Employees made many suggestions for getting back on track, Rice says. One team analyzed the benefits of shipping orders via the U.S. Postal Service. Others examined ways to minimize product returns and how to reduce the cycle time of catalogs.

Plow & Hearth's revenues and earnings rebounded, and Rice instituted a profit-sharing plan as a further incentive for employees to increase quality. This resulted in employees earning back everything they lost in the 1995 wage cut and then some.

By 1997, operating margins exceeded 10 percent for the first time, and revenues shot up 34 percent that year to $40 million. The trend continued in 1998, when the company grossed $60 million.

Plow & Hearth's consistent achievements in productivity and quality were honored again this year with an award for continuing excellence from the U.S. Senate Productivity and Quality Awards for Virginia.

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Business professors and other quality experts say the formula for achieving service excellence starts with taking care of and continually training employees.

Companies also should develop consistent and repeatable processes, get management involved in daily operations, and establish benchmarks to track improvements. Companies that follow these rules "treat employees as No. 1 and customers second," says Alec Horniman, a business professor at the Darden Graduate School of Business Administration at the University of Virginia. "Everybody has to feel they matter."

Service companies may overlook opportunities to measure performance because services aren't as tangible as products. But improving service quality is not much different than boosting manufacturing quality, says Joe DeFeo, COO of the Juran Institute, a consulting company in Wilton, Conn. "Service companies have to have processes in place," he says. "It's all about repeatability, consistency and error rates."

DeFeo believes the service sector needs to emphasize core processes and protocols. "Employees have to know: Follow step one, two, three. It's no different than a manufacturing company." He warns that if company officials are satisfied when 90 percent of their customers are happy, that's a 10 percent error rate.

Dean Grande, owner of Alexandria-based ASAP Mailing and Fulfillment Services Inc., vouches for DeFeo's theory. In 1996, Grande's business was booming, but the company started operating beyond its capacity. "Phones started ringing and there were unhappy people. I learned a valuable lesson. We stopped taking customers until we could handle the volume. If 90 percent are happy, the 10 percent who are unhappy will occupy the majority of your day."

Walter Wymer, an assistant professor of marketing at Christopher Newport University in Newport News, agrees. Most any manager would say that customer service is important, "but if the structure doesn't support it, it won't work," he says. "We are finding that top leaders are worried about customer satisfaction, but it is not translating into performance."

Wymer thinks it's all about loyalty. "The key is not satisfaction, it's customer and employee loyalty," he says. "In the best service companies, employee loyalty is a direct mirror for customer satisfaction. You create loyalty by knowing and anticipating needs."

Top leaders need to be in the trenches, says Wymer, answering the customer service line, watching the work flow, listening to employees, and rewarding good performance.

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Loyalty is more than a buzzword at Ukrop's, a Richmond-based grocery chain. Customer and staff loyalty, together with service excellence, are major tenets of the company's philosophy, which has made Ukrop's the No. 1 grocery chain in the Richmond area.

Founded in 1937 by Joseph and Jacquelin Ukrop, the company has set a new standard for being customer and employee friendly. "I believe that's what sets us apart, the way we treat people," says long-time employee Cheryl George. "It really started when Mr. and Mrs. Ukrop opened their first store. Today it permeates throughout the whole organization."

Ukrop's spends a great deal of time finding the right employees and reinforcing the company's key values. And that's not always easy with 5,200 employees, George says. "We go to schools, churches, community organizations. We get the word out about who we are, our history, our philosophy, our culture. So when someone comes to us for a job, they already have an idea of our values."

And then the rigorous training begins. Ukrop's employees - called associates - study a core quality curriculum before hitting the shop floor. Then, after associates have been at the company for a few months, they meet with the company's top two executives for the "values" class.

Brothers Jim Ukrop (chairman) and Bobby Ukrop (CEO) travel the world in search of new ideas, but they say it all comes back to people. "I love people, and I believe that we have a great core of associates," Bobby says. "There was this man visiting us from New Zealand, and while he liked our products, he said, 'What I really like is your people.'"

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What seems to come naturally for Ukrop's isn't so easy for other service companies to learn, according to industry experts. Too often, they contend, quality in the service sector is measured simply by customer satisfaction, which is only one factor in the quality and productivity equation.

A few years ago, Richmond-based World Access Service Corp. had to balance customer satisfaction with good business practices. World Access provides travel and auto insurance through third parties such as credit card companies.

One such card company offered World Access auto insurance to customers who used its credit cards to rent vehicles. But when World Access denied the claims of some cardholders, officials at the card company got upset.

The quickest way to restore customer satisfaction would have been to pay the claims, but that wouldn't have solved the long-term problem. Instead the company decided to improve its customer communication processes.

World Access worked with the card company to create marketing materials that highlighted exactly what the policies covered. World Access also trained phone center employees to clarify what was covered and what wasn't. And if World Access still needed to deny a claim, the phone center operators learned to explain why in a manner that kept customers satisfied.

It worked: Denied claims dropped from 20 percent to 12 percent, and satisfaction rates rose from about 75 percent to more than 90 percent.

The experience heightened World Access' interest in quality issues, and the company started competing in the U.S. Senate Productivity and Quality Awards. This year - its fourth year in the competition - World Access won a medallion of excellence.

More importantly, the company's new self-improvement program is boosting financial performance: World Access has increased its revenues from $44 million in 1993 to $93 million in 1998.

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Rice doesn't think Plow & Hearth would have survived without its quality initiatives: like training for every associate, tracking and rectifying customer problems, and working closely with suppliers to reduce cycle times, develop new products and control costs.

The company's success hasn't gone unnoticed. Last year Rice sold a majority interest in the company to a national flower retailer called 1-800-Flowers. The move brought Rice and the company's other founders the liquidity they were seeking. The deal also appealed to them because 1-800-Flowers is a family-run company that will preserve Plow & Hearth's commitment to quality, Rice says.

"Our ability to negotiate a fair price," he says, "had a huge amount to do with our performance.''