An example of poor service management

Kareems is a renowned chain of restaurants in Mumbai. I knew little about them before I went there on a Saturday a few weeks back. I love a well cooked meal and do not go to the restaurants to evaluate their service management, but this particular experience stood out so clearly that I had to take notice. It’s raining in Mumbai these days, and when we reached Kareems for lunch, it was raining really hard, so it was a relief when their attendant noticed that there were 4 of us and came down to the car with two huge umbrellas.

The waiter mentioned that the kitchen was closing and we needed to order immediately. Over time, I have realized that if I do not know much about the restaurant, it’s better to ask what will be available instantly. Normally, items that move off the shelf quickly would be recommended. For me this guarantees that other customers like the item and that the food is freshly prepared. This has worked for me well in the past and I followed my well rehearsed approach. One problem with the approach is that one has to rely on the waiter’s recommendation for quantity and I went with his recommendation. Not only did the food taste like leftovers, our waiter had forgotten to order one of the dishes, and now could not take orders because the kitchen was closed. I would have hoped that this was all, but it was not to be. When we tried to pay by credit card, we were told that credit cards were not accepted. So we paid by cash and were made to wait for the change. On asking for change our waiter mentioned that they were out of change.

An analysis of the ordeal will throw up some interesting concepts in service management. Kareems started on a strong point with their attendant at the gate setting the standards elevating expectations. Subsequent experiences went from bad to worse. The unpleasant experiences kept coming one after the other, a classic fault. In service organizations, if there are no ways to avoid unpleasant experiences, it’s important to pack them together and take them out initially, but Kareems segmented the bad experiences making them seem longer. While I gave them the opportunity of ordering their best dishes, they took away my power of choice not only by mentioning that the kitchen was closing, but also by not ordering an item I had requested. Taking choice away from customers after offering it is the last thing a service organization should do. Paying by credit card is like a ritual for me, but I was forced to pay by cash, for which I had to forage from everyone. By the time I got out, the experience had left a bad taste in my mouth.

The reason behind such service may have been because we had arrived for lunch late and they were short of resources, whatever the reason, at the least, Kareems lost future business it could have generated from me and a few people I know.

Outsourcing Key Business Support Systems

Should outsourcing be the preferred implementation strategy when it comes to key Business Support Systems (BSS) like CRM? To evaluate this, I will touch upon the key reasons why companies outsource and also look at issues that are being faced while outsourcing key BSS applications.

IT outsourcing started with cost advantage as the primary motivation, the drivers of outsourcing have since undergone changes and different models have emerged over time. The key reasons why organizations outsource are the following:

• Core vs. Non Core – Focus on core business strategy and leave the rest to partners
• Specialization – Skilled labor with specialized skill sets required for the job
• Dynamic Capacity – Need based capacity changes in terms of resources/hardware etc
• Innovation – Align with latest trends in IT and be on top of the innovation curve

Benefits accrue from outsourcing as long as organizations know what to outsource and what to maintain in-house. Processes and functions with low impact on core strategy are ideal candidates for outsourcing while those of strategic importance should be maintained in-house as transaction costs associated with outsourcing such processes outweigh benefits. Non-IT organizations frequently categorize IT as a non-core function and end up outsourcing IT as a whole, while actually there are areas within IT that may be core to business strategy and its enablement. There are instances where organizations have spent additional money to bring back outsourced processes and applications in-house. This points towards a more fundamental question as to whether top managements are able to grasp how critically IT impacts business today, but that is topic for a different discussion. At this point let’s say that it is important for organizations to distinguish and identify the core and non-core IT applications.

Even though outsourced vendors are governed by KPIs/SLAs, there may be a difference in motivation levels and complacency may creep in once contracts are signed off. Hence, BSS applications like CRM, Rating etc in a telecom scenario may need tighter controls where quick resolution and turnaround on issues is critical.

Outsourcing also adds bureaucracy and rigidity with vendors not willing to accommodate last minute changes. For core applications that support business strategy, it is critical that changes are incorporated immediately with changing business needs. Especially in volatile environments like new telecom launches where customer strategy is fluid and prone to changes, an unwilling vendor can cause severe damage to business prospects.

In core and customized applications like CRM where understanding business and its drivers is important, employee turnover at the vendor end is also a sore point. IT Vendors turn to their most efficient employees to win clients and projects, sometimes taking the most resourceful people out of an ongoing project. This leads to unending learning curves and causes dissatisfaction at client end.

I am not saying that BSS applications should not be outsourced because maintaining applications in-house has its challenges; and the degree of outsourcing depends on the maturity levels of both parties, it is, however, important that organizations understand the criticality of different IT applications in their portfolio based on their impact on business. The degree of control on different applications is something that organizations need to evaluate to form a long-term and constructive relationship with the outsourcing vendor.

Steps to Initiating CRM

A CRM initiative starts with top management taking a conscious decision towards customer orientation. Visualization of benefits should happen at this stage and should be articulated in the form of a value proposition. A discussion on CRM project’s value proposition is available here. The next step involves outlining business processes that will be impacted by CRM. As mentioned in an earlier post, the impact of CRM initiatives is not limited to the front end and customer facing processes only. While CRM applications have evolved and are industry focused and process oriented, the custom processes of the organization still need to be mapped to standard processes provided by CRM vendors. A process re-engineering team comprising of members from strategy, operations, IT and external CRM consultants should be formed at this stage to analyze custom business processes of the organization and provide clarity on the following:

1.      Time/Cost Estimates of the initiative

2.      Phasing approach (and identification of quick-win projects)

3.      Change management requirements

4.      Metrics to monitor progress/returns at every step

Subsequent to this, the CRM product vendor needs to be selected. Unlike purchasing a cell phone, where one learns after purchasing a feature rich phone first, subsequently realizes his unique needs and next time buys just the right one, CRM product selection is a one time activity unless the organization gets it completely wrong. Product vendors are aware of organizations’ penchant for features and would package numerous additional features highlighting discounts if bought as a bundle. Enterprise vendors would also bundle a few non CRM components for future opportunities. Organizations that fall into the trap may end up paying for features which they will never use. Results of the analysis phase should provide the framework within which the organization should commit its resources. A similar logic should be adopted while purchasing licenses. Organizations should however, ensure that product support and consulting from the vendor are included as part of the package as these are critical to the success of the initiative and will be costly if bought later.

The next step is to decide whether to develop the CRM application in-house or partner with a system integrator (SI). There are advantages and disadvantages of each approach which will be considered in a later post. Some key things should be considered while selecting the SI partner. Reputation and reliability are important because organizations will be exposing their customer strategy to the vendor, trust and mutual respect will play an important role in opening up and sharing knowledge. Good CRM SIs are costly because they employ technologists who in addition to understanding the unique business processes, are expected to understand the organizations customers. Being penny wise here will prove costly in the long run.

Once the organization has mapped out its business processes and selected the product and SI vendors, they are ready to create specific business requirements with help from product and SI vendor’s teams. 

Segmenting your Customer base

While organizations start with some basic understanding about their target customers, the target segment gets refined with time and may undergo significant changes once there is visibility of ground realities. In organizations that have implemented CRM solutions, the CRM application tracks information about customers across different channels. Overlaying analytics on top of CRM data, organizations can identify different segments, outlining buying habits like preferred products/services, channel, location, willingness to pay for premium services etc. A successful segmentation strategy will result in segments that are easily definable, sizable, reachable and actionable. Segments are defined in such a way that characteristics within a segment are homogenous while between segments are heterogeneous, so that different treatments can be designed for different segments. Characteristics, based on which customers can be segmented can belong to any of the four major types:

• Geographic (e.g., country, region, climate)
• Demographic (e.g., age, sex, income, education, # household members)
• Psychographic (e.g., lifestyle, personality, values)
• Behavioral (e.g., usage rate, loyalty status, usage occasion)

Geographic variables provide high level indicators. Mobile telephony customers based out of coastal regions, where one of the primary occupations is fishing, have a higher willingness to pay for weather related services and forecasts on their phones.

Demographic variables can indicate if a particular age group uses specific types of services more often than others. SMS is used more often in the age group 15-25 than in any other age group.

Psychographic variables are based on human psychology. Customers can be identified as Innovators, Adopters or Followers. High end new products or services can be targeted specifically at Innovators thereby increasing acceptance rates.

Behavioral variables are based on the presumption that past performance is a true mirror of future performance. The success of RFM methodology (Recency, Frequency and Monetary Value) to predict future revenues from customers proves the efficiency of behavioral variables. The number and value of prepaid recharges made by a customer over a period of time, in addition to time lag from the last recharge can predict to considerable accuracy whether the customer is still with the service provider; it can also predict when and of what value will be his next recharge.

Segments are rarely based on one type of variable; a combination of multiple variables of different types can provide useful insights that define a customer segment. A study conducted by a colleague and me on the upcoming 3G market in India found that young (22-28 years) medium income (9–14 lacs) basic degree holders interested in music would have the highest willingness to pay for Mobile Gaming. Get entire report from here.

Once segments are identified and selected, the next step is to design service offerings and pricing keeping the target segments in mind. There is a trade off involved between the depth of segment definition and cost; some experts, however think that one need not make an either or choice. To read more about creating service offerings for a segment size of one, refer to the blog on 1to1 Marketing

CRM for Topline Growth or Cost Optimization

The profitability equation states, P = S x Q – C x Q, i.e. Total Costs (Unit Cost X Quantity) when deducted from Revenues (Unit Selling Price X Quantity) equals Profit. Organizations create value by either increasing revenues or reducing costs and sometimes by doing both. As per Gartner’s Run Grow Transform Model, every IT initiative should be accompanied with a value proposition which indicates clearly whether the initiative falls under the Run, Grow or Transform category. Run indicates Cost Optimizations, Grow indicates Revenue or Profit impact and Transform maps to new business undertakings. What should be the value proposition for taking up a CRM initiative?  

Implementing CRM can help reduce costs e.g. Customer Service Agents can resolve customer queries within shorter timelines thereby reducing AHT (Average Handling Time). While there are cost advantages to a CRM initiative, CRM itself is a costly undertaking. Apart from cost of software licenses; implementation and customization costs can be sizable. Additionally, budget needs to be set aside towards change management and training of users because without users championing the cause of CRM, the initiative cannot succeed. Thus, investments required to successfully implement CRM will normally outweigh the cost benefits of such an initiative.

CRM can impact revenues in a much greater way. Going back to the equation on top, revenue growth comes from selling more products and services per customer or through enhanced pricing of existing services. Data gathered through CRM can be used to segment customers based on demographics, psychographics etc. Lifetime Values (LTV) calculated for each segment indicates relative profitability and different treatments can then be designed for different segments. These treatments may include up-selling and cross-selling propositions through Email, SMS, Web or Phone. Responses to such campaigns can be tracked and tagged to customers instantaneously. While on a call with a CSR or while browsing the company’s site, CRM can be used to dynamically calculate the churn score based on customer’s actions and pop up relevant campaigns to the customer/CSR. This is done based on the collective history of interactions by customers belonging to the same segment. Thus, only relevant deals are proposed to the customer thereby increasing the probability of a sale in an efficient manner, saving time, money and enhancing satisfaction.

Revenue is also impacted by the ability to sell products at an enhanced price. When a customer has bought multiple products and services from the company, the costs associated with churn are high for both the company and the customer. Depending on the segment and willingness to pay, the company can charge a premium for services which loyal customers will be willing to pay.

Going back to the Gartner Model, the value proposition for a CRM initiative is overwhelmingly towards Grow. CRM helps grow revenues by targeting the right customers, enhancing their LTV by increasing the number of products and services per customer through targeted up-sell and cross-sell opportunities. It also reduces churn by creating a loyal customer base through timely and personalized customer service.

Culture Change to enhance CRM Acceptance

Success of a CRM venture requires acceptance of CRM at an Organizational Level. A CRM enabled organization is tuned completely towards its customers and listens to them through all available channels, then acts to fulfill customer needs. To enable this, processes across the organization need to be aligned towards achieving this goal. If the thought process is that CRM is only going to impact the customer facing processes and not others, then the Organization may not have thought through the initiative. The next important step is to identify the processes and people who will be impacted. A big risk to any change management program is that there is not sufficient buy-in from people who are responsible for implementing it. People who are actually going to execute the CRM initiative need to know how things will change. It is important that some key people are identified as champions of the initiative and initial successes are celebrated. The more the number of users who understand, accept and then actively promote the CRM initiative, better are the chances of its success.

In most Organizations which do not involve employees in decision making process, employees develop a confirmatory response model. This model is performance orientated while an exploratory response model gives more stress on learning. For a change initiative of the scale of CRM to be successful, unfreezing of the existing ways of doing things is essential. Employees with exploratory response are more tuned accepting such changes and championing them. Organizations may want to understand the response model of employees and help move towards the exploratory model. Change becomes easy when the combination of the following happen:

1. there is sufficient dissatisfaction with the existing environment (D)
2. there is a clear vision of the future which is superior to the current situation (V)
3. people commit to taking first steps towards the goal (F)

When the combination of these is greater than the resistance (R) to change, change happens.

D x V x F > R

To create such an environment in the organization should be the goal of the top management. One of the critical points to note is the first steps towards the goal need to be positive and encouraging. For CRM implementations, usability of the CRM system play a crucial role in forming opinions about the system and whether it will be able to deliver the vision. While most CRM providers are aware of this and some have invested heavily on usability related research, I have seen multiple issues with the usability of CRM systems. CRM vendors as well as System Integrators need to understand their direct and end customers better in terms of demographics, psychographics etc to make systems that are in tune with their individual needs and backgrounds.

Acknowlegements:

1. Gleicher’s Formula: D x V x F > R