Monday, November 3, 2008

The Black Swan for Loyalty

I have included the book by Nassim Taleb (The Black Swan) on my book list. The Wall Street Journal today (November 3rd) had an article about Black Swans and Nassim Talib in particular (Section C - Money and Investing, page C1). It turns out the Nassim Taleb is a professor of mathematical finance at NYU and has a hedge fund that is based on black swans. If you haven't already read this book, I highly recommend it. The subtitle of the book is "the impact of the highly improbable." To save a little time, a black swan event "has three principle characteristics; namely, it is unpredictable, it carries massive impact; and after the fact we concoct an explanation that makes it appear less random, and more predictable that it was." Nassim Taleb believes that black swans underlie almost everything about our world, from the rise of religions to events in our personal lives. It is this concept of the highly improbable that led him to describe them as "black swans" since black swans were once thought to be an impossible animal until they found one.

I don't want to summarize the book, my intention is to point out that black swans also occur in business and with customers. In fact, the whole intention of this blog is to make the case that a black swan event with a customer is one that seals customer loyalty and create the kind of "apostle" that is mentioned in other articles about loyalty.

A black swan event is one step beyond a "WOW" event. I described a black swan event on this blog August 11, 2007. Another example of a black swan event for me that created customer loyalty was with a customer who ran a food processing plant in Mississippi. The plant ran two shifts each day from 8am until midnight. It was important the the food was properly cooked to prevent salmonella or some other bacteria from getting into the food. I was head of service for Taylor Instrument company and received a call from the plant manger who suggested I resign from Taylor because I was overcharging the customers. He had a bill with 8 hours of overtime plas 1 hour of regular time. He pointed out that the sign-in sheets for his plant could only verify the 1 hour of regular time.

He wanted me to know that he intended to call the president of Taylor and recommend that he fire me. I suggested that he wait for 24 hours and that I would get back to him with an explanation for the charges. To make a long story short, our local technician had traveled all night to the next closest technician to get a critical part that was needed for the repair just so that the food processing plant would not be shutdown the next day while awaiting the replacement part.

When I explained the reason for the charge I had an instant apostle. He was amazed that someone who did not work for him would spend the entire night traveling 400 miles round trip to make sure his plant was operational when the 8am shift came in the next day.

The bottom line is that a highly improbable event (such as a technician driving all night just to make sure that a plant was not shutdown) creates an apostle. No company can expect to have black swans occur on a regular basis - that would negate the black swan inference. However, companies must be prepared to deliver a black swan event when the opportunity occurs (and they do occur). The question I would ask any company that has a desire to build customer loyalty is "are you prepared to respond to a black swan event." Then I would ask "will you know a black swan event if you see it."

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