My uncle is a wise old bloke. He’s spent the vast majority of his working life in the industrial sector, working first at US gas supply giant Air Products before taking on roles in the aggregates world and in health and safety.
He’s currently out in Germany working for a gas parts company, where he’s the business interface between the company’s domestic operations and their vast array of international business English-speaking clients. In the last few years he’s travelled to South Africa, China, Chile, Australia (and, indeed, the UK) on business sales trips.
His employer’s success story is one of many in Nordrheinwestfalen, which is very much Germany’s industrial heartland (as it happens this is a relevant topic of discussion given the region’s dependency on Russian gas). But even he acknowledges the limits of how businesses succeed. In fact, he has a good rule of thumb I’ve never forgotten since he mentioned it way back in 2009.
“Businesses succeed despite, not because.”
The Core Offering
In short, my uncle very rightly believes that at any given time, every business will have a mountain of internal problems its management needs to solve. When you’re staring at your profits, it’s important to recognise what led the numbers to be that high, and then question why they aren’t higher.
That’s especially the case in the good times, when success can lead to complacency over the fundamentals. But it’s even more the case during periods of economic contraction. If you looked at the sheer weight of factors stacked against some businesses you’d be surprised to see they still trade. Many businesses are about to find out what that’s like once more.
As such, if my uncle was a fund manager, I reckon he’d be into "quality" firms. Not the businesses that grow dramatically and make a tonne of money and a tonne of mess, but intelligent, well-led cash-generating enterprises with a compelling idea and near-guaranteed mileage left to use up.
In my book, the recession the UK is now experiencing is about to show which big businesses truly offer quality. There’s one metric that means more to me than any other: service.
You’ve probably heard this before, but a staggering 82% of the UK economy is made up of services. If you’re used to hearing the sad adage that "we no longer make anything anymore," you’d be technically incorrect, but somewhere near the money. Service isn't the only thing we do, but it is a huge part of UK life.
The Litmus Tests
I won’t be the first to point out that, since the pandemic hit, it’s been painfully obvious which businesses aren't pulling their weight. Everyone had sympathy for it in the first four months. But it would seem some are still operating at Covid-19-level chaos.
Perhaps that’s an indication of just how hard the pandemic hit the economy. Perhaps it’s also an indication of waning productivity in the wake of national trauma. Perhaps it’s the fruits of years of failing to plan and therefore of planning to fail. Everyone knows that the bosses have to do well from business, but if their workers are put in an untenable position to deliver sub-standard service to under-pressure consumers, accountability disappears very quickly. Bye bye customer loyalty, and the kind of "sticky" business James Gard this week highlights in his look at why football is so profitable.
In 2015 I remember desperately trying to find out if the Conservative Peer-to-be Ros Altmann would be made a government consumer champion. In the end she ended up pensions minister. At the time I had scoffed slightly at the wooliness of the whole thing. We all wanted her to have impact. I won’t bore you with what happened next.
Suffice to say I have somewhat changed my tune. I was wrong, to some extent at least.
Service companies are always at risk of doing a horrendous job for their customers, as the demands of scale mean there is an incentive to extract as much bang for the buck in a way perhaps not conducive to there being buckets of patience left over at the end of a routine conversation about the wifi router being replaced.
The UK has many economic problems, but service is without doubt the quietest of the lot. It’s as bad as the productivity issue, the low pay issue, the lack of incentive to work and progress issue, and the broader (and crippling) sense that, when everyone else is on strike and the trains don’t run on time, there is no point even trying.
Arguably a consumer champion would have been a very good thing. They could have prevented the current status quo, in which the country's moral leadership is outsourced to a combination of Martin Lewis (money), Marcus Rashford (poverty) and Joe Lycett (service and equality).
I’ll finish up with some views to illustrate what consumer champions should focus on:
- If you’re a bank, energy supplier, or service provider, it’s not acceptable to make customers wait any longer than 10 minutes on hold just to conduct a basic enquiry;
- If you’re a fast food outlet or app, your customers should get their food exceptionally quickly – as my uncle says, fast food should be fast;
- If you’re still using the "we are experiencing unprecedented calls" stock voiceover on your hold audio, you’re doing it wrong.
That’s quite demanding of me, isn’t it? You might not think now is the point companies will want to confidently pour money into their service propositions. But it arguably should be. In the tough 12 months ahead of us, much will be displayed by firms’ ability (or inability) to do the basics really well.
Ollie Smith is UK Editor at Morningstar
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