Breaking the Cycle of Failure in Services

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DOES THIS SOUND familiar? A large retail company (or bank or fast food chain) designs its customer contact positions to be filled by people who are willing, at least temporarily, to work for wages marginally above statutory minimums. It simplifies the jobs, reducing them to a series of repetitive, boring tasks that require minimal training. It makes little effort to develop either dedication to the work or loyalty to the company. The results of this strategy are quite predictable: inordinately high employee turnover and increasing customer dissatisfaction.1

Unfortunately, traditional management responses to this scenario only exacerbate the problem. High turnover reinforces the wisdom of decisions to minimize efforts in selection, training, and commitment-building activities. “After all,” most managers say, “why invest in people who aren’t going to stay with you? There are plenty of bodies available to fill these jobs.”

This cycle produces indifferent attitudes toward customers and poor service, which translate into poor perceptions of service by the customer and lower sales. Customer dissatisfaction fuels further decreases in employee satisfaction, thus encouraging turnover. High turnover further deteriorates service, particularly where the continuity of the customer-servicer relationship is important. With the departure of each frontline employee comes the arrival of another who, at best, is just as inept. Or in tight labor markets, the customer is often greeted by a help wanted sign and an empty server position.

This self-perpetuating “cycle of failure” seems to ensure continuing deterioration of service quality, managerial headaches, and long-term decreases in sales and profits (see Figure 1). When there is an abundance of “cheap” labor, such a cycle may seem acceptable. But as we enter an era of slowed labor market growth, dramatic increases in the demand for service workers, tightened immigration policies, and increasing consumer demands for improved service, the business consequences of the cycle are increasingly untenable.

The cycle of failure also has significant individual and societal implications. According to the Department of Labor, as of 1986 there was a pool of 16 million nomadic service employees roaming from one low-paying employer to the next, experiencing a stream of personal failures with employers unwilling to invest in efforts to break the cycle.2 This group of low-tenure employees who move to new jobs with decreasing confidence and self-respect is expanding at the same time that labor markets are getting increasingly tight.


1. Entry level service jobs often have annual turnover rates of 100 percent to 300 percent. See:

R.H. Woods and J.F. Macaulay, “Rx for Turnover: Retention Programs that Work,” Cornell HRA Quarterly, May 1989, pp. 78–90.

2. Current Population Survey (Washington, D.C.: U.S. Government Bureau of Labor Statistics, 1986).

3. L.C. Thurow, Toward a High-Wage, High-Productivity Service Sector (Washington, D.C.: Economic Policy Institute, 1990).

4. B. Schneider and D.E. Bowen, “New Services Design, Development, and Implementation and the Employee,” in New Services, eds. W.R. George and C. Marshall (Chicago: American Marketing Association, 1985), pp. 82–101.

5. E.E. Lawler III, Motivation in Work Organizations (Monterey, California: Brooks/Cole, 1973), pp. 153–165.

6. J.J. Parkington and B. Schneider, “Some Correlates of Experienced Job Stress: A Boundary Role Study,” Academy of Management Journal 22 (1979): 270–281;

W.G. Bennis, “Beyond Bureaucracy,” in American Bureaucracy, ed. W.G. Bennis (Chicago: Aldine, 1970), pp. 3–17; and

P.M. Blau, On the Nature of Organizations (New York: John Wiley & Sons, 1974), pp. 80–84.

7. See, for example, E.M. Johnson and D.T. Seymour, “The Impact of Cross Selling on the Service Encounter in Retail Banking,” in The Service Encounter, eds. J.A. Czepiel et al. (Lexington, Massachusetts: DC. Heath, 1985), pp. 225–239.

8. L. Waldstein, Service Sector Wages, Productivity, and Job Creation in the United States and Other Countries (Washington, D.C.: Economic Policy Institute, 1989), pp. 24–25.

9. S.S. Roach, “America’s Technology Dilemma: A Profile of the Information Economy? Morgan Stanley Special Economic Study, 22 April 1987.

10. Wall Street Journal, 9 August 1989, p. B1.

11. L.A. Schlesinger and J. Zornitsky, “Job Satisfaction, Service Capability, and Customer Satisfaction: An Examination of Their Linkages and Management Implications,” Human Resource Planning, forthcoming, Spring 1991.

12. Hay Associates, personal correspondence, 1989.

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