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Why & How Rackspace Changed Its Strategy

Posted by Douglas A Wick on Mon, Mar 11, 2019

rackspacelogo-580x358Can a business with lousy service reverse their strategy to become fanatical about customer support?

In 1999 Rackspace didn’t think much about customer service. Rackspace founder, Graham Weston, described Rackspace’s early days as a “denial of service” business model. Customer service interactions were viewed as costs to be minimized.

The story is documented in Switch by Dan and Chip Heath

THE CALL

A Rackspace customer tried to call support. He pressed 5 to get help, instead got voice mail, which said, “Feel free to leave a voice mail here, but we don’t check it very often, so you’re better-off sending us an e-mail.” The customer grudgingly sent an e- mail message to the suggested address. (Does this sound like a customer service nightmare you’ve faced?)

The team at Rackspace never answered it.

After a few more of these irritating cycles, the furious customer managed to track down Graham Weston at his real estate business. Surprised, Weston asked the customer to forward these e-mails promising to look into the matter.

Weston reviewed the long chain of e-mails, which had become increasingly angry as past inquiries were ignored. “Something hit me about what the customer was asking for,” said Weston. “It was something that we could do very easily that he couldn’t do. So the question in my mind was, why are we not serving the customer happily?”

Weston knew Rackspace couldn’t sustain a business based on dodging its customers. “We made a 180-degree turn,” he said.

Weston hired David Bryce to be the head of customer support. At his first meeting with the team, Bryce announced Rackspace was going to transform itself from a company that dreaded customer support to a company passionate about support.

He posted an aspirational banner on the wall: RACKSPACE GIVES FANATICAL SUPPORT. The phrase stuck immediately.fanatical-support-small

Without action to back it up, this was just talk. Weston overhauled the company’s business model. Providing great service would cost more. Rackspace had previously offered cutting-edge technological expertise. To add premium service it could set its prices so high no one would buy.

Remarkably Weston forced Rackspace to become technologically dull: “We don’t want to be on the bleeding edge of technology. We believe in standardization. We want a narrow focus—these are the things we do, and these are things we don’t do. If you’re E*Trade or Amazon, you should host your own site, we can’t help,” he said.

Simplest Change Brings Dramatic Results

The most dramatic change was also the simplest. Rackspace, like all hosting companies, had a call-queuing system. (“Your call is important to us. Please press 1 for recorded tips that don’t address your problem. Press 5 to leave us a message we won’t return. Press 8 to repeat these options.”) The call queue is perhaps the most basic tool of customer support. Weston threw it out. “When a customer calls, that means they need our help, and we’ve got to answer the telephone,” he said.

SWITCH How-to-implement-changeWithout the queuing system, there was no safety net. The phone would keep ringing until somebody picked it up. To Weston, this was a critical symbol of the service ethic. “When a customer has a problem, we shouldn’t deal with it when it’s convenient for us. We should deal with it when it’s convenient for the customer.”

By throwing out the queuing system, it became impossible to dodge the customer. By 2007, the company was talking to an average customer three times per week. Subsequently, the company launched the “Straightjacket Awards,” including actual Rackspace-branded straightjackets as trophies, which were presented to employees who’d been so fanatical about service that they’d become downright insane.

Not coincidentally, in 2008, Rackspace was one of the companies in Fortune’s list of Best Places to Work. The focus on service paid off. In 2001, Rackspace was the first internet hosting firm to turn a profit, and over the next six years, it averaged 58 percent annual growth. By 2008, Rackspace had passed AT&T as the highest-grossing firm in the industry.

“Fanatical Support.” The firm’s focus on customer service paid off. Over the years, Rackspace has won an armload of trade awards for its service, and its “Net Promoter” score—a commonly used benchmark of customer word-of-mouth—is consistently the envy of the industry.

Rackspace Public to Private

Rackspace just announced it’s laying off 200 employees, and Rackspace to go private after $4.3B acquisition by private equity firm Apollo.  Before you think Rackspace is in trouble, a Rackspace spokesperson told TechCrunch that it is “a stable and profitable company.” It hired 1,500 employees in 2018 and currently has 200 job openings.  The layoffs appear to be Rackspace tweaking its workforce to meet current market conditions.

Rackspace it is one of the top three companies in the Hosted Private Cloud category.(see chart)Rackspace Cloud-2018

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Next Blog: Customer Service Increases Revenue?

Can improving your customer service increase revenue? According to research of London School of Economics an average NPS increase of 7% correlates on average with a 1% growth in revenue. Will share more on this new research and why NPS is such a successful tool for measuring Customer Satisfaction.

Topics: Strategy - How, strategy decisions, strategy, Rackspace, Switch, change

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The Strategic Discipline Blog focuses on midsize business owners with a ravenous appetite to improve his or her leadership skills and business results.

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