How to Solve the Cost vs Service Conundrum

James: 0:03

hello, I’m James.

Jimmy: 0:04

Hi, I’m Jimmy.

James: 0:05

Welcome to A Job Done Well, the Alright, yeah, not bad,

Jimmy: 0:15

not bad, James, not bad at all. So, getting back into the, swing of January, yeah, no, I, got I’ve got great story about Tesla designing, processes for, uh, for sure. not for customers, that’s for sure, but we’ll come on to that later. And I spent one of the days this week, nursing a sixth daughter, who’s 20 years old, so, you know, even though they leave home, they never, never leave you, really, do

James: 0:37

She still wants her daddy. My daughter’s never won their daddy. Anyway, so my week, uh, equally fraught, I am in constant debate with three about a WiFi router. But we shall come to that later as well. So, what are we talking about this week?

Jimmy: 0:53

we are going to discuss The, the age old battle between cost savings and service qualities. So, you know, the hypothesis is you can’t get both.

James: 1:04

Or can

Jimmy: 1:05

Or can you? I think intuitively people want both.

James: 1:09

and

Jimmy: 1:10

there’s often a clash and there’s only ever one winner in alert, it’s always We’re going to spend gonna spend a bit of time understanding why that is the case. How you can think differently about balance between the balance between cost and quality, but also most importantly, how do you unlock the prize? So how do you get the best of both worlds? Ah,

James: 1:32

Ah, very good. Should be interesting. So there’s that old adage, isn’t there, you know, sign up on a store. We offer three types of service, cheap, fast and good. Pick any two. Cheap and fast, it won’t be good. Fast and good, sure ain’t cheap. Cheaper and good isn’t fast. And you know, it’s a nice little adage and we believe it, but I think we limit our thinking.

Jimmy: 1:54

Yeah, I think, you know, invariably, we end up focusing on, on cost for a number of reasons. Cost is quite tangible. And, you know, you can measure it really easily and clearly. Whereas service and certainly the direct link between the service that organizations and teams provide, and an organization’s profit, um, is much more harder to measure. So you’ve got this situation where organizations are challenged often or are really focused on delivering their budgets and cost can be clearly traced to those budgets and service and quality often can’t. So that’s one of the reasons I think also, it cost has an immediacy, you know, you need to hit numbers for this year’s

James: 2:44

Oh, yeah, yeah,

Jimmy: 2:46

And so I think you can. Yeah, you can measure it and you can see it in the numbers straight away. Yeah,

James: 2:50

Yeah, well people would be talking about it already now, wouldn’t they? you

Jimmy: 2:54

what’s the cost and budget for 2024? You know, what are the projects you’re going to do to hit that? I think also a lot of management is about delivery. So, you know, you want to get results. And actually, the nuance of balancing service and cost, it’s a little bit more complicated. you know, ultimately, I think the, one of the challenges, though, is that, that people then feel like a cost. You know, so

James: 3:21

most service industries, they are the cost.

Jimmy: 3:23

Yeah, exactly. So as soon as you start focusing as an organization or as a team or as a business unit, whatever, on cost, you make people uncomfortable because they feel that they are that

James: 3:33

Absolutely. Yeah.

Jimmy: 3:34

And, and often, you know, cost is also counter the, the purpose of the organization.

James: 3:41

I totally agree, and I think the problem is people think their job as manager is to reduce cost, and it’s not at all. Because, yeah, you’re not there to reduce cost, you’re there to But there are a couple of, um, really trite sayings, aren’t there? You know, you see it on posters, on walls. You know, good service costs less. Well, what the hell does that mean? And then the other one I had was working with a consultant once. And he said to me, if you chase costs, it will run away from you. Which is a bit more of an opaque sort of statement. But what does that mean? Why is it that people get so confused about money?

Jimmy: 4:14

I think, you know, organizations do need financially to be, you know, successful to survive. They need profit, they need to make money. That’s the, the lifeblood of organizations. I think that can be a little bit of a dirty word, but that is the reality that a lot of organizations focus on. So, I guess you get the, the draw to focus on the money and the outcome, rather than, what’s the service that you are providing, what’s the products that you’re providing, and, do your customers really need them and do you understand the customers? So, people don’t focus as much on those aspects, they just focus on the money.

James: 4:55

And there was, um, I worked with a guy once and he said to me, you know, no top line, no bottom line. So worrying about your cost is a bit futile. Really worry about, are you getting the money from the customer in the first place? And the way you do that, obviously, is by providing the right product or service. Exactly. And that whole thing, you know, if you chase cost, it will, run away from you. So, ah, my three story, just dreadful. So they send me a And I don’t like the router, the router doesn’t work. And then of course, I try to send the router back, and then they don’t send me the DPD link, so I can send the router back. And then, they tell me that they haven’t received the router. And I’m just going round and round this hellhole. And the reality is, they’ve outsourced a bit of customer service, which deals with the first call. They’ve outsourced the bit of customer service that deals with the logistics. They’ve outsourced their, um, actual moving of stuff about the vans bit. They’ve outsourced the service bit where they deal with the box when it comes back to them. And each one of these little bits is, no doubt, very tightly controlled from a cost perspective. Because they don’t talk to each other, the whole thing just gets a whole lot more expensive. So that’s what I think it means when, you know, if you chase the cost, you need to look at the whole thing rather than just an individual bit. I think

Jimmy: 6:11

I had exactly the same experience with Virgin Media when they upgraded my I had to send it back chasing around wasting time. I think it just does show the focus. There is on cost. It isn’t on the customer. They’re quite happily, you know, wasting your time and pissing you off as virgin did with me. But to them, they think that that’s costing them less.

James: 6:41

Peter Dricker, he once said there was nothing so useless as doing efficiently that which should not be done at all. But we get into this whole mire of saying this task that we’re doing, we must do it as cheaply as possible. But is it actually the right task? So I think really thinking about effectiveness is far more important than thinking about efficiency.

Jimmy: 7:01

about efficiency. Yeah, and I think that’s the, the thing is you, you know, you can drive blindly into efficiency, but that drives, you know, it often drives counter behaviors in terms of effectiveness. So I think, you know, if you’re thinking about it, effectiveness first, efficiency second.

James: 7:17

Yeah, totally agree. And then the other thing you do is you get this sort of, blinkered one dimensional thinking where people see it almost like some sort of graphic equalizer. You know, if you push cost down, service quality goes down. Whereas if you push service quality up, cost goes up. And it’s not like that at all. And it’s just this huge blinkered, approach to management driven by short term financial commitments.

Jimmy: 7:39

and it is like you say, that is hugely simplified in terms of. the more you improve service, the more it costs. And, you know, so that just leads to really simple thinking around, just save cost.

James: 7:52

Yeah, that’s the whole story about the cheeseless pizza, isn’t it? Yeah, it’s really easy to save money if you’re working in a pizza company. All you do is you send out the pizza and you just take a little bit of cheese off the top. Cheese is the expensive bit. So, you know, one year you take 10 percent cheese Year and the next year you’d take 10% cheese off the top and you hit the budget and before you know it, you ended up with a cheese pizza. Totally missing the point. And then I can’t help but think some redundancy pro exactly the same.’cause it’s much easier to sack a hundred people than work through all the interactions that you do to improve service quality.

Jimmy: 8:30

You’re right, it is kind of lazy thinking if you like. So I have done, programs where I’ve reduced capacity out of, organizations knowing that people will adapt their systems and they will cope with it. It’s a blunt instrument, you just take the capacity out and everyone will find better ways of working. Well, that’s not really optimizing performance or optimizing your cost,

James: 8:52

yeah. And then what about the other side of the coin?

Jimmy: 8:56

coin? Well, I think, a number of organizations that focus on, on the customer, but they get very evangelical about it, and it’s just, Purely, again, one dimensional thinking. Delight the customer, cost doesn’t matter. You know, and you’ll go around organisations and you’ll see, you know, slogans everywhere, the customer is king, put the customer at the heart of everything you do,

James: 9:17

Yeah, I’m always a bit skeptical about those. It’s a bit like when you go to somebody’s house. And they say, they’ve got a poster on the wall, which says, we believe that killing people is bad. You’ve got to wonder whether or not, what they really believe, But,

Jimmy: 9:30

Exactly, but, you know, the thing is, Unless you are thinking about both, and getting a more balanced way of thinking about performance, it’s equally as bad. I just think that often organisations go down the cost route because it’s easy, simple, iMmediate, you need it now for your budgets. Other organisations have this aspiration to be more customer focused and then they just go off the rails the other way. Getting no balance.

James: 9:59

So what does good look like, then? What do you, what does good quality look

Jimmy: 10:05

good quality, it really depends on the organisation, but I do think that often, to your point about, the increased service increases cost in a linear fashion. I don’t think that’s correct, but I don’t think that most people want Rolls Royce service. I think, people want Ron Seal service. They want service that does what it says. if you’re getting a router, you want your Wi Fi to work. If you’re getting your car fixed, you want your car fixed. You know, I think we think all of the bells and whistles are required to give good service. I don’t think that is necessarily what people are looking at. I think it is important to understand and meet those customer needs. And I think you have to be curious and, and innovative in order to do that. And by that I mean, really learn and be open minded about what your customer’s thinking. And we talked about this previously, from a, a quantitative and qualitative basis. So looking at what the numbers and data tells you, but also talking to customers and understanding them. So I think you’ve got to be curious. Equally. You’ve got to be thinking about what they really need as well, and they won’t always tell you or won’t always know. A good example of that is the, the iPad. There was no way that people were sitting there thinking, I want something that is smaller than my laptop and bigger than my phone. But Steve Jobs had hit upon absolute genius. He created that niche,

James: 11:35

yeah.

Jimmy: 11:36

But that, you know, your customer’s not always going to tell you exactly what they need. So you have to, as well as understanding, being open and curious about it, you have to kind of think innovatively at times as well. Yeah,

James: 11:48

Yeah. And there’s the whole thing, this sort of U shaped chart. we’ve talked about this a lot of times. But if you think about cost versus quality, it’s not a linear relationship. It’s more of a U shape. So what do I mean by that? Well, if you start giving people quality that they don’t need, then your costs go up unnecessarily, you know? So if you start, I don’t know, giving people a bouquet of flowers when you service their car, you can start banging cost into delight the customer, but you’re just giving them, giving away stuff customers But likewise, if you go the other side of the equation, you can start to pull cost out. But if you just pull cost out, you just generate rework and customer dissatisfaction rises. And individually, it might look like it’s cheaper, but you can be sure as hell it’s not. So the lowest cost operate is where you’re giving the customer exactly what they want, nothing more, nothing left. So the question is, how do you find that sweet spot? And how do you get to the point where you’re delivering projects to give you that, because that will take costs down.

Jimmy: 12:49

I think just building on your point there, though, James, I think I did have an operation once where they had a lot of capacity and we need to take some of the cost out. And when I was talking to the guy who was running the operation, he took me around and said, Where are the people sitting around doing nothing? Because everyone was really busy, but the point was they were doing a whole load of extra tasks, really gold plating everything. And you’ve got to ask yourself, as a customer, would you want to pay for that? So, if everyone else put a note on a file when a customer rang up that said, James called, to find out where his router was, that’s it. In this organization, they would write down every word that was said. and you don’t need a verbatim text of a phone conversation to get the key message across. So they were gold plating stuff they didn’t need to do. Customers

James: 13:44

don’t want it.

Jimmy: 13:45

pay for that. And that’s, again, to your U shaped sweet spot. That’s the point. You know, customers have to pay ultimately through the prices of products. You’ve got a really nice slide, James, that you did that really shows that U shape and the sweet spot and the issues with, high cost and low service and high service and high cost. I think we should try and put that on our website so people can go and have a look at that

James: 14:14

Yep, we can do that.

Jimmy: 14:15

feel free to download it and borrow it because it is really useful in this sort of discussion.

James: 14:23

there’s like a, an academic perspective to it as well, right? So it

Jimmy: 14:27

you,

James: 14:27

yeah, I like a

Jimmy: 14:28

it, this is, this is where you’re in, in your element. Yeah,

James: 14:31

we’ll get the foggy bit in a minute. Don’t you worry, you’ll get your time. So the whole thing is if you focus on speed of service, you will make things cheaper. And people think, well, I can’t do that because I need to put more people in to make things faster. But that’s not the point, right? The point is, time costs money, yeah? So the faster you can do something to an acceptable quality, the cheaper it becomes. Because you have fewer people standing about, and less hand offs, and less, rework. So that’s the real trick, really, is to find out how you can deliver something quickly, without investing in extra people. Because it’s all about stripping the things that go wrong out there. Go on, then, give us your less academic view of how you do it. But

Jimmy: 15:14

I think on a more practical basis, you’ve got this situation where, you do projects to try and improve service, or you do projects to try and save money. Um, and actually, I think It is like a Venn diagram, those two overlap, and they overlap a lot more than you might think. So, this is how, we view it, how you actually get that balance between service and cost. So this is I want to have my cake and eat it, well, look at those projects and find the projects that do both. Deliver improved service and save money. Gone.

James: 15:55

You’ve got a slide on this as well, we could put that on the website too. We

Jimmy: 15:59

could give that a go, but I think

James: 16:01

as mine is

Jimmy: 16:02

it’s nowhere near as pretty as yours, but I think the point is, in terms of service only projects, good examples is where you see organizations, they go really over the top, with apologies when they get things wrong. So, your cars late from being repaired at a garage instead of just. Either getting it right first time and getting it delivered to you. When it’s, you know, sometimes stuff happens and, it will be late. Instead of just managing your expectations and making an apology, they’ll send you bunches of flowers. I don’t want a bunch of flowers,

James: 16:35

I want my car back. And if

Jimmy: 16:36

And if you’re not going to get my car back, apologize, but also, another good example of where things go wrong. Um, we got sent a rug recently,

James: 16:45

it

Jimmy: 16:46

and it was damaged. And, uh, so they sent us another one. And we said, yeah, do you want us to return the first one? They said, no, keep it. Which, on the face of it, sounds, you know, oh, that’s, that’s great, you know.

James: 16:58

but who’s paid for the

Jimmy: 16:58

paid for the rug? what margins are you making that you can just leave me with a rug? Oh, by the way, the rug’s damaged, I don’t actually need it. So now I’ve got the problem of getting rid of a rug that was no good. So, over the top apologies, over the top trying to put things right. They are to improve service. They don’t actually drive any. Any value

James: 17:18

Can I chip in on the other side of the equation then? Projects which are done to reduce cost. For a while we were responsible for printing in an organization. And there was a big cost pressure. And so all the photocopiers, it was decided that everything would have to be printed out dual sided. And also no colour copying. No color copies unless you’ve got a, um, vice president or whatever the hell they were called to sign it off. So, of course, you never went to get color copies. But this was a major financial institution. As an analyst, I’d be printing out charts with graphs and colors and, you know, this one’s very light gray and this one’s mid gray and this one’s dark gray. People are making decisions on charts where they can’t see what color the flipping chart is. So that was the first thing, you know, how much money did we save versus how much did we lose because people didn’t understand what they were looking at. But the one that really got me was, I got sent by HR my year end appraisals for all my staff. So I printed them out, and of course, they were all printed out double sided. So then, I couldn’t really, you know, give Jimmy Barber his, appraisal note with James Lauders on the other side, could I? So then I stood there photocopying so that I could get them individual pieces of paper. So although the cost of the printing went down, the whole thing was a debacle.

Jimmy: 18:38

I think that other other good examples are as we touched on, you know, just removing capacity, you know, making a load of people redundant and hoping that people will figure out ways of improving their processes or designing digital processes with just cost savings in mind, not thinking about the customer. I mean, I mentioned earlier, I just got my car serviced by Tesla. And, clearly designed by a load of engineers, uh, in terms of their processes. but everything is, is automated. But the bit that perplexed me was they would send me an email and a text guiding me towards their app where I could read the message. They were obviously high fiving because nobody had had to call me and speak to me, so they hadn’t had to use a person.

James: 19:25

Yeah, but you as a customer, you’ve got your text, and your email, and your app.

Jimmy: 19:28

Why do I need three messages to tell me my car’s ready for

James: 19:31

answer to that is very straightforward. You’re a bit thick, aren’t you? That’s

Jimmy: 19:35

Well, that’s the way it made me feel for sure. So I think you’ve got a series of service only projects, a series of cost only projects, and you can see how the risk of both is that they are very one dimensional. Whereas if you look at, projects that improve both service and cost, it’s not a difficult thing to consider. You know, examples might be, cutting out unnecessary contacts. Customers don’t necessarily want to contact their organizations all the time. Get it right first time. Your example around three. You don’t want to be speaking to three. So just get the delivery right and then you don’t have to. So removing waste and waste is unnecessary contacts that customers don’t want and they cost too much. Cost organizations money. So also, getting customers talking to the right people. Customers want to talk to people who can get the job done. Decision makers, people who are empowered to do the job. That, you know, reduces cost, but also improves service for the customers because they’re talking to the right people. And also, digital projects, where you think what the customer needs. So, I was working in, uh, one organization and we wanted customers to. Um, apply for their claims online and the way of doing it, we sat down and talked to customers and co designed the processes and everyone said it would take a year to get customers to sign up to this we got 95 percent of customers doing it that way within three months because we had designed it to make it easy for them. That reduced our cost, but it also improved customer satisfaction because it made it easy for them. So thinking about both the cost impact and the service impact of projects, and only doing those projects that tick both those boxes, that’s the way of getting the

James: 21:23

Yeah, yeah, yeah. Totally agree. So then I suppose that comes to the, well, how do you find those opportunities? And we talked about this in one of our previous episodes. But really just go and talk to your staff, go and listen to some calls, go and see what your customers have to put up with. Because if you do that, where the waste is becomes really, really obvious. But then the other thing that I think is really important is if you’ve got to cut costs and you can, let Attrition take the cost out for you. Because Turkey’s Don’t Vote for Christmas, going around with a big hatchet and trying to get people enthusiastic about projects to cut cost is really hard work. If you can make them safe, then they’ll be in a much better place to help you identify those opportunities. I

Jimmy: 22:02

I think that’s right, when, I was looking at outsourcing once, we, um, outsourced some work to India, but the, team in the UK never passed the work over When we looked at and talked to them about it, it was because they didn’t feel safe. They thought that if they passed the work over, exactly. So as soon as we explained to them, That’s not what the intention was. Then they all passed the work over and they worked with the team in India as a, as an extension of their, team, only because they felt safe.

James: 22:32

same. There you go. Cost versus quality. So, how are we going to summarize that?

Jimmy: 22:36

Well, I think, We’ve talked today about why people focus on cost rather than quality because it’s immediate and tangible and easy.

James: 22:47

Yeah, focus on giving your customer exactly what they want, nothing more, nothing less. Because if you do that, you’ll get to the lowest cost position. you’re

Jimmy: 22:55

looking at projects. And this doesn’t have to be big projects. It can be small improvement projects. Whatever you’re doing to improve how you work, look at the impact on cost and service, and only do the projects that tick both boxes. and

James: 23:11

things or you’re not sure what to do, um, yeah, and have a look, go and look what goes on on your shop floor, you will be amazed. And if you really can’t find anything, give us and we’ll come and Hope

Jimmy: 23:26

you’ve enjoyed today’s episode. If you have, please share it someone else. the show online and drop us a review. And, we’ll forward to next Have great week

James: 23:39

Yeah,

Jimmy: 23:42

If you’d like to find out more about how James and I can help your business, then have a look at our website at ajobdonewell.Com.