When Smart Companies Make Bad Choices

A lengthy article in today's Wall Street Journal on the recent struggles of Dell in the consumer market serves as a reminder that even the best companies can't rest on their laurels for long these days. In the past, Dell has often been heralded (and rightly so) for its innovative approaches to manufacturing, sales, product distribution, and inventory management. But since 2000 the value of Dell stock has dropped by 60% while rival HP's has climbed 30%. One of the reasons is that Dell chose to focus on the business rather than the consumer market for laptops. Another is that they sought to cut costs at the expense of their customers:

As the tech downturn ended around 2003, Dell continued cutting costs and focused on being efficient. Around that time, Dell executives decided to hire temporary workers to man their five U.S. call centers, rather than recruit more-expensive full-time staff. By 2005, 75% of Dell's call-center staff -- those who take calls from customers wanting to buy a PC -- were temporary workers. Three years earlier, the majority of those staffers were full-time employees.

The move backfired. By late 2005, Dell noticed its U.S. consumer sales were flattening. Ro Parra, a Dell senior vice president who was asked to look into the problem, pinpointed call-center problems as one cause. He discovered that the temporary call-center workers who wanted full-time jobs weren't being promoted. Turnover in the centers had soared to 300% a year from 30% in 2002.

You try to staff your call-centers, which for Dell is the only place where customers interact with a real person while purchasing a computer, with temporary workers and then see your sales stunted? Not exactly a head scratcher that.

"We were very efficient, and we made those decisions that work with the short term, but they were really damaging to us over the long term," says Mr. Parra.

It's surprising that with all the core-business consultants, case studies, business books, lessons learned, game-planning gurus, and metric-loving MBAs out there, companies, good even great companies, continue to take customer service for granted. The oldest, simplest directive for business success, "serve the customer" is still often the one most ignored by far too many companies.