Mr. Walter

Executive Leadership

Changing a Company Culture: From bottom line to customer service and the guest experience

By Todd Walter, Chief Executive Officer, Red Door Spa Holdings

In general, a company’s culture is defined by the shared values, beliefs, and behaviors of the people who represent it. While strategies and specific objectives may change or evolve over time, a company’s core values and beliefs, and hence its culture, should not. But what if they do? This year, Elizabeth Arden Red Door Spas is celebrating its 100th anniversary. Over the course of the last century, the company’s history has been marked by three distinct periods, each bringing its own set of priorities and cultures. The first 56 years were marked by the founding entrepreneur, Elizabeth Arden herself. She held a deep-seated belief that “every woman has the right to be beautiful,” and she dedicated her life to bringing beauty and well-being to women. She was also a somewhat tyrannical leader and was once overheard saying, “Dear, never forget one little point. It’s my business. You just work here.” Not surprisingly, the company’s culture died with her in 1966. Over the next twenty-six years, the company was bought and sold by several luxury consumer products companies, and the priority shifted from service to products. From 1966 to 1992, the number of Elizabeth Arden salons around the world declined from over 100 to just two. In 1992, Red Door Spas was acquired from Unilever by two entrepreneurs who began to build back the number of salons around the country. In 1999, the spa business was sold to a private equity group, which has continued the rebuilding process. During this period of private ownership, the priorities once again changed, and bottom-line profits became the primary driver.

The Need for Change

By 2006, Red Door Spas was once again growing and was operating 29 salons and day spas, six of which were in hotel and resort locations. While growth in the absolute number of units was good, a closer examination of guest and associate behavior was less comforting. In 2006, Red Door Spas invested in a customer relationship management system. The detail and quality of the information was excellent. What gave rise to concern was the realization that Red Door was only converting approximately 30% of its first-time guests into repeat clients. Red Door didn’t have a foot traffic issue, it had a guest retention issue. As we conducted focus groups and customer surveys to ascertain the problem, it became clear that the company’s business practices were geared towards maximizing profit during each guest visit. Customer service was sacrificed to cost efficiencies and associates were encouraged to maximize the sale to each individual guest. Further exacerbating the problem was the impact that the focus on profits was having on our associates. A bottom-line, profit-oriented culture did little to create a sense of belonging among our associates, and as a result, associate turnover on an annual basis was high. This turnover, in turn, led to further pressure on guest retention, as guests tend to be as loyal to their individual technicians as they are to the company and the brand. If a technician left, a significant number of guests followed. All this analysis in 2006 led us to the conclusion that we would need to change our primary focus, and in so doing, our culture, if we were to realize the full potential that our associates and our guests had to offer.

The Plan

In early 2007, the senior management team came together and developed vision and mission statements that reflected our commitment to our associates and to our guests. Our mission to our guests is, “To exceed your expectations by providing you with impeccable customer service, expertise, and the finest quality products.” To our associates, our mission is, “To empower you through education and training to exceed our guests’ expectations and to cultivate an environment that fosters personal growth and professional respect.” The senior management team then also developed and documented a set of core values that defined the ground rules of how we operate and interact with each other. With our vision and mission statements and our core values in place, the next important question was how to ensure that these were not just words but rather beliefs that governed our daily actions and acted as filters for all our decisions. Our plan was a simple one: 1) find and train the “right” people who genuinely want to serve others, and give these people the tools necessary to take care of our guests. 2) If our guests have a great experience, they will come back more often and they will tell their friends about us. By focusing on #1 and #2 above, our belief is that profits will come as a consequence of these two priorities rather than as the primary objective itself.

Execution

With the senior team committed, and with the simple plan laid out, we started first by getting the buy-in from our Board of Directors. This plan reflected a deviation from past priorities and it required a shared belief that an investment in our people and delivering on the guest experience would yield profits down the road. If we were to succeed, we needed to give the plan time to work. With the full support of our Board and investor group, we began at the beginning by ensuring we have the “right” people with the “right” attitudes. We assessed 100% of our existing associates, both management and field level, and we segmented people into one of three categories: 1) those that had the right attitude and were clearly part of our future, 2) those that, with appropriate guidance and training, could be part of our future, and 3) those that were not good “fits” with our new culture and would be happier elsewhere. We then began a process to remove those people who did not share our values and beliefs. With the “right” people identified, we then committed to providing customer service training to all associates who come into contact with our guests. This training was launched in 2008 and has continued, even during the difficult economic times of the past year, in recognition of the cornerstone position this concept plays in our very simple plan: the right people, doing the right things, the right way will lead to increased customer loyalty.

Accountability

To hold ourselves accountable, and to measure our progress against our stated primary initiatives, we track several key performance indicators. The first is a concept called Net Promoter Score, or NPS, developed by noted customer loyalty expert, Frederick Reichheld. Through guest surveys, over 83% of our guests rate their experience at Red Door Spas a 9 or higher on a 0 to 10 scale, with 10 being the highest. In addition, we receive detailed comments from guests that help us to identify root-cause issues that lead to a less-than-satisfactory experience, which helps us to constantly improve our service offering. In addition to the guest feedback, we also track our associate turnover to measure our progress in associate “fit.” We believe lower voluntary turnover is indicative of greater shared beliefs in our core values, and ultimately a barometer of our corporate culture. Over the last three years our voluntary turnover has been reduced to one-third of its 2006 level, demonstrating consistent improvement over time.

While changing a company culture is a daunting undertaking, the consequences of not changing were far more severe for us. Like Elizabeth Arden before us, we passionately believe in the importance of delivering on the guest experience. Our organization, however, depends on the collective resources of like-minded people to make it happen rather than the shear force of personality of one individual. I believe that our corporate culture will continue to evolve, but I also believe it is now based on a set of shared core values and beliefs that will make us sustainable for the long term.

Mr. Todd Walter is COO of Red Door Spa Holdings. He has experience in financial restructuring and turnaround management. Mr. Walter has provided financial and senior operating leadership to struggling companies in varied positions including: CFO and acting COO of Naked Juice, CFO of Cluett American Corp., acting Vice President of Operations for MobileMedia Corporation, and Treasurer of a private, post-secondary education company. Mr. Walter has a BA from Middlebury College and an MBA from the Darden Graduate School of Business Administration at the University of Virginia. Mr. Walter can be contacted at 203-905-1779 or twalter@rdspas.com Extended Bio...

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