It was a crisp December evening several years ago. My business partner and I were running an incentive travel program for a luxury automotive company. Top dealership owners and their spouses had come to New York for a dream weekend. I received a call from a member of our small staff. A dealership owner had brought his children along and planned to send them to one Broadway play while the parents would join the rest of the group at another show. Could we help arrange a car for the children?
Now, I had lived in New York and knew the city’s inhabitants to be far more friendly and helpful than stereotypes would suggest. But the idea of sending teenage children into the Gotham night alone triggered an immediate protective response. I was not alone. The person working for me offered to go with them and my partner and I instantly agreed.
This was the highest profile event of the year for our client, and our most important engagement as well. How could we spare someone from our small team for an impromptu assignment taking care of someone else’s kids?
Easy. We had built in some extra capacity. We always believed in bringing on one more person than we thought we needed. Experience had taught us that there would always be an unexpected situation to handle or problem to solve. Sure, it was tempting to minimize labor costs in order to boost profits. But we knew that our long-term interests were served well by the so-called extra person. In an earlier role, I had been the extra person deployed to the airport to meet an important corporate visitor who was delayed on a trip from abroad. I had seen the value of the extra person when, for example, a package that absolutely, positively had to reach our work site overnight didn’t — and a persistent, personal presence at the shipping company’s office made the difference between locating it and letting it linger in package purgatory.
This is not to suggest that you want legions of people just hanging about wanting something to do. My partner and I ran things lean and mean when not at a client-facing event. However, we also knew that we had to protect ourselves in order to keep an operational storm surge from disrupting our business. And it wasn’t simply a matter of throwing a body at the problem. We needed an intelligent, engaged, and empowered worker to be available.
Our experience illustrated the importance of two principles: one profoundly practical and the other more philosophical.
The practical point is the importance of strategic inefficiency, a term I later learned from Frits K. Pil, a professor with an interest in supply chains at the Joseph M. Katz Graduate School of Business at the University of Pittsburgh. Pil, by coincidence, studied the automotive industry. He noted that when supply chains are optimized for efficiency at every step, a shift in demand would leave excess inventory at distribution centers or on dealer lots — and those are the riskiest and most expensive places to hold inventory. If companies strategically build flexibility into certain points along the way, it might not make each step maximally efficient. But overall, doing so would improve the entire system over time. Put another away, responsiveness and agility are returns on strategic inefficiency.
For those businesses that can rely on steady demand, maximizing efficiency of each microfunction is the smartest approach. Think of a finely crafted watch. Because demand for its output — exactitude one second at a time — is inelastic, movements are honed to remove all excess movement and any spare parts. Most businesses, however, don’t function like finely crafted Swiss watches. They face constant fluctuations in supply and demand, and grapple with other factors that compel them to respond quickly and intelligently. Anyone who has stood in a long line to check into an airline flight has experienced the failure of constrained capacity in the face of increased demand. Until passengers bill airlines for waiting time, airlines will always calculate that it makes more sense to save money on ticket agents — even if it means longer lines.
Most businesses don’t function like finely crafted Swiss watches.
Zappos provides an example of the strategic inefficiency in customer service. Unlike many companies, the footwear retailer evaluates call center representatives not on how quickly they can get customers off the phone, but on how satisfied customers are. They are encouraged to take all the time they need to make sure customers are happy, and the company maintains a sufficient number of representatives to handle the volume.
This leads us to the philosophical principle of the importance of worldview. I recently attended the Center for Higher Ambition Leadership’s annual CEO conference (disclosure: I help the center with some content strategy and writing). In a presentation of research on balancing short- and long-term imperatives, former technology executive David Langstaff pointed out that one’s worldview underpins fundamental assumptions that drive vision, strategy, and tactics. Do you take a stakeholder or shareholder view of capitalism? Do customers really come first? Are employees really your most valuable asset?
Perhaps because I started my career at Bloomingdale’s under the legendary CEO Marvin Traub, I have always believed that customer experience drives bottom-line results. That has pushed me to believe that you should make decisions on staff levels based primarily on how you can serve customers in the best way — not based on how many basis points of revenues you can save. I have worked for and with other people — including at Bloomingdale’s — who believed that customer service should be good enough rather than great. Those people always looked to shave the marginal cost of staff. But it is always more difficult to measure the cost of a lost sale than the known hourly rate of a person.
Sure, having an extra person around may mean a project pencils out at a slightly lower profit. But the goodwill and positive feelings engendered by being able to send children on a night out in New York with a chaperone can more than compensate.