Cycle of Failure

All too often, bad working environments translate into dreadful service, with employees treating customers the way their managers treat them. Businesses with high employee turnover are frequently stuck in what has been termed the cycle of failure. Other organizations, which offer job security but little scope for personal initiative, may suffer from an equally undesirable cycle of mediocrity.

The Cycle of Failure. In many service industries the search for productivity a central focus. One solution takes the form of simplifying work routines and hiring workers as cheaply as possible to perform repetitive tasks that require little or no training. Among consumer services, fast-food restaurants are often cited as examples of this problem (although it is not true for every chain). The cycle of failure captures the implications of such a strategy, with its two concentric but interactive cycles: one involving failures with employees and another with customers.

The employee cycle of failure begins with a narrow design of jobs to accommodate low skill levels, emphasis on rules rather than service, and use of technology to control quality. A strategy of low wages is accompanied by minimal effort on selection or training. Consequences include bored employees who lack the ability to respond to customer problems, become dissatisfied, and develop a poor service attitude. Outcomes for the firm are low service quality and high employee turnover. Because of weak profit margins, the cycle repeats itself with hiring of more low-paid employees to work in this unrewarding atmosphere.

The customer cycle of failure begins with repeated emphasis on attracting new customers who become dissatisfied with employee performance and the lack of continuity implicit in continually changing faces. These customers fail to develop any loyalty to the supplier and turn over as rapidly as the staff, thus requiring an ongoing search for new customers to maintain sales volume. The departure of discontented customers is especially worrying in light of the potential greater profitability of a loyal customer base.

Managers have offered a veritable litany of excuses and justifications for perpetuating this cycle:

• "You just can’t get good people nowadays."
• "To get good people would cost too much, and you can’t pass on these cost increases to customers."
• "It’s not worth training our frontline people when they leave so quickly."
• "High turnover is simply an inevitable part of our business. You’ve got to learn to live with it."

Too many managers make short-sighted assumptions about the financial implications of low-pay/high-turnover HR strategies. Part of the problem is failure to measure all relevant costs. Often omitted are three key cost variables: the cost of constant recruiting, hiring, and training (which is as much a time cost for managers as a financial cost); the lower productivity of inexperienced new workers; and the cost of attracting new customers (requiring extensive advertising and promotional discounts). Also ignored are two revenue variables: future revenue streams that might have continued for years but are lost when unhappy customers take their business elsewhere and potential income from prospective customers who are turned off by negative word-of-mouth. Finally, there are less easily quantifiable costs such as disruptions to service while a job remains unfilled and loss of the departing employee’s knowledge of the business.

Source: Services Marketing