The Service Industry Business Cycle

Something I've been thinking about recently is the cycle of performance in service industries.

This will be a UK-focused post in terms of the case study, but I suspect the same principles apply around the world, and probably apply to other industries.

Image by Pete Linforth from Pixabay

When I talk about a performance cycle, I'm not discussing the traditional five phases of growth of a startup business through to maturity. I'm looking at the cycle within already established and often sizeable businesses.

A summary of the cycle looks like this;

1. Realise they are rubbish,
2. Take steps to become the best.
3. They become the best, so everyone starts using them.
4. They can't cope with the extra demand.
5. It all falls apart, they become rubbish again.

Case Study - DPD

I spent a long time in the courier/logistics industry before setting up my own e-commerce business. In e-commerce getting delivery right is a key part of the process, so I follow developments closely among the courier companies we use or might use in future.

Many of them are pretty marginal in terms of performance, but I understand the pressure they are under. Amazon and eBay have educated buyers that P&P is free and manipulate their search results accordingly. Of course, sellers still have to pay for shipping and include it in their price. That means they put pressure on courier companies for the lowest prices possible, starving the whole delivery sector of the revenue that allows for investment and to pay the drivers decent wages.

One of the most notable couriers in the UK is DPD.

Six or seven years ago, they were just another pretty average courier company. Then they decided it was time to be the best in the field. They invested in technology and systems to improve their service, and were the first company to introduce the idea of a one-hour delivery window with SMS or email notification to the customer.

All of these improvements meant that they were delivering a premium service, but at the cost of pushing their delivery drivers hard to maintain the standards they'd set.

As time went on people noticed how good they were, and more and more people started using them even though the prices started to creep upwards.

With more demand, DPD had to recruit a lot more drivers and push them harder. That meant the standard of recruit and the standard of training dropped (although it's fair to say they've still got some very good people).

The harder they pushed the drivers, the more errors started happening, mainly due to drivers being under too much pressure and mis-delivering or trying to use loopholes in the system to get their metrics back on track.

To make things worse, DPD's customer service is fully automated. It is literally impossible to talk to a human. So when something goes wrong, there is nothing you can do about it other than submit a loss claim form, which is deliberately hard to do and rarely gets paid out.

All in all, when DPD are good they are very good, but when something goes wrong, you're on your own. Sadly, I think they are on the downslope of the cycle, heading back into mediocrity.

Which is why my business has stopped using DPD from today.

On the up-side, Yodel (of all people - they had a terrible reputation until recently !) have really got their act together. I've tried a good number of test deliveries and their service is actually better than DPD's.

The reason is that they had the contract to deliver all the covid test kits during the pandemic. Very unusually in this day and age, they didn't pay all the extra revenue out in shareholder dividends and senior management bonuses. Instead, they put it into improving their infrastructure and service. It's really paying off for them, and it looks like they'll become the best courier, at least until the wheel turns again.