Leave the entrails in the kitchen: 6 steps to plan for future success

“The future belongs to those who prepare for it” 
– Malcolm X.

How unexpected is the unexpected?

In the last week, one of the UK’s leading fashion retailers Republic went unexpectedly into administration putting 2,500 jobs at risk. It was only in 2010 that the business was bought for £300 million by private equity firm TPG and appeared to have a bright future at the time. The immediate issue appeared to be poor trading over the key Christmas/ January trading period, the unusual poor weather and snowfalls hit store sales badly across many market sectors. Whilst it’s always difficult to predict the future, this blog covers a useful technique to help you manage the worst the unexpected can throw at you.

How can you better manage unpredictable events?

In ancient Rome, an augur interpreted the will of the gods by examining animal behaviour and their entrails. Today, few of us would base our predictions for the future on the pecking behaviour of sacred chickens, or the liver of a sacrified sheep.

In fact, many of us would say you cannot predict future events. We may be able to envisage likely outcomes, or have a global notion of what is to come, but improbable events occur without warning, and catch many of us off guard.

But whilst we cannot know for certain what will happen in the future, we can plan for it. And what’s more, we can plan for future success.

To do this, we must shift our focus from the general to the local, because it is in the detail that we sink or swim. Have you thought about specific situations that might arise in the future with regard to your business? Have you planned a strategy to react to them?

In order to avoid being paralysed by indecision when faced with the unexpected, and take measures to ensure future success, we need to home in on the specifics of a situation. When we break this situation down into its component parts, we can identify and develop strategies for what needs to be done. How to do this is outlined below.

Six Steps to Plan for the Future

There are two parts to the process, identification and development. The four initial steps form the identification part, starting by pinpointing the initial problem and leading to building the possible scenarios which derive from the specified problem. Once these are established, the final two steps are the development part of the process, in which the scenarios are explored and business opportunities are predicted and analysed.

1. Identification: problem

Find and specify a particular problem or potentially challenging situation for your business. It is useful to state this as a question. Though the problem can be phrased generally (in terms of concepts rather than specific business facts), it is best to keep it as simple as possible to minimise variables.

2. Identification: decision

Isolate a decision which arises from the problem situation that will need to be taken. You should only select one decision, as your problem should be specific enough to only allow for one variable you can control by a decision-making process. If there is more than one variable beyond your control, refine your problem identification to its simplest form.

3. Identification: forces

Pinpoint the principal forces which will have an impact on your decision. These forces could be economic, technological, environmental, or otherwise associated with your business or your competition, and should relate back to the subject of your decision.

4. Identification: scenarios

Based on the principal forces you have identified, you can now build scenarios which could potentially arise given the forces at play. Of course, the possibilities are infinite, but it is best to restrict your scenarios to four or five plausible future situations. Remember to factor in both probable and improbable scenarios, and don’t forget that a valid scenario may be ‘nothing changes’ (i.e. all factors remain the same in the future as today).

5. Development: scenarios

At the development stage, you need to explore what could happen in the scenarios you have identified, and you do this by varying the forces (identified at stage 3) that affect your decision. By changing the forces and combining the changes produced, you create patterns which illustrate the possible consequences of your decision. These ‘narratives’ allow you to track the possible outcomes of a decision needing to be made based on the outside factors which influence it. A sensible projection for your narrative’s timeline is five years (i.e. what impact will your decision have over the next five years?).

6. Development: actions

You have now plotted out a step-by-step, multi-outcome forecast for your business over the next five years, with the key scenarios identified and explored. The final stage is to analyse these developed scenarios and search for business opportunities within each possible future situation. On establishing the scenarios, some actions to be taken will be immediately obvious. However, it is worth taking the time to explore the narratives you have developed to find potential commercial opportunities and areas for innovation.

Is there a bright future now for the Republic business?

The Republic business has some great brands, a decent website and some high performing store. I remain hopeful that the new owners can reshape the business to save as many of the 2,500 jobs at risk and satisfy its loyal core of happy fashion customers in the next few weeks.

Solvency II – How can you avoid the biggest risks to your programme?

Solvency II is a fundamental review of the business models of European insurers, most directly impacting capital adequacy and risk management. This expert interview is designed for the business leaders responsible for Solvency II programmes with practical advice on the most significant risks you face at this stage, how to avoid them and how you can succeed.

Please click the start button to watch the video.

As they say “so what’s the worst thing that can happen to your Solvency II programme?” Put simply a programme that is off the rails can end up saddling you with additional operating costs while still leaving you with significant compliance issues with the FSA.

In this interview with Solvency II expert, Iain Pickard, by John Corr you’ll learn:

Iain Pickard

Iain Pickard

  • What are the biggest risks that leaders of Solvency II programmes face at this time and how can you avoid them?
  • What’s the one thing you should be doing now (that perhaps you’re not)?
  • What should you do differently to many Insurers that are putting their Solvency II programme at risk?
  • 5 quick tips on what you can do to significantly reduce the risk to the success of your Solvency II programme?
  • What’s the easiest thing you can do right now to improve your situation?

You can download the recording and transcript of the Solvency II interview from this section

Solvency II

Solvency II

CLICK HERE to download the interview (in MP3 format). I can guarantee that your investment of 15 minutes of your time will enable you to lean and apply invaluable lessons to ensure the success of your own Solvency II programme.

Can I recommend that you take advantage of downloading a FULL transcript that you can read ‘offline’ by CLICKING HERE to download a written PDF format copy.

While downloading, you can listen to the interview right now from the ‘PODCAST’ link at the bottom of this page. Additional valuable resources are available from the section below.

How else can we help you with your Solvency II programme right now?

Complex programmes like Solvency II, frequently encounter decision making roadblocks that hold up progress on critical issues. A powerful tool that we recommend to you is the RACI technique that helps you accelerate decision making in difficult and complicated situations. CLICK HERE to download a detailed ‘how to’ on using the RACI technique with practical examples and case studies of its application in large-scale programmes.

You can also GO HERE for additional resources from the European Commission and  for those in the UK CLICK HERE for FSA resources on Solvency II.

Is your Solvency II programme in trouble?

If a particular aspect of your overall Solvency II programme is in trouble, we can help you get it back on track. Are you facing some of the following issues?

  • Is the data from your core systems too inconsistent and unreliable for live running and the proposed IT solution to address this issue too difficult and complex to implement?
  • Are you concerned that you’ll fail your USE TEST as the processes that you’ve submitted to  the FSA are too complex to work in practice?
  • Do you suspect that some of your processes been over-engineered undermining your profitability post implementation?
  • Are some of your key projects at risk putting your overall programme under pressure?
  • Do you need an independent expert assessment on the probability that you’ll pass your ‘USE TEST’ with the FSA?

If you’re fed up of the ‘big 4’ applying huge teams attempting to ‘boil the ocean’ rather than fixing your issues right now then you may wish to take a look at the services we offer to get your Solvency II programme back on track rapidly.

Do you need advice on your specific issues and challenges with Solvency II?

John Corr

John Corr

If you are grappling with complex issues and it’s not obvious what you should do and you feel you would benefit from expert independent advice, then please do ring John Corr (on 020 3637 5501) to explore your situation in more depth.

All conversations are confidential and without further obligation.

Alternatively, simply drop me a question or request using our CONTACT page to email me. 

How increasing service productivity enables you to reduce operating costs dramatically

Steve Towers

Steve Towers

Expert webinar featuring business process and service productivity experts Steve Towers and John Corr

John Corr and Steve Towers have delivered a number of major business transformations and corporate turnarounds in service businesses ranging from global organisations with multi-billion dollar revenues to mid-size businesses (with $50-500 million revenues). The success of these transformations have been built on delivering significant cost reductions whilst increasing customer service experience quality underpinned by step change improvements in service productivity.

Key topics covered in this webinar

  • Why is it so difficult to improve service productivity within your processes?
  • Where do you go next when you’ve exhausted the initial opportunities addressed by Six Sigma/ Lean Six Sigma approaches?
  • What techniques are most effective at increasing service productivity?
  • Why do service operations costs increase naturally over time? And what to do about it
  • How do you manage ‘change fatigue’ after so many change initiatives have overwhelmed everyone in your organisation?
  • Does your dependence on complex IT systems within your processes rule out any meaningful improvements in service productivity within 6-12 months?
  • Does the urgency of responding to the pressures from the ‘credit crunch’ rule out anything other than crude ‘slash and burn’ tactics?

What you will learn

  • New approaches to eliminate complexity and costs from processes to increase service productivity on a sustainable basis
  • How to unlock significant value hidden within your existing processes
  • How to encourage ‘buy-in’ from the board room to the lunch room into improving service productivity
  • How improving service productivity enables you to both enhance the customer experience while still reducing operating costs

Download mp3 recording at: http://www.closequarter.co.uk/Webinars/Reducing operating costs by improving service process productivity.mp3

What you will learn:

  • New approaches to eliminate complexity and costs from service processes on a sustainable basis
  • How to unlock significant value hidden within your existing processes
  • How to encourage ‘buy-in’ from the board room to the lunch room into improving process productivity
  • How you can enhance the customer experience while still reducing operating costs

Download the presentation to accompany this webinar at:

http://www.closequarter.co.uk/downloads/Reducing operating costs.pdf

How BPM by eliminating complexity can help you reduce operating costs by 10-15% in 90 days

BPM – how can it help me reduce operating costs?

BPM (Business Process Management) as a concept that has been around for over 20 years and was first popularised in an article in the Harvard Business Review by Michael Hammer in 1990. While Hammer stressed the importance of reengineering the business around its core business processes to serve its customers more effectively, this proved in many cases easier to say than to do.

Why are apparently simple problems such as improving service processes so difficult to solve?

A Rubik’s cube appears an impossible puzzle for the uninitiated. If you don’t know how to do it, it could take days and weeks of trial and error’ to solve the puzzle. And yet the current world record was set by Erik Akkersdijk in 2008, with a best time of 7.08 seconds at the Czech Open 2008 competition. Similarly, the puzzle of improving service process productivity has appeared to be frustratingly difficult for many organisations. Dedicated teams are formed, apply huge amounts of effort over 6 months and yet end up with service productivity improvements below 10%. The secret to transforming your performance in both cases is knowing the most effective strategies to deploy to be successful. So let’s explore in more detail what makes service productivity improvement so difficult using conventional approaches and how an alternative approach exploiting BPM  can enable you to achieve rapid breakthrough productivity improvements.

What are service processes?

Our lives depend on service processes and they are critical to the success of business and society. They range from ordinary activities such as withdrawing cash from an ATM and changing the calling plan for your mobile phone through to arranging for an operation in the Health Service. In business terms they cover the back office processing in a financial institution through to the restocking processes that ensure your supermarket is replenished each day. Without these invisible’ service processes our shops would stand empty and life would soon grind to a halt.

What are the elements of a service process?

In general, services are defined through a combination of three key elements:
i) The features of the service
ii) A delivery mechanism that defines the where are how for the service and
iii) The supporting processes to make them work.
For example for a cash withdrawal service through an ATM from your bank, the features could include withdrawals up to $500, 24 hours per day, 7 days per week. The delivery mechanism is through any ATM displaying the Visa symbol in 170 countries using your bank card. The service process from a customer perspective starts by inserting your card and entering PIN, then making a withdrawal request for any amount up to $500 and finally receiving the cash (if you have the money in your bank account) and having your account debited for the transaction.

Why do service processes get so complex?

There are a number of factors that combine in my experience to lead to process complexity. The first is that while the features and delivery mechanisms are tangible whose performance can be easily defined in engineering terms with hard metrics, the service processes being invisible’ are much harder to engineer systematically and so often get overlooked. If you consider your doctor making an outpatient referral for you for a consultation with a specialist consultant; you’ll find that nearly every hospital and health authority will have a different service process with huge variations in terms of how quickly you are treated, the cost per treatment and medical outcomes.

In my experience, new service processes are typically launched with poor productivity; complexity is then added with new rules and decision points to be applied continually with constant further workarounds and hand-offs being created. Each time complexity increases; the amount of work per case goes up undermining your productivity and driving up costs. You could think of the eventual impact as a process version of the movie Super Size Me’. You don’t notice the impact of the first few super-sized burgers, however the cholesterol from each additional super size burger clots up your arteries until eventually a heart attack occurs. Similarly as the added complexity builds up over time and volumes grow day-by-day, the process cholesterol builds up until you suffer an eventual process heart attack’ as either processing costs explode or your service delivery functions collapse from being overwhelmed by too much work.

Why does productivity get compromised in new service processes?

In a new service process, even though it shouldn’t happen in theory, in practice the requirements set for new processes end up being far too complicated. Far too many requirements are included from all parts of the organisation (marketing, finance, audit and compliance). All too frequently, this is combined with a hard date’ for when the new process must be implemented, so as the target date nears the project team (and the operational departments) are forced to come up with a working process no matter how complex to ensure the target implementation is seen by to be met (or face the wrath of the senior executives who are paying for the project). Worst-case scenario is a Heathrow Terminal-5 disaster on Day 1 but to be frank these disaster scenarios are the exceptions.
In most cases a more insidious problem is building up unnoticed. The initial volumes for the new process are relatively small, so the operational departments can cope. The project team is then stood down and moves onto another process leaving their operational colleagues to run the new process. As long as the volumes remain low, nobody notices the problem. You can think of it as an unexploded bomb just waiting to be set off on the operational folks once volumes reach a critical mass.

How does complexity impact service processes?

The more rules, the more hand-offs, and the more decision points within a service process the more complicated it gets. It seems obvious but is so often overlooked – the more complex the process the greater the costs and the more opportunities exist to disappoint the customer. Typically, 40-60% of activities and costs within a service process are non-value added from a customer perspective. Some of this cost may be justified from an audit and compliance perspective but this should be contained to below 5%. If service processes are a major proportion of your operating costs or service quality is critical to your business proposition and operations then this level of waste is both a significant burden and a major opportunity for you to improve performance.

What are the best measures of service productivity?

The most powerful measures of service productivity are based on focusing on the customer and business performance. The top-three performance measures, I would recommend that you implement are: are a measure of your customer experience’ (such as the Net Promoter Score’ (NPS) or equivalent), cost per activity and a measure of the effectiveness of your process outcome (depending on your business this could be customer lifetime value, asset utilisation, sales per square foot, patient outcome etc).

What’s the easiest approach to eliminate complexity?

The simplest and most powerful approach in my experience is to attack the complexity head on. There are straightforward tools that help you to identify the principal components of service process complexity. You simply need to apply a triage approach’ to generate an action plan that removes those elements of complexity that generate the greatest cost and customer dissatisfaction in the fastest time. It sounds simple because it is and it’s an approach that works.

Why do so many IT based productivity implementations disappoint?

My background is in IT and I’ve worked with a number of the largest IT firms and users in the world such as AOL, Citicorp and EDS. I love IT and spent many happy years as a programmer, business analyst and systems designer. Clearly some IT initiatives, such as increased straight-through-processing’ in transaction processing, environments are no-brainers’ as they eliminate work. Well yes they are, but these often make up a minority of the initiatives within the typical IT portfolio. So what’s the fatal flaw that causes so many of the IT investment projects to deliver minimal productivity impact? My observation is that these projects start off by mapping the data, document and process flows within the existing process. By and large, the process is then engineered into an IT process that preserves most of the complexity in the original process. Indeed in some cases it’s made worse because the new IT system can now administer far more rules and complexity than was possible before. So the new (IT system enabled) process starts off with even more complexity than ever. Ultimately the new IT system, even with the latest workflow, image, SOA and web-enabled functionality fails to deliver the goods in terms of meaningful improvements to your productivity, customer experience or operating costs.

Who needs to be involved in removing complexity?

To achieve the best results, ideally you should get 2 to 5 people (from the function that operates the service process day-to-day) that can describe the process end-to-end. A smart front-line person and a team leader/ supervisor are often enough. Typically, just these two individuals can identify 20-40% of the performance improvement opportunities available. In an ideal world, if they could be joined by 1-2 people involved in the process upstream and downstream then you can identify 80%+ of the opportunities.
For the icing on the cake, if you had someone from finance who really knew the numbers and someone from marketing who defined the service offering then you would have the perfect team. All told, you will get great results from getting these 2-10 people in the same room to optimise the process.

What’s the impact of removing complexity?

So what’s the bottom-line? I’ve done projects across Europe and the USA across banks, insurance, technology, retail and outsourcing sectors where we’ve achieved 25-30% cost reductions delivered within 90 days – in some cases much higher. These may of course been special cases of high complexity, so to set a more realistic expectation (certainly when speaking to your boss) you should set yourself a target to increase productivity by 10-15% within 90 days. For more in depth case studies of applying these techniques across the whole of a business go to: http://www.closequarter.co.uk/cq-thought-leadership.html

Does this all sound too good to be true?

If you’ve been working for years and have now hit-the-wall on delivering further productivity improvements then no doubt this discussion of rapid productivity gains no doubt sounds too good to be true’. If you’ve used techniques derived from manufacturing such as Lean and Six Sigma, you may be wondering what these alternative approaches designed for service processes have to offer you? If you are working on manufacturing processes in an automotive company, than Lean techniques represent global best practice and many of the planning and analysis tools can be used in any environment. However even a world-class manufacturer such as Nissan realised there was much it could do to improve its service processes when Carlos Ghosn joined from Renault. One year after he arrived, Nissan’s net profit climbed to $2.7 billion from a loss of $6.1 billion in the previous year. Nissan’s operating profit (EBIT, or earnings before interest and taxes) margin increased from 1.38% in FY 2000 to 9.25% in FY 2006. The application of Renault’s expertise to critical service processes within Nissan enabled it to transform its profitability.

Perhaps the most powerful argument is that if you’re finding your existing tools and approaches are not delivering the results that you need, perhaps it’s time to consider an alternative approach such as BPM, an approach that you could learn in a day and start seeing immediate productivity improvements this week.

What are the most powerful takeaway points’ for you to consider?

In summary, the three most powerful takeaway points’ are:

  • Typically 40-60% of cost in service processes is non-value added from a customer perspective
  • The key driver of costs in service processes is complexity
  • By using tools focused on helping you eliminate complexity, you can deliver 10-15% productivity improvements in service processes within 90 days

When you know how, the seemingly impossible becomes easy

So if you want to learn how to solve a Rubik’s cube puzzle, just key Rubik’s cube solutions’ into Google and you’ll know how to do it in the next hour. If you are interested in learning more about how to increase service productivity by 10-15% in the next 90 days just apply the BPM principles you’ve just discovered.

Regards John.

John Corr

John Corr

John Corr (Managing Director)
Tel: +44 (0) 20 3637 5501.

PS If you would like to discuss these principles in more detail or for a confidential conversation on how they apply to your specific situation, challenges and objectives – just drop me an email or call. I’d be delighted to help you be more successful.
CLICK HERE to download a pdf format version of this article to read at your leisure

Additional resources – suggested reading

Zero Defections: Quality Comes to Services’ by Frederick Reichheld and W. Earl, Jr. Sasser (digital download from www.hbr.org)
Moments of Truth’ by Jan Carlzon
The Service Profit Chain’ by James L. Heskett
Managing the Customer Experience: Turning customers’ by Shaun Smith
The Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value’ by Frederick F. Reichheld
‘Customer Expectation Management’ by Steve Towers

How reducing ‘frustration churn’ could increase your business value by 15% or more

How to reduce operating costs and improve long-term profitability by eliminating the root causes of frustration churn’

If you lost 1-2 pints of blood your doctor would be worried and so would you. And yet most businesses still lose around 15-20% of their customers each year. While many organisations put this down to competitor activity (mainly price and sales promotions), in our experience around 40-60% of customer churn is due to internal factors under your direct control that relate to the experience customers have of consuming your products and services and the experience they have interacting with your organisation (that is your people, processes and systems).

Losing customers is painful, but worst of all is losing your most valuable customers. Depending on your industry sector, the top 10-20% of customers contribute from 50-90% of the total value of your entire customer base. So if you lose these customers, this can be a significant threat to your profitability and cash flow. For those readers who’s main interest is in determining the potential shareholder value impact of strategies, and are wondering how a concerted Frustration Churn Elimination’ programme could possibly increase their enterprise value by over 15% then they should skip down to the Shareholder Value calculation (near the bottom of this article in the penultimate section) – and don’t forget to come back to read the rest of the article on how they can do it.

What is frustration churn’?
We describe the phenomenon of customers who have chosen to leave you for your competitors as a result of their disappointment with your products and services (and their experience of how you provide them to them) as frustration churn’. Examples of frustration churn’ include billing errors, the product or service doesn’t work reliably, the customer delivery didn’t arrive or the customer had a poor experience when interacting with your business (people or systems).

What’s the profit impact of neglecting frustration churn’?
There are a number of areas where neglecting frustration’ churn can impact your P&L severely. These include:

i) First and most obviously is the loss of customer lifetime value of the customers that have left your business. Many businesses just take this loss as a fact of nature, executives say let’s just do more acquisition marketing in order to keep the customer numbers steady. A financial analysis by Fredrich Reichheld (see Zero Defections Comes To Services – by Frederick F. Reichheld and W. Earl Sasser, Jr. HBR September 1990) calculated that a 5% reduction in overall churn rates would increase the your customers’ lifetime value by up to 100% (see the article for the full arithmetic and examples from different industries).

ii) Secondly, there is the cost of the additional acquisition marketing to keep the customer numbers from falling. Financial markets seem to hate to see your revenue numbers fall. Acquisition marketing spending (covering sales, marketing, advertising, distribution channels) can consume 10-25% of many businesses cost structure. Much of this spending is to acquire new customers to make up for customers that are choosing not to do business with you. In a B2B context, it can take years of effort and hundreds of thousands of dollars to acquire and develop your most valuable customers, it’s a damned shame to lose these customers because it’s going to take you a lot of time and effort to replace them.

iii) And finally, perhaps this is the secret you should share with your CFO. I’ve seen clients struggle for years with process improvement and cost reduction programmes that ultimately yield little or no benefit to customers or the P&L. Focusing on eliminating the root causes of the principal reasons why customers defect is one of the very fastest and most effective techniques that I’ve seen in business. Typically, I’ve seen businesses taking this approach are able to eliminate 10-30% of cost within 30-90 days within a specific business unit (clearly rollout across the whole business takes somewhat longer). I’m not saying it’s easy, in the sense that this level of performance improvement requires cross-functional teams and co-operating which gets more difficult as the size and complexity of your organisation grows. Nonetheless, if you can form such teams then 10-30% cost reduction in the specific processes that you set out to improve is readily attainable.

Example: We worked with a technology company to help reduce churn and reduce operating costs in one of their service operations functions. They focused on identifying the root causes of churn and poor customer experiences that could be readily fixed and then eliminating them. The result: They improved their customer experience substantially by eliminating process defects reducing customer churn while reducing operating costs by 28.5% (€5.6 million annual saving) in the operating unit involved.

Why does frustration churn’ build up over time?
I don’t know what it is about growing older, but somehow it’s all too easy for all those delicious meals to cause your waistline to keep widening and more worryingly layers of cholesterol to build up in your arteries. Left unchecked, it’s not a great outcome on a personal level as you are likely to end up with a heart attack. In a similar manner slowly but surely, over time most of your business processes get ever more complicated. As they grow more complex, your operating costs on key processes continue to creep up continuously putting your operating budgets in ever more pressure (ask your CIO or VP Operations to comment on how this feels). That’s bad for budgets and your margins, but even worse this complexity becomes the source of ever more opportunities for failures to occur in the customer experience’ ultimately causing your customers to defect due to frustration churn’.

What’s worse than frustration churn’?
Now if you are in financial services or retail, customer cancellations and defections may be invisible to you. In a retail environment, it may mean customers start shopping less with you and reduce their basket sizes. Unless you are running a sophisticated customer management system like Tesco’s Clubcard this level of defection may be invisible to you (a good reason if you are a retailer to introduce something similar to manage your customer assets more effectively). Even worse, is the situation in financial services where instead of just cancelling or closing their accounts, customers instead reduce the balances on their accounts. In these situations, you don’t see a cancellation directly, but you do get to see a negative profit impact as once profitable customers become unprofitable customers that you then have to carry within your business. Overall, the value destruction impact of those who reduce balances can be 5-20 fold that of those that just close their accounts completely.

How can you measure frustration churn’?
The most obvious method of measuring frustration churn’ is to collect the cancellation reasons of customers when they come to cancel or significantly reduce their business with you. The Telecoms industry is more active than most in measuring this factor than most (particularly for mobile phone contracts and Internet contracts). The data is somewhat inaccurate, sometimes the customer doesn’t give a completely truthful reason (particularly when faced with a stubborn customer service representative who seems very reluctant to process the cancellation) and other times limitations in the call centre systems (or web based systems) lead to an inaccurate reason code being taken. However, the greatest danger I’ve seen is that inaccuracies in the data capture process end up as being used as reasons (or perhaps more accurately rationalisations) as to why the organisation should not take action on the cancellation data. I’ve often heard the phrases facts are friends’ and you should never put lipstick on a pig’ in organisations that then decide to completely ignore the invaluable feedback and insight that comes from understanding their customer cancellation data.

Now not all organisations do have the luxury of having useful cancellation data. In these circumstances, you can fall back to using customer experience’ data that’s collected on key moments of truth’ with customers. And worse case, if this is unavailable customer complaint data is a great fallback. If the complaint data is not in a database, just collect as many complaints as you can and sit down and do a simple 1 day complaint analysis exercise (it’s always worth phoning a sample of these complainants personally to get some qualitative colour and depth on what’s actually going on from a real live customer basis).

So why does frustration churn’ arise in the first place?
I guess at a human level, nobody’s perfect. Though for air traffic controllers thankfully their systems are a great deal safer and more reliable than Six Sigma’ perfection would require (thankfully less than 3 in a million flights end in a crash). So its down to us to make our processes more reliable. The most frequent reason I see frustration churn’ being baked into business processes from Day 1 is the rush to hit delivery dates. If you are running a high profile product launch or big ticket’ IT project, the most obvious failure is to be late. So sadly, in too many occasions that means at the end of the project in the rush to hit the implementation dates, it’s an all too frequent issue for Operations folks to find the product/ process/ system is thrown over the fence on implementation day for them to manage the teething problems’ (in future this may become known as the Terminal 5′ syndrome (after the fiasco at Heathrow Airport where the new terminal was opened before the baggage systems were ready ending up with over 10,000 passengers loosing their bags on the day of opening), Now typically (Terminal 5 excepted) you can expect the showstoppers to get fixed, however it’s a rare organisation in my experience that gets around to enhancing the new business process to take out 30-50% of the costs and causes of customer frustration and poor experiences). More typically, a sub-optimal process that works somehow is in place for Day 1, and then in the coming months and years the business process slowly deteriorates in growing complexity.

Frustration churn – easy to eliminate in theory but is it much harder in practice?
There’s an old song that goes everyone wants to go to heaven but nobody wants to die.” Eliminating frustration churn is simple in concept but to be most effective it does depend on cross-functional working and co-operation. Typically in our experience of large complex organisations, the root causes of perhaps 80-90% of frustration churn arises either upstream of the customer facing functions that are held accountable for service delivery or from the business rules that define the process concerned (and it’s unclear to most people who originated or controls these business rules anymore).

Now cross-functional working may be completely impossible, or just extremely difficult, within your organisation. In these circumstances, I’d say that why don’t you just spend a little effort improving what you can. This could still give you an operational productivity improvement of 1-3% that is within your reach. As you start to gain traction, others may rally to your cause.

Why not set yourself a target to see if you can get one or two of your senior colleagues and a small team of folks from across sister departments or functions involved, then you can make some serious headway. A small team, with a little bit of data analysis, thinking and planning can achieve some remarkable results. I’ve seen a roomful of ambitious folks at mid-levels in their organisation (without having to get CEO sponsorship) develop and implement process improvements that saved their organisation over $10 million within 90 days.

Example: Andy Homer (Group Chief Executive – Towergate) has grown Towergate to be worth over £3 billion ($6 billion USD) in 5 years by applying these techniques. It’s now Europe’s most valuable privately owned insurance company. Hear what Andy has to say on the impact of these approaches by CLICKING HERE

It’s easy for your attention on be focused solely on the competition
When I ask senior executives why they are losing revenues and their most valuable clients, they usually focus on comparisons of their business with competitors and give explanations of competitor activity at best undermining their margins and their revenues and at worst stealing their customers’. In a future article, I’ll discuss loosing customers to competitors because of their perceived stronger offers that we describe as comparison churn’. The downside of focusing overwhelmingly on competitors, whose actions are not directly under your control, is that you end up ignoring the 40-60% (in our experience) of customer defections that are caused by things your business does (or fails to do) that are under your control that lead inadvertently to you ruining the customer experience’ of your products and services.

What are 5 quick tips that you can use now to reduce frustration churn’?
i) You can’t keep all of your customers forever, however you can actively manage and reduce your loss of valuable customers. You should put in place systems and processes that allow you to understand why customers are leaving you, what they think about the customer experience that you are delivering to them. With this insight, you’ll then know what it is that you are doing and need to do that will increase customer loyalty and minimise customers going to your competitors.

ii) Keep your monitoring systems simple and make sure they provide feedback on the customer experience rapidly so that people can take action. Many organisations track their customer experience on a quarterly basis and feed that information back to their operating units. However this is somewhat like having a weighing scales that told you your weight 3 months ago – that’s not going to tell you whether your diet and exercise programme is working or not. Best practice is to have systems that give feedback on the customer experience and customer defection reasons within 24 hours to operating units.

I would recommend that you get hold of the best customer experience data that you have readily available that can give you insights into customer perceptions of your key moments of truth’ (whenever your organisation interacts with the customer). If you are interested in perhaps the industry leading approaches for tracking and analysing your customer experience and causes of customer churn then some of the best implementations I’ve seen (no commission involved here!) are from SatMetrix for b2c’ consumer environments (see http://www.Satmetrix.com) and Active Retention for a b2b’ environment (see http://www.activeretention.com). Whether you use these systems or something similar, I would look for those processes and moments of truth’ that were the root causes of the worst customer experiences for the largest number of customers.

iii) You can identify the most promising opportunities by applying a simple strategic triage’ framework. I would use one of the following frameworks to triage’ the identify most promising opportunities from the rest. If you have an accurate breakdown of the churn reasons then I would map the scale of the cancellation volumes against the business resources tied up with each cause (measures of value could be revenues, aggregate customer lifetime value, costs or even staffing levels). If your business doesn’t have reliable churn data then I would plot customer experience score (or complaints volumes) against the value tied up in the process concerned.

If none of this customer data is available, I would simply look out for departments or functions under severe budget pressure, cost reduction initiatives that haven’t worked out or failing projects that need to be turned around.

iv) You can rapidly create Kaikaku’ or breakthrough Kaizen’ teams tasked with eliminating at least 10% of costs and frustration’ churn within 90 days within a specific business function or process. The team is ideally a cross-functional team, the good news is that if you lock them away for a week they should be able to carry out the data analysis, identify root causes and fixes, triage opportunities, develop recommendations and implementation in under a week (especially if left undisturbed and you take their Blackberries off them during the day). As a simple framework to organise their work, you can use DMAIC as an overall structure (from Six Sigma) and apply simple and powerful methodologies such as the CPP Level 1 tools (from Bennu Group see http://www.bennugroup.net).

v) Finally, in a b2b’ environment, focus your immediate improvement on those clients and contracts with the highest value and the worst customer experience’ scores. It takes a long time to acquire and develop these clients, however it’s all too easy for organisations to stop active monitoring of their relationships with these clients after the contracts have been won and signed.

Example: At one B2B’ client I worked at, their most valuable client was showing REDS across the board amongst their key client stakeholders. Not unsurprisingly, this client cancelled within the quarter that came as somewhat of a surprise to the organisation concerned. On the plus side, they had a great monitoring system, on the downside nobody outside of IT seemed to be interested in using it. In a better world, as soon as you see these RED warnings arising amongst your key stakeholders in your most valuable clients, it’s time to step in and take urgent remedial action before it’s too late.

vi) The simplest, fastest and most powerful techniques I’ve come across for service businesses focus on removing time and complexity from service processes. A combination of the time compression and error elimination techniques from Lean Thinking (particularly in complex Technology environments) and the complexity elimination and Customer Experience’ management techniques (that work particularly well in Service businesses and service processes) that can be learned in hours and applied immediately by your own people (see http://www.bennugroup.net).

What straightforward thing can you do right now?
I would find someone who is in budget pressure right now and is in urgent need of getting some rapid productivity improvements in place right now. I’d form a small cross-functional team (as cross-functional as you can manage that’s easy to put together at short notice). If you had a little help from your friends from Marketing to help with the data analysis of customer experience data you could save a lot of time (it’s in their interest as every customer that you save from frustration churn’ means they are under less pressure on their acquisition marketing budget to replace them). I would then choose a first process to work on using simple techniques that helped you eliminate complexity and time from the process (see http://www.bennugroup.net for some useful ideas). And then I’d let them free to work on their analysis and recommendations for the next week. Come back in a week’s time and be prepared to be amazed by their recommendations and what can be achieved in the next 30 days.

The key takeaways relating to frustration churn’ are:
• Eliminating the underlying root causes of frustration churn’ can enable you to reduce service process operating costs by 10% or more within 90 days
• 40-60% of customer churn is down to internal factors under your organisation’s direct control
• Reducing your annual churn rate by 5 percentage points can increase your customers’ lifetime value (and ultimately your profits by up to 100%) Eliminating frustration churn’ is one of the quickest, simplest and most effective methods to achieve this (just compare the financial cost against reducing your prices by 5-10% to achieve a similar impact)
• There are simple techniques that you can learn and readily apply immediately to improve the effectiveness of your key business processes. These techniques focus on reducing the complexity and the root causes of customer frustration with your business
• Measuring, analysing and acting on customer feedback on why they chose to leave your business can give you key insights on where to focus your process improvement and customer initiatives

Value impact calculation:
Take a business with an enterprise value of $1 billion (based on an EBITDA multiple of 5) with a customer churn rate of 15% per annum (retention rate 85%) where frustration churn’ is responsible for 40% of customer losses (6% per annum). In this example service and customer management functions cost around $40 million per annum operating cost.
A realistic expectation for a 90-120 day churn reduction initiative results would be:
• A 10% reduction in operating costs for service and customer management
• Elimination of around 30% of frustration churn’ reducing churn rates by around 2%
Value impact: Operating cost reduction of $4 million per annum creating $20 million shareholder value (based on EBITDA multiple) however this is dwarfed by the increase aggregate customer lifetime value of 15% that could be worth $150 million for this scale of business.

Total shareholder value impact: $170 million

Straightforward fixes to eliminate frustration churn’ can turbo-charge profits
The fundamental underlying value of your business is driven by the aggregate value of your individual customers and the cash streams they provide. By reducing churn by around 5%, many businesses can double their customer lifetime values and ultimately profitability. Eliminating the root causes of frustration churn’ is one of the simplest and most straightforward ways you can protect and extend the lifetime value of your most valuable customers.

My best wishes for your success.


Further reading
The following articles and books are useful on this topic:
• Zero Defections: Quality Comes to Services by Frederick F. Reichheld, W. Earl Sasser Jr. (Harvard Business Review: September 1990)
• The One Number You Need to Grow by Frederick F. Reichheld (Harvard Business Review: December 2003)
• Managing Customers As Investments (Hardback) by Sunil Gupta
• Customer Expectation Management: Success Without Exception (Paperback) by Terry Schurter (Author), Steve Towers (Author0

Books available from Amazon, articles by download from http://www.hbr.org

Download this article in pdf format
CLICK HERE for a pdf download of this article.


Designed by: Carne Associates & modified by Dawud Miracle