Perfecting Service Management

Issue #23 Tuesday, July 22, 2003

Welcome!

topical index

Welcome to this edition of the Customer Centricity newsletter, where we explore ways you can improve the performance of your service organization.
 

In this issue:

Avoiding the Death Spiral While Reducing Operating Costs - Part 8
(Make informed, not random, cuts)

By Lauren Weiss

This is the 8th article in the series “Avoiding the Death Spiral While Reducing Operating Costs” covering approaches to reduce operating costs while maintaining customer confidence and increasing customer satisfaction. Topics in this series include:

  • Cease activities that provide no value-add
  • Implement efficient and repeatable processes
  • Focus on existing product quality instead of new features and functions
  • Enabling customers to self-serve
  • Perform elements of the work with lower cost labor
  • Segment the customer base and provide “appropriate” levels of support for each
  • Make informed, not random, cuts
  • Cease big, expensive projects with long-term ROI
  • Renegotiate vendor contracts

In this edition we will cover: Make informed, not random, cuts

Make no mistake, cost cutting (including downsizing) is no simple matter. When it does come time to cut costs, you are encouraged to acknowledge the fact that not all organizations in your company deliver equal value to the customer. Ask yourself the question: "Who is paying my salary, and the salaries of my employees?" There is only one answer: the customer. In order to retain your existing customers, and revenue stream, you will want to minimize or eliminate the impact that cost cutting has on the customer base.

Too often, companies take what I call the "peanut butter" approach to cost cutting, by asking each organization to cut X% from their budget. That is, the cost cutting is spread equally across each functional organization. Requiring each organization to cut the same percentage of expenses from the budget is not getting at the root cause of the issue. In fact, you will often find that "fat remains" after taking such cost-cutting approaches. While costs are reduced, the fact is that there will still be "pet projects" or activities that continue to occur, consuming the valuable time of your corporate resources, even when they may not be aligned with the overall direction of the company.

The root cause of the issue is that expenses are out of line with revenue. The cost structure of the organization has grown over time to support new customers that bring new revenue. The fact remains that you have an existing customer base that is providing the base revenue that you enjoy today. Taking anything away from the existing customers, in the way of service, support, quality and responsiveness, will give your customers a reason to defect.

To identify the areas of your business that provide the most value to your bottom-line, you are encouraged first to quantify the impact that each organization and activity has on the customer, then to determine the return-on-investment that each provides. An effective way to approach this is from the customer’s perspective, looking at your organization from the outside in. Which organizations "touch" customers most frequently? Which organizations do the front-line resources (Sales, Account Management and Service) depend on most to meet customer expectations? If cuts in these organizations are too deep or too random, customer service will be most severely impacted. Understanding your highest value activities allows you to know which areas you want to remain very strong in, and which areas can absorb the deepest cuts.

The final and most challenging step is that of redesigning the organization accordingly. To do this you are encouraged to pull your management team together in an environment of "we are starting a new business, from scratch." The major ground rule for this exercise is that no one at the company has a guaranteed job. Throw all the resources up in the air. In fact, some of these leaders may be "impacted" as a result of this exercise.

With your highest value activities identified, you can structure the organization from the bottom up to manage the business in the most cost effective way, while continuing to meet or exceed your customers' expectations. The focus here is on identifying the required resources and applying the best people to the truly valuable activities that your firm performs. The positive aspects of this exercise versus a "true" startup, are two-fold:

  1. You have an existing customer-base that is asking you to serve them.
  2. You have a pool of people that are ready to "get started NOW"…

While cost cutting may be inevitable, intelligently approaching this will help to ensure the long-term success of your enterprise.

Upcoming newsletter editions will cover additional items on the topic of “Avoiding the Death Spiral While Reducing Operating Costs”.

Previous articles in this series:

Part 1   Part 2   Part 3
Part 4   Part 5   Part 6
Part 7

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Don't Solve Your Customer Problems: Prevent Them! - Part 1

By Bill Riquier, Business Metrics Specialist

I’m encouraged when I see service companies capturing and responding to in-depth customer metrics. It shows me that the managers of these firms are dedicated to shaping their strategies around creating more value for their customers. Metrics that alert us to problems with the customer relationship are particularly useful in guiding corrective changes to current strategies. Unfortunately, they do nothing to help managers prevent problems before they turn up.

Businesses have always used sales metrics, such as churn, account share, and customer profitability as a means of measuring their success with their current base. Poor results for these metrics indicate a problem with the relationship. Customer feedback forms and satisfaction surveys help to diagnose the problem, and a business that uses this information well can re-design their processes to improve customer-facing activities. A good customer satisfaction process functions as a feedback loop, designed to improve satisfaction scores over the long run.

But while customer satisfaction is a good measure of perceived value, which is the driver of the above three outcomes, it is still a lagging indicator. The real challenge is to discover the leading indicators of changes in perceived value. Managers need to ask themselves: Which customer behavior patterns signal an impending change in the relationship? How does the performance of my business impact customers’ feelings? And how can I prepare for the industry changes that will affect customers’ perception of the relative value of doing business with my company?

In the next three installments, I will discuss four areas of the business that supply leading indicators of perceived value. These are: Customer Behavior, Company Performance, Industry, and Growth and Learning.

Bill Riquier can be contacted at w.riquier@comcast.net

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More About Customer Centricity, Inc.

Customer Centricity is a business consulting firm that partners with companies to improve the performance of their service organizations. We leverage our real-world experience to help our clients manage their customer relationships in more effective and satisfying ways.

Customer Centricity delivers on this promise by optimizing the interaction between people, process and technology to achieve higher levels of customer satisfaction and increased operational efficiencies. We provide:

  1. Comprehensive assessments to identify the actions that will yield the greatest return;
  2. Skills Training to enable customer-facing personnel to deliver exceptional levels of customer service;
  3. Design and Implementation of business process techniques to serve the customer in efficient, effective and consistent manners; and
  4. Identification of the appropriate business processes to automate, enabling companies to get the most from their investments in technology.

In addition to our core practices, we also maintain a network of strategic partnerships to provide end-to-end consulting across your organization with a commitment to seamless execution.

Click on the following link to see what our customers have to say.

To learn more about Customer Centricity:

call: 603.491.7948

send e-mail to: info@customercentricity.biz 

or visit our web-site: www.customercentricity.biz

In Closing

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