Truth Number 1: You Can’t Be Good at Everything
Vernon Hill is a banker who started out in real estate, scouting new locations for retailers. One of his ï¬rst clients was McDonald’s, and some say the Happy Meal inspired him. One thing is clear: as the founder and CEO of Commerce Bank, he built a wildly successful enterprise that rewrote the rules of an industry. And he did it by daring to be bad.
We feature the story of Vernon Hill’s creation—Commerce Bank—because it allows us to show how a company can design a great service offering, largely by making a series of carefully chosen and carefully integrated trade-offs.
When Hill started out in 1973, his vision was to build a bank not in the image of the leading ï¬nancial institutions but modeled after the most successful retailers. Conventional wisdom at the time was that banks grew by offering the most attractive interest rates on deposits. The industry also assumed that the best way to accelerate growth was to aggressively acquire other banks. Commerce offered the worst rates in the industry, made very few acquisitions, and yet became the fastest growing retail bank in America. Its dynamism drove a 2,000 percent rise in its stock price in the 1990s.
The bank achieved its success by deciding to be great at some dimensions of service and bad at others. Not casually bad, but bad in the service of great.
A Strategy in Plain View
Commerce Bank carved out a winning position by deciding very strategically where it would excel—and by understanding very clearly what that would mean for the rest of its service model. Hill started by dwelling on the obvious: customers hated his competitors’ limited hours and bad attitudes. Bankers hours had been a term of derision for decades. For people with jobs, kids, or a commute, or all of these, the fact that a bank teller’s window might be open from ten to four, five days a week, was almost offensive. And then there was the less- than-welcoming behavior of the tellers behind those windows and the loan ofï¬cers sitting stoically nearby. The sullen or imperious bank employee had been a stock character in comedy going all the way back to vaudeville.
These cultural clichés meant that Commerce’s potential lines of attack—inconvenience, lack of customer appreciation—were just as open to the established banks as they were to Hill. So how did Commerce claim competitive advantage in the area of hours and attitude? The company created a service model based on a series of integrated trade-offs that its competitors were unwilling (and perhaps unable) to make.
With a target set of customers—those who were fed up with the service experience of a traditional retail bank—clearly in mind, Commerce set out to design a model of excellence. Aiming to be best on hours, the bank chose to stay open seven days a week. Monday through Friday, you could bank at Commerce from 7:30 a.m. to 8:00 p.m. On Friday evenings, drive-through windows would be open until midnight, and full- service banking would be available Saturdays and Sundays. This would give Commerce the most convenient hours in the business, earning its tagline of America’s Most Convenient Bank. But this kind of convenience was an expensive proposition. Indeed, the expense of being open for extended hours was a primary reason that the competition avoided it.
Why could Commerce pull it off? Because of its product design choices. Commerce paid the lowest rates on deposits in every local market. The additional capital this choice generated gave the company the resources to fund better hours. In other words, convenient hours and lower rates were inextricably linked. Commerce could deliver excellence in hours precisely because of its dismal deposit rates.
We’ve seen this pattern across excellent service organizations, regardless of industry, geography, or positioning. Like Commerce, these organizations do a lot of things well, but they also—counterintuitively—do certain things badly. Really badly. Their trick is to make sure that the bad is in service of the great, and then to be unapologetic about it.
This point is crucial to understanding how to design uncommon service. In our experience, the number one obstacle to great service—number one by a long shot—is the emotional unwillingness to embrace weakness. But it couldn’t be clearer that to win in one area, you must lose in another. Progress requires sacriï¬ce. Some part of your service offering must be thrown under the bus.
Nevertheless, choosing bad can feel like an assault on the soul. Choosing bad means deliberately letting people down, giving up a can-do, anything’s-possible attitude toward adversity. Choosing bad feels bad, particularly in mission-driven industries such as health care or education, where managers feel a moral imperative to at least try in all areas. That’s not, of course, how we see it. Choosing bad is your only shot at achieving greatness. And resisting it is a recipe for mediocrity.
How do you decide where to be good and where to be bad? Commerce Bank knew that its target customers cared much more about longer hours than about competitive rates on deposits. And so competitive rates were the ï¬rst thing on the chopping block. But the company didn’t settle for being just average or slightly below average. Commerce chose to be terrible, with literally the worst rates in every local market. Our version of its informal tagline is “No one will pay you less for your money.”
This was the ï¬rst of a few critical trade-offs. Commerce Bank also wanted to be best in class in customer interactions. It wanted to build an outstanding customer experience driven by the cheerful service orientation of its frontline people. And so it started by investigating the employee dynamics in its industry. What the company found—and what we have seen across industries—is that hiring employees who are the best-of-the-best in both attitude and aptitude is an expensive proposition. Everyone loves happy competence, and it’s a seller’s market for this kind of talent, even in rocky economic times. As a result, these employees can cost up to twice as much as employees who excel on only one of these two dimensions. The rate for these cream-of-the-crop employees was prohibitively expensive for the retail banking industry.
Commerce Bank could in no way afford the expense of hiring the best in both attitude and aptitude. So it chose one: attitude. The bank set out to deliver the best attitude in all of banking, focusing its hiring almost exclusively on enthusiasm and interpersonal skills. These friendly recruits quickly blew the doors off the industry’s reputation for surly service. Commerce Bank employees were nice! Happy! Empathetic! With open hearts, they greeted customers at the door with newspapers and walked them to their cars in bad weather. They signed up for the itinerant corporate Wow Patrol, traveling from branch to branch to make sure that colleagues and customers were having a great time. In these ways and more, Commerce made the sober business of banking fun.
But by not investing in aptitude, Commerce could have put itself at risk. People with limited technical skills, no matter how pleasant, could not eloquently parse the distinctions between twenty-seven varieties of checking accounts, much less rapidly explain complex ï¬nancial instruments to wary investors. So to accommodate this design choice, Commerce Bank simpliï¬ed its product set. Dramatically. Commerce basically sold you a checking account, period, which made the bank dead last in the industry’s celebrated cross-sell metric. But the decision also delivered a ï¬rst-place showing on pleasant branch experiences. To gain the freedom to hire the employees it needed, the bank chose not to be merely below average in product range and innovation, but categorically the worst. And in return, Commerce customers got what they wanted—the friendliest interactions in all of banking.
Notice what Commerce has done. It’s worst in class on some service dimensions (rates and product mix) so that it can be best in class on others (hours and attitude). Bad in the service of great. It sounds simple, but the courage to choose low deposit rates and poor cross-sell performance seemed crazy alongside the desire to grow. These choices worked because being bad was not a missed opportunity, but rather was the fuel to create an exceptional service experience.
Reprinted by permission of Harvard Business Review Press. Excerpted from Uncommon Service: How to Win by Putting Customers at the Core of Your Business. Copyright 2012 Frances Frei and Anne Morris. All rights reserved.