Growth Capitalism
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Chapter 2
Service To The Customer
James Adrian

      Theodore Vail saved what was later called the Bell Telephone Company from nationalization (government ownership) by instituting three policies that were strenuously opposed by the business culture of that time:

      1. The R & D division of the company (later named Bell Labs) was ordered to make its current technology obsolete as often as possible. Up to that point, all big businesses strived to make their existing technology last as long as possible. This saved capital, so long as everybody did it; but this postponed improvements in service.

     2. Any manager or employee not in top management was ordered to focus on service to the customer without regard to profitability or cost. Polite service from operators won over the public against nationalization.

      3. The financial office of the company was ordered to issue small-denomination stock certificates that paid a dividend. Up to that time, typical investments were large and did not pay dividends. With this new way of investing, workers could set aside part of their pay and plan for retirement. A whole new kind of investing was thereby created. This new source of investment capital greatly expanded the capability of the business to serve its customers.

      Theodore Vail's central concept was service to the customer. For the fine details, see "The Effective Executive" by Peter F. Drucker.

      Service to the customer has, in many cases, given way to businesses competing with their own customers for money. When there are very few companies in an industry, it is easy for each of them to figure out what the other big players are doing. In such a circumstance, there is a diminished incentive to compete with each other on the basis of price or value.

      It has become commonplace to design a product such as a car, in such a way that special tools are required to disassemble and repair the product. The tool is proprietary and is not offered for sale. The customer must come to the dealer or manufacturer exclusively for some repairs. There is no price competition for those repairs. Consequently, the customer pays a high price. Obviously, such practices are not aimed at outperforming their competition. They are trying to maximize the cash they can obtain from their existing customers.

      Much can be done to expose collusion between very large suppliers. Sufficient public awareness may solve the problem. Class-action suits or the enactment of very specific laws may be required.

      Planned obsolescence is another way to compete with customers for their money instead of competing with like companies for customers. Unfortunately, the public seems to have become conditioned to accept it.

      If children were more often shown the wisdom of service to others, they would more frequently become organizers of needed services. Eventually, a greater fraction of the population would be entrepreneurs. It is a mistake to intentionally bring up children to be employees without any conscious thought of that child growing up to employ him or her self, or join others in an effort to provide products and services that are missing from the market or poorly delivered. Whenever companies servicing any given industry are relatively few, service to the customer will not be the exclusive concern of that industry. Lobbying for measures that tend to discourage new competition will continue to spoil the productivity of nations.

      Circumstances improve whenever constructive people show initiative.