Joseph Michelli is an internationally sought-after speaker, author, and organizational consultant who transfers his knowledge of exceptional business practices in ways that develop joyful and productive workplaces with a focus on the total customer experience. In this discussion we discuss his book, The Zappos Experience: 5 Principles to Inspire, Engage, and WOW.
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Related Podcast: Developing a winning Culture the Zappos way!
Transcription of Podcast
Joe Dager: Welcome everyone. This is Joe Dager the host of the Business 901 Podcast. With me today is Doctor Joseph Michelli the author of the recent book “The Zappos Experience” and, in the past, “The Starbucks Experience.” He is recognized by Focus as one of the top five customer service influencers to track in 2011. After reading the book, Joseph, I would have to admit that you know a thing or two about customer service influencers. What prompted you to write about Zappos?
Joseph: I think it was just sitting there waiting to be written about. In fact, we approached them a few years ago and were positioned to do this. Then Tony Hsieh, their CEO, was able to secure a book deal, and we sat back and just studied more about them while his book was moving through the cycle and then positioned ourselves, about a year after his book launched, so that we would have a different message than what he had put out into the marketplace. We’re talking much more about how they do what they do and Tony talks, the CEO talks, a lot about what they did. We’re hoping it adds value to the marketplace.
Joe: I took a different slant on the book with my lean experience in the culture type things that were expressed in the book. Culture really becomes your brand, doesn’t it?
Joseph: It is really your brand. I think one of the great things about you, Joe, and I’ve kind of studied you, is that I think you integrate lean thinking into a lot of places where lean thinking hasn’t gone. You take it and put it in a different position than most people do. I think Tony Hsieh has done that at Zappos. The senior leadership at Zappos in general has done the same with culture. I think they really have taken culture to a different level. I mean everybody talks about culture. It’s kind of like a sense of humor. Everybody has it. Everybody has kids that are smarter than the average. But I think when you get right down to Zappos they understand that your business is your culture; it is a predictor of your overall success of your brand, and it is not something you just talk about, it’s something you groom, court, and defend.
Joe: How do you do something like that? It’s just amazing to me because you read about, with Zappos and Starbucks, which has really taken lean underneath their umbrella too. You say that, but how can you mimic it? How can you get it or can it be mimicked?
Joseph: I’ll just take a moment aside with Starbucks. I think lean has saved Starbucks, to be really honest with you. That and a few other genius moments of getting back to their cultural roots as opposed to trying to just focus only on year end store over store return. I think the answer to how do you get it in your system is at some point leaders say it’s not about the what and how anymore. I’m sure many in your audience are familiar with Simon Sinek’s work on the importance of why. He has really essentially said, unless you define the why, why we do this, people aren’t going to take the hill for you, and they’re not going to follow you over the next rise.
It really comes down fundamentally to; that you say this is why we do what we do and if you’re one of us and you want to stand by us we’re going forward. I think there are some leaders who get that and others who really obsess about the what and how and it’s just not very inspiring. People move to other what and how’s and get lured away to other what and how companies.
To me, it is a fundamental understanding inside of a leader that unless I constantly champion the why and look for people who share a passion for that why then there’s no real reason to be.
Joe: A lot of it is you have to develop your culture, but you have to develop customers that appreciate and want your culture.
Joseph: Absolutely. I think you have to have a why that connects with customers, right? At Zappos, I think the fundamental why is: look, the world is filled with marginal service providers and if you’re going to succeed in an industry where you’re online, and you are selling something as intimate, at least initially, as shoes then how are you going to ever gain the trust of customers? I think the why was that we live in a world of cynicism and skepticism, and we need to kind of change the way people think about business. We have to give them an experience where they get more than they bargained for and where it matters and where it’s personal.
Joe: With Zappos, I think they believe this. I’ve come to the same conclusion with Starbucks also. But it goes down to every individual in the company has to believe in that why, right?
Joseph: Yeah. Terry Paulson is a friend of mine who’s written a book called “They Shoot Managers, Don’t They?” He says, and I think he says it better than anybody else; the difference between a vision and a hallucination is how many people see it. I think, in organizations there are a lot of service hallucinations going on where the senior leader’s thing that they’re a service organization, but it’s not translating into anything that other people see. So, at the front lines, it truly is hallucinatory. For me, I think that businesses like Zappos have hired people who, in their DNA, are service providers who have a passion for service. Not everyone does, nor should you hire everyone and try to convince them to be that.
I think they’ve done an incredible job at serving a perfect fit, selecting the people who really innately buy into that. Then they manage them with great efficiencies to deliver the outcome that is maximally good for all.
Joe: When they go to hire someone, get that pool, I think everybody’s heard of the buyout that you can take money and leave there. But what is the success rate? When they bring people in to fill a position and looking for that customer service type of person, can you describe that funnel to me? One in 10, one in 100 that actually makes it?
Joseph: Yeah, it’s one in a multiple of hundreds. I actually quoted the book, and it’s not a statistic I have readily available. But it’s several hundred for every position available. Their basic philosophy is to hire slow and fire quick. So if, for some reason, you get through multiple filters, and there really is an incredible gauntlet of filters, you’re still not really officially hired until you’ve done a month of orientation. During that whole time, you really can be drummed out because you’re not a culture fit.
If you factor all that out, once people do make it through the end, and they do their own final self?selection and don’t take the buyout and say, “I’m going to stay at Zappos so I’m not taking your stinking $4,000 to walk,” the people who get through that gauntlet stay at Zappos in record numbers for the industry.
You have to understand a lot of the Zappos is a call center environment, which is about as transient a business environment as anything you can get. But their retention rates are substantially like three or four times better than industry standards for retention of employees. The people that they do get rid of, they get rid of before they could become toxic to the culture.
Joe: Because there’s still a lot of, should I say, old?fashioned management principles intertwined in Zappos a little bit?
Joseph: I think that they’re an interesting hodgepodge of the best of everything, and a lot of what they do is pretty staid and traditional. I mean there are certain performance expectations that are very consistent with what you would see in other parts of the business world. Their efficiencies are very much consistent with the operational excellence that you’d see from the traditional management philosophy. But I think the new ideas, the wild and crazy ideas like a $4,000 buyout after a month orientations, or their requirement of every single employee to go through a month?long orientation including service delivery for two weeks whether you’re the CEO, CFO, or you’re the new hire out of high school, to me that’s fairly revolutionary.
Joe: If you reference Dan Pink and some of his latest work in “Drive” and a few other sources, performance reviews are becoming taboo now. Zappos is just getting away from that now, aren’t they?
Joseph: I think they were a little slow to get away from it. I think they were ahead of the curve; I mean to be honest about how they presented it. For the longest time, their performance reviews were based largely on how you performed in the culture. 50 percent of your performance review was based on whether or not you were advancing the culture, whether you were living the values of the company. That’s fairly progressive. Even those that held onto performance reviews and still have performance reviews in the traditional sense, not many of them had that much factored in on culture. So they were probably a little ahead in understanding it’s not all the widgets that you produce, but it’s whether or not you’re a good person to work with.
At Zappos, they always had the view that if you had somebody who was producing 50 widgets an hour, but was a real SOB, and you had somebody that was producing 30 widgets an hour but was doing a lot of other things to advance the company, they’d rather have the 30 widget producer.
I think that’s where they were a little ahead of the game, but I think now they’ve just completely done away with the reviews at all because the reviews were more of an impediment to having growth conversations between employees and managers. They became a crutch where that’s how I evaluated you.
Well, the real evaluation should be a conversation between you and me on a very regular basis about my growth and development and my performance. That’s how people really grow and how employees become engaged at work.
Joe: Is there an actual organizational and a prescribed hierarchy at Zappos, I mean the traditional org chart as you would see it?
Joseph: I think there is, and there will probably be more of that. I think it’s a challenge for Zappos. They were bought out by Amazon about a year and a half ago for a billion two, so there’s some of the Amazon culture that’s being brought over. I think to create increased efficiencies to be honest with you because Amazon is an amazing machine. So the challenge for Zappos is how organized can they get and still be as wildly entrepreneurial as they’ve been? So there is an org chart, and I think it’s increasing in its lines thanks to the Amazon world.
Joe: What’s always interested me in a company like Zappos, they’re a niche outfit. I mean you’ve got to want to buy shoes online. Not a lot of us do but practically buying anything online is becoming more accepted right now. But should other online companies try to mimic Zappos? Or what should they be taking away from your book?
Joseph: Well, I think there is some mimicking to do. One of the biggest problems about online purchases is it’s a lot about drop shipping. So the margin advantage in that business is if I’m in a shoe area, I could get Clarks to ship out shoes from the Clarks warehouse. I don’t have to have inventory. I don’t have to control the supply chain. All I have to do is be the front?end receiver of the orders, and then that’s my function in the thing. So marketing my service and then being able to get you to use my service so that I’m a distributor of all this drop shipping. I think Zappos really understands that you don’t control the deliverable on the back side, and you don’t control the speed of delivery. You don’t control how the complaints are managed.
So to many ways I think they understand that you have to be a part of the entire service delivery chain within your brand. A lot of online companies could really learn from that because if you look at most of the complaints??I didn’t get my product; it’s not what I ordered??and what’s the company that fulfilled the order going to say?
I mean all they did was hit some keystrokes, and the breakdown was at another shop. So I think that getting more of your service delivery as part of your control in managing that supply chain is huge to the success of that industry.
Joe: I think you look at Amazon and how they’ve taken prime and used it as a leverage point to bring more books under their control, even the used and now the libraries, that they are controlling the supply chain, even the used section of the supply chain.
Joseph: Absolutely, and guilty as charged. I’m a prime member. So it definitely pulled me when I was not as actively involved in Amazon before.
Joe: When I look at Zappos, I see a lot of similarities with Starbucks because they don’t necessarily pick all the suppliers. Or do they? I mean not anybody and everybody’s a Zappos supplier, are they?
Joseph: No. I’ve worked with Starbucks and Zappos and I worked with the Ritz?Carlton, the Pike Place Fish Market in Seattle, and a lot of companies I’ve written books about. There are more similarities than differences when you get to greatness? There is no doubt about it. I’d say one of the strengths that Zappos has at Starbucks can continue to work toward is the fun element of the experience both for the user and for the employee. I think that Zappos brings a playful culture that you won’t see in most other businesses around the world. They don’t see the fun as an impediment to efficiency but as a source for people’s engagement. I think that’s a difference. But as far as the supplier relationships, I think most of them vet their suppliers very carefully. I think Zappos is fairly innovative in their transparency with the suppliers.
There’s not that adversarial relationship that says, “I’m not going to tell you how well your products are flying off my shelf as much as I can hide that because that will give me an advantage in negotiating with you in the future. I won’t pit suppliers against each other. I’ll give you a transparency on sell?through and real?time data so that you can help me figure out how to sell more of your products instead of me trying to get the advantage of you in the negotiation phase.”
Joe: When we sit there and look at Zappos though, we all talk about the culture, the empowerment of the individuals to do some extraordinary things. It really gets down still to hiring that cultural fit that person that’s willing to do that extra on the phone, isn’t it?
Joseph: I think it does. I think it also gets to an understanding that all of the experience that you’re trying to create is not purely definable by quantitative measurement. For example, at Zappos a call center employee is not measured for how long they’re on a call. Actually a call center employee is called a “customer loyalty team member,” which is important to me because language matters. Calling you a “call center person” says that’s where you work, and you are defined by where you work. Calling you a “customer loyalty team member” defines you by the function that you aspire to provide for the customer. Assuming that you get those two distinctions, and then once I’m in the call center my job is to build loyalty.
To build loyalty means the metrics are not just about how many calls I process in an hour and how efficiently I can get you off the phone with inaccurate information. It’s more about whether or not I forged a personal/emotional connection with you, if the information I provided you was helpful and accurate, and essentially whether or not I’ve increased the probably that you’re going to be an advocate for the brand.
I think what you see in companies like Zappos that’s very, very effective is they not only hire the right people, but they tell the right people what matters. Then they measure them based on what they tell them matters.
Joe: Take a larger picture of this; you’ve heard me talk about how I believe that the customer experience is really the next forefront. We went through the different process methodologies; we’ve went through where we’re trying to improve capabilities and structure, and it’s more about the demand side, the customer experience side. That’s what interests me so much in the Zappos experience, because can you really have a great customer experience if you don’t have that culture inside your company that is a fun culture and a great experience already?
Joseph: I think this is where you’re way ahead of the power curve. I’ve watched the whole Lean movement, and a lot of the efficiency strategies really grow up into understanding that everything is personal. So you can measure it down to the infinitesimal point, point, point zero in terms of errors and accuracies. But when you get right down to it, it better serve a customer. I think that’s the big distinction between invention and innovation. An invention is something that you might create in your basement; an innovation is something that solves a real human need. I think that when you get down to understanding this whole thing you have to understand the demand?side.
You have to understand the psychology of the people you’re asking to supply. It is not all about the manufacturing room floor, where you have a raw product that is completely predictable; you apply a predictable process and then you have a predictable outcome.
The raw product of people is so unpredictable that even though you apply standard processes you have to have fairly competent people who can improvise to adjust the operation to the people that they’re dealing with.
So, I think that it’s culture inside, it’s an understanding of the wants, needs and desires of those you serve and it’s having great processes. You put those three things in play, and you’re ready for the current environment of business, which is maybe different from the core of business success a generation of two ago.
Joe: Where do you think Zappos is going? They’ve done so great, and Amazon has bought them out now, but what’s ahead for Zappos? After being inside there, you got to have a feel for where they’re headed.
Joseph: Well, Tony Hsieh has a big investment in private jets recently. I look at where people’s wallets are and where they put their feet, and I have a pretty good indication of what really matters to them not necessarily what they say. He’s often talked about starting a Zappos airline. The fact that he’s now bought heavily into a private jet company is indicative of what he believes. What he believes that the foundation is that service excellence and service cultures can translate independent of product. So, you could put this service culture, and these principles into play and you could run a successful airline with the same kinds of people that are involved in the company that sells shoes online.
I expect that you’re going to see broadband reach within the context of Zappos outside of traditional products around service culture innovation.
Joe: That’s really interesting that really took me for a loop. I’m sitting here thinking of the next question…
Joseph: And another, just a piece of that while you’re formulating your question is that there was a memo that leaked from Tony Hsieh recently. That basically the employees at Zappos are going to be able to fly on that private commercial jet airline whenever there are inefficiencies, and they have empty spaces, they’re going to be able to fly for free on that private jet airline. So, it’s a good day to think about hiring on at Zappos, I guess.
Joe: In the book you discussed five principles. Can you just briefly discuss them a little bit for me and give me some basis maybe for our conversation here what those five principles are?
Joseph: Yeah. We flirted with the first principle, which is “Serve a Perfect Fit”. And for me, fundamentally, that means identify what your values are. I don’t mean by what values have been on the wall forever, but really what does it take to be successful, to get business done in your company. Once you find that then you’re able to start measuring everything against that. All of your business decisions should be measured against those core values including the decision on who you select for your business. “Serve a Perfect Fit” means define what is the fit based on understanding your values and then making all of your business decisions to serve that, including your selection criteria.
Then the next business principle we talk about in the book is “Make it Effortlessly Swift”. I think from a business perspective now today more than ever, look at Harvard Business Review articles on “Stop Trying to Delight Your Customers” and all of that, you’re going to see a common theme that it has to be effortless.
In today’s world people are looking for ease of service. And so, there’s a whole component of the book that looks at how Zappos has aspired to reduce customer effort. And swiftness is another parallel universe. Not only should it be effortless, but it should be given to customers as quickly as possible. In the information age with knowledge transferred so quickly, people need to be able to get it at their fingertips as quickly as possible. People don’t tolerate service that does not give them expedient information.
Then Step Into the Personal is a dimension that says you can be operationally excellent. You can do it efficiently. You can do it swiftly. But if you don’t make a connection with customers, you’re still at risk of being a commodity to anybody else that comes along and is more efficient and is swifter.
This is about cementing the emotional value of your brands to the customer. I think there’s been a great amount of economical work done. Economists have spent a great amount of time on the value of emotions and that they play a great role in what causes people to purchase your product. So this is getting into that dimension.
Stretch is a lot about looking at the horizon for your people and making sure that you don’t build a service brand that’s good for now, but will die. If all of your senior execs got blown out in the plane crash, heaven forbid, would you be able to sustain your service brand?
Stretch is all about how Zappos has built the pipeline to make sure that all of the talents needed to secure the future of the brand are being built into the people who are in a trajectory to take over the next generation. It’s also about stretching your product, and how do you know what elasticity your product will have?
Then finally, it’s Play to Win. We’ve alluded to that, too, that play is not the antithesis of work. It is a source for regenerative processes in your workplace. So Play to Win is all about how do you effectively leverage play so that it isn’t disruptive to your work outcome, but it is facilitative of business success?
Joe: I think that Play to Win thing is so important for companies because when you look at some of the crazes and the buzzwords like Gamification, people think of this is all about badges and awards. There is some truth to that, but it’s really creating that atmosphere of flow that you want to work in. We go back to the original flow concepts of the eighties, but that’s really what Gamification is about.
Joseph: Well and I think you could do Gamification in a way that’s fairly intellectual, and I am into Gamification. We’re talking a lot about it a lot in Starbucks, and I continue to be involved with them. I think they do it really well with their loyalty program. I still feel like this has got to be fun. It can’t be just me looking to see did I get another star in my Starbucks cup? Am I one step closer to getting my next free drink? There’s got to be an element of mystery and abandon and flow. I love the word flow. I think that work was amazing.
Joe: This is all great stuff to talk about. But some of us basically have to put our pants on, get up at seven in the morning, and go to work. Is this really possible in everybody’s work to create atmospheres like this?
Joseph: Oh, absolutely. I have to get up and go to work, too. Sometimes not even at seven in the morning. Sometimes in Abu Dhabi when it’s really two in the morning or something. I’m all over the globe in doing this stuff. I’ll be really honest with you. This is as important to business success as whether or not you get your pricing right. At the end of the day, there is a core competency for leaders. Did you build an organization that is credible, relevant, unique, and durable? Did you build it? I’ll tell you, the way you do that is by building a culture that is credible, relevant, unique, and durable. Then once you’ve built that internally, getting people to be able to transmit that which they experience in their daily life into the life of your customer and continue to revise your product offerings to make sure they remain relevant.
I do this. I mean it is a strategic passion of mine. I know at the end of the day companies who have transformed from real product?oriented to customer?relevant businesses, and their success was completely dependent upon this transformation.
Joe: Even brick and mortar factory companies can create fun in the workplace and not necessarily model Zappos. I mean they’ve got to build their own culture, but this is possible.
Joseph: My favorite example is a simple one, the Pike Place Fish Market in Seattle. I wrote a book with the owner, John Yokoyama, and it’s a place where they throw fish. Now get what their product is. It’s dead, cold, slimy fish. It is a fish morgue. There is not much sexy about this product. But they have created such a compelling experience that they’ve completely changed the turnover in their business. They have employees for life who love working there in spite of the onerous nature of the job. Real factory, you’re fingers bleed from working in the cold and damp of Seattle all the time on fish and ice. But bottom line, their people love being there, and customers have a ball engaged with these guys. They have completely built a magnet brand.
I am a fundamental believer that we’re on this world too short a period of time. Work should not be opposite of play, and we shouldn’t be talking about work ? life separation, or work ? life balance. We should be talking about having life at work, making work lively. Anyway, to me, it’s just not all pie in the sky psychobabble; it really is the fuel for the 22nd century workforce maybe.
Joe: When I talk to 20?year?olds about Gamification, it’s amazing what they want out of work and what they’re looking for. If they’ve been engaged ? I always say the Luigi culture, or the Nintendo culture ? they’ve been engaged with that and being able to get into that flow, that if you can turn that into your organization that same type of work ethic, it’s amazing where you will go.
Joseph: You better engage me. It better be real, and it better be worth my effort, because I have so many choices, and I’ve been raised with so many choices that I’ve become a connoisseur of making choices. Now, once you get me engaged, I’ll go like there’s no tomorrow around the things that I’m passionate about. In my day, we just did what people told us to do. Bosses told me to do something, whether I cared about it or not, I knew I’d get my head bashed in if I didn’t, psychologically, and that was enough for me. I think it has to have a meaning before people participate. Cultures are going to be the driver it’s going to be the engagement fuel for the next generation.
As a speaker even. When I go into an audience now, in the old days I expected them just to pay attention because I was the speaker, right? Nowadays, I’m competing against their iPad. I’m competing against text messaging. If my source of information is not more interesting than what they’re getting there, I have no claim to them. I think that’s the way businesses should look, too. Unless we are creating a reason, we can’t expect people to be fully engaged like they might have been a generation ago.
Joe: I think that’s very true, because I go back into Lean terms where we look at PDCA; these kids have grown up in a culture of inspect and adapt.
Joseph: Right. Absolutely.
Joe: They’re forgetting a couple of steps here, but are they wrong? I’m not sure. I think they got a lot to offer.
Joseph: That might even be more efficient in some strange way.
Joe: Where are you headed? What’s next on the horizon? Do you have another book planned already?
Joseph: I definitely have another book planned. I’m going to be heading next year to India with Howard Schultz. I think there’s some more for me to write about in Starbuck’s in the future. We used to talk about the third place, I think we’ll be talking more in the future, in books, about the fourth place, that relationship between brands and customers where there are no people involved. Gamification is an example of the fourth place. I am committed to serving people who want to serve well, so I will find myself all over the globe working with leaders who are genuinely passionate about service. Frankly, I fire a lot of clients who seem like that when they first start on and then don’t really turn out to be.
For those who really get it, I love watching what they can do when they elevate their service game, when they elevate their service culture. I’ll continue to consult, speak, and write books about the best of the best.
Joe: That sounds like a pretty exciting thing to be doing. Is there anything you would like to add that I didn’t ask you about in this podcast?
Joseph: I think the key message to add is that this is not rocket science, but it is important to think about. If you’re thinking too much about just processes and not thinking about the supply side of your processes, if you’re thinking about processes and you’re not thinking about the human dynamics or the people who need to deliver against those processes, if you’re not engaging people both on the supply side and the employee side in an emotional side of the equation as well as the pragmatic side of the equation, you just won’t fly off as fast as those who do take the emotional value into consideration. There’s plenty of empirical data, economics type of research that really show that this is all true. If there’s any doubt about it, I encourage people to continue to stay plugged in with you, obviously, but people can obviously check me out on josephmichelli.com and we would be glad to provide resources to folks just to make sure they understand there is a true value proposition here, and it’s not just smoke.
Joe: Well, I think you have a great message, Joe, and nice that I’ve already bought another book of yours after reading the first one, so that’s always a good sign you’ve enjoyed it.
Joseph: We love that. We never complain. There’s never been a complaint we’ve issued against a reader for buying more than one of our books.
Joe: I’d like to thank you very much for the podcast. I think it was a great opportunity for my listeners to learn a little bit more about Zappos and also Joseph Michelli. Thanks again. This podcast will be available in the Business901 iTunes store and the business901.com website. Thanks, Joe.
Joseph: Thank you, Joe.
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