I rang a company’s call centre the other day, and the experience was exemplary: helpful, knowledgeable, charming. The firm was a client of ours, so I asked what they did to make their telephone operators so unbelievably good. ‘Um, to be perfectly honest, we probably overpay them.’
Their call centre was 20 miles from a large city. Staff didn’t have to travel for an hour each day to find reasonably paid work, so they stayed for decades and became highly proficient. Training and recruitment costs were negligible. And it wasn’t just me they impressed: customer satisfaction was astoundingly high. The staff weren’t really a ‘cost’ — they were a significant reason for the company’s success.
Alas, modern capitalism dictates that it will only be a matter of time before some beady-eyed consultants notice that a few employees are still enjoying pleasant jobs and reasonable wages and so pitch up at a board meeting with a PowerPoint deck entitled ‘Rightsizing customer service costs through offshoring and resource management’ or similar £250-an-hour MBA ejaculate. Within months, either the entire operation will be moved to Slovenia, or the once-happy denizens of the call centre will be forced on to zero-hours contracts. Soon nobody will phone to place orders because they can’t understand a bloody word Zvezdana is saying, but that doesn’t matter because when the company next presents its quarterly earnings to analysts at JPDeutscheSachs one chart will have a nice little bullet point saying: ‘Labour cost reduction through call centre relocation/downsizing.’
Today, the principal activity of any publicly held company is rarely the invention and creation of valuable products to satisfy market need. Management attention is largely directed towards the invention of plausible-sounding efficiency narratives to satisfy financial analysts in banks, many of whom know nothing about the businesses they claim to analyse beyond what they can read on a spreadsheet.
There is no need to prove that your cost-saving works empirically. All that matters is that it is consonant with standard economic theory. It is a simple principle of business that, however badly your decision turns out, you will never be fired for acting as though economics were true, even though its predictive value lies somewhere between water divining and palmistry. Mergers are one example of this: they almost always work — in theory.
Or take something called ‘quad-play’. Economic orthodoxy demands that all companies that operate mobile phone networks must also offer broadband, landlines and pay TV. All those offering pay TV must likewise offer broadband, mobile telephony and landlines. And so on.
The ‘economic’ (i.e., stupid) rationale for this is that, by offering all four together, you can enjoy back-office savings, blah, economies of scale, blah, price leadership, toss. In economic models, whoever is the cheapest supplier of all four services must dominate the market. In real world markets, meanwhile, which are still populated by humans, quad-play is about as popular as a shit sandwich.
The human brain has been calibrated by evolution not to pursue economic optimisation at the risk of systemic disaster. With all four eggs in one quad-play basket we feel vulnerable: refuse to pay that £250 data-roaming charge from your jaunt to Tenerife and the company can cut off your mobile, telly, broadband and landline, returning your family life to that of the Pleistocene Age. Besides, the last thing anyone wants is an aggregated monthly reminder of what all this stuff adds up to. I once tallied up what I spend monthly on broadband, landline, mobiles and pay TV, and my wife had to talk me down from a ledge.
Rory Sutherland is vice-chairman of Ogilvy Group UK.