Are You Tracking the Customer Service Metrics That Really Count?

The biggest customer service problem for many managers is that they focus almost exclusively on day-to-day tactical customer service issues and fail to develop the latent, strategic customer service opportunities that would lock in and grow their most important customers. Here’s a typical situation.

Several years ago, we facilitated a workshop on customer service for executives. About 30 top managers gathered for a full-day session. We shared our latest research findings and invited leaders from Ritz Carlton Hotels, Disney, and a few other customer service leaders to share their insights. At the end of the day, we led a session in which the participants discussed their thoughts and experiences in turbocharging customer service.

We started the session by asking, “What is customer service?” This straightforward question drew a variety of more-or-less expected responses: line fill, case fill, answering the phone in 30 seconds, no telephone tag, fast order cycles, etc. The thread that linked these responses was that they were all tactical operating measures.

More importantly, they were all internal metrics. This is a common problem. For example, what good are high fill rates if the customer has too much of the wrong inventory? Or if the customer is ordering twice as often as is economical? Or if their phone call about a disruptive service problem that shouldn’t have arisen in the first place was answered quickly?

The customer service measures that really count are those that reflect what the customer is actually experiencing, not what you’re experiencing in your operations. It’s a common false assumption to conflate the two. Not only that, but what really counts is the customer’s perception of service, which managers often simply — but falsely — assume reflects actual service. In fact, customers’ perceptions of service are strongly determined by their worst experiences, not the average. Even if a customer’s really bad experiences are rare, those will be the most memorable. (Just think about the one time you had a terrible meal at a restaurant.)

At the end of the workshop, executives had developed a long list of tactical customer service measures, so we asked a different question: “What could your competitor do that would be your worst nightmare?” At first, the group was silent. Then, after a few minutes, the discussion gathered steam and moved in a different direction. The answers varied in form and content, but they all had the same underlying message: “If my competitor could coordinate internally to really improve my customers’ profitability, business processes, and strategic positioning, I would be in deep trouble. My customers would abandon our relationship and run to the competition without looking back.”

Improving a customer’s profitability, business processes, and strategic positioning was the strategic customer service breakthrough that was most important of all. So we asked the logical next question: “If this is the ultimate win strategy, and we now know the secret to competitive success, why don’t we do it first? It seems we have a golden opportunity to secure our best customers and take away our competitors’ prime business.”

The answer to this query still echoes in our minds. In essence, everyone in the group said in so many words, “We can’t. We just can’t.”

Why not? The common obstacle among the leaders was getting their functional departments to coordinate around innovative strategic customer service initiatives. This happens when groups are too focused on their own departmental objectives and metrics — like the internal tactical measures the group focused on initially.

While tactical customer service measures are typically managed by a single company department, strategic customer service innovations necessarily involve the coordinated activities of multiple departments. Here, we had a textbook definition of what we call “organizational indifference.” It doesn’t come from a malicious lack of cooperation — instead, counterpart managers in other departments naturally focus on the measures top management has told them are most important, and for which they’re being held responsible.

To break through this organizational wall and create truly effective strategic customer service innovations, leaders should roll out testbed projects: limited opportunities to experiment and discover potential breakthrough innovations.

Accelerate change with testbed projects

All companies face the twin problems of conceptualizing strategic customer service innovations and overcoming organizational indifference. Many fail to act decisively, putting themselves in danger of being overtaken by more capable, better-coordinated competitors.

Here’s an example of how one company did it right. About 30 years ago, health care company Baxter’s Canadian subsidiary joined with a small hospital customer to explore how to create innovations that would benefit both parties. Baxter wisely chose a situation in which the conditions for innovation were ideal: This was a relatively small community hospital that was newly built. It had a new staff and the need to develop new processes, and the young CEO was eager to create innovations that would change the industry.

Baxter and the hospital CEO created a joint team to explore new ways to work together. In the process, they developed several important supply-chain innovations, including the first working model of vendor-managed inventory, which is now a staple in the field.

This process had two critical outcomes.

First, because the hospital was a relatively small customer, it gave Baxter’s top management a low-risk way to conceptualize a new mode of doing business. And since it was a new organization, it allowed them to refine the actual processes in a “live” situation.

Second, this successful testbed enabled managers throughout Baxter to actually come see it, and to participate in developing it. Those managers could talk to the nurses, doctors, and administrators to get a feel for how things were going. In the process, many of the visiting Baxter managers offered the joint team suggestions on how to improve the process. By incorporating these suggestions, the team developed widespread buy-in while making the process better.

Contrast this with the case of a major multi-state, regional Bell company located in the U.S. southern states around the same time. This strong, successful company was a regional powerhouse with ample resources. Company leaders were deciding whether to develop broadband services for their customers, and if so, how to structure and support them.

The obvious path was to conduct a traditional market research study, which naturally showed that the customers were generally interested, but not enough to pay the full cost of the service.

At the same time, however, innovators in the company whom Jonathan worked with offered an alternative proposal: to conduct a limited testbed project by wiring a small, upscale community with broadband that could link the town’s “communities of interest” (schools, sports, clubs, etc.) through the network. The argument was that this would give the customers an opportunity to forge new communications pathways and develop a sense of the potential value firsthand.

In essence, this strategic customer service innovation could have been a forerunner for many of the internet-based services we now take for granted and would have catapulted this company far in front of its competitors.

Bell had ample resources. But the innovators in the company failed to gather support from their counterpart managers because none of the company’s department heads could see a direct benefit for their own departments, and they preferred to channel the resources to their own tactical customer service projects, which had modest but measurable benefits. In the end, the finance department killed the project, noting that it could not convince them that it offered returns comparable to those that flowed from existing operational programs with certain returns, like replacing old switches.

This well-respected industry giant languished and ultimately disappeared, merged into another regional Bell, and then both into another.

Develop breakthrough strategic customer service

Here is a three-point plan that innovative management teams can use to create strategic customer service testbed projects that will enable them to learn by doing and overcome organizational indifference.

Choose your opportunity carefully.

The cost of testbed projects is relatively low, and the results can be transformative. There’s little downside, but it’s critical to be thoughtful when selecting testbed customers. Baxter wisely chose a situation in which the conditions for an exploratory testbed project were ideal, and they avoided approaching the company’s premier customers, which would have raised a red flag for the sales group.

Make changes as you go.

Very often, the most important findings emerge only after a testbed project evolves over time — perhaps a year or so. The second and third-order changes are the most powerful because they’re reflective of customers’ real-time experiences and feedback. The Baxter project design went through several iterations as the team worked with the hospital personnel and incorporated their newly discovered needs and concerns.

Very few successful business ventures wind up pursuing their original business plans. Rather, the key to success is to learn from experience and evolve rapidly. The most successful venture investors understand this well.

Involve your counterparts early.

Strategic customer service innovation is a whole-company issue. Get your functional counterparts from other departments involved from the beginning. Let them help shape the project and discover how it will directly benefit them, and in the process they will become champions.

For example, Baxter’s supply chain VP was interested in trying out a new, automated picking system. He was able to incorporate it into the testbed project to show the system’s viability and favorable economics. Moreover, when the sales group saw that revenues rose by over 35% in this highly penetrated customer, they became avid champions.

Once the resulting innovation proves its worth and earns widespread acceptance, top management can commit to it and change the functional departments’ planning, resource allocation, and compensation systems to enable the it to grow and thrive.

. . .

Strategic customer service breakthroughs enable you to powerfully impact your customers’ profitability, business process effectiveness, and strategic positioning. They are the ultimate winning customer service strategy. The most effective managers create a comprehensive customer service program that drives innovations built on effective, day-to-day, tactical customer service excellence.