The Service Strategy

I have been following service leaders for over 30 years. Too many firms spend a fortune on advertising trying to attract customers like Schwab that have awful service. Every few weeks they run a full-page ad in the Wall St. Journal that probably costs about $50,000 for each issue. They should spend the money training the employees on customer service and eliminating stupid rules and policies.

Annual reports are written by skilled writers who can take any numbers and make them dance. For this June newsletter, I am looking at 5 companies that in May 2003 (18 years ago) I identified as service leaders. I read their annual reports each year and get all their financial statements as released. I bought $1000 worth of stock in each one with all the dividend money reinvested. I wanted to follow the money trail and see real results. The $9,000 is now worth $152,052.

I talk a lot about strategy and being relentless. Too many firms are not relentless. My research over the last 40 years has shown me a firm can dramatically increase its value ( 100% – 1000%) if it creates and maintains an awesome customer experience.  You must be Relentless which is the title of my new book. What I realized is most firms are not relentless.  The first step in driving a service culture and process is strategy. The second is leadership and the third is to train all employees

The 5 firms I want to review that I invested $1000 in each and their value as of May 28, 2021, are:

Amazon  $103,531

Home Depot $16,163

Costco $15, 512

Walmart $3,672

GE $854

When you click their name below you will see their highlighted Annual Report for 2020. I highlight key ideas as I read annual reports. Benchmark yourself against these firms and the principles they focus on.

Amazon is my favorite.  If you just take 10 minutes and read my highlights you will understand their thinking. Read Jeff Bezos’s 1997 letter to shareholders. He has never gotten off track. Amazon is relentless. Their focus is to delight customers. They never give up. If you want previous years’ highlighted annual reports email me. Now they want to also become the Earth’s Best Employer and Earth’s Safest Place to Work. They do not expect to dilute their focus on being the Earth’s Most Customer-Centric Company.  In 1995 the salary for Jeff Bezos was the same as today, $81,840.

Home Depot grew by over $21 billion in 2021. They employ 504,800 employees. Total sales for 2020 were $132,110 billion. Look at page 4 their inverted pyramid and values wheel with the customer at the top and CEO at the bottom.  My wife and I spend thousands of dollars each year at Home Depot. They are also Relentless.

Costco sales were $163 billion with a 9% increase. Sales increased 21.7% for the third quarter ending May 9, 2021 with $44.38 billion in sales. They have 273,000 employees. with a 91% membership renewal rate. The average sales per store are $192 million. They have a money-back guarantee on all products purchased there. Vendors are forced to reserve 5% of sales for returns. I have returned a power washer 3 times. They focus on quality and price. There are always tons of customers online at each check-out lane but with 2 employees at each check-out counter, it is super fast. Sams at Walmart is a direct competitor. Walmart tends to bury the numbers for Sams. They are not in the same league as Costco.

Walmart had total sales of $555,233 billion a 6.4% increase of which $63,910 billion was Sams an increase of 8%. When Lee Scott took over in 2000 as CEO they dropped their focus on customer service. Sam Walton the founder built the company on price and customer service. The stock growth compared to Costco, Home Depot and Amazon is poor. The Walton family is the wealthiest family in the world and I guess when worth billions who cares. When you do not have a brand built around superior customer service it impacts the value of the stock. They always have significant increases in sales but the stock has had little growth over the last 18 years compared to firms that provide relentless customer service.

General Electric is the poster child for poor leadership, greed, and executive and board compensation. They have the most skilled writers for their annual reports. Under Jack Welch, GE was Relentless. When Jeff Immelt took over the focus was on greed, waste, and executive and board compensation. Larry Culp, CEO’s compensation in 2020 was $73,192,032  almost a $50 million increase from 2019. Revenue for the year was down $15.6 billion.    In the U.S. it appears the worse a CEO does the more he gets paid. The compensation for the top 6 executives was over $145 million

In their annual report, they say, “Lean is a set of principles that emphasizes customer focus, elimination of waste, and ruthless prioritization of work to improve safety, quality, delivery, and cost.”  They do not practice this at the top.