Interview - Richard Ottalagana, PAETEC Communications

July 01, 2004

Written for the 2003 Annual Report for PAETEC Communications

Richard Ottalagana

There is a certain wisdom that infuses the walls at PAETEC. In the right environment, good people, working together toward a common goal, can accomplish absolutely anything.  It has the ring of a platitude, but at PAETEC, it’s the truth.   PAETEC’s mission statement has been crafted to create the right environment – a corporate culture that creates and sustains loyalty.  Loyalty is the end game – the result of flexibility, recognition, empowerment, and support.  Loyalty is the sire of teamwork.  It’s the subtext of community relations. Loyalty is the canvas on which corporate profitability is written.  PAETEC executives understand that corporate culture cannot be confined within company boundaries.  It wafts out of the workplace, affecting families, customers, and the community.  And in the final analysis, it affects the bottom line.

“Honestly, none of this is rocket science.  It’s just human nature.”  Otto - Executive Vice President Richard Ottalagana - speaks matter of factly, as if PAETEC’s uncommon culture was the result of common knowledge.  Judging by recent public perceptions of corporate malfeasance - Enron, Worldcom - it isn’t.  Otto knows that well-motivated people “can move mountains.”  He knows, because he asks them to.  Actually, he invites them to – a small distinction with an enormous difference.

Creating the Comfort Zone

When PAETEC was founded, it was founded, first and foremost, as a sales and marketing company.  And everyone, regard less of position, sells culture, all the time.  Here, the old sales adage could hardly be more relevant: people sell best in their comfort zone.  PAETEC’s cultural objective is to turn employee advocacy within PAETEC into corporate evangelism outside of PAETEC.  It’s a matter of crafting corporate culture as comfort zone.  It begins at the top; it’s crafted by Human Resources, and implemented by managers at all levels.  It means spending generously on benefits; it means listening.  “The employee survey is a really big deal for us,” says Otto.  We actually act on it.”  The survey has driven changes in vacation, benefits – even physical plant.  And when management responds, employees respond.  It builds loyalty.

Consider PAETEC Benefits.  PAETEC is self-insured, which means that it has a great deal of flexibility in offering benefits to employees.  It’s a more efficient, less expensive approach to providing superior services.  And it underscores an essential fact of the workplace – employees have private lives that take precedence.  “If you have a sick child, that’s all you can think about,” says Otto.  “You don’t care about work – you have this incredibly important situation to deal with.  We understand that; our job is to help you see your child well again, as quickly as possible, so that you can return to working productively.”  This is creating the right environment; this is building loyalty.  And it’s more, simply, than altruism – it’s a form of enlightened self-interest.

Spending Money to Make Money

Here’s another common-sense adage in business – you have to spend money to make money.  This, it turns out, is an apt description of PAETEC’s business approach to customer service.  At PAETEC, great customer service begins with answering the phone, and extraordinary efforts to answer customer service calls on the first or second ring are commonplace.  This requires service bureau forcing that, at first blush, seems comparatively expensive.  But it’s not that simple.

In the telecommunications industry, customers are accustomed to lousy service.  It’s the standard, and that means that few businesses will go to the trouble to change service providers because of an abandoned call.  So why spend the effort to keep our abandoned call rates so low?  “That’s easy,” says Otto. “Cocktail parties.”  

Cocktail parties?  “Think of it this way,” Otto continues.  “One of our customers is at a cocktail party, the conversation to telecom, and he says, ‘I use PAETEC, and you know what?  The pricing is right where I want it to be, the service is absolutely fantastic, and they are just a wonderful company to deal with.’ “ It’s about word of mouth.  It’s about working relationships, personal networks.  And on the back end, it’s all about customer retention.  PAETEC’s SG&A figures may be slightly higher, but customer retention rates are the best in the industry, maybe even in the history of the industry, post deregulation.  It’s money well spent.

PAETEC’s customer service is now so good that premium rates can be justified – this in possibly the most cost-conscious high-technology market in North America.  “Our customers just don’t leave us.  We’ve got reams of correspondence that all say the same thing in one fashion or another – ‘I don’t care that your pricing is slightly higher, your service is fantastic, and I’m willing to pay for it.’ ” 

Productivity Enhancements

Abandoned calls, no matter how infrequent, represent dissatisfied customers.  In 2003, PAETEC’s challenge was to balance practical cost containment efforts with a corporate objective to reduce call abandonment to the negligible levels.  The obvious answer was to improve productivity -- a difficult challenge under any circumstance, and nearly impossible to actually mandate.  Otto didn’t issue a mandate – he issued an invitation.

A serious analysis of PAETEC’s on-call availability figures was undertaken, and it revealed figures that were far below everyone’s expectations – employees and management alike.  The study factored in training, lunches, bathroom breaks – every part of a typical employee’s day.   The results were shocking -- productivity figures were hovering at about 30%.   Otto responded by asking the staff to set a target figure for themselves, and then to manage to it.  They chose 75% as a target.  “They volunteered to double their productivity.  That’s amazing.  What’s even more amazing is that they actually did it.”  It’s a marvelous example of translating culture into cash, and at PAETEC, it happens all the time.

Translating Culture Into Cash

At a staff meeting early in the year, a small group of PAETEC employees were searching for ways to improve efficiency.  One employee suggested that if every other employee could find a way to save even $50, the benefit to PAETEC would be substantial.  Observing the small number of people in the room, another staff member objected.  “It’s not worth it.”

“Not worth it?”  the employee stood up, removed $50 from his wallet and placed it on the table.  “O.K., there’s $50.  All you have to do is reach over and take it. Brian [names have been changed to protect the innocent] says it’s not worth the effort.  “Andrea, the money is yours.  All you have to do is reach over and take it, and it’s yours.”

“Are you serious?”

“Dead serious.”  All shock and amazement, Andrea reached over and snatched the $50.  “Now, some of you might feel silly just now, but I don’t think Andrea does.  Never lose sight of $50; it’s a big deal.”

PAETEC is selling corporate culture, and PAETEC employees practice what they preach.  That was money well spent.

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