Service Challenges at McDonald's: Did Success Breed Problems?

The Wall Street Journal reports that McDonald's has launched an initiative to improve customer service.  Apparently, the company has recognized some significant problems in recent quarters.  Here is an excerpt from the article:

In a webcast McDonald's executives held with franchise owners last month, the company said 1 in 5 customer complaints are related to friendliness issues "and it's increasing," according to a slide from the presentation reviewed by The Wall Street Journal. The webcast identified the top complaint as "rude or unprofessional employees."  One slide said that complaints about speed of service "have increased significantly over the past six months." Another mentioned that customers find service "chaotic."  "Service is broken," said a slide from part of the webcast delivered by Steve Levigne, vice president of business research for McDonald's USA.

What could be causing the problems at McDonald's?  I have several theories.  First, the company has experienced many consecutive years of same-store sales growth.  The firm prospered during the struggling economy, as folks looked for value.   Moreover, McDonald's foray into coffee drinks turned into a blockbuster success.   One wonders if the growth simply began to tax many of its smaller restaurants.  Did crowds overwhelm the firm's processes and systems?  Second, McDonald's did expand its menu to offer more drinks as well as healthier food options.  Did the new options add so much complexity that they slowed down service considerably, or made it difficult for employees to provide food in an efficient manner?  In short, I wonder if success brought these problems upon McDonald's.  Perhaps there is a lesson there for every rapidly growing quick-service or fast-food restaurant chain.   Growth may be wonderful, but service deteriorates, you may have a major problem on your hands. 

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Should You Purposefully Annoy Your Employees?

Ray Fisman and Tim Sullivan offer an interesting anecdote in today's "How To Be A Better Boss" article in the Wall Street Journal.   Fisman and Sullivan write:

Employees often wish managers were a little more understanding, but people tend to associate the idea of "understanding" with "nice." A little well-directed pain can be a good thing in getting workers to focus on the tasks they might otherwise choose to forget, and to increase overall productivity.  Given that developers often prefer programs to people, Kayak founder Paul English says, making them deal directly with customers' questions drove them nuts. Once they heard the same complaint two or three times, the engineers tended to stop and fix the code. As an added bonus, after taking his turn on customer-service duty, an engineer can pass the phone—along with its grating ring—down the line for someone else to deal with.

What an interesting example!   Of course, the phone calls work for reasons beyond the fact that they annoy the software developers.  The phone calls create a direct line of communication between the developers and the users.  Kayak has removed all the information filtering that often takes place between the users in the marketplace and the developers back at the office.  Moreover, developers get a real sense of what is just a one-off complaint versus a real pattern.   Too often, someone can shrug off a complaint from the sales force as an "isolated incident."  However, in this case, the developers can begin to see that a pattern exists, and that the incident is far from isolated.   Finally, the developers share the pain here.  We don't have a few "problem-solvers" focused on fixing bugs.  We have all the developers addressing bugs.  Everyone is accountable, as opposed to having a small unit that worries about fixing bugs.   The collective accountability goes a long way toward improving quality.  Once everyone knows that they will have to address these calls at some point, it also makes people take extra care to get it right the first time.  

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Making Customers Wait Can Be a Costly Problem

Gad Allon, Awi Federgruen, and Margaret Pierson have conducted an interesting piece of applied research regarding the fast-food business, with implications for a wider range of industries.  They examined the fast-food drive-thru industry and took a look at the relationship between willingness-to-pay and wait time.   They found that, "Both the price and waiting time parameters have a significant impact on the consumer’s decision.  These results confirm … that in the fast-food drive-thru industry customers trade off price and waiting time. In particular, to overcome an additional second of waiting time, an outlet will need to compensate an average customer by as much as $0.05 in a meal whose typical price ranges from $2.25 to $6. This corresponds with an hourly cost rate of approximately ten times the (pre-tax) average wage of $18/hour and nearly 30 times the (pre-tax) minimum wage in Illinois in 2005.”

Most importantly, the scholars did not just show that people value their time, but that they value their time waiting in line VERY highly.  The research shows that people strongly dislike wait time while at the restaurant, and they value that time more heavily than they do the travel time to the restaurant.   As Allon notes, "The waiting time once in line is considered pure waste.”

Some firms should pay special attention to this study.  In particular, firms that do a fair bit of customization for customer orders need to be wary of wait time effects.  Take Starbucks, for instance.  They offer customers the opportunity to customize their drinks in many different ways.  One such customer with a highly specialized order can really lengthen wait times at their drive-thrus.  I always kid my wife about her tendency to use the Starbucks drive-thru. On numerous occasions, I've hopped out of the car, walked into the Starbucks, and come back into the car while she is still in line.   You might argue that a customer faces the same risk of being held up inside the Starbucks.  However, we have to remember that the customers inside the store are different in their wants and needs.  They have chosen to enter the store rather than go to the drive-thru. That decision suggests that they may not value speed as highly.  They may intend to sit down for a few moments, or they wish to use the restroom.  Therefore, the delay in wait time is not as problematic inside the store as it is in the drive-thru.  

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How Analytics Can Help You Improve Quality and Reduce Costs

I found a terrific example of the use of "Big Data" in Fast Company magazine this month.   The article by Farhad Manjoo describes a situation at Washington Hospital Center.   ER doctors became concerned that many patients returned to the hospital just a short time after being discharged.  A computer scientist at Microsoft Research began to investigate.  He wanted to identify some triggers that would predict whether a patient would be readmitted.  Specifically, he was looking to help doctors identify some predictors that might not otherwise receive much attention by ER physicians and nurses.  He analyzed more than 300,000 ER visits.    Among other things, he discovered that the length of a patient's stay in ER tended to be a good predictor of readmission.  If a patient stayed in the ER for more than 14 hours, they were likely to return to the hospital within a few weeks.  Similarly, if the patient's chart mentioned the word "fluid" at some point, that seemed to predict readmission quite well too.  

This story illustrates how companies can use analytics to help them understand how to improve the quality of customer service, as well as to reduce costs.  Take an automobile dealer.   They conduct repair and maintenance on thousands of cars per year.  A fair number of those cars return shortly after a repair or maintenance appointment, because something is not working correctly or hasn't been done to the customer's satisfaction.   An automobile dealer could analyze the data from thousands of those cases, and it could try to identify the predictors of return visits.  If they could identify a few solid predictors, then they could try to intervene to reduce those return visits.  Those interventions could improve quality and customer satisfaction, while reduce costs (since every return visit is costly).   Many service businesses could apply a similar logic and use analytics to achieve positive results.   Can your company benefit from such an approach?  

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Understanding Your Customer: The Unasked Question Problem

As consumers, we receive tons of requests from companies to complete surveys these days.   During most restaurant visits, the waiters or waitresses ask us to complete a questionnaire.   Retailers print a phone number or web address on their receipts, and they request that we complete a survey.  After we purchase a car, the automobile company calls our home trying to solicit responses about our car-buying experience.    Do companies learn a great deal from these surveys, or might they be drawing erroneous conclusions at times?

Researchers David Gal and Derek Rucker at Kellogg Business School have examined a key form of response bias that may trip up companies. Specifically, they have demonstrated that consumers get quite frustrated when the survey instruments fail to ask them about key issues about which they would like to comment or respond.   In those cases, the unasked question becomes a serious problem.  Why?  It turns out that consumers often engage in a behavior that the scholars call "response substitution."   As researcher Derek Rucker says, "People don’t answer the question they’re asked. Instead, they supply an opinion they want to share." 

For example, a consumer may report that they did not like the food at a particular restaurant, when in fact, they really had an issue with the ambiance.   Perhaps the restaurant was a bit too loud.   However, if the survey doesn't ask about the ambiance, then the consumer may substitute their displeasure on a different question, such as one related to the quality of the meal.   In those cases, the restaurant may come to two misguided conclusions.  First, they may determine that the food quality must be improved, when the consumer actually likes the meals provided.  Second, the restaurant may not even realize that they have an ambiance problem.   The scholars recommend providing the consumer with a chance to offer an open-ended response in an "additional comments" section, so as to dig a bit deeper regarding consumer displeasure. 

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Can Best Buy Be Saved?

After yesterday's post on Sears, a friend recommended that I read Larry Downes' article regarding Best Buy (posted on Forbes.com).   Downes article is titled, 'Why Best Buy is Going out of Business...Gradually."  Some may find the article a bit harsh, but sometimes the truth hurts.  Downes points out the disturbing numbers that should alarm Best Buy  management:

Consider a few key metrics.  Despite the disappearance of competitors including Circuit City, the company is losing market share. Its last earnings announcement disappointed investors.  In 2011, the company’s stock has lost 40% of its value.  Forward P/E is a mere 6.23 (industry average is 10.20).  Its market cap down to less than $9 billion.  Its average analyst rating, according to The Street.com, is a B-.

Interestingly, Downes does not attribute all the company's problems to the threat from online retailers such as Amazon.   In fact, he focuses a great deal on customer service.  One could argue that brick-and-mortar retailers must have superb customer service, because that in-store experience can be one of their key (and perhaps only) advantages over online retailers.  However, Downes explains (as others have) that Best Buy employees seem to spend a great deal of their time pushing products and services on customers, rather than trying to offer educated and informed answers to their questions.  They aren't offering the best solution so much as they are trying to drive sales of Best Buy's products. 

I haven't bought a major item at Best Buy recently, so I cannot confirm this observation by Downes.  However, I can describe a recent encounter at the Apple Store, where an associate spent a considerable amount of time explaining to me why I should spend $300 less on a particular item because it would meet my needs more effectively and cost efficiently.   I thanked him for the honesty, and he explained that their job wasn't just to sell product but to make sure we had the best solution and best experience possible.  Sales would come if they did that part of their job.

Beyond the issue of customer service, I think Best Buy has to answer many of the questions that I posed for Sears in yesterday's post.   In particular, I think it needs to refine the relationship between its online store and its physical locations.  That connection should be clean and seamless given the types of products that Best Buy sells.  The firm needs to think about the choice of product categories in which to compete, the amount of real estate dedicated to each product category, and the optimal size and layout of the stores.   As J. Benjamin Stevens wrote on this terrific blog post, "Apple Retail Stores are many times smaller than Best Buy, Costco and Walmart. However its sales per square foot figures are off the charts. In 2009 an Apple Store in Manhattan had sales of $35,000 per square foot, while Best Buy’s national sales per square foot total was $930 for the same year."

One final point:  Downes suggests that Best Buy is facing a gradual demise, not a sudden one.  It reminds me of what governance expert Jay Lorsch once wrote in a book about boards of directors.  He argued that gradual crises often are more difficult to address than sudden ones.  The gradual crisis emerges slowly and in a manner that enables people to downplay the threat or underplay the need for a dramatic response.  

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