The Degenerative Spiral of Attrition
Today I was thinking about attrition. I've worked in many companies where the reduction of attrition is identified as a priority. There are many things that business leaders do to help elevate the Net Promoter Score (NPS), from client visits, to client panels, and even hosting spectacular events where clients can be schmoozed.
None of these things feels wrong per se, but (at least in my experience) I've seen this as one arm of the business trying to build up what the other arm is tearing down. This internal turmoil seems to be unrecognized, and is a direct result of a misaligned business.
You may have heard the cliche' "there are those who build/support it, and those who sell it, and everyone else is just overhead." I understand what this is getting at, but of course this doesn't quite hit the mark of truth. Nonetheless, I bring this up because I think there is a clear division between the building/supporting of a product/service, and the selling of that product/service.
Ultimately this division bubbles up to the priorities of the respective departments. When you work in an aligned organization, you experience similar behaviors between the departments. To keep it simple I like to zero in on what I call the "language" of the department.
If departments are aligned, it makes sense that they are tied to a common goal. They do different things (perform tactically different), but the alignment is tied to the overall goal (strategy). So you will here things like "we need X so that we can deliver [Goal]".
If departments are not aligned you hear more self serving language that has little to do with the overall success of the organization. "We are overwhelmed with X [stop]." "I don't care about the downstream implications, I just need to get to Y [stop]."
To solve this, company leaders focus on team building exercises. So you end up with a bunch of people in a room (or on a conference call) with whiteboards (live meetings), sticky notes (chat), etc., and the defacto external expert who will whip the synergy back into place. I am always simultaneously frustrated and grinning inside at these events because it is just a matter of time before we all do the "list the 5 things we can do better" exercise and someone will put "we need better communication." Fantastic! I'll tell you right now, that totally misses the point.
What leaders FAIL to realize is that while things like "better communication" ARE needed, the context for that communication has not been set. The context needs to be a clear core concept for the business. It can't be more than a sentence, it must be something *everyone* in the company can understand (down to the interns), AND must be something *everyone* could tell you off the cuff (I don't want to say memorize - but "live by" might be better). For more on this, and how to create a core concept, go read "Good To Great" by Jim Collins, and study the Hedgehog Concept, the Three Circles, The Council, The Brutal Facts, etc....
How Does This All Relate To Attrition?
In theory, sales closes deals, operations supports the sale by delivering the product / service.
In a misaligned business, sales closes deals that are not in line with the core concept of the business. Not that ALL sales are out of alignment, but it is a shotgun approach, and not a fault of the sales team. The driver for the Sales Team is to meet their quota/target. Without a higher guiding concept everything is fair game. There is nothing to inform what a good/bad client is. EVEN when this is defined, "we are going after call centers" or "we want to sell to businesses with 50 to 100 employees" or "we want clients with X in annual revenue", it is a loose definition out of context to the core concept of the business, and really more of a way of backing into answering "how can we hit our quota/target."
In a misaligned business, operations supports the sales. As the hodge podge of clients roll in, service absorbs the brunt and cranks out fulfillment. But again, this is NOT the fault of sales. HOWEVER, it is VIEWED as the fault of sales by operations. Now we have inherently built in a point of contention to our process.
Because management has not clearly defined a core concept, they likely do not have a clear understanding of what it takes to support the business either. Note in Jim Collins research that typically Good To Great companies have leaders that came from *within* the business, and that the comparison companies tried "saviors from the out side" far more often. The upshot here is that operations probably is running on inadequate tools to facilitate the product/service. To overcome this, they need to add people, process, and long hours. This IS the FAILURE of leadership, and is viewed as this by operations. And again, we have inherently built in another point of contention.
Within this mix, operations says to themselves "we have a chaotic environment we can not control, but we can organize a plan to cope." There are a few things going on here. First, you can tell by the nomenclature that there is not a plan to excel or be great, simply a plan to get by. This is a natural symptom of, second, not having a sense that you can make a meaningful impact to the overall business. But operations has a financial need to keep their jobs so they, third, give just enough to satisfy the need.
There is nothing about this scenario so far that builds momentum, or drives a business toward becoming great. This decay will be felt in the quality of the product/service, and indeed in the business itself. Eventually, clients will begin to attrit.
Now Begins the Degenerative Spiral of Attrition
The very name "Net Promoter Score" says it all. Business must value clients who promote their product / service. Moreover, it is built in that this is a sliding scale with a score on that spectrum.
One method of "we want a pat on the back" validation businesses will take is to ask their clients "would you refer people you know?" But have you ever answered a questionnaire like this? It is easy to lie. In fact, using a slice of game theory here, I *expect* that people lie. This is the business version of "do these pants make me look fat?" I have a vision in my mind of the Geico insurance commercial where "honest Abe" Lincoln is asked that by his wife, and disaster ensues. We are socially programmed to keep things copasetic. "If you don't have anything nice to say, don't say them at all."
Of course my argument here is contrary to statistics that show complaints being reported far more than complements. Even so, I think there are two levels of communication here. When my gut makes me realize that I need to make a replacement, I want to make that transition as smooth as possible. I'll start by identifying alternatives, get the details, scope the impact of the transition, and weigh that against the long term benefits. My assumption here is that if there is something fundamentally flawed with an employee, supplier, etc., and it is beyond my control to fix that, any amount of good faith effort is really wasted. I'm better off finding an alternative.
Following this thinking, I believe growth and attrition rates are a better indicators of the NPS than a survey. And I'm sure many companies factor this into their NPS equation.
As this impacts attrition, you can see the natural consequence of the misaligned business being a rising attrition rate. As clients "fall off the back", they contribute negatively to your NPS, which circles back to sales, and hinders growth. Your market opportunity decreases with some multiplier, because business know other businesses and will either refer other to your competition, deter them away from you, but usually a combination of both.
The longer this scenario plays out, the greater that multiplier becomes, and the greater the impact it will have on your business.
Industry Impacts
I've noticed that in mature industries, ownership of the market is roughly static for seemingly long periods of time. I think this leads business leaders in the industry to become complacent about growth and attrition, because their revenue and profits will generally be the same as they have always been.
I would argue that these industries maintain this balance, because the mix of forces surrounding them are also at balance.
But the acceleration of technology is out there. And businesses are learning, adapting, and finding a way. Look at what VoIP has done to telecommunications (with Skype who needs international calling plans?). Streaming media has done to video rental (Netflix eviscerated Blockbuster). Online retail has done to shopping (wonder where your local Boarders Books is --> Amazon.com).
Looking back to the degenerative spiral of attrition, in a balanced mature industry clients may have cycled from one to another, then back again over some period of years. But now there are hungry technically savvy companies who want to build market share. And the waterfall of attrition coming off the back of these legacy companies is ripe feeding ground. No doubt there will be a battle for market share, but time and again technology seems to win. At least for now....
At some point the forces will balance out, the technology companies will become the incumbents. And once again the characteristics of alignment and misalignment will play out. And once again, disruptions in an industry (technical or otherwise) will cause a reassessment in market ownership. Great companies focus on alignment over time to a core concept, with tools (technology) that enable market superiority. The others fail at the highest level to implement the internal precepts needed, and thus set course to ride the degenerative spiral of attrition.
