’s most efficient car production facilities, rivalling even Japanese levels of efficiency – and robots started to make their way into vehicle manufacturing, the people at Nissan had a very clear idea of what they were going to change and what they were “going to leave the hell alone”.

Turns out there is no such thing as one answer that works for everything, everywhere, all at once.

Rather, there are times when robots in your factory, AI software, or any other “magic solution” you get presented with is the smart way forward.

And there are times when doing that is spectacularly dumb.

I’ve always found that approaches grounded in dogma or ideology, like “AI should be everywhere” dramatically underperform against solutions which blend different elements together to come up with the best practical solution, one which works for your business and your customers equally.

Or, as my old boss David might say, when you want to make changes, one of the most important things to identify are the things you really ought to leave exactly as they are.

Vibe coding is very much the thing of the moment.

Wherever you turn, there seems to be no shortage of people suggesting that banks vibe code apps to help people transfer millions of dollars via bitcoin to some far off-country in order to save on the money transfer fee.

Or that hospitals should decide which patients’ lives should be saved based on the recommendations of a vibe coded app instead of getting a qualified doctor to take a look.

Or taking legal advice from a vibe coded app when you’re being sued for $millions – whether or not that claim has any legal validity.

By and large, the people proposing those strategies are idiots.

Vibe coding is fine for really simple stuff for your own amusement with no downside risk, like animating a photo of a much-loved, but long-departed, pet.

But it’s a really terrible way of handling any of the tasks outlined above because they all require nuance, the ability to manage complexity, and an appreciation of risks that go beyond the formulaic surface-level logic that computer programmes (vibe coded or otherwise) run on.

What’s extra-puzzling, though, is how little appreciation vibe coders have for a mature decision-making process.

By this point in the mid-2020s, pretty much everything that can be put into a simple formula already has been. Large-scale, personalised automation was commonplace in direct marketing, for example, long before vibe coding came along.

And critical business systems, like accounting systems, for example, are highly automated nowadays. Yet, to make sense of what the vibe coders on Twitter are saying you’d have to imagine we still prepare accounts with a quill pen, an abacus, and handwritten ledger books.

Modern accounting systems run reliable, repeatable processes at scale in a way that a vibe coded app is very unlikely to be able to do. That’s because people like Sage and Xero have spent several decades doing their best to make robust, reliable, dependable accounting systems available to pretty much everyone in the world for just a few bucks a month.

Why reinvent a wheel that doesn’t need reinventing, and introduce a whole new level of risk into the process into the bargain? This hardly seems rational.

Yet vibe coders think that transferring $millions around the word, handling complex legal or tax questions, and deciding whether or not someone in hospital should be given life-saving treatment, is a perfectly reasonable thing for vibe coded apps to do.

Even though pretty much none of the people who are happy to be cavalier with your financial information, or making potentially life-altering tax or legal decisions for you, thinks that vibe coding an aeroplane or a car would be a sensible course of action.

That’s because, in their naivety, building a car or an aeroplane seems “difficult” to vibe coders, but weighing up all the factors to make life and death decisions, or making complex legal or tax filings, is “easy” because they think those decisions are made now by following through an if/then decision tree which they can replicate with the aid of some crappy AI chatbot.

I mean, that’s not how they are made at all. But if, like most tech folk, all you see when you look at a situation is formulaic, surface-level logic, that’s an easy trap to fall into. After all, that’s all you need to make a computer programme work.

It’s just not how skilled professionals in any field work in the real world actually operate – at least not in totality. Of course there is some surface-level logic involved. But the ultimate decisions are not exclusively based on surface-level logic, and never can be.

Vibe coding a Cadillac

Let me say again that vibe coding anything non-trivial is a terrible idea.

But, just for the sake of argument, let’s imagine vibe coding a car might be something we’d want to do.

How would that work?

Well, thankfully we don’t need to imagine how it might work, because back in the early 1970s a guy called Wayne Kemp wrote a song about doing precisely that. It was called “One Piece At A Time”, and was a big hit for Johnny Cash in 1976.

Wayne Kemp’s song is the story of a country boy who moves to Detroit to work in a car plant and, envious of the shiny new cars passing him every day, forms a plan to steal a new car for himself.

Obviously, he couldn’t just drive one off the assembly line, as he’d be caught and fired. So he decides to steal a car “one piece at a time” to build for himself at home.

His theory was “I’d get it one piece at a time / And it wouldn’t cost me a dime”.

With the aid of some friends and an extra-large lunchbox: “The first day I got me a fuel pump / And the next day I got me an engine and a trunk / Then I got me a transmission and all the chrome”.

This is the vibe coder’s dream. Starting somewhere, then scrappily iterating their way through a range of tasks, navigating through a series of twists and turns, then magically ending up with a valuable product at the end – like an app. Or, in Johnny Cash’s case, a new Cadillac.

Now, Johnny Cash reckoned that his finished automobile would be worth a hundred grand, which isn’t a bad rate of return for a product where the parts cost him nothing (putting aside the moral and legal issues involved in theft for a moment).

Nowadays vibe coded apps are, so their backers claim, worth $billions. So there’s a similar level of delusion at work here.

One important blind spot

The conceptual problem vibe coders and people stealing Cadillacs one piece at a time share is that they assume a static external environment.

But whether that’s assembling stolen Cadillacs or vibe coding money transfer systems, that is unlikely to be a good assumption.

As Johnny Cash discovered when he came to put his “hundred grand Cadillac” together: “The transmission was a fifty-three / And the motor turned out to be a seventy-three / And when we tried to put in the bolts all the holes had gone”.

This is theory meeting the real word, like when vibe coders discover that most countries tightly regulate their financial services industry, mostly to stop the sort of people who become vibe coders from stealing customers’ money, and their “ever-so-smart app” doesn’t have the necessary security protocols built in.

So after complaining like little kids about the fact that their vibe coded app isn’t approved by the financial services regulators as some sort of conspiracy against them – it isn’t, it just means a bunch of amateurs didn’t take the time to understand the landscape into which they were launching their app – they set about making the app fit the regulations they have only just found out about.

Of course, because they still don’t really understand what they’re doing, they hack their way through, a bit like Johnny Cash.

After realising that all the holes for the bolts had gone, Johnny had a plan: “So we drilled it out so that it would fit / And with a little bit of help from an adapter kit / We had that engine running just like a song”.

At this point, the vibe coders imagine their work is done, but all they’ve managed to create is a Frankenstein-style monster which does nothing but attract the ridicule of people who actually know what they’re doing. Whether that’s car designers or actual lawyers, doctors, and accountants.

“Now the headlight was another sight / We had two on the left and one on the right / But when we pulled out the switch all three of them came on.”

The end result

The end result of vibe coding is a mess, whether you’re vibe coding a banking app or vibe coding a car.

Johnny Cash ended up with a “’49, ’50. ’51, ’52, ’53, ’54, ’55, ’56, ’57, ’58, ’59 automobile”.

The fact that your vibe coded app might have a shiny user interface doesn’t take away from the fact that, under the hood, it’s no less worthy of ridicule than Johnny Cash’s Cadillac.

It’s not that incumbents shouldn’t be disrupted – that’s what capitalism is supposed to be all about.

It’s that a bunch of naïve amateurs are likely to do more harm than good if they just mess around without understanding what’s really going on, the structure of the industry, and any potential legal or regulatory guardrails.

It’s also likely that vibe coded software is bloated and inelegant because it’s been built piecemeal, one bit on top of another, like Johnny Cash’s Cadillac, rather than being approached with a clear brief from the outset and a drive to create the most efficient way of getting the job done.

There’s a reason people don’t vibe code cars.

The end result is a ridiculous abomination of an automobile, with only one tail-fin, and two headlights on the left, but only one on the right.

If you think you’ll run an efficient, cost-effective business with systems assembled “one piece at a time” like Johnny Cash’s Cadillac, I’ve got news for you. Just go out and buy a Cadillac – in the long-run, doing things properly right out the starting gate is always more cost effective than bumbling around for a few years, hoping you might get your steam-powered, Frankenstein monster systems working to the same level as something already designed for the job.

We live in an increasingly complex world, but what often seems to be missing in company decision-making is an acceptance that we need to make choices.

Often, there’s a sense of “we can do everything” when faced with major decisions. But the reality is that nobody can cover every option. Everything is about the choices and trade-offs you make for your business.

Now, there’s a very fertile market in people who want to persuade you that you really can have everything you want. Those people are mostly con artists, or work in AI (but I repeat myself).

The reality is you can’t, though.

A relatively small number of strategic decisions set the template for your business. Once you’ve set that template, you’re pretty much betting the company on that working out.

For example, if you decide that your overarching objective is to minimise customer service costs, then you’ll probably fire all your call centre staff and replace them with AI bots.

The minute you make that decision, though, you effectively decide to run a purely transactional business where customer loyalty no longer matters.

Now, that’s a perfectly reasonable business decision, if you go into it with your eyes open, but now you’re locked into a very specific business model, whether you like it or not.

It means you’ll have to shift your marketing to an entirely “they do it for X, but we can do it for 10% less than X” model.

In the short-term, it’s entirely possible to run an outwardly successful business like that.

At least, until Amazon decides that you’re in a market they’d like to be in. Then you don’t have a business any more, because they’ll out-compete you on price every day of the week without breaking sweat.

Or until the Google ads or Facebook ads which drove traffic to your “we can do it for 10% less” offers dries up because your competitors, who all follow the same strategy, keep bidding up the click costs to the point where it becomes uneconomic to sell your products that way.

And it also means that at least a proportion of the people who used to buy from you might decide that AI-powered customer service and the relentless degradation of your products to keep that 10% price differential isn’t to their liking, so they end up taking their business elsewhere.

Remember, you don’t need everyone to do that for you to have a big problem on your hands. Most businesses, were they to lose just 5-10% of their customers, would quickly run out of cash.

So the choice that you make when you decide that the over-riding priority for customer service is to minimise the cost of delivering it means that you’re locked into all sorts of other decisions, many or all of which have the potential to backfire badly on you somewhere down the line.

“Strategy is about choices”

I’ve always loved that line from Michael Porter. Mostly because he’s absolutely right.

When you choose to do something, by default you decide not to do something else.

You can’t both shut down your call centre and also have high levels of personal service delivered by the people working in your call centre. It’s one or the other.

As a side note, it’s also why I get irritated about the word “strategy” popping up in places it has no business being, just so someone can feel important.

I don’t need an “expense claim strategy”. I just need someone to efficiently refund expenses incurred for business purposes by staff members.

So there’s no strategy there, because you have no choice to make – you’re going to give your staff their money back. There are just some practical decisions to be made about how to pay back business-related expenses to the staff who incurred them.

If there isn’t a very fundamental decision to be made, you don’t have a strategy at all because you have no fundamental choices to make. You just need to take care of something on a practical level.

There is a trick to this, though. You have to pitch the choice at the right level or you’re essentially gaming the decision-making process.

“First” businesses

A few years ago, it was fashionable to have a “digital-first” strategy. Now it’s common to have an “AI-first” strategy.

I can’t say this strongly enough, but neither of those decisions is a strategy-level consideration, although people are often tricked into thinking they are.

And that’s because the answer is in the question.

If you’ve already decided that digital is the way forward, from that point onwards you are only choosing from a range or digital options. Every non-digital option has, by definition, been excluded when you set a “digital-first strategy”.

That also means, by definition, if there is a better non-digital strategy, you will completely ignore that in favour of a worse outcome, because the decision has already been made that you are only able to select from the range of digital choices available.

From a business strategy point of view, this is nothing less than insane.

You might think I’m being a little harsh here, but when you set up your decision-making structure in a way which ensures your business can only choose from a range of sub-optimal outcomes, “insane” is the politest word I can think of to describe this.

You might well have a customer service strategy, within which there are some digital elements and some non-digital elements, for example, to reflect the areas in which each of those options is stronger.

But to have a digital-first strategy, and with that decision, rule out every other potential option – even options which offer a lower cost and better service than you have at the moment – is wild.

However the only reason businesses do that sort of thing is because tech vendors have essentially conned people into thinking they don’t need to make a choice, because…as if by magic…they can achieve perfection through a range of entirely digital options.

What this essentially does is outsource your strategic decision-making process to whichever shiny-suited salesperson has just waked into your office with a glitzy slide-deck in hand.

If you fall for that, good luck to you. You’re going to need it.

Strategic opposites

The great Rory Sutherland has a line about the opposite of a good strategy also being a good strategy.

So, a price-driven, high volume retailer like Asda can be successful. As can a high-price, high-touch business like Fortnum & Mason.

Their strategies are complete opposites, but both strategies make sense. The job of each of those businesses is to make sure all the other decisions they make are consistent with their respective strategies.

If Asda starts selling vintage brandy-infused cherries for making $100 cocktails, they’ve gone off-track. As would Fortnum & Mason selling bumper value family packs of own-brand cornflakes.

The key here is not that, on a product by product basis, both Asda and Fortnum & Mason, couldn’t probably articulate a business case to sell those products in their own right – I’m sure there would be a positive margin to be had.

It’s linking the decisions to do, or not to do, either of those things back to the strategy of being a value-led business or a providing a high-quality experience which is the really important part of the process.

Deciding to be digital-first, or AI-first, is like Fortnum & Mason having already decided to sell family packs of own-brand, value-priced cornflakes. Your only job is to put them on a shelf somewhere in the breakfast cereal aisle.

The key here is consistency – is the experience of your customers consistent with the market you are set up to serve or not?

Neither Asda nor Fortnum & Mason are “wrong”. They’re just different. And each behaves consistently within the strategic framework they’ve set as a value brand or a premium brand.

Both of those businesses are very clear about who they serve and what they offer. Customers make their own decisions about which organisation they want to spend their money with.

But neither Asda nor Fortnum & Mason are trying to serve everyone. Or pretending they could, even if they wanted to.

So why should you?

Logical consistency

Many tech solutions fall down due to a lack of understanding of the difference between Asda and Fortnum & Mason.

It is impossible to fire all the people working in Fortnum & Mason, switch everything to AI, and expect still to have a premium business in a few months’ time.

I don’t care what stats someone shows me about how much people love AI (those stats are all lies, by the way) but only a very small part of the reason people buy things from Fortnum & Mason is to get their hands on a specific product.

You could easily find ways to store and ship products using robots in a warehouse just off the M1 much more cheaply than you can sell using lots of human beings pacing the halls of a huge store located amongst some of the world’s most expensive real estate in the heart of London’s West End.

If lower prices and Amazon-like service were the primary driving factors for Fortnum & Mason shoppers, they wouldn’t have any customers.

So the strategic decision to make isn’t “digital-first”. It’s “what are the best decisions we can make which are consistent with our value-brand, or premium-brand, strategy?”

Some of those decisions may well be digital or AI-based. But not all of them. Perhaps only a minority of them.

Upgrading the tills at Fortnum & Mason might well be a sensible digital decision to speed up reporting, or help manage logistics better, for example. But that digital decision is still entirely inconsistent with the ethos of the business. People just want to swipe their credit cards efficiently and breeze off for tea at the Ritz.

Whereas shutting the store, flogging off the prime real estate, and getting everyone to order online would certainly be consistent with a digital-first strategy.

It would, however, probably end with customers leaving in droves for other fancy high-end retailers, because they’re not just buying a product from Fortnum & Mason. They are buying a high-quality end-to-end customer experience, which includes lots of high-touch intervention in an impossibly glamorous setting, none of which you can replicate digitally.

So if you’re tempted to go all-in on AI, or develop a digital-first strategy, just pause for a moment.

That makes no more sense than deciding to have Ford-first car-buying policy or an Asda-first cocktail ingredients policy.

Just by setting the parameters in a way which means you can only consider digital solutions – even when there are demonstrably better non-digital options – means you’ve likely set your business up for failure.

Keep your strategy decisions at the right level – it should be “how do we serve our target customer group more effectively?”, not “out of a range of sub-optimal decisions, which is the least worst?”.

To my continued astonishment, in an AI-first world, far too many businesses which ought to know better are, consciously or otherwise, taking the second of those two options.

Don’t copy their mistakes. “Digital” or “AI” isn’t a strategy. They are, at best, one of the ways in which you might choose to run a small part of your business.

Thinking otherwise means you’ve locked your business into a “tail wagging the dog” situation.

And that’s not smart. No matter how many statistics a tech salesperson has in their “you really can have everything you want, as if by magic” slide deck.

If there’s one expression which immediately makes me think “Oh, lordy, what incredibly dumb thing have they just done?”, it’s this:

“Look how much I saved!”

Now, just in case you think I’ve had some sort of seizure, saving money isn’t a bad idea in itself. As a Scottish accountant who has lived in Yorkshire for 30 years, I appreciate saving money every bit as much as you would expect someone with that background to appreciate it.

The problem comes when someone leads with “look how much I saved!” and not with, for example, “look at how much better we can serve our customers – and it’s extremely cost-effective” or “look at how much our quality has improved as a result of this little tweak to our production process – and it doesn’t cost as much as you think, if anything we make a saving overall”.

“Look how much I saved!” (and yes, it always seems to come with an exclamation mark) is an almost guaranteed sign that what I call dumb cost cutting has just taken place.

Dumb cost cutting is a penny-wise, pound-foolish approach to reducing costs which is remarkably common in organisations which should know better. And while it’s especially prevalent in the public sector, because there’s almost nothing in our universe dumber than the average politician, many organisations in the private sector are also deeply wedded to the sort of short-term dumb thinking that ends up doing more harm than good.

Sadly, there are times when an organisation has to slash and burn. When its very survival is at stake, for example.

But, on the assumption that your organisation is being run by intelligent, hard-working people, those occasions should be rare to non-existent. (If they’re not, you might want to question whether those two pre-qualifying conditions have been met before resorting to dumb cost cutting as the solution to your problems.)

Dumb cost cutting

Before we get into what to do instead, what is dumb cost cutting, and why should you move heaven and earth to avoid it?

It’s very simple to spot dumb cost cutting. That involves taking everything you do and trying to do it cheaper.

It’s not that becoming more cost-effective is a bad thing in itself. You should absolutely be trying to do that.

But when your only goal is “take what we do now and do it cheaper”, you make a number of fundamental errors which are likely to come back to haunt you.

These fundamental errors include: imagining that the only reason your business struggles to make money is because your input costs aren’t low enough; that there is no better process to produce whatever you produce than the way you do it now; and that people only buy products and services like the ones you produce because they are cheap.

If those statements were true: you wouldn’t need a sales team or a website because your products would sell themselves; the Japanese car industry would never have worked out how to out-compete Detroit on price, quality, and reliability; and nobody would ever buy a $2,000 handbag.

So, hopefully we can agree that, since none of those initial statements are accurate reflections of reality, cheapness alone should not be the only guiding factor for making decisions in your business.

Of course cost should be a factor in your business decisions. It just probably shouldn’t be the only factor – other factors are at least as important, possibly more so.

It’s still my favourite example of dumb cost cutting, but just to illustrate the point, I used to work somewhere that dramatically slashed their marketing costs one year and couldn’t work out why, the following year, they had no customers.

There are many things they could, and perhaps should, have done with their marketing budget to make it more effective, but given a choice between saving 5-figures in cost and losing 7-figures in annual revenue, I know which decision I’d be taking.

At the moment, a popular dumb cost cutting technique is to replace people with AI, even though AI is generally terrible at any human-facing activities. So unless you only sell to internet bots, you might want to pay especially close attention during the next section.

How to manage your cost base better

There are three simple ways to manage your cost base better that you should be thinking about whenever you feel the need to reduce costs inside your organisation.

1-Task vs outcome

One of the sad truths about dumb cost cutting is that, at least at a superficial level, it sounds like it works. Even though it usually doesn’t.

And one of the primary reasons it sounds like it works is because what I call “an engineering mindset” has taken root in most organisations. You’ll recognise this – it’s when you take a problem and break it down into its component parts to work out what’s gone wrong, then fix the bit that’s broken to miraculously return everything to the way it should be.

Now, if you’re an engineer solving an engineering problem, this is a perfectly reasonable strategy.

In most other areas it’s less helpful. That’s largely because of a subtlety in the engineering mindset which isn’t carried over to non-engineering applications.

Think of it like this. Every single component in a new BMW can be bought more cheaply than whatever BMW pay for it now. Every single one. I absolutely guarantee it.

However, if BMW replaced all the disk pads in their braking systems with an inferior (but cheaper!) option which meant hundreds more BMWs were involved in accidents the following year, I can guarantee BMW would switch back to their original, more expensive, brake pads pretty darned quickly.

That’s because BMW know that, by and large, people who buy expensive cars tend to avoid models which are more likely to burst into flames than other comparable models.

So anything your business buys, it can probably buy cheaper if you put in the work.

But you don’t just want “cheaper” if you want a sustainable business. You also want whatever your equivalent is of “make sure our cars don’t skid off the road and burst into flames”.

Everything is a trade-off. And where there’s a trade-off to be made, you should always avoid the “bursting into flames” option even if you could save a couple of quid somehow buying an inferior substitute.

2- Customer experience

Most organisations are cocooned inside their own little world. People think about “how to improve their absence statistics” or “how to hit 7.0 on their NPS score”. People build careers on being able to do those sorts of things.

However, when you’re doing something like that, you’re doing it to satisfy an internal driver – your boss, the board, some industry league tables, or something else.

Now, there’s nothing inherently wrong with any of those objectives. All things being equal, you should absolutely be trying to satisfy those objectives too.

However, all objectives like those assume the role of a customer in the process is irrelevant.

I’ve always found that peculiar.

Last time I checked, only customers give businesses the money they depend on to survive and thrive. So your real objective is to provide a service that’s as close to perfection as possible in your customers’ eyes, whatever anyone inside your organisation thinks.

And I can guarantee you that not a single one of your customers cares about your absence statistics, your NPS score, or how many of your KPIs are green on the KPI dashboard this month.

In most organisations I’ve worked at in the past, vastly more time is given up to managing absence statistics, or hauling people over the coals for not having enough green KPIs on their reporting dashboard, than is devoted to finding out what customers really want and delivering that to them.

That doesn’t mean going overboard and spending $1,000 to sell something a customer pays $500 for. You need to keep it in proportion, but that’s not usually a problem – someone buying a $5 handbag normally has an entirely different set of expectations than someone buying a $2,000 handbag.

Manage your business like you sell $5 handbags, and I can guarantee that soon you won’t sell any $2,000 handbags.

And, indeed, vice versa.

Neither is inherently right or wrong, but those are two entirely different customer experiences, which should be reflected appropriately in your cost structure, because they tap into two entirely different customer mindsets.

By and large, people who buy $5 handbags will be delighted if you start offering $4 handbags.

Whereas the $2,000 handbag brigade will be less inclined to buy another one if you start selling $1,000 handbags. They would much rather you developed a $3,000 handbag so their $2,000 handbag acquires some of the higher social cachet of its more expensive stablemate.

Neither is right or wrong, but you need to be really clear which customer experience you’re setting out to satisfy. Random dumb cost cutting in the wrong place is likely to cause more harm than good.

3- Build value vs cut cost

Most important of all, dumb cost cutting focuses on only one part of the equation. The cost of running your business.

Yet how much your business is worth depends on the value it generates not the cost of running it.

Imagine two businesses in the same sector. They sell an identical number of units every year at an identical gross margin. The only difference is that one business sells their products at half the price of the other one.

Business A has $1m in sales, $500k in costs, for a gross margin of $500k.

Business B has $2m in sales, $1m in costs, and a gross margin of $1m.

All things being equal, if they went up for sale at the same time, Business B will be worth at least twice as much as Business A (possibly more), even though they sell the same number of units of the same product at an identical gross margin.

Given a choice, which of those two businesses would you want to be running?

Many – possibly too many – businesses think they are in the cost minimisation game.

Which is unfortunate, because businesses are actually in the value maximisation game.

And although that sounds like much the same thing, it isn’t.

When you think you’re in the cost minimisation game, one of your underlying assumptions is that nobody will pay more for your product or service than whatever they pay now.

Unless you’re selling Rolls-Royces, Hermes scarves, or Hollywood mansions, that’s unlikely to be true.

The question you really need to ask is what additional service or feature can you add to what you do now which, from a customer perspective, will add value to them, and which you can deliver at a cost lower than the additional value you deliver at present.

You’ll develop a more valuable business in the process – and ironically do so by charging customers more, not by cutting costs.

What’s more, your customers will be happy to pay more in return for you delivering much more value for them, even though it costs more than they were paying before.

It really is a win-win when you switch your mindset from cost minimisation to value maximisation. It’s a win for you, and it’s a win for your customers.

Go on, try it sometime. You might be pleasantly surprised at the results.

When you’re trying to assess how a business really sees the world, you’ve got two choices.

You can pour through every page on their website, and check out all their publicly available strategy documents, covering things like their commitments to people, customers, and product quality.

Or you can visit them and ask to go to the toilet.

The first of these will tell you almost nothing. That’s mostly PR puffery which will tend to gloss over any difficult areas and whitewash and/or greenwash their company activities at every turn.

(And, before you say it, AI won’t help. It’ll just summarise the thousands of lines of puffery to the standard of a moderately-intelligent 8-year-old. And I can save you the bother – they all say customers come first, that their people are their most important asset, and that they are responsible corporate citizens who wouldn’t dream of doing anything to harm the environment.)

The second strategy tells you everything.

I used to work in the manufacturing sector, and when I visited suppliers and potential suppliers’ factories, I always made an excuse halfway through the factory tour to nip to the toilet on the shop floor.

What a company really thinks about their people is basically the conditions you find in there.

And what they really think about their people will manifest itself in how much their people are likely to care about the products they would be making for us.

And how much people cared about the products they were making for us directly determined the quality of our own products, and thereby the quality and service we could give to our customers in turn.

It’s a strategy that never failed.

Clean, decently-furnished, well-cared-for toilets on the factory floor always translated into “Grade A Supplier”.

Along the way, I may have gained a reputation as the man with the weakest bladder in the printing industry, but that seemed like a small price to pay at the time…

It’s more difficult with customers

Most businesses aren’t stupid.

There’s usually a big difference between customer toilets, imbued with the gentle fragrances of the Himalayas and fully-stocked with soft towels made from 500 thread count Egyptian cotton, and their smelly, grease-encrusted, graffiti-covered equivalents on the shop floor.

Most businesses will put their best foot forward with a customer, because they are the people bringing money into the business.

Which is why I had to manufacture an excuse for a shop-floor toilet visit to see what was really going on in our suppliers’ factories.

Generally, though, businesses are successful in maintaining the divide between the “front of house” and the “backstage” elements of their business. And not just in how they manage their toilet facilities.

So, while it’s rare I come across this in the wild, finding a business whose customer toilets are in a complete state is pretty rare. They might not care about their workforce in the slightest, but most companies will at least pretend to care about their customers.

Now, that’s not to get all shirty about those days when everything has gone wrong inside a business and, for whatever reason, the customer toilets are in a complete state and everyone inside the business is horrified and endlessly apologetic about the situation.

There, but for the grace of God, go us all.

I tend not to get too judge-y about isolated incidents.

But there’s a café not far from me – part of a nationwide chain – which always puzzles me. Their complete lack of concern for their customers over an extended period of time is so pronounced that I’ve developed a mild fascination with the place.

At least 18 months

This has been going on for at least 18 months but, one weekend just before Christmas, it took a turn for the worse. Something I wasn’t sure was even possible.

For about 18 months, the soap dispenser in the customer toilet has been broken. It was one of those clear plastic containers that is screwed to the tiles next to the sink. You push a button at the bottom of the container to release a dose of liquid soap when you want to wash your hands. You know the kind of thing, I’m sure.

Now, this café isn’t somewhere I go regularly out of choice, due in large part to the state of their toilets, but also because about half the times I go there, they make my flat white with semi-skimmed milk instead of full-fat milk, thereby undermining one of the most fundamental laws of the universe. (Although it’s also possible I’m a little pernickety about the way people make my coffee…)

It is, however, particularly convenient for a place I do visit semi-regularly. So when I was out and about just before Christmas and felt the need for both a restorative flat white and a brief stop to relieve the pressure building up on my bladder, this particular café was the most convenient option.

Not expecting much, I nipped to the toilet, where the soap dispenser has been broken for 18 months. The usual ultra-cheap pump-action bottle of handwash placed next to the tap as usual, although this time with no handwash actually in it…so I guess nobody had paid this bathroom the slightest bit of attention for hours, even though they had a lot of staff on and the café itself wasn’t that busy.

The screws which used to be there to support the old, broken soap dispenser were still there, though, sticking out of the tiles.

However, in today’s little twist, it turned out that the hand dryer was now broken too and a roll of that blue paper roll they use in catering had been placed on the floor next to the toilet for customers to dry their hands with.

I don’t know about you, but even allowing for the fact that emergencies happen, of all the places I might put hand-drying paper in the customer facilities, right next to the toilet is not one of them.

Having thoughtfully put in some paper towel for hand drying, however, nobody in this nationwide chain thought it might be a good idea to also have somewhere to dispose of the paper after it had been used to dry people’s hands.

So, piled up in the corner of these customer toilets was a small mountain of discarded, used blue roll, again giving the distinct impression that no member of staff in this café had as much as popped their head around the door of the customer toilets for at least a couple of hours.

I very quickly got about my business…whilst touching nothing I didn’t absolutely have to…and dried my hands on a paper napkin from another café chain I happened to have in my coat pocket. I took that napkin with me and dropped it into a bin outside, then kept on moving.

There was no way I was getting a coffee from that place after experiencing what they really thought about their customers.

The irony

The irony with organisations like this is that they think looking after customers is an overhead cost to be minimised, when (a) usually it costs little or nothing anyway and (b) it’s actually a great strategy to drive revenue growth with a phenomenal RoI.

All you’ve got to do is care. Even just a little.

The cost of fixing that soap dispenser 18 months ago? I don’t know – £50…£100?

Not much however you look at it. But they’ve lost at least £50 in potential sales since just from me as I’ve stopped visiting this coffee shop when I’m in the neighbourhood. It’s become a place I actively avoid unless I have no choice, whether for caffeine-related or bladder-related reasons.

If just one other person felt the same way, on the cost of fixing that soap dispenser, they’re making a 50% Year 1 RoI. That is a level of return you won’t find from many other investments nowadays.

But more than that, my experience is that the people who can’t get the little things right rarely get the big things right.

So, even though this café offers their chain’s usual variety of food options, I never buy food there and only buy my coffee in a takeaway cup.

An establishment that has as casual an approach to the state of their customer toilets is unlikely to be fastidious about their food hygiene standards. Or indeed whether or not they use whole fat milk in their flat whites. The overall impression given by this place is that they are people who just don’t care about their customers.

Now, I’m sure that because they are part of a national chain, the local staff have to get approval from someone to spend money to fix soap dispensers, and similar things. Which is fine – for the sake of a week or two, I’d understand. But after 18 months, either the local staff haven’t cared enough to raise the issue or the national chain’s managers haven’t cared enough to spend £50 for their customers.

Doesn’t really matter which one it is. Neither option gives me a warm and fuzzy feeling or makes me want to spend my money there.

But I’m sure, overall, this outlet must do well enough financially that nobody from head office wants to close it down. There’s limited local competition (the nearest similar establishment is a couple of miles away) so they can, to some extent, milk that for as long as that advantage exists.

However, if another coffee shop chain gets the OK to put an outlet a few hundred yards away, and that chain offers clean toilets and flat whites made reliably with full-fat milk, then, firstly, I’m going to stop there vastly more often than I currently visit the café with the broken-down toilets.

I’ll end up giving them more money just because I’ll go there more often. I might also buy some food from them as well, further boosting their takings. And I probably won’t be the only person.

But, more to the point, what is the cost of keeping your customer toilets at least moderately clean over and above the cost of fixing a soap dispenser?

Effectively nothing. All it takes is for the store manager or a member of staff to care just a little and get things sorted out. Sure, it might take a couple of minutes every now and again to clean the toilets, but the staff are already there and being paid a straight salary whether they do nothing or clean the toilets, so why not clean the toilets?

And it’s cost-effective too. Fixing the soap dispenser or the hand dryer is a one-off cost, but then it means you don’t need to think about those things from that point onwards. The alternative is that part of your intellectual bandwith and a couple of minutes here and there needs to be devoted to sorting out the toilets when, if the hand dryer and soap dispenser are fixed, you don’t need to spend that time or mental energy at all.

That’s why I find it so puzzling when people don’t look after the small details.

In literature, they eyes might be the window to the soul.

But, when it comes to a customer experience, the toilets are the window to how that company really thinks about them.

Decide on the maintenance schedule for your soap dispensers and hand dryers accordingly. Little things really do mean a lot…in your customers’ eyes.

Who has the most important set of eyes in your business?

The board?

The CEO?

The unions?

The workforce?

Your longest-serving employee?

Nope. None of the above.

It’s your customers.

You see, you might have none of the above things…or you might have a woefully incompetent incarnation of one or more of them…but as long as enough customers willingly hand over their money, you’ll have a successful business, no matter what else is going on around you.

Now, at some level, you’re probably nodding along here.

“Of course, customers always come first!” you’re probably saying to yourself.

But ask yourself…do they really?

Because if they did, you’d probably design your systems entirely differently.

You certainly wouldn’t do this…

At the garage

My car needed a little trip to the garage recently. Nothing major – a sensor which was bleeping for no reason and a tiny scratch to the paintwork, about an inch long, which I wanted to be professionally patched-up rather than risking me ruining the bodywork. (I am terminally clumsy.)

I’ve driven Fords for years – when you’re a larger-than-average sized human, Fords are great. Even tiny Fords fit me in nicely but, perhaps surprisingly (to me at least), a huge Mercedes can be a bit of a squeeze. So I love my Fords.

And, for over 15 years, I’ve taken the cars I’ve owned to my nearest main dealer for servicing. They’ve been part of a nationwide chain for most of that time but, until recently, each dealer ran more or less independently.

However I could tell this dealer has been through a few changes when I tried to get my car looked at recently. And whoever was responsible for those changes has clearly never met a customer, or even thought very much about them.

I called up the Service Desk – a group of people I’ve spoken to often over the past 15 years or so. They’re all great people, and very helpful.

However I was diverted to a call centre hundreds of miles away rather than having the people in the local dealer who would do the work on my car pick up the call.

I’m sure someone did the analytics on this and decided this was more efficient somehow, although I suspect it isn’t really. But, at that stage, I was prepared to go with it.

I explained my problem and the lady on the phone said two interesting things.

Firstly, she said I’d need to pay to get someone to give me a quote for fixing my car, and I’d need to leave the car with them all day for them to do that as it was impossible for someone to take a look while I waited in the dealership for 20 minutes.

This was a new one on me – what normally happens is I take my car to the dealership, one of the mechanics spends 2 minutes having a quick look at the problem and someone on the service desk costs of the time and the parts based on what the mechanic tells them.

I arrange to bring the car back a few days later when the parts turn up, the mechanic fixes the car, and I hand over my credit card.

Since the dawn of time, that’s been how these transactions have worked in every garage I’ve ever taken a car of any make to. But not any more, it seems.

So I was a little irritated. But not nearly as irritated as I was by what she said next.

That’s because the call centre agent, having found a time to book my car in for someone to charge me for the privilege of telling me how much it will cost to fix, then told me that I’d have to call a different number to get someone to look at the bodywork – the appointment she had just arranged was purely to check out the sensor.

It gets worse

“Well, couldn’t they just take a quick look while the car is in for the sensor check I’m already paying for?” I asked.

“No,” she replied. “Our bodywork service is now a separate company within the group so I can’t access their booking system. You’ll have to call them directly.”

“So,” I clarified, “I’m going to have to drop my car off with you for the entire day so you can charge me to give me a quote to fix my sensor. And then I’m going to have to bring it back another day to leave my car with the body shop people so they can take a look at it and charge me for a quote too?”

“Yes, that’s our system,” she replied. “It’s standard practice.” (I mean, it hadn’t been standard practice for the 15 years prior to that, but I tried my best to stay calm. It wasn’t the call centre operator’s fault she was working for idiots.)

I tried again. “You want me – at no small inconvenience to my ability to get to work – to let the dealership have my car for two days in quick succession, just so you can charge me for a quote, because it’s impossible for you to arrange for me to get my car looked at by two different people, both of whom work for your company, on the same day?”

“I wouldn’t put it quite like that,” she said, “but there’s nothing I can do. That’s our system. I can’t commit the body shop people to take a look at your car on the same day. You’ll have to take that up with them.”

“This makes no sense,” I responded. “I’ve been to this dealer dozens of times – the body shop bay is literally right next to the service bay. Someone could shout from one to the other and they’ll be able to hear – is it really impossible to coordinate this a little better? I could take one day off work to have my car looked at, but you’re asking me to take two days holiday here just to get my car checked out – and presumably a third day when you’re actually going to fix it. Isn’t there a little bit of flexibility possible?”

“I tell you what,” she continued, “when you speak to the body shop people, if they can’t see your car on the same day as I’ve booked for you, you can always call me back and I’ll get your sensor appointment switched to the same day as your body shop appointment.”

I could tell she was trying her hardest to help, within the confines of the system, but this was completely mad.

I politely told her I’d need to check my diary and called her back, and ended the call.

I never called her back, of course. Instead I called up another Ford dealer, a little further away, and asked them the same question.

“No problem at all, they responded. When would you like to bring your car in and I’ll get both of those problems looked at for you?”

To be fair to the original main dealer, that’s exactly the conversation I used to be able to have with their service desk directly, before someone on an “efficiency drive” decided to make everything worse for their customers.

So, 10 days later, I took my car to the slightly further away dealer, who did a lovely job of looking after my car. I’ve had it back since for a regular service as well and been very pleased with the service I received from them.

I get it…but I also don’t get it

At one level, I get it.

Consolidating your calls in a call centre might well seem more efficient, on some level. But that presupposes that the people in your call centre are better placed to solve your customers’ problems than someone on the ground at the dealership would be.

Which, in turn, means giving them access to the tools necessary to ensure a seamless customer experience, such as sharing both the service booking system and the body shop booking system with your call centre staff.

I also get why a motor dealer might want to organise different parts of their business into different operating entities, so having the body shop operations in a different legal entity to the “selling cars” and the “servicing cars” businesses, respectively, makes some sort of sense. That way they can be clear on the financial contribution each part of the overall business is making.

Although I can’t help feeling that a decent accounting system would solve that problem perfectly well without the additional organisational complexity of working through separate legal entities.

And I’ve always believed in a mantra one of my early bosses used to have: make it easy for your customers to give you money.

If I was designing a system which required my customers to call two separate people and then to potentially call one of them back again to rearrange an appointment, when I would probably, in reality, be speaking to two people at adjacent desks in the same call centre, I’d think I’d completely lost my mind.

However, if I work for a motor dealer, apparently this is all perfectly normal. Standard practice. “It’s our system.”

One thing I’ve learned over the years is that building in complexity means you’re inevitably building in cost – making things more complicated reduces your margins, even if you think you’re increasing them “by being more efficient”.

Think about this.

I used to be able to have a 2-minute phone call with the service desk at the main dealer and get my problem sorted out.

Now I have had one five minute conversation with someone in a call centre, while she explained processes to me that are frankly barking mad. The call takes longer because I can’t quite believe what I’m hearing.

Not only that, but I need to call up a different number to speak with another colleague of hers to get the second part of my problem sorted.

And, potentially, I need to call back the first person to rearrange my first appointment if it doesn’t suit the second group of people to see my car on the same day as the first group of people.

Some genius working for this dealership has turned a simple 2-minute call into two, and potentially three, longer calls because they want to be more efficient?

There is nothing remotely efficient about this process. It’s an abomination, designed by lunatics who have no idea what they are doing.

Guess what happened

The net result of all of this is that, after an exhausting phone call with the first dealer, they are no longer looking after my car after 15 years of giving me a perfectly decent service.

Their operations are less efficient than they were before they started trying to be more efficient.

And they’ve lost a customer who isn’t coming back because his tolerance level for nonsense like this was exceeded by several orders of magnitude in the course of a single phone call.

So Dealer 1 lost every way round.

Dealer 2 has done almost nothing, apart from their service desk answering the phone and being helpful. The cost for them to do that was pretty much zero, and they have already made a stonking profit out of the work they’ve done on my car, which is a phenomenal RoI.

Just from being helpful, and not making their customer do all the work like Dealer 1.

Maybe I’ve reached the age where pretty much everything about the world cheeses me off.

But it’s a long time since I’ve experienced customer service as epically bad as the service I had from the dealer I went to for 15 years, and paid £000s to along the way, just because some clown thought all this palaver made them more efficient.

Ironically, that’s the wrong way round.

If you optimise your operations to give the best possible service to your customers, and cut out all the other nonsense people in your business think ought to happen, you’ll run at a much lower cost than trying to force your organisational will onto your customers.

That’s because, like Newton’s Law about objects in motion being easier to keep moving than to stop, if a customer wants you to X, but you want to do Y, you’ll inevitably incur inefficiencies (and thereby cost) in the process of talking them out of X and talking them into Y.

Sometimes, like this car dealer, you’ll also lose loyal, long-standing customers who aren’t prepared to put up with that level of nonsense.

Either way, forcing your organisational will onto a customer is always…without exception…more expensive than making life easy for your customer is.

Now and again, if you work in a regulated industry, for example, you need to do tell customers what to do for other reasons. Solicitors are required by law to check your identity if you want to buy a property, even though that’s inconvenient at some level for their clients.

But in the absence of a legal requirement, optimise around what’s easiest for your customers and your business automatically becomes more efficient.

Set out to make your business more efficient and, if that means making things harder for your customers, your business automatically becomes less efficient.

That’s why, given a choice, you should always make it easy for customers to give you their money.

There is no more efficient way to run your business.

You’ve probably heard the expression “Ponzi scheme”. Most people have.

And most people equate it with some sort of financial malpractice. But it’s worth digging into the concept a little more deeply so you can recognise one a long way off and take steps to avoid them.

It’s easy to get sucked into a Ponzi-type scheme without realising it. Plenty of smart, intelligent, wealthy people fall victims to them – indeed those are exactly the sort of people a Ponzi scheme needs to attract for it to work.

The problem is that, in general, Ponzi schemes are not promoted as at attempt at large-scale fraud. Most people would run a million miles from that. So the promoters have to be much more subtle.

In today’s article I’ll show you how to spot them and, hopefully, how to avoid them.

Origins

To the surprise of many people, Ponzi schemes are named after a real person – Charles Ponzi, specifically – whose scheme was active in the US during the late 1910s and early 1920s.

We don’t call them Ponzi schemes because Charles Ponzi invented the concept – the concept itself is pretty much as old as time.

But his name ended up being attached to this particular variety of financial fraud because of the scale of his fraud (he cost investors an estimated $20 million in the early !920s – worth 10x or more in today’s money) at a time when the growth of mass media meant the story of his crimes were published to a wide audience.

The mechanics of a Ponzi scheme are relatively simple – although there are a couple of important twists to make it effective at scale.

All promoters do is promise a high return to investors which they pay out of the money new investors subscribe to join the scheme.

To keep this example simple, imagine an investor puts $100 in a scheme which promised a 10% return.

Here, the job of a Ponzi scheme operator is to attract a new investor with another $100, give $10 to the original investor as the promised return on their investment, and pocket the other $90.

Now, the reality is slightly more complicated than that, but at its heart, that’s how a Ponzi scheme works.

Provided you can attract enough new investors, such that you are able to keep paying out the $10 returns to all the prior rounds of investors, everyone is happy. For a while.

As I’m sure will be obvious, there comes a point where fewer new investors can be attracted, relative to the number of people already in the fund, which means there inevitably comes a point when the scheme collapses under its own weight.

While Ponzi scheme operators have 10 new investors for every existing investor, it’s easy enough to pay out the $10s to existing investors and become wealthy on the back of the share of the new investors’ money they keep for themselves.

When those proportions flip and they have one new investor for every 10 existing investors, all of the new $100 investment goes straight back out for cover 10 lots of $10 payments to investors in the earlier rounds.

And if the flow of new investors drops even further, that’s usually the point where the police get called in.

But while a Ponzi scheme in in full flow, the promoter has so much cash they don’t know what to do with it, although buying mansions, fast cars, and having a string of mistresses are all popular options for getting rid of some of it.

And – not that I’m recommending this as an investment strategy – some perfectly innocent, legitimate investors can do quite well out of being in a Ponzi scheme. If you’re an early investor who gets out in mid-scam, before it becomes apparent that the promoter has run off to a country with no extradition treaty, you’ve had a few years of exceptional investment returns plus all your money back.

Whilst a subtle part of the scheme, people getting their money back in the early-to-mid cycle part of a Ponzi scheme is quite an important part of making it seem like a legitimate investment. Without that, the scheme collapses a lot sooner.

And in the early-to-mid cycle, that’s easy enough to do, given the flood of new investors. If a new investor brings $100, and a previous-round investor wants their $100 back, you just give it to them. Provided the proportion of people wanting their money back is low, it’s much better to pay them back and regard that as a cost of doing business, because doing so confers a degree of legitimacy which, in turn, allows you to power ahead and double, triple or 10x the amount of money flowing in.

The two key components

While the mechanics of a Ponzi scheme are, at least conceptually, pretty simple, that’s not usually the hard part of the process (at least for people without a moral compass).

For a really good Ponzi scheme, two distinct elements need to be present:

1-A credible, and legitimate, business idea

Especially in the early days – later on, the momentum of new investors who are hooked on the higher-than-market-rate returns makes this less relevant – you need a business idea that is…or at least appears to be…both credible and legitimate.

Most people won’t knowingly do anything fraudulent or illegal. So Ponzi scheme promoters dress their schemes up with a cloak of legitimacy.

Charles Ponzi’s scheme, for example, was a simple-enough arbitrage play. Without over-complicating the explanation here, the scheme relied on goods being priced differently in two different countries, and shipping them from one to the other to bank a profit.

By way of example, imagine a cabbage in Belgium is worth 10 Euros, but for some reason in the US it’s worth $20 (or about 17 Euros). Provided you can ship cabbages from Belgium to the US for perhaps a Euro or two, you’ve got something that sounds like a decent business. And perfectly legal.

Charles Ponzi’s scheme actually involved postal vouchers, but the principle is much the same.

For the scheme to work at scale, the mechanics of the supposed business opportunity have to be credible and legitimate, as Charles Ponzi’s were initially.

2-The dream

The other key component is the dream. You have to sell investors a dream – and that dream is typically above-market-rate returns with no risk and no downside.

Scheme promoters get extra bonus points if the dream is infinitely scalable. That way, they can position the opportunity as letting a prospective investor in on the ground floor of something that will grow, pretty much without limits, making the investor rich beyond their wildest dreams.

“Look, I’m letting you in on the ground floor here, but when this goes global, your $100 will turn into $1million overnight!”

The dream is important because that provides the motivation to investors so they hand over their cash. Everyone knows they can leave their money in their bank account where it’s pretty safe and they’ll earn a couple of percent a year in interest.

But there’s no dream in that.

Sure, many people will shop around for the best interest rate on their savings, but there are very few people who would describe finding a way to get an extra 0.05%pa on their savings as a dream.

Turning $100 into $1million risk-free and with no downside, though? That’s the sort of dream that opens up a spigot of investor cash.

More than that – it’s the sort of dream where everyone will tell their friends, many of whom will send the promoter their $100s as well.

That’s why, sadly, when Ponzi schemes collapse, as they inevitably all will, they often destroy families and relationships because people don’t easily forgive a well-intentioned, and perfectly innocent, friend’s recommendation to invest in a scheme which ultimately results in all their life savings disappearing into the pockets of a fraudster.

However, a credible and legitimate business idea, ideally which sells a dream, is at the heart of every Ponzi scheme.

Then it’s just promotion

With those elements in place, the only thing that holds a scheme operator back is attracting more and more investors.

So a lot of effort goes into the promotion of the scheme. Not necessarily in selling you the scheme itself – that’s a bit too obvious.

The selling tends to concentrate on the dream. The Ponzi scheme just becomes an easy, obvious way for people to manifest that dream.

That’s one reason why Ponzi scheme operators tend to buy large, impressive houses and fancy cars to boost their business savvy and legitimacy: “Look, I got rich through my cabbage importing scheme, so there’s no reason you can’t do the same.”

Part of it, though, is being able to convince potential investors that the cabbage market, in our example, here can only go up. So even if you’re already running a $100million fund (or, at least, claim to be), investors need to believe it could become a $1billion fund.

At each stage, you need to sell the dream of the next stage otherwise your flow of funds dries up – no sane investor is going to think you’ll be offering above-market returns on a fund that’s worth $100million today, but is going to shrink to $80million in the next 12 months.

So never-ending growth, into the indefinite future, is a key part of the sell.

For the people running our fictional cabbage-arbitrage opportunity, that’s why they start paying medical researchers to run studies proving the health benefits of eating more cabbage. Get someone who works at Harvard to tell the world that eating more cabbage minimises the risks of an early death and cabbage sales are going to spike.

Start promoting recipes for cabbage soup and cabbage muffins through a few celebrity chefs and you’ll get the media buzz going nicely.

Get the researcher on all the major chat shows and you’ll spark a stampede for cabbages at every supermarket in the country, allowing you to prepare a graph for the next round of investors which shows the growth in cabbage consumption going exponential.

Project growth at that rate forward a couple of years and you’re letting people in on a multi-billion-dollar opportunity to arbitrage Belgian cabbage prices by giving you their $100. Given the growth rate, it’s inevitable that your $100 will turn into $1million, entirely risk-free.

After all, just look how steep that line is on the cabbage consumption growth chart!

Over-promising and under-delivering

Sooner or later, Ponzi schemes collapse because they over-promise and under-deliver.

In the end, it’s always because the rate of new money coming in falls to a level where scheme promoters can’t cover the interest payments due, plus the occasional redemption to give an air of legitimacy.

That’s how it collapses, in a mechanical sense, but usually something has happened first to slow up the source of new money.

Taking our fictitious example, I have no idea how many cabbages Belgium could grow in a year, but there obviously come a point where the entire country is nothing but one huge cabbage farm, at which point your supply of 10 Euro Belgian cabbages inevitably dries up.

It also gets to a point where people have tried all the cabbage soup recipes from celebrity chefs and, notwithstanding the supposed health benefits, get tired of eating cabbage three times a day. So cabbage sales in the stores tail off.

In the case of Charles Ponzi himself, some basic arithmetic undid him.

Charles Barron (whose name is still immortalised in the Barron’s financial publishing empire) calculated that, for Ponzi’s scheme to work, there would need to be approximately 6000x the number of postal coupons in the world than were actually in circulation.

Eventually all Ponzi schemes collapse under the weight of their own promises. They all pass a point of no return where the end is mathematically inevitable, so it’s just a matter of time before everyone finds out.

For Ponzi scheme promoters, that’s usually a good time to start researching which countries don’t have extradition treaties with wherever they are, because it’ll either be one of those countries, or jail, that they end up from that point onwards.

The middle eight

The concept of a “middle eight” in songwriting applies just as much to Ponzi schemes.

In songwriting, it’s a change of pace or tempo, signalling a change of scene in some way. It might be where the songwriter slips in a guitar solo or a key change, for example.

In Ponzi schemes it’s a make-or-break moment which appears to threaten the scheme, but which the promoter somehow navigates their way through, managing to continue the scheme – generally with renewed vigour and an even greater inward flow of funds than before that moment of challenge.

In our fictional example, maybe a cargo ship full of Belgian cabbages sinks in mid-Atlantic meaning $millions-worth of sales ending up at the bottom of the ocean.

Every mega-successful Ponzi scheme requires a challenge to be overcome. it’s an essential part of the traditional “hero’s journey” story structure.

Ironically, overcoming that challenge can fire up future investors even more because the events can be spun to claim than a challenge which was overcome demonstrates the solidity and reliability of the scheme itself. It’s a little psychological trick but, for most people, a scheme which has overcome a challenge and survived seems more solid and trustworthy than one which has only ever been selling unicorns and rainbows.

For Charles Ponzi, one of the newspaper articles Charles Barron wrote led to a run on his fund. Ponzi paid out $2million over the course of a few days to investors demanding their money back.

But here’s the key.

Charles Ponzi engaged with the crowd demanding their money back outside his offices. He was polite and civil and sought to reassure investors that everything was fine. Even though some journalist claimed Ponzi’s scheme couldn’t possibly work, he’d got it all wrong. Your money is safe with me, he claimed.

Not everyone believed him, of course. They withdrew their cash anyway.

But due to his skill at working the crowd, re-selling the dream of unimaginable wealth for those who stuck with him, and his willingness to pay out the people who still insisted on refunds as a way of demonstrating how solid his finances were, many of the initially-angry crowd ended up leaving their money in Ponzi’s fund after all.

While this episode was the beginning of the end for Charles Ponzi, he weathered the challenge and made enough people believe in his scheme for him to keep it alive a little while longer.

No matter the precise nature of the scheme, the over-promising and under-delivering piece is at the heart of the eventual collapse of a Ponzi scheme.

But a little wobble at some point in the growth curve, a challenge which is overcome, can become part of the narrative which powers the scheme to the point growth goes vertical.

The denouement

The end usually isn’t pretty.

Leaving aside the police leading people away in handcuffs, the collapse of so many people’s hopes and dreams are the cruellest outcomes for people who often didn’t know better, and whose only crime was to trust people who weren’t worthy of their trust.

The number of times innocent people were lied to, with a straight face, and relieved of every last penny they had, is the tragedy of all Ponzi schemes.

The victims become bystanders in a media circus where hundreds of minutes of television are broadcast and thousands of column inches are written. A media circus which makes the victims feel stupid, angry, misled.

Why did they not spot the signs? How come the smart money got out and they were left holding the baby? If only they’d listened to their sister-in-law who said the whole scheme was fake and would never work!

Except, at the time, the people who lost out were swept along by the enthusiasm of the promoter.

Their apparent bona fides – often demonstrated by paying back early investors to crystallise their $million gains. The seeming legitimacy of their business model. The apparent “vertical growth for ever” possibilities.

The untold riches which awaited the faithful if only they stayed invested in the fund through its occasional little difficulties, and ignored the naysayers who weren’t part of the cult. After all, those people were incapable of seeing the unique genius of the scheme’s promoter.

But, in the end, Ponzi scheme promoters can’t hold back the tide.

Even if they are slick salespeople who can convince investors to stay on-board through occasional bumps in the road, eventually, to use our fictional example, they can’t persuade enough people to eat enough cabbage to keep their scheme on the road. It always comes to a nasty end.

Your best hope is never to drink the Kool-Aid that everyone else is drinking, even when people are telling you it’s inevitable that the whole world will eat nothing but Belgian cabbage five years from now.

Even if researchers from every prestigious university in the world concur that a cabbage-only diet is inevitably the best way forward for mankind, given that it promotes brain function and brings improved health to all.

And even if the scheme’s promoters can line up dozens of people who switched to a cabbage-only diet and can testify to its magical properties. They are likely either to be in on the con, or to be gullible enough to believe almost anything the promoter tells them.

As a business leader, you need to see through the charlatanism and avoid getting swept along by promises of magical, risk-free results.

While that’s not always easy, given all the hype, at least you’ll have a business left at the end of it.

The arrival of the internet brought many advantages. Instant global communications. The ability to work anywhere. Finding books your local bookstore was unlikely to stock.

But the internet brought its fair share of problems too – all manner of cybercrimes which didn’t exist before, and making it fast, simple, and cheap to spread extremist views, for example.

On the whole, the internet is probably a net positive to humanity, but (net-net) only benefits humanity by a fraction of its true potential after you factor in all the negatives. If perfection was represented by 100%, I’d say the negatives accounted for about 80%, meaning humanity was just 20% better off – still a positive outcome overall, but bringing nearly as many disadvantages as advantages.

However there is one feature of the internet which drives me particularly crazy and that’s the need to gamify everything – allocating points, scores, badges, unlocking achievement levels, and all manner of other nonsense.

The business world suffers from a similar problem. A focus on numbers that are easy to track, without a moment’s thought about the real objective.

For example, my real objective in having a Kindle is to learn new things by reading books. However Amazon sends me all manner of regular communications to tell me I’m a “gold level reader”, or whatever standard I’ve reached this week or this month.

I understand why. Amazon has no idea if I’ve understood a single word of what I’ve read, but it’s really easy for them to track when I switch my Kindle on, and how many pages I’ve clicked “next” on.

Many digital businesses think that having scores, or leaderboards, or unlocking new levels keeps people addicted to their product as they want to win more points or get to an even higher level.

Frankly, nothing wants me to engage with something less than a software company sending me seven emails a day telling me I’m just 10 minutes away from unlocking the next level.

And the reason for that is it’s really clear, whenever anyone does this, that they only care about themselves, they have no interest in you as a consumer whatsoever.

Who is likely to benefit from you scoring a few more points on a game? It’s unlikely to be you. But it’s great news for the person selling the game because now they have more “loyal players” than they had before. And that probably bumps you into a different email sequence where they try to sell you even more things than they did when you were a mere silver-level player.

Frankly, if playing that game, or reading another few pages on my Kindle, was the most important thing in my life at that moment, I’d do it anyway. I wouldn’t need a prompt.

The fact that I haven’t means that I have more important things to do, but every tech company behaving like a whiny 3-year-old demanding I play a game with them right this minute or they’ll keep moaning and crying until I do, is profoundly irritating.

Unlike children, of which you’re likely to have a limited number around you at any one time, basically every tech company you have ever interacted with becomes a snivelling, whiny 3-year-old who never shuts up about wanting your attention.

None of us needs any more whiny, needy tech companies in our lives.

It misses the point

Even assuming all this needy whining works, at some level, it misses the point.

“Forcing” loyalty by an array of points, levels, or rewards means that loyalty only lasts for as long as there’s another reward someone wants to win. There is a diminishing returns curve at some point beyond which you’ve offered everything that can reasonably be offered and your attempts to force people into loyalty just tails off.

Or people just get bored of Game A and switch to Game B instead.

In a world where switching costs are essentially zero, as long as they can put up with the needy, whiny emails they’ll get for the rest of their life from the producers of Game A, there is very little downside for people to switch to something different.

Although this often comes as a surprise to the makers of Game A, because they confused a surface level of compliance and an appearance of loyalty with the real thing.

Don’t get me wrong, actual loyalty is a very valuable thing.

But even though it’s easy to track how many pages I read on my Kindle, it doesn’t mean I necessarily feel particularly loyal to Amazon in general or my Kindle in particular. There are other ways I can read books – and, back in the day, at least Waterstones didn’t come round to my house 17 times a week to tell me I’d nearly achieved Gold Level Reader status, so I should read a few more pages tonight rather than whatever I had been planning to do instead.

If anything, I read more books before I got my Kindle than I have since. As someone who travels a lot for work, I just find it easier to slip a Kindle into my pocket than an actual book.

While I’m sure Amazon mistake that for loyalty, that would be a mistake.

The reason I read a lot of books is because I have always been highly intrinsically motivated to read more as a way to learn more. I’m not a “Kindle addict” or even an “Amazon addict”, although I’m sure Amazon thinks I’m both of those things. I’m a book addict and/or a learning addict, which is entirely independent of the device I read my books on or the people who sell me physical books.

And intrinsic motivation is a vastly more valuable thing than the appearance of surface-level, points-based “loyalty”. (In quotes, because it’s nothing of the sort.)

The problem with all points-based systems…and yes, this is a metaphor for your work KPIs too…is that, if it works at all (which it often doesn’t), you are incentivising collecting points, you aren’t incentivising the behaviours you want to see more of.

The truth is, no matter how well you think you’ve designed your systems, it’s more or less impossible to design any system so well that you trigger intrinsic motivation instead of the significantly less valuable surface-level, points-based behaviours. Although admittedly the latter are easier to spot.

The Achilles’ Heel for many organisations is mistaking one for the other. You might be surprised how often that turns out badly.

I learned this the hard way

When I was younger, I had more hair, and I was less cynical. I also used to believe you could use points and targets to incentivise behaviours to a much greater extent than I do now.

Until one day, while I was running a large call centre business.

We were really good at what we did, in a market where customer service standards were generally poor, and I was proud of the business and the people in it.

However, like all large-scale call centre operations, we had an array of targets which represented a “good performance” for our call centre agents, and a regular tracking system to make sure performance was maintained.

One of the most important targets was our average call length. All our costings were based on calls lasting an average of three minutes – a fairly typical call duration at the time for the type of work we did.

And we had one superstar agent who kept his calls tight and was always top of the leaderboard for this KPI. He was so good, we were considering him for promotion to supervisor.

Until we found out why he topped this particular leaderboard.

Part of our systems included regular call auditing, where a couple of supervisors would listen to the recordings of a random selection of calls from agents from other teams and score them against a matrix of factors – how well the agent led the call, whether they displayed good listening skills, how effectively they diagnosed the problem, and so on.

Now, this agent was generally a very good operative, and a nice human being in person. So he tended to score well against those metrics too, making promotion even more likely.

But one of our more experienced supervisors noted something unusual, and went digging.

Her digging got this superstar agent fired.

Ticking the boxes but missing the point

Our superstar agent, let’s call him Kevin, was extremely good at all the things on the matrix. He built rapport, controlled the call well, diagnosed the problem effectively every time.

His recorded calls were often used to show other agents how to do those things.

In a business which prided itself on delivering high levels of customer service, many of the things Kevin did set the standards for others to aspire to.

From the outside, he looked like an exemplary call centre agent, because he not only ticked all the boxes on the performance matrix, he set many of the standards by which other agents were measured.

His call duration stats were the best in the business. And that was on top of all the other things he did so well while handling the calls themselves.

You can see why he was being considered for promotion.

At least, until one of our more experienced supervisors (let’s call her Jill) spotted something.

As part of the normal quality monitoring process, one day Jill was listening to a random selection of call recordings from other teams, which happened to have two calls from Kevin in her sample.

The first call went well, exactly as she expected from someone with Kevin’s reputation.

At least up until about the three minute mark, when the call suddenly cut off mid-sentence while Kevin was talking.

Now, that happened sometimes. It wasn’t unusual for someone’s mobile phone signal to drop out, for example.

But Jill got suspicious when she heard exactly the same thing happen in Kevin’s second call from the same batch.

While calls did drop out occasionally, the odds of it happening twice in the same batch of quality checks were low, especially at the same point in the call, at around the three minute mark.

So Jill dug further and asked for a wider selection of Kevin’s calls.

While most of the calls were fine – and well up to the standard we had come to expect from him when scored against the performance matrix – every call he took which was not getting close to a resolution by the three minute mark mysteriously cut off while Kevin was talking.

With a bit more digging through our systems, it became apparent that what Kevin was doing was preserving his call duration stats by making sure his calls never went much belong three minutes. He just pulled the plug on the calls which were dragging on, to preserve his call duration stats.

Extrinsic vs intrinsic

To be candid, this state of affairs was my fault, ultimately. I had signed off the performance matrix and the review processes. I had thought we had scientifically designed a near-perfect scoring mechanism, entirely appropriate for a business which set so much store by the quality of its customer service.

We put a lot of effort into finding empathetic people who could establish an easy rapport with customers on the phone, and who would move heaven and earth to solve customer problems.

Most of our people were intrinsically motivated to care about our customers and solve their problems, because that’s the sort of people they were.

Even if that meant their call durations occasionally spiked up to six or seven minutes. Because they cared more about the customer than their call stats, if the occasional call took a bit longer they saw the problem through to the end to make sure the customer was happy.

It turned out we’d misjudged Kevin because he was so good at the things on the performance matrix. He was mainly extrinsically motived – that is, he did what he did for the bonuses and the promotion opportunities, not because he cared about our customers.

We mistook a superficial set of statistics as representing the underlying reality of the situation, when, in fact, all those KPIs didn’t accurately indicate the outcomes we wanted at all – an unquestionably first-class approach to customer service.

Putting the phone down on clients with hard-to-solve problems was the absolute antithesis of the business we wanted to be.

So Kevin was fired on the spot.

Not for missing his KPIs – which he hadn’t. He had met or exceeded all of them.

But for not living out the values we really wanted, which was an unswerving dedication to solving customer problems.

We had taken a set of KPIs as a proxy for reality. Kevin taught me that was a mistake.

League tables

While I’m not suggesting for a moment you can run a business without any KPIs, as business leaders it’s important to remember that someone can tick all their KPI boxes and still not be delivering on the business’s mission.

A bit like whether I’m a Kindle Gold Reader this week or not.

If I’m prepared to press “next page” often enough, I can power through enough reading material to achieve any level of Kindle accolade I like.

Somewhere at Amazon somebody gets to tick a box and claim a KPI prize of their own because (they think) they’ve manipulated me into spending more time on my Kindle. In reality, its time I’d have gladly spent anyway, and if I had something more important to do, I wouldn’t have picked up my Kindle in the first place.

So all the gamification was ultimately pointless.

As it is for anyone who isn’t either eight years old or a simpleton. I can forgive 8 year-olds wanting another gold star from their teacher. And simpletons can’t help themselves, so who am I to judge.

But for everyone else, while you can track some KPIs for sure, what you’re really looking for is people who live and breathe your company’s mission.

The question is, given a choice, do your people choose to tick the surface-level KPI boxes or do they take decisions consistent with your mission as a business.

Perhaps paradoxically, one of the main ways to identify what sort of person you’re looking at is an occasional willingness to blow their KPIs out of the water, like the call centre agents who would stay with a call for six or seven minutes instead of putting the phone down after three.

If you’re serious about your mission, occasional KPI “mishaps” should be celebrated and encouraged because, in those fleeting moments, you get to see what someone’s intrinsic motivation really is. The decision point where someone makes a choice to pursue the greater good, in terms of your company’s long-term interests, instead of ticking the box on their KPI sheets.

Yet, in most organisations, doing that would get you fired, because all most organisations do is track the numbers and try to manipulate performance solely through extrinsic motivation – the bonuses, the accolades, the promotions.

Mistaking one for the other, just because all the KPIs are hit, is the biggest disconnect between most organisations and their missions. And, ironically, the biggest reason why customers are less loyal than they were before.

It turns out you can’t gamify your way to success after all.

You only get there by focusing on what really matters, and delivering on that.

And the likelihood of that being a KPI – even a KPI that appears to be measuring the right behaviours, like the NPS (Net Promoter Score) – is pretty much zero.

I’ve always been grateful to Kevin (and even more grateful to Jill) for teaching me a valuable lesson – you can fake your KPIs, but you can’t fake reality.

And of the two, reality matters more if you’re serious about building a business.

The world is full of mysteries.

Why don’t more people find my jokes funny?

Why doesn’t Paul Simon have a Nobel Prize for Literature, like Bob Dylan?

Why can’t Alfa Romeo make slightly more reliable cars so I can post-rationalise buying one?

But one of the biggest mysteries for me is why, given its almost non-existent cost, more businesses don’t leverage the benefits of even pretty basic customer service.

The tragedy is that the bar for customer service is so low, you need to do very little to appear to be twice as good as everyone else.

It’s staggeringly simple, possibly the easiest and lowest-cost way to set yourself apart from the competition. Done well, great customer service will generate a stream of referrals – an astonishingly high proportion of which will turn into customers at pretty much zero cost, if you do it right.

Nowadays, people think “huge expense” when they think “customer service” but that’s only because enough people have been selling non-value adding CRM systems for long enough that people have learned by osmosis to think that looking after customers is expensive and doesn’t work very well.

By and large, that’s because they’ve been doing it wrong.

CRM systems can be helpful in large-scale customer interactions, but many businesses aren’t in that market. It’s amazing what you can do without one – or with a tiny amount of extra effort.

The coffee shop

There’s a coffee shop I visit semi-regularly…perhaps between two and four times a week.

There are about half a dozen core staff in there, who rotate on shift patterns to provide all-day cover seven days a week. And over the 18 months or so I’ve been visiting this coffee shop semi-regularly, the staff behind the counter have come to recognise me as a regular and know my order without me having to ask.

“Flat white, as usual?” the person on the till asks, with a friendly smile, when I get to the front of the line.

After I’ve confirmed that and paid, I have a quick chat with whoever is making the coffees that day about something relatively inconsequential (in the run-up to Christmas, the effort they all put into their Christmas jumper game was a particularly welcome source of material for our 6.30am chats).

All three of us wish one another a good day when the coffee’s ready, and I go on my way.

I’ve never timed these interactions, but this takes a minute or two at most from start to finish.

These people don’t know my name, what I do for a living, or even how funny my jokes are. Yet one of the reasons I keep coming back is because I feel welcome at this coffee shop just because they have taken fractions of a second, in their heads, to realise I come in regularly and always order the same thing.

The cost of doing this is precisely £0 – I’m not taking up any more time than they would be spending anyway taking my order or making my coffee, so this interaction is essentially free to the coffee shop chain. However, I now go there in preference to anywhere else because I’m made to feel welcome in that coffee shop.

Now, this coffee shop chain is not the one which irritatingly asks for your name for them to write on your cup in order to “make you feel more welcome”. The customer service in that chain is universally terrible, in my experience, so this is definitely a non-value-adding activity for them. It means taking an order takes longer, and impact of this process on how that chain makes their customers feel is somewhere between indifference and active loathing. (I’m in the latter camp.)

So, this other coffee shop chain who tries so hard to hit a KPI ends up doing worse than the people who don’t know my name.

Weird, huh?

Except it isn’t, if you remember the role of customer service is in how you make a customer feel, not how many boxes on your internal KPI scorecard you get to tick.

Either way, in my regular coffee shop – also part of a large, nationwide chain – they’ve locked in my regular visits (and, I’m sure, lots of other regular visitors too) by something as simple as recognising another human being and remembering the drink they order every time they come in.

Cost: £0.

Benefits: whatever they charge for 2-4 coffees a week, more or less for ever.

RoI: Off the scale.

(Side note: one of the major problems with customer service is that some people think they’re managing an internal process. Great customer service is how you help customers feel about your business. When you think it’s about managing internal processes, you end up spending £millions on IT solutions that don’t work very well, making customer service appear expensive and low value-adding. Working on how you help customers feel better about your business is almost free and the upsides are substantial, leading to the best RoI of just about anything you can do in your business.)

The hotel

If I’m staying over in London overnight for work, I generally stay in the same hotel. While I’m not there as often as I visit my local coffee shop, I’m there often enough that I recognise the staff on the check-in desk.

They have absolutely no idea who I am, though, and always ask “have you stayed with us before?” to save them launching into a detailed description of the restaurant opening hours and how to get in after the front door is locked at 11pm each night, which they keep for first-time visitors.

Sometimes, I’m asked that question twice in the same week by the same person.

Yet here’s the irony. The reservation system they use to book me in and hand across my room key knows I’ve stayed there before.

I know for sure it does, because the order confirmation I get when I book always says “thanks for choosing us again”. So their reservation system 100% knows I’m a returning guest.

Despite having this valuable information – much more information than they have in the coffee shop, for example – nobody in this hotel chain has thought of flagging the screen reception staff use to book guests in with the information that they have stayed at this hotel before.

It’s a tiny amount of code, not very difficult to do, and easy to get a screen pop when a name or reservation number is entered into the check-in system by the front-desk staff.

Yet, this hotel chain hasn’t put even the tiniest amount of effort into making returning guests feel welcome. And that pervades the attitudes of their staff who, despite being pleasant enough as individuals, don’t say to themselves “hang on, this is someone I see regularly”.

Actually, that’s not quite true. There is one person who does recognise me – I see him about one visit in 10 to this place, so not super-often.

But the first time he checked me in, he asked if I’d had a good day, in that formulaic way front-desk people sometimes do. He was genuinely shocked when I said I had, and then asked him how his day had gone. “Nobody ever asks us that” he responded, and thanked me for asking.

Now, every time he checks me in at this hotel, he greets me as a returning guest without having to input my reservation number and we have a quick chat of the sort I have with the people in the coffee shop, before he sends me off to my room feeling that I’ve been treated as fellow member of the human race, and not someone who was a glitch in the otherwise smooth running of the check-in desk.

Great customer service is free

There is a classic business book, “Quality Is Free” by Philip B. Crosby which I read back in the 1990s. He was something of a godfather of the Total Quality Management movement, for those of us old enough to remember that.

Anyway, Crosby’s fundamental thesis was that doing quality work isn’t a cost. At worst, it breaks even but, more often than not, improving quality adds to your bottom line when thoughtless cost-cutting and corner-cutting would (contrary to popular belief) damage it.

All my experience of business is that this is absolutely true. Getting something right up-front generally costs about 10% of what it costs to put something right after it’s gone horribly wrong.

So it is with customer service.

Great customer service can be literally free to deliver (eg in the coffee shop) or it can cost fractions of pennies per transaction (eg writing the code for a screen-pop for returning customers on the check-in system).

However the RoI is generally significant. If all you can do is get one extra cup of coffee a week from someone, against a base cost of £zero, that’s a phenomenal RoI. Do that often enough and your coffee shop will be vastly more profitable than anyone else’s, no matter how hard they try gimmicks like asking you for your name.

Break the link in your mind with customer service requiring £million IT solutions.

In huge organisations that might be an essential part of how you run your business. But in most organisations, you can do easy, simple things for either no cost at all, or for fractions of a penny per transaction.

Factor in even a tiny blip in your revenues – just one extra cup of coffee a week, for example – and spending time thinking about how you can make your customers feel more positive towards your business will be one of the highest RoI activities you are ever likely to carry out.

That’s not a bad outcome for something as simple as learning how to greet your customers with a warm “hello again!”

It’s the first week after the Christmas break for most people. And if you’re like most people (OK, just me?) you probably overindulged a little over the break. The trousers or skirt you did up first thing on Monday morning, for the first time in a fortnight, were probably a little tighter than you remember them being just before Christmas, weren’t they?

That’s why there are so many ads for weight loss products at this time of year. Fad diets. Gym memberships. Healthy eating plans.

Many of these things come with bold, dramatic promises – “Lose 10 pounds in 10 days” or “Abs of steel in just 30 days” or “Get thin by eating only grapefruit for 28 days”.

Despite the fact that most sentient beings know in their heart of hearts those promises are, to put it kindly, over-ambitious for most people, a lot of products like those sell by the boatload in January.

Of course, by the end of January, they haven’t worked.

So we go quiet for a while, before the approaching summer holidays remind us we need to get “beach body ready” and the whole cycle of scammy ads and over-ambitious promises, followed by plunging disappointment, starts again.

Now, I can confidently say I’ve never been beach body ready at any point my entire life. Unless you like visiting the beaches where migrating walruses like to sunbathe, in which case my body is definitely ready for that beach. I’ll be the pale-looking Scottish one.

However, fad diets aren’t just restricted to your post-Christmas feelings of guilt at eating too much over the holidays. In a lot of organisations, fad diets damage your bottom line in a similar way, ending in the same inevitable disappointment as all those unfulfilled new year’s resolutions to shed the extra Christmas pounds.

So, if you’re serious about your bottom line, here are my tips for healthy cost control to get your bottom line health moving in the right direction for the new year.

Avoid the fads

As with fad diets, cost-cutting fads will take you down the same inevitable path of over-hyped promises and crushing disappointment.

The basic rule is if something sounds too easy to be true, it almost certainly is.

Over the years there have been plenty of faddish cost-control diets. The current one is AI, which claims to magically solve all your problems and reduce your cost base dramatically.

I can’t say this strongly enough – with very rare exceptions outside activities like managing datacentres or writing low-end code – it is a complete lie to say that AI will boost your bottom line performance.

The problem is that, by the time you notice, all your customers are likely to have taken their business somewhere else due to the difficulties in dealing with your business and the truly appalling customer service AI seems to be set up to deliver.

AI will inevitably fail (at least as a mass-market product – again, some specialist areas might well see some benefit), but don’t be disheartened. There will be another fad diet along soon…I’m not sure what it might be yet, but there will be one, I can guarantee you that.

Grifters always need something to grift, so when AI fails, they’ll just pick up the next grift as if nothing happened.

Staying away from fads means you’ll minimise the chances of doing anything stupid and, in the medium-to-long term, just not doing stupid things on a consistent basis means you’re almost guaranteed to be successful. (To paraphrase Warren Buffett’s long-time partner, Charlie Munger.)

Avoid short-term thinking

Any idiot can cut costs…and thereby appear to flatter the bottom line…in the short term. And, every year, that’s precisely what a significant number of idiots do.

I once worked for an organisation where the executive team patted themselves on the back for one of their number slashing marketing expenses to hit a profit target one year. The following year they couldn’t figure out why they had no customers.

You can achieve much the same results if you halt all the maintenance expenditure in your business. But don’t be surprised if your machine break-downs the following year cost you 10x more in engineering costs and lost production than it would have cost to get the scheduled maintenance carried out on your machines when it was originally supposed to happen.

Similarly, you can fire experienced staff and replace them with trainees to bank a massive “instant” cost saving.

Roll the clock forward a few months and I can guarantee you’ll be dealing with a mountain of problems you never knew existed because your old, more expensive, team just dealt with these things and stopped them from ever getting to your desk or cheesing off a customer.

To be fair to the trainees, they don’t know what they’re doing, so chaos ensues.

It’s not their fault (specifically, it’s yours) but chaos is never the sign of an organisation running at its most cost-effective.

Avoid more KPIs

A common reaction to cost pressures is to start tracking all sorts of data points in the hope that somehow, the mysteries of the universe (or at least your business) will be revealed.

While there is definitely an art and science to setting and tracking KPIs, it’s really unlikely that the lack of a KPI is the biggest problem affecting your bottom line.

It’s much more likely that there’s something more fundamental at play. Maybe your price point is wrong. Or you’re selling to the wrong target market. Or your product isn’t competitive with other offerings in your sector.

No internal measurement tool is going to tell you any of that.

But it’s possible – common, even – to compound this problem in a quite spectacular way.

Businesses often set up a new team just to track and measuring of things. That team needs all sorts of fancy software to do their job. Most of your management team is now tied up in meetings about reporting and KPIs instead of managing their part of your business. The cost is phenomenal, but the business thinks more measurement will solve its problems, so they go ahead anyway.

In those settings, I’ve only very rarely seen performance improve. Even then, it was only because the performance previously was so horrifically bad that almost any tightening up of processes would have delivered a positive RoI.

I mean, they still missed the point because the thing they did which made a positive difference might have been 27th on the list of things that would have made the business better, and they completely missed the 26 more powerful bottom line-enhancing strategies above it, but still…they had a positive impact on the business.

So what should you do?

If those are some of the things you shouldn’t do, what should you do?

Well, good cost management is (conceptually, at least) relatively simple. Here are three strategies I always recommend:

1-Manage for the medium term

Every cost cutting decision you take should be considered in a medium-term context, say the next 3-5 years.

If you cut your marketing costs to zero today, that’s not likely to have a positive outcome on sales in a 3-5 year time-horizon. So don’t do that.

Most of the very worse cost-cutting decisions can be avoided just by having a timeline which extends beyond this month or this quarter.

2-Consider the consequences

Have some idea of the impact of, say, a 5% reduction in your customer base because customers don’t like your new, cheaper formulation, or the fact they can’t talk to a human being on the phone any more.

While you might think of your cost base in the same silos you report in your P&L, your customers think of the total experience your company delivers. So there’s a non-zero chance that substituting a cheaper ingredient into your production process will cheese off at least some of your customers.

By and large, you shouldn’t do that. You’d be surprised how warmly some organisations congratulate the person who saved £50k in their department but overlook the fact that their actions cost the business £1million in sales when customers took their business elsewhere.

If the consequences of, say, 5% of your customers taking their business elsewhere would dwarf the benefits you bank from any cost saving idea, by and large you shouldn’t take the cost saving.

It’s tempting to think customers won’t notice, but in the end they all will…and some of them will be bothered enough about it to buy from one of your competitors instead.

Most businesses would lose money if just 5-10% of their customers stopped buying. So not considering the potential damage caused by cheesing off a relatively small proportion of your customer base isn’t wise.

3-Think cumulatively

In many organisations, cost saving strategies are set as “everyone has to save 10% in their department”.

It’s often forgotten that, from a customer perspective, those savings represent a cumulative downgrading in your products and services.

If you save 10% on the ingredients, 10% on the packaging, 10% on the logistics, 10% on the staff time to make the products, 10% on your overheads, and so on, you can easily end up with a customer’s experience of dealing with your business being only half as good as it was before.

So, unless you reduce your prices to reflect that (which would rather defeat the object), you have just made your business less attractive for customers to deal with. There are very few situations in which that’s a smart move, no matter how clever you think you’ve been in getting every department to save 10% from their budgets.

Stay away from fad diets for your bottom line

As for diets, the sad truth is that there is no magic way you can dramatically reduce your cost base overnight with zero pain and unlimited upside.

The only sustainable way to lose weight is to cut out junk food, eat healthily, and exercise regularly.

By the same token, the only sustainable way to build your bottom line is to develop reliable systems, resource them properly, and continuously improve the ways you look after your customers.

I’ll grant you, that’s a lot less glamorous than riding a white steed into your company’s car park with a big flag trailing behind boasting of a new magic solution to the cost pressures facing your company.

But it’s also the only sustainable way.

And a year from now, you’ll be vastly better off than your competitors who spent £000s on “magic instant solutions” in the meantime, only to end up, like every January’s crash dieters, pretty much where they started. Only poorer and more disillusioned.