The best customer service is distinguished by the passion and energy of the staff delivering it. Whilst all know good service when it is seen, measuring it can be a challenge and managing it well can be harder. What can and should be done to sustain outcomes and optimise value?
Building and Buying Well
An awareness of the influences on customer service outcomes helps to guide the selection, specification and procurement of services that you buy and the approach you use to build. My own un-scientific research suggests that the following contributory relationship is highly influential of customer service:
Attitude, Aptitude: The visible part is the attitude of the individual agent. The way they interact with the customer and draw upon their tools, knowledge and skill to deliver service. You can recruit for this, but unless what goes below is right too, you will not maintain it: the best will leave; the desperate and less marketable will stay and go sour. Even the finest waiter cannot deliver foul food with pride; they would prevent its ever leaving the kitchen.
Knowledge, skill, practice: I have worked with service centres that have astonishingly high staff turnover. Most issues seen by each agent was new to them. They did not stand a chance. I have also seen and used those where sober maturity brings a calm confidence. A call becomes a challenge that the good agent rises to with the assurance that this is fun and I can do it, occasionally with the help of the team.
Leadership: The role of the supervisor is critical. The best set the tone consistent with the service’s brand (see later). For some this is energetic, youthful. For others it is confident, mature, measured. They measure, coach, listen-in, encourage, back-up, occasionally cut some slack, act as an escalation point and support their people’s development to maintain a realistic hope of progression.
Facilities, Process: The provision of effective tools, process, information and organisation to do the job. This is developing rapidly and includes multi-channel service options to help customers to solve their own problems without engaging service-provider staff, well-tuned processes and workflow. Without the right tools and relationships well maintained, even the best agents will be tripped up.
Foundation Environment: This is heavily influenced by the customer. It sets the tone for and funds everything above it. Has this been a pusillanimous selection of the cheapest, disregarding all consequent value? Does the customer care about what is delivered and how, holding the supplier effectively to account and demonstrating willingness to pay for additional value when enhancement is justified?
A customer of sourced services will commonly want to pay for the top – Attitude, Aptitude, and ignore the rest. Some of this is justifiable on the grounds that you pay a supplier to manage it for you. However, the approach taken during procurement and in later performance management profoundly affects the outcomes attained. This is most directly influenced through the foundation environment. An absent and indifferent customer will rapidly be noticed by a service provider. There are few services today that make so much money that margin can long be ignored. If the provider can hire cheaper staff, skimp on maintenance and still get paid the same without consequence, the message of what is the optimal balance of cost and quality will be clearly heard and acted upon. If the customer does not influence this, the supplier must rationally act in isolation and their own interest.
Indifference and sloppiness can be found almost anywhere, being just as common amongst customers as suppliers. Customers get the service they deserve.
How People Decide
I recently had a discussion with a group CFO about his organisation’s IT service. He had been responsible for a string of acquisitions over the last few years. Many of the acquired companies’ services had been cheap. He valued security and integrity highly and cheerfully acknowledged that his in-house service was far more expensive than anything the new members of the group had brought with them. He did this because he knew the value of these attributes to his brand and his ability to command a premium in his market. He saw the decision in the round, knowing the consequences (if not the financial cost) of service failure. He had no intention of wasting money, but knew how to spend it wisely too.
Junior assessors lack this breadth of vision. The costs are obvious, the benefits less so. They tend to see a decision in isolation as opposed to their more senior colleagues round perspective of overall effect on corporate success. They nervously rely on the data immediately available, notably cost. This has nothing to do with age; some grey-beards will never make the board-room.
If the senior staff take no interest in a decision (as is normal and right for those of little consequence), delegation to the junior assessor will result in the selection of the cheapest that meets the minimum quality threshold. The art of senior management is knowing when to stand back, when to use careful questions and influence to ensure that those below understand and apply what is important, and when to intervene.
Brand is a concept often subverted by polar-necked luvvies. We shall pass over weighty decisions such as whether the logo should be pink or puce. Brand represents a promise of value to a customer, underpinned by values and operations. It is a concept that allows choices to be made rapidly and reliably by both customers and suppliers. Should I eat tonight at the Ritz or at McDonalds? Their brands tell me what to expect from each.
A coherent brand will be designed to deliver a clearly defined proposition to a customer segment that values it in a way that causes the minimum friction in the processes of purchase and use. Important decisions in delivering a brand include how much should be paid for customer service and what should be included? Cost, scope and service levels are inextricably entwined.
If a service has no influence on the value proposition, paying more than the minimum is irrational. This is rarely the case for customer service. The art is often in knowing whether greater expenditure in one area will result in reduced cost in another (e.g. high quality first-line resulting in fewer calls back and reduced total service costs). Here I assume that additional value is received for the higher price.
There can be a straight choice between your extending the scope of service to include a function, or to leave it (and the associated cost) to a service user or customer. Such decisions, including such as the hours of service to be provided, can have a significant effect both on the cost and the value of service. The costs tend to be quite reliably quantifiable by an informed service architect. Be careful to include all relevant items over the full life, not just the technical. The value side is altogether harder to quantify.
Valuing Customer Service
One of the most influential thinkers in this field is the practical and thoughtful Frederick Reichheld of Bain Consulting [Ref 1]. It was he who most clearly articulated the lifetime value of customers and the wisdom of investing most service cost in those of greatest long-term value. It was also he who first proposed the “Net Promoter Score” (NPS), defined as:
NPS = (% of customers actively advocating you as a provider they would recommend to others) –
(% of customers who would advise others not to buy from you)
This score has been found to be strongly correlated with customer loyalty and with actual procurement decisions. As such it is a most useful top-level summary measure. Other, lower level data is needed to interpret the influences upon the state. This is where the hierarchy introduced earlier in this article is also informative of contributory relationships to decide actions to amend service levels and costs.
For the purposes of valuation, it is useful to examine two classes: revenue generating and non-revenue generating services.
I consciously pay more for my broadband than the cheapest supplier. The reason is that my current ISP delivers a consistently well informed and effective fault resolution service. With their aid last year I resolved a major service outage that was traced to my firewall (outside their responsibility). The small monthly premium over the competition that I pay is of considerable incremental value to me. This sustains their ability to price at a premium. This is the means by which they fund the incremental costs of qualified, loyal staff and supporting infrastructure on which their competitors may spend less. It appeals to a segment of customers who value service quality, including me.
There is research [Ref 2] that supports the intuitive observation that those who pay most expect the highest levels of service. It is thus possible to establish a quantified relationship between the frequency and severity of issues and customer defection for various levels of price premium. Most intuitively accept the correlation from their own experience and avoid the costs of research.
Goodman [Ref 2] proposes a good customer service valuation approach. It accommodates the observation that most people experiencing bad service do not complain to the company, whilst still telling their contacts to avoid patronising the enterprise. With the Reichhard customer loyalty value and periodic data on numbers of complaints received, the company can calculate the periodic sales lost. He calls this the “Market Damage Model ™”. This is a quantified opportunity cost of less-than-prefect service. In the most sophisticated enterprises, the model can be applied differentially by customer segment to accommodate their varying customer lifetime values. Every company will have a residual level of customer loss and associated opportunity cost. It must decide how much to spend on each aspect of customer service to optimise overall profitability.
This is a rational, evidence-based approach that informs experimental investment and the allocation of resource. As such, it is one I find simple enough to be useful. It allows the analysis of the relative effect of measures to:
- Reduce the number and severity of problems and incidents
- Increase the percentage of customers who complain when they encounter an issue
- Increase the quality of outcomes when customers complain
And thus to make rational investment decisions regarding customer service. The approach is notably powerful when combined with the perspective of customer experience. There will, as in all investment decisions be elements of uncertainty regarding the magnitude of effect. These can frequently be minimised by experimentation.
Not all points of pain are of equivalent cost. In sourced services one of the greatest that I have encountered when supporting customers has been seen in transition project delivery. I was asked by one client to examine such a situation where the core question was “should I fire these clowns now or will they ever get their act together?”
In many IT and BPO services, there is a separation between the customer who commissions and funds a service and the service user. This is taken to extremes in organisations such as Government where the link can be so marked that the commissioner entirely loses sight of it, especially where they do not get out much.
Service users in non-revenue generating situations may face little choice of other suppliers. They are frequently trained to have low expectations. This can be seen in examples such as an employee who can turn only to his internal IT department for connection to the corporate network. In some cases, vengeance is sweetly extracted through behaviour such as BYOD, departmental purchase of cloud services avoiding the IT department and lobbying for the CIO to be fired.
Such situations do not directly affect revenue. There are however internal costs including:
- Loss of user productivity
- Total costs of service provision (multiple call-backs, management escalation time)
- Work-around costs (e.g. departments hiring their own programmers for ITO and accountants for F&A)
These can be problematic to value, being characterised by many transactions each with a small value. In many cases the data indicates clearly which is the best course to take based on performance data without there being high initial confidence in the pecuniary value. That can be discovered having made the decision and monitoring the outcome. They are typically non-cashable, but can be material. The CIO who asked whether he should fire his service provider was spending as much as 60% of his own time in issue resolution, changing the priority of his staff each time a new issue came in.
The simple selection of either the most expensive or the cheapest options for customer service provision is not rational and is frequently sub-optimal. To deliver the best value requires an understanding of the lifetime value of customers and how their valuation of the various aspects of the service they receive affects their loyalty. Knowing this, selective investment and the diversion of funds from less influential areas, allows optimisation of service for value.
This article was first published in Outsource Magazine #36 Summer 2014 and is reproduced with permission.
 The Loyalty Effect. Frederick Reichheld. Harvard Business School Press 1996 Strategic Customer Service. John A. Goodman. Amacom 2009