How to transform the Customer Services function (Part II)

In this post I continue the conversation I started in the previous post. To recap, this conversation is about transforming the Customer Services function.  When I say transform I am pointing at something different to change. Take a good look at change and you will find that change often deals with changing the content rather than the context which gives rise to the context. Transformation deals with the context.

What does Customer Services really do? 

Step outside of the content of handling calls, emails, or providing agents to respond to ‘click to chat’ requests and look at the Customer Service function.  What do you see?  I see the bigger picture.  I see the powerful functions of Marketing, Sales, Ecommerce, Operations, Logistics, Finance creating ‘garbage’.  This garbage lands in the lives of customers and the customers don’t like it.

Within the current context it is taken for granted that organisational functions will create garbage. Perhaps it is more accurate that this creation of garbage is hidden in the background and not even noticed.   Marketing creates waste by misleading customers, or not providing them with the information that they need.  Sales creates garbage by selling the wrong product or promising and not delivering.  Operations creates garbage by making/sourcing products that don’t do what they are supposed to do. Or are difficult to setup and use.  Logistics creates  garbage by not delivering the products on time. Or not even providing a date when the product is going to be delivered.  Finance creates garbage by getting the billing wrong or not explaining the charges adequately.  The Ecommerce unit creates garbage by not designing the website so that it is both useful, usable and responsive.

This garbage lands in the lives of customers and the customers don’t like it.  So they turn to the people in the business who can help with cleaning up this garbage: Customer Services. Put differently, within the current context the Customer Services function deals with/addresses/cleans up the garbage created by the rest of the organisation.

The access to transforming the Customer Services function is to focus on what is outside of the Customer Service function

It occurs to me that it is madness to focus on improving efficiency and reducing the cost of the Customer Services function.  Why?  Because that is simply finding more efficient ways of dealing with the garbage.  If we use the manufacturing analogy then we have a whole bunch of people creating waste.  This waste lands in the lap of the Customer Services folks to fix.  The Customer Services folks are fixing it as best as they can whilst the rest of the organisation is hell bent on cutting their resources and expertise.  Is this not insanity?

Surely, the lever for transforming the Customer Services function lies outside of the Customer Services function.  Who is the cause of the garbage in customers’ lives that drives calls into the Customer Services function?  Marketing, Sales, Operations, Logistics, Ecommerce, Legal, Finance etc.  If these functions did not create the garbage in the first place then there would be a huge reduction in the call volume coming into Customer Services. And accordingly a huge reduction in the cost of the Customer Services function.

I say that the access to transforming the Customer Services function is eliminating the garbage that the rest of the organisation is creating in the lives of customers.  Put differently, learn from manufacturing and build quality into the system so that the default functioning of the system is quality.

Which begs the question, how to do build quality into the system.  I say you start by disturbing the complacency of the existing system.  And a great place to start is to:

– Analyse the demand coming into Customer Services into ‘value demand’ and ‘failure demand’ where ‘failure demand’ is the demand falling onto Customer Services because of the garbage created in the lives of customers by the rest of the organisation;

– Code the ‘failure demand’ into buckets where the buckets represent the organisational functions (Marketing, Sales, Logistics…) that are the source of the ‘failure demand’; and

– Charge each of these organisational functions – on a monthly basis – 200% of the cost of dealing with the ‘failure demand’ generated by that functional silo.

Please note that for this to be effective, the charge has to be a real charge.  It has to hurt by reducing the money that the organisational functions have to spend whilst being held accountable for meeting their objectives.

Why charge the organisational functions 200% of the cost. To get these organisational functions present to the hidden cost of creating garbage.  When an organisation creates garbage in customers’ lives there are two costs. The first cost is the cost of cleaning up the garbage – the cost incurred by Customer Services.  The second, hidden cost, is the damage done to the relationship and thus the lifetime value of the customer.

You might be wondering how this would transform the Customer Services function.  Here is how I see it.  If that which I am proposing was implemented rigorously it would disturb the system.  The organisational functions feeling the most pain would be motivated to produce less garbage. And to do this they are likely to seek out the Customer Services folks to get a helping hand in better understanding the issues from the customer perspective.  Together they would reduce the ‘failure demand’ falling on Customer Services and take the Customer Services function out of the business of ‘cleaning up the garbage’ thus freeing up capacity some of which could be used to focus on stuff that genuinely adds value to customers and leave them surprised and delighted.

Notice that within this context, Customer Services shows up as a valuable function. One that acts as an independent check on the health of the organisational functioning. And acts as a catalyst for keeping the various organisational actors ‘honest’ and ‘in sync’ with the needs/expectations of customers. Doesn’t that constitute a transformation?

And finally

Clearly for this transformation to occur it has to be led by the CEO and supported/enabled/enforced by the CFO. And their commitment or lack of commitment discloses all that one needs to know about the importance of the customer.

If you want to drive up efficiency and reduce your costs then focus on effectiveness

John Kay one of the UK’s leading economist and wrote the following in his FT column yesterday: ” …profit-seeking paradox – the most profitable companies are not the most aggressive in pursuit of profit.”  A similar paradox applies to efficiency and cost reduction.  If you want to drive up efficiency and cut costs then you should focus all your efforts on effectiveness – from the customer’s perspective.

Generally customers are busy people so why are we getting so many calls from them? That is how I started my investigation into IDV’s sales order processing and customer services team back in 1996?  By asking this question I identified that high value customers were calling in the most: they had placed high value (high volume) orders for a range of our products on one order.  I discovered that on average one sales order resulted in 2.6 deliveries because of stock shortages.  So customers were ringing in to ask the status of their order, why it has been only partially delivered and when they were going to get the rest of their order….

So customers were up in arms because they were not getting the products they ordered when they expected them.  IDV had large warehouses (a fixed cost) that were almost half empty.  Costs in the logistics function were going through the roof because most customer orders required multiple deliveries because one or more products were out of stock.  All because management had handed the stock manager aggressive stock level targets – she met them by cutting stock levels to the bone!

Looking at it from a customer experience perspective I decided to focus on two, customer friendly, operational effectiveness metrics: customer contacts per order placed and deliveries per order.  My intention and commitment was to take out this ‘non value added demand’: demand that created waste (time lost, peace of mind lost) for the customer and waste (higher costs) for IDV.

Then I set about working with the folks to redesign the ‘order to fulfilment process’ that cut across a number of functional groups.  At no time did I look for lower cost ways of handling incoming calls from customers.  Nor did I look at lower cost ways of making deliveries.  Why?  Because that is simply finding better ways to deal with the waste created by inappropriate internal policies and practices.  Instead, I focussed on taking out the root causes of the ‘non-value added demand’ falling on the customer services function so that the IDV got it right the first time and thus saved customers worry and time.  The end result was a big increase in customer satisfaction accompanied by a large drop in costs across the functions (sales order processing, customers services, logistics, warehousing and stock management, finance) that handled the customer order.

Now contrast my approach (which I attribute to excellent mentors) with the way many organisations deal with the customer services operation today. The taken for granted practice is to hide the customer services number, to replace humans with technology, to focus relentlessly on getting the most out of the contact centre agents, to drive labour costs down by moving offshore etc.  They do reduce costs mainly by degrading the customer experience.  The trouble is that they also drive down customer satisfaction, customer loyalty and customer retention; the costs associated with getting new customers to replace the customers that have left due to the efficiency drive are hidden in the marketing and sales budgets.

So here are my tips for improving efficiency and reducing costs:

The smart way to cut costs in customer services is to focus on improving effectiveness – improving the customer experience. How do you improve effectiveness?  By doing it right first time by the customer. Why does this matter to the customer services function?  It matters because somewhere between 25 to 80% of the demand that is falling on the customer services centre is ‘failure demand’. This is the term that I have stolen from John Seddon to replace ‘non-value added demand’.

Failure demand is the demand that the customer has to place on the contact centre because some product, communication, policy, process or touchpoint has failed the customer. This is demand that the company does not want to deal with.  And it is demand that the customer would much rather not place on the company.  An example of this kind of demand is where the customer rings the company because she was promised  a delivery time of six weeks and it is now week 7 and she has not heard anything from the company.  Or the customer calls in to complain when he finds the warranty or the insurance is not worth the paper that is written on.  This means having the ear of the CEO, COO and CFO as the people who will have to make the necessary changes will sit in Marketing, Sales, Product Management, Logistics, Finance and so forth.

Once you have a cultural practice in place to find and deal with the root causes of failure demand you can turn and look at the value demand: the demand that customers place on customer services and which creates value for these customers.  The key thing here is to separate this demand into the simple and the complex.

Simple demand – where is the nearest store, what are the opening times, topping up a mobile phone etc – is a great candidate for self-service through a smart use of information technologies such as websites and IVR.   A great example is the airlines allowing customers to check-in and print their boarding passes: it saves customers valuable time and allows the airlines to save costs.  Another example is electronic banking.  The beauty of this approach is that if it is approached in a customer centric way then customers will thank you because you have improved convenience; you have saved them time – which is often in short supply; and put them in control.

When it comes to automating simple demand and requiring customers to serve themselves you must remember that is not always appropriate.  So you must allow customers to speak with the customer service agents – easily.  For example, the customer is in his car and wishes to move money between his accounts.  This is something he can do himself when he is sat at his desk and connected to the internet; yet it is not advisable when you are driving a car.  It is also possible that your self-service solution breaks: Self Service is not an easy fix or why I love Kylie.

By taking out the root causes of failure demand and introducing self-service channels for simple value demand you will increase customer satisfaction (usually dramatically) and save  your organisation a considerable amount of money.   In one case that I know of,  the savings run into tens of millions of pounds per year.

The final step is to deliver great service on the complex value demand.  For example the customer is browsing your website and needs your help in making the right product choices. One company that uses customer service agents to contact and help customers who have abandoned their shopping carts is putting a £1m+ on the bottom line.  Another example is from the insurance industry: taking care of the customer when a traumatic event occurs e.g. car crash; guiding the customer through the process; doing as much of the work as possible for the customer so as to ease the customer’s burden.  Or the customer is in a foreign land, has a change of circumstances, has no access to self-service and needs help (from a capable sympathetic human being)  in changing her flights and getting to her destination with the least hassle.  Do this right and you win customers for life.

The approach that I advise and have practiced is still the road less travelled.  Why?  Because it is counter-intuitive.  And because it requires the whole organisation to play ball.