Earning My Mouse Ears, Part I: The Disney Approach to Customer Loyalty

Note: In September 1997, I attended a 3 1/2-day course at Disney University in Orlando, Florida at the Disney Institute. I subsequently wrote a three-part series of articles for the CPA Profitability Monthly newsletter, then published by Harcourt Brace Professional Publications. Thousands of reprints of these articles were ordered. I recently came across them while working on my next book on intellectual capital. I thought our VeraSage colleagues would find them interesting.

"I only hope that we never lose sight of one thing-that it was all started by a mouse."—Walt Disney

When Walt Disney returned home from Europe, after serving as a driver for the American Ambulance Corps (part of the Red Cross) during World War I, his father wanted him to work in his jelly factory at a salary of $25 per week. Walt was not interested, and his father, becoming perturbed, asked him: "Then what do you want to do, Walter?"

"I want to be an artist," Walt replied. "And how do you expect to make a living as an artist?" his father queried. Walt admitted: "I don't know." Indeed, Walt didn't know how he was going to make it as an artist. Looking back on this episode now, with perfect 20-20 hindsight, the question of Disney's ability to make a living seems preposterous. But Walt Disney understood one thing about business very well: where profits come from and what an organization has to do in order to maintain them.

WHAT EVERY BUSINESS PERSON SHOULD KNOW

Think back to your Economics 101 course and recall the three factors of production: land, labor, and capital. If land provides rental income, and labor generates wage and salary income, and capital earns interest income, where do profits come from? When I ask this question of professionals in my courses, the response is usually, "From combining all three factors." That's partly true, and certainly that is the function of an entrepreneur. But it's not the real answer.

Profits come from risk. There is no other way they could ever materialize. Entrepreneurs are society's perennial risk takers. Some lose; some win. But profits are the result of giving to others, humbling yourself to their needs first, long before you can expect to take anything in return. It is the process whereby you put your entire fate into the hands of others—your customers—and provide them with a service that is so good they willingly pay you a profit in recognition of what you're doing for them.

Walt Disney understood this process, and he took many risks during his lifetime. Some failed terribly, while others gave him the profits necessary to build the empire that exists today. Perhaps this attitude was instilled in Walt while he delivered newspapers on his dad's route. Walt's father wouldn't allow his sons to deliver the papers from bicycles, carelessly throwing the papers onto porches. He insisted they lay the papers on the doorsteps, and during wintertime they had to be placed behind the storm doors. Walt learned, at a very young age, the necessity of exceeding the customer's expectations.

When I hear people say they're in business to make a profit, I know they are chasing the wrong rabbit. If you're in business solely to make a profit, you won't. Profits are a lagging indicator of customer behavior. In fact, if you look at any organization—from a nonprofit to a government bureaucracy—all of its results exist externally. The result of a hospital is a healthy patient; the result of a school, an educated child; and the result of a business is satisfied customers. The notion of "profit centers" in a business is a misnomer. There's no such thing. Internally, in any organization, there are costs and efforts. As Peter Drucker points out, "The only profit center you have is a customer's check that doesn't bounce."

This way of thinking is a paradigm shift for most business people, especially MBAs, CPAs, CFOs, etc., who tend to look only at the financial side of the business world. But the real action of business takes place in the hearts and minds of customers, and those feelings can't be measured by Generally Accepted Accounting Principles, nor can they be attested to by auditors. Yet they are the most important indication of business success (or failure).

A CAMPUS BUILT ON A VISION

During the research for my CPE course, Total Quality Service, I constantly ran across stories of extraordinary service from Disney. I've always been impressed with Disney and its total commitment to the "Guest" (Disney parlance for customer). Then one day I heard about Disney University (now part of the Disney Institute). It offers professional development programs to outside organizations. I had to attend.

In 1955, after the opening of Disneyland, Walt established the Disney University, the purpose of which was to train Disneyland's 600 Cast Members (Disney parlance for employees) "to be aware that they're there mainly to help the Guest." This training continues to this day, and all new Disney Cast Members attend a one-and-a-half day Traditions course. The wording is very precise. They are not "orienting" their Cast Members, but rather passing down traditions. Even every Disney CEO attends.

The Disney Institute is now home to unique, innovative, and powerful professional development opportunities. Since its creation in 1986, the Disney Institute programs have taught the core philosophies and successful business strategies of the Walt Disney World Resort to thousands of professionals around the globe.

These programs offer a tremendous opportunity for you to benchmark with one of the leading service firms in the world. Not only do you get the latest theories with respect to the topic being explored, but you also see how Disney puts these theories into practice, by going behind the scenes. The "field experiences" take you out of the traditional classroom and place you in the "living classroom" of the Walt Disney World Resort, and you get to experience a first-hand look at behind-the-scenes areas of the Resort that few Guests ever get to see.

VERY HIGH EXPECTATIONS

We're all, by now, familiar with how customer satisfaction is measured:

Customer Satisfaction = Perceived Performance ÷ Customer Expectations

I arrived at Disney Institute with very high expectations, to say the least. I had talked with a few individuals who had attended, as well as read quite a bit of good press on its programs. As any world-class service provider knows, customer satisfaction is no longer enough to ensure customer retention and loyalty. In fact, according to the Harvard Business Review, 65-85% of customers who chose a new company said they were satisfied or very satisfied with their former supplier. In today's marketplace, a company has to exceed customer expectations and achieve customer delight.

In 1996, 75% of the Guests at the Walt Disney World Resort were repeat visitors. More than 100 million Guests have made more than 500 million visits to the Walt Disney World Resort in its 25-year history (as of 1996). Some Disney resorts have achieved a return rate of over 90%. Impressive numbers from an organization whose daily attendance averages 86,000. I attended the Disney University eager to discover how they achieve these results.

OPENING SESSION

The Disney Approach to Customer Loyalty: Creating Service that Keeps Your Customers Coming Back was a new course being offered by the Institute when I attended in September 1997. I chose this course because of its natural fit with the Total Quality Service programs I teach.

The program began at 4:30 Sunday afternoon. The 63 participants got a chance to mingle. It was a diverse group with participants from California, Minnesota, Singapore, Uruguay, and everywhere in between. Industries such as healthcare, retail, and banking, nonprofits such as the YMCA, educational institutions, and governmental organizations such as AMTRAK, and the U.S. Air Force, were all represented. I soon learned I was the only CPA in the group (interestingly enough, when I scanned the list of alumni, the only accounting firms were Andersen Consulting and Ernst & Young).

The first two hours consisted of the program overview and introductions. Our program was facilitated by Karen Gable and Jeff Soluri, two long-time Disney Cast Members with diverse backgrounds. The Institute prefers to hire from within in order to effectively pass down the Disney traditions from Cast Members who have had front-line experience. You realize how important this is when you listen to the level of questions participants ask about Disney and how it operates internally.

When Jeff and Karen asked participants what made Disney special, the stories all focused on the people aspect of Guest service. And I find this is true anytime people relate stories of extraordinary service: It's always about the way they were treated, never about the quality of the particular product or service they purchased. This is an important facet of providing quality service. It's not so much what people get, but how they get it that determines their feelings about your organization.

Disney uses the Customer Relationship Scale to illustrate this. Any organization can be placed along a continuum depending on how passive or interactive they behave with their customers:

Passive = Satisfaction-based

Active = Performance-based

Interactive = Commitment-based

When I think about the professional knowledge firms we work with, many of them are passive. That is, they simply satisfy the customer's need for compliance work. They do their work and get paid, never really taking the customer relationship beyond the fulfilling of a particular need. Disney says over 75% of businesses have passive relationships with their customers, and I believe that's true of professional knowledge firms as well.

Moving into the active phase requires a firm to solicit feedback from its customers about what they want and need. Fortunately, many firms are beginning to do this, but far too few, in my opinion. We tend, as professions, to put too much focus on what we do rather than on the customer who benefits from what we do. Fifteen to 20% of organizations are in the active phase.

That leaves approximately 5% of organizations in the interactive phase, in which the organization develops a partnership with the customer that is so deep, it can anticipate the customer's needs and desires. This is the level that all world-class service providers strive for. It not only requires continuous feedback from the customer on how you're doing, but also on what they want and expect. It's a commitment so deep it is often compared to marriage—except the onus is on the service provider to exceed the customer's expectations, not a 50-50 responsibility. When you start looking for this type of behavior, you realize that Disney has achieved the interactive level with its Guests. In fact, they claim that Guests are "paying consultants." Isn't that an interesting way of viewing learning from customers?

THAT'S EASY FOR YOU, YOU'RE DISNEY

Probably the most profound lesson I learned was during the opening session. After the participants told stories of why Disney was special to them and how many "moments of magic" had been created for them and their families, one participant said: "Yeah, well, that's easy for you guys. You're Disney, and you have all this wonderful magic to spread among your Guests. It's easier for you to do these things."

The instructor, Jeff, responded: "No, we're Disney because we do these things." Disney faces competition, government regulation, labor shortages (Orlando's unemployment rate is a paltry 3%), union problems (Walt Disney World has over three dozen labor unions to contend with—Mickey Mouse is a Teamster!), and all of the other hassles that businesses have to deal with. The difference is Disney's culture.

UNTIL MY NEXT POST...

I began to wonder why it is that I can wait 30 minutes to get on the Pirates of the Caribbean ride and have a good time, but if I'm in the Post Office or bank line for more than one minute, I get irritated. What's the difference? That difference is subtle but telling. And it has to do with whom we, as professionals, really compete with. I frequently ask my colleagues this question, and get the usual answers: "Other firms, consultants, software products, etc. All of these are correct but too limiting in terms of our competition.

I would like you to think about whom your competition really is, and in my next post I will share more of the lessons from Disney's Customer Loyalty course with you.