A Telltale Sign – The Vicious Cycle of Failure in Service Companies

The Cycle of Failure begins when short-term goals overtake the long-term objectives.

 – Ugen Gautam –

As the leader of a service company, you are juxtaposed in your decision – whether to invest more or to cut down on your costs. The problem statement is clear. The profitability is weak. You are experiencing an exodus of not only your customers but also your employees. Should you choose to invest, you fear losing more money. On the other hand, cutting down on your costs will only lead you closer to shutting down. You are aware things are not right.

Part 1: The Introduction
Make no mistake, if the scenario laid out above is coincidently similar to your company, then your company is most likely entrapped in the Cycle of Failure. A Cycle of Failure in service is characterized by a significant number of dissatisfied customers who often are found complaining about poor service and sub-standard work attitudes, generally displayed by sulky employees who have created a defensive approach in their customer service, which is exhibited as a lack of concern towards the customers.

Part 2: The Symptoms
The best identifiers that your company is sinking into the trap of a Cycle of Failure are outlined below:

  1. Dissatisfied employees with high employee turnover.
  2. Sulky employees who display condescending behavior towards the customers and other employees. Such employees are either ill-equipped or do not bother to respond attentively to customer problems.
  3. Dissatisfied customers who are experiencing low service quality. They feel disrespected and disregarded and are frustrated to deal with new faces frequently. This leads to poor loyalty towards the company. Thus, the exodus of customers from the company.
  4. Ceaseless exploration of new customers, increasing customer acquisition cost as the company has repeated emphasis on acquiring new customers, eventually resulting in weak profit margins.
  5. Frequent hiring of new employees (usually inexperienced as they are economical) to mitigate ongoing customer complaints.
  6. New customers, unaware of the past credibility of the company, often confront new employees, who by no measures are ready to sustain the promised level of service. Alas, both customers and employees go through unbearable experiences.

This cycle keeps on spiraling inwards until the company has run out of resources and/or the value proposition of the service has monumentally declined in the eyes of the customers. The result – Closure of Business.

Part 3: The Sins
Based on the Pareto Principle, 80 percent of the problems are the results of 20 percent of causes. In the case of a Cycle of Failure, 20 percent of causes resulting in 80 percent of problems are human resources management, or a lack thereof.

The Cycle of Failure begins when short-term goals overtake the long-term objectives. Paradoxically, companies prioritize shareholder’s profit maximization in lieu of shareholder’s wealth. With an intention to instantly decorate financial statements, companies often resort to cutting down costs, especially those related to HR. The company may save a few bucks for the first few years, but eventually, it is likely to be entrapped in the Cycle of Failure.

Such strategies inculcate the practice of hiring employees at the lowest possible pay to perform repetitive work tasks that require little or no training. The jobs are narrowly and unimaginatively designed to accommodate low skill levels. The companies emphasize on following rules and regulations and utterly disregard the human aspect of the transaction. Poor hiring coupled with a broken appraisal system is a great propeller toward a Cycle of Failure.

The myopic view of the financial implications of low-pay/high-profit strategies often tends to ignore high recruitment costs and other non-financial costs such as loss of ‘Custodian of Customers’ entailing service hiccups. When a loyal and diligent employee leaves, s/he not only vacates the place but also takes away the accumulated job intelligence along with the relationships that s/he had built with customers. And, while the company is busy finding a cheap replacement, the customer is often left unattended with the likelihood of falling prey to competitors’ care. One can only hope that the employee who left is speaking good about the company.

Consequently, the companies tend to ignore Customer Life Time Value, i.e., future revenue streams that could have been generated just by retaining the customer. Also, an unhappy customer is most likely to spread negative word of mouth deterring other potential customers.

Part 4: The Presumptuous Coping Mechanism
More often than not, the symptoms are comprehensible to everyone. Yet, we witness a predictable response to the situation by most companies, i.e., an outcry of a litany of excuses such as: ‘Where did all the good people go’, ‘The new generation is worthless’, ‘Employees expect too much these days’, ‘I am saving costs by hiring economically, which is a good thing’, ‘Loyalty is so scarce these days’, etc. I am sure we have heard at least one of these excuses or maybe used it ourselves. Irrespective, excuses are not going to fix any problem. It might help you cope with your confirmation bias nonetheless.

Part 5: Breaking the Cycle
Knowing the problem and acknowledging the failure points is key to breaking the Cycle of Failure. It is arduous and time-consuming, yet possible. But it is more than meets the eye. It comes with a cost and a great deal of determination. It takes a leader, one who can make tough decisions.

The problem has been already established. There are two parties to it. One being the employees and the other our customers. By fixing your Human Resource Management System, you are actually fixing the most of it. A happy and empowered employee will make a customer happy.

Companies should start with broadened job designs. A thoughtful job design and intensified selection procedure will ensure the hiring of the right candidate. Creating a rewarding atmosphere and emphasis on the training and empowerment of such employees will improve the quality of service and overall customer satisfaction. By setting the right service attitude, you are promoting customer loyalty.

The satisfied customer will not only be loyal to the company but will spread positive word of mouth. Thus, the company will have increased revenue sources in the long run. Likewise, the companies will be able to cut down costs, most of which were a result of service recovery or refilling the positions. This will only result in long-term profitability and wealth maximization of the company.

Gautam is the General Manager at Neoassure. He can be reached at ugen.gautam@gmail.com.

Scroll to Top