The Service Imperative

Our medicine cabinets are full of remedies. These remedies are designed to cure Canada's corporate competitiveness problem. To date, few of them have worked.

The prescriptions are far-ranging; they vary from the application of more elbow grease to the jettison of entire levels of government. The consequences for corporations that fail to enhance their competitiveness are severe. In the memorable words of Dave (Tiger) Williams: "They are done like dinner!"

If Canadians were to listen to the country's corporate gurus of competitiveness, they would:

• Change their protectionist mindset

• Find a less interventionist role for government

• Develop better education and training policies

• Eliminate multinational and inter-provincial trade barriers

• Link compensation to performance

• And, above all, encourage governments--at all levels--to draw their central purpose from the goal of competitiveness. In their zeal to rebuild corporate Canada to meet the global challenge, however, competitiveness crusaders should remember that no one really knows whether if what they propose will be effective. There are no guarantees!

As the discussion moves ahead, advocates and skeptics in the growing debate over corporate competitiveness agree that no corporation is immune from the need to sharpen constantly its competitive edge.

There may have been a time when a company could establish such a positive image in people's minds that it could afford a margin of comfort. That is no longer the case--if ever it was. It is similar to what Dustin Hoffman once said about show business: "A good review from the critics is just another stay of execution."

In the business world, the critics are known as consumers. Consistently, consumers report that the most important factor in ensuring a good review is a commitment to service quality.

Customer service has become the mantra of the 1990s. In the words of George Eberhard: "The vital force in business life is the honest desire to serve. Business, it is said, is the science of service. He profits most who serves best."

The more competitive an industry, the more important is the ability to satisfy consumers' expectations. Few industries are more competitive than the soft drink sector. Talk about competitiveness; the soft drink wars are "the real thing!"

In 1957, Paula Strasberg, while trying to help Marilyn Monroe relax, was quoted as saying: "Think of soothing things. Think of Coca-Cola and Frank Sinatra." The story may be apocryphal but there is nothing that is relaxing or soothing about the current Cola wars. Executives of Coke are allegedly coached not to use the phrase "uh-uh" in conversations these days, thereby avoiding references to the memorable Ray Charles commercial spots developed by the competition.

Coke, of course, has had its share of memorable commercials. Perhaps none has been more successful than the 1971 Hill Top advertisement simultaneously broadcast around the world, achieving what young people aspired to--a world without frontiers. Young people, representing some 30 countries, sang the appealing jingle: "I'd like to buy the world a home, and furnish it with love, grow apple trees and honey bees and snow white turtle doves."

Our guest speaker today, Anthony Eames, is President and CEO of Coca-Cola Ltd. The competition between Coke and Brand "X"--its chief competitor--is one of the classic competitive battles. It is the corporate equivalent of Vimy Ridge; only in this fight, they don't take any prisoners.

Mr. Eames, an Englishman by birth and schooled in Australia, has been CEO of Coca-Cola since 1987. Previously, he had been with the company for over 20 years in six countries, including Coca-Cola's world headquarters in Atlanta.

Mr. Eames' principal business experience has been in the field of marketing. One of my favourite marketing stories involves a traveller who went into a country store and found the shelves lined with bags of salt.

"That's a lot of salt," said the traveller to the storekeeper.

"You think that's a lot of salt," said the storekeeper, and led his visitor to the cellar, which was stacked high with more bags of salt. "You must sell a lot of salt," said the traveller.

"Nah," said the storekeeper. "I can't sell no salt at all. But the feller who sells me salt--boy can he sell salt!"

Mr. Eames's bio' mentions that he is intensely competitive in both his professional and private life. His weekdays are spent battling the Cola wars, while leisure time competitions are fought on the tennis court.

Ladies and gentlemen, please welcome Mr. Eames who will address us on the subject of The Service Imperative.

Anthony Eames:

Thank you for that kind introduction.

I want to begin by saying that I'm delighted to have the opportunity of addressing The Empire Club of Toronto. Coming, as you just heard, from a far-flung part of the old empire, Australia, I feel quite comfortable speaking to my fellow colonials!

And we should always remember, by the way, that without Australia and Canada, the sun literally would have set on the British Empire, at least for a few hours each day!'

Having said all of that, I'm not really here today as an Australian, and obviously not as a Canadian, but more in my role as a global businessman, employed by a global enterprise.

What I propose to do in the next 20 minutes or so is to use that perspective to provide an analysis of the competitive challenges facing Canadian business and then discuss some of the actions one international company, Coca-Cola in Canada, is taking to meet them.

A number of those actions, by the way, are not exactly ground-breaking. They involve things like restructuring, re-organizing, re-engineering new market systems and product quality improvement programs. In other words, the stuff you've endured before in The Empire Club speeches on the subject of competitiveness.

My intent, as the title of my speech, The Service Imperative, implies, is to establish that in the coming decade, while activities like restructuring and attention to quality are clearly necessary to the task of creating a truly competitive global enterprise, they're not sufficient. That's my new news.

But before I get to that punch line, I think it's probably useful to step back and give you a sense of where I think we are today and how we got there. Let me begin by spending just a minute or two discussing what it is that's driving North Americans in business, education, and government to re-examine the ways in which we are organized and operate.

Put simply, we are living in an age of much more intense global competition and, for the first time in our lives, we on this continent are really having to compete for economic survival.

The explanation I like best about what's happening is one that Lester Thurow, the Dean of the Sloane School of Business at MIT, gives. Thurow traces today's extremely competitive environment back to many of the fundamental changes that were put into place at the Bretton Woods Conference in 1944 when the major powers set out to rebalance the inevitable post-war economic dominance of North America.

At the time, North America had an unparalleled competitive advantage, in literally every respect. In terms of market size, it was eight times larger than any other trading zone in the world and that gave it unbeatable economies of scale.

Of course, today that has all changed. There are now three roughly equal trading areas--North America, Asia Pacific and Europe. And after 1992, and with the inclusion of EFTA, Europe will be the largest, with 320 million people.

In fact, with the political changes going on in Eastern Europe, the Common Market has the potential of growing to two or three times the size of the North American market.

In terms of wealth, the U.S. and Canada at the end of the War, ranked No. 1 and No. 2 in per-capita incomes. Today, the world ranks the U.S. fifth, right behind Norway, and Canada 10th, behind Denmark.

On the product front, at the end of the War, no one could even come close to North America, whether it was in automobiles, electronics, pharmaceuticals, atomic energy, aerospace or soft drinks.

Well today, I'd call it a draw.

The Japanese and Europeans now arguably dominate in automobiles and consumer electronics. They are catching up in computers and about the only areas where North America still has a clear lead are in areas like aerospace, biotechnology and, yes, soft drinks.

In management, North America also clearly, for decades, had the advantage. After all, the modern corporate structure emerged from the boardrooms of companies like Dupont and General Motors, while the rest of the world followed a less productive military model.

Today, while most of the innovations in management have continued to come from North America, including quality, as exemplified by Dr. Demming, the Japanese have been the first to exploit these innovations and achieve structural breakthroughs.

And, finally, and perhaps most importantly, in terms of work force, North America after 1945 had the best mass education system in the world and from it came the best and most productive employees.

Today, Canada and the U.S., along with Sweden, spend the most money on education, but despite all the dollars, recent international test results consistently show Canadian students at the median and U.S. students in the bottom half, particularly in science and mathematics.

And in terms of productivity, while North America still leads its major competitors it's by a rapidly narrowing margin.

Thurow's point in all of this, of course, is that Bretton Woods worked. Europe and the Pacific Rim Nations are now full, active and aggressive participants in the world economy.

So North American businesses now find themselves in a new competitive ball game--playing against a number of strong competitors. I'm talking about new competitive countries like Korea, Spain, Thailand and Brazil and, of course, not so new competitors such as Japan and Germany, that are home base to companies that are very efficiently organized and often capable of bringing very high quality products to market, much more quickly than we do.

And, in terms of education, most of these competitor nations are making a conscious effort to promote not only a strong science and math culture, but also stress an attention to quality and service that helps create a work force that can quickly adapt to newly emerging opportunities.

So I think it's pretty obvious that if we're going to be successful in this new ball game, we're going to have to make some major changes.

Which brings me to Thurow's second point--that change is hardest for those who have been the most successful in the past.

And I think that's right.

Certainly in business, companies that are doing very well often stick with what has worked for them, while those facing financial difficulties are more open to innovation.

As former Ford Motor Company Chairman Donald Petersen put it, reflecting on his company's dark days in the early '80s, "A $3-billion loss focuses the mind wonderfully on the need to try a new strategy."

At Coca-Cola, we've certainly been blessed with success. That success has been built upon more than 105 years of experience, but it has been particularly evident since the Second World War, when we really began our explosive growth overseas.

Today, our soft drinks are enjoyed more than 630 million times each and every day, in amounts that would keep Niagara Falls flowing for almost three hours.

How have we accomplished this?

First of all, we have products that people truly enjoy. Second, we have a brand, the name Coca-Cola, that is consistently rated the most powerful in the world. People trust our name and believe it stands for something. Third, we have a vision of the future that is positive and global in scope. And we developed this vision early, which means we started to get ready for the 1990s in the 1980s.

An important part of that effort was a drive to improve our efficiency. And that meant we took great care to focus on the fundamentals of our business, including structure. Indeed, probably the most strategic structural move we have made here in Canada, involved our bottlers. In 1987, we redesigned our entire Canadian bottling system.

The result?

Today, 95 per cent of our volume is now produced by one bottler, Coca-Cola beverages, which was previously called TCC. This restructuring, which has cost the Coca-Cola system in Canada close to $500 million, has produced significant economies of scale and has allowed our bottling operations to concentrate on what they know best--production, sales, distribution, operating efficiencies.

That also allows Coca-Cola Ltd., the Canadian parent company, to concentrate on what they do best--and that's marketing, producing, advertising and promotions that are second to none. Both organizations, Coca-Cola Beverages and Coca-Cola Ltd, can now optimize their efforts in serving our customers.

And that's what competing in the 1990s is all about--value and service to the customer.

Which brings me to what I call "The Service Imperative."

My contention is that no matter what business you're in, from manufacturing auto parts, to selling insurance or moving the mail, the real source of competitive advantage in the remainder of the 1990s and beyond will be superior service.

That, incidentally, was the message of a very good series of articles on customer service that ran last year in The Financial Post In it, author Jim Clemmen looked at a Canadian grocer magazine survey to find out why people stopped buying products.

The results? One per cent stopped buying because they had died. Not much you can do about that unless you believe in customer reincarnation. Five per cent stopped buying because their friends had influenced them to do so. Five per cent stopped buying because of competitive reasons, usually of price. Fourteen per cent were dissatisfied with the product.

But 60 per cent--60 per cent--stopped or switched because of poor customer service. They simply felt they weren't being treated right and they went elsewhere.

More recently, very recently, in fact this month, a Price Waterhouse survey of 1,500 Canadian and American executives confirmed this trend. In fact, it found that nearly 90 per cent of consumers are willing to pay more for products and services to businesses that provide excellent service rather than opt for lower prices and less service.

Most disturbing, from a competitiveness standpoint, was the finding that almost 30 per cent of the respondents believed that service quality has declined in North America during the last six months and 53 per cent believe there has been no change, even though they've made it clear they're willing to pay more for better service.

Now personally, I think Canada will eventually do well regarding most aspects of the competitive equation. There's no doubt in my mind, for instance, that the need to restructure, to get costs down, and to reach out for global markets, has hit home.

But when it comes to customer service, I think we all have a long, long way to go. And, to be honest, I think part of the blame has to be placed at the feet of the average Canadian. Put bluntly, Canadians, by and large, are often too tolerant of poor service.

The positive is to portray this as civility. It is, for example, part of the culture for us to say "pardon me," even when it's someone else pushing to the front of the line. But, in truth, this polite attitude toward bad service may, in fact, be undermining our competitive position and this tolerance may be sending the wrong signal worldwide.

Think, for a moment, about the public face we presented to the world over the past three months. Think about how global businessmen must have responded to our postal disruptions and the posturing that surrounded those negotiations. Don't mistake my message here by the way. I'm talking about management and labour.

Because, from the postal user's perspective, neither side seemed to be focused on customer service. In fact, after listening to the rhetoric, you'd have to conclude that, for both sides, customer service was an inconvenient stumbling block to reaching an agreement.

The public employees work actions in September also sent a bleak message to the global business community. And it surely didn't help that during the same period by working "to rule," our public servants kept the few brave souls who still wanted to take a stab at doing business here waiting for hours in customs lines or circling in planes over Lake Ontario.

Now, in the scheme of things, these may seem like small items.

But they're not.

In business, all things being equal, impediments to competitiveness, like poor customer service, will ensure a quick exit from the playing field. That, incidentally, was our conclusion at Coca-Cola when we recently restructured our Canadian business. That's why we quickly put superior customer service at the top of our strategic objectives.

Our mission for the 1990s is to invest in, and constantly improve, the production and distribution capabilities of our system so as to meet the demands of our customers in the best possible way.

The operative phrase here is "to meet the demands of our customers in the best possible way." If we don't put our customers first, they will simply go elsewhere for their soft drink product needs.

That's why we constantly put ourselves in our customers' shoes. We always ask ourselves the tough questions we know they need answered, questions like:

"Why should I do business with Coca-Cola?"

And: "How important is Coca-Cola to your success as a retailer?"

Our goal is to have every customer, every customer, answer those questions without hesitation. First, we want them to say: "My customers prefer Coca-Cola products. They won't settle for second best. Coca-Cola products and promotions actually help bring people into my place of business."

And, just as importantly, we want them to say, "Selling Coca-Cola products contributes to my bottom line." Finally, we want them to say: "The people who sell Coca-Cola products know my business, almost as well as I know it."

In the final analysis, that's the essence of Coca-Cola. We sell soft drinks, but our real business is working with our customers, helping them achieve their missions. We believe we can best do this by keeping our eye on our core business, beverages, and by listening to our key customers--those out on the front lines--where our products meet the consumer.

That's why we've deliberately decided not to get involved in owning food-service operations ourselves, but instead stuck to our soft drink knitting. We're happy to let Pepsi-co compete with their customers!

That's also why we have developed a strong team approach. We want to know our customer's business as well as we can and give them not only what they expect from us but also things that they don't expect, and ultimately, things they wouldn't have even thought possible.

That's the goal of our account teams. They exist to live, breathe and support the needs of our customers.

They, and all of us at Coca-Cola in Canada, have an absolute passion to be our customer's best supplier, the people they measure all others by.

Let me give you one example--McDonald's. There are some people, there have even been some people at Coca-Cola, who have viewed McDonald's as a "difficult" customer.

Well, to my way of thinking, we need more McDonald's, because whenever they are "difficult" it's ultimately on behalf of the consumer and it's the consumer that has the final vote in today's global marketplace. Sure, McDonald's is tough and you know what? We put our best people on the McDonald's account and we work hard to meet their expectations.

I hope you caught that operative phrase by the way--best people.

And that's my final message.

In a world where everybody is restructuring for efficiency and the quality is built into everyone's product, people will make the difference. At Coca-Cola, we are absolutely dedicated to giving our people all the authority and the resources needed to become indispensable heroes in the eyes of their customers.

That's because we recognize that quality is more than a perfect product, even one as powerful as Coca-Cola. It's also the transaction, the human interaction between our representatives and our customers.

If we get that right, if our customers believe correctly that we're providing them with a partner who wants to help them succeed and cares about their success rather than just a person who wants to fill shelf space, then we will have earned the right to continue as market leader in Canada.

And I think that is the essence of my message today. Use superior customer service to earn market leadership, not only here in Canada but worldwide. And be more demanding yourselves, regarding service quality.

I know it goes a bit against the Canadian grain to be overly demanding, but we should do it for ourselves and for our children who, in a very real sense, will live in a world tomorrow determined by what we're willing to accept today.

Over the past 20 minutes or so, I've given you my unvarnished view of how Canada might better compete globally. Let me conclude with a caveat. We at Coca-Cola in Canada have only progressed a short distance down the road. We have a long way to go and I'd be the first to admit that we're living in the proverbial glass house and need to do far more ourselves.

However, despite all of the difficulties, we have to believe these are exciting times for Canadian companies. I hope you share my optimism and my confidence that the people of Canada and Canadian business can compete successfully in the international marketplace.

Thank you very much.

The appreciation of the meeting was expressed by Tony van Straubenzee, President, van Straubenzee Consulting, and a Past President of The Empire Club of Canada.