I was recently speaking with a client about a persistent turnover problem that they were having with their front line service delivery staff. This was a small organization of about 200 total employees and half of them, more or less, were front line customer facing people. Turnover in this position was about 25%, not enough to be alarming but sufficient to keep Human Resources scrambling to recruit people fast enough to stay fully staffed (which they rarely were). We spent some time looking over the numbers and eventually decided that they were spending just a bit less than $90k every year on the turnover problem between hiring costs and training and lost productivity.

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Now in the days of tossing in $150B “sweeteners” to get a $700B bailout bill passed, $90k may not seem like a lot. But it is money spent year after year and producing absolutely no benefit. In fact the turnover was a serious drain on resources and a negative factor on morale, so the real  number was probably on the low side. But here is the thing…. when it came down to talking about investing a little time and money (and it truly was a little), they decided they were “too busy” just trying to hire people to be “distracted” from that to fix the problem causing them to be too busy hiring. Still with me here? And they did not have “the luxury” of picking good hires, they had to hire anyone who was remotely qualified to keep up with the turnover.

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Too busy scrambling to deal with the symptoms to fix the problem causing them to be too busy. Now I have to acknowledge that fixing the turnover problem would not be easy. In the short term things might get worse, and the pain might be greater. But 9 months or 12 months or 15 months later the leak would be plugged and the problem would gradually shrink down to something minor. In effect, they decided they would rather just keep dealing with the issue forever and throw the money out the window every year than make a focused effort to fix it. I wish this were a unique circumstance, but it is not. I have run into some variation on this theme many times in many organizations and in many different functional areas.

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Is there just something about people that makes them prefer to suffer along forever with “the devil they know” than to endure a short term pain and have it over with? I would sure like to figure out a way to motivate an organization to make the change when I find this sort of situation. But in over 20 years of consulting I have not found one yet. If anyone out there has, do share.

On April 15, 1912, the White Star Line’s luxury passenger liner RMS Titanic struck an iceberg off Newfoundland. The ship sank in two hours and forty minutes, taking the lives of over 1,500 passengers and crew. The sinking stunned the world because Titanic was not only the largest passenger ship in the world at the time, but every aspect of her design was intended to make the ship “unsinkable”. So certain were the architect (who was on board when the ship sank) and operators of the ships invulnerability that they disregarded the recommendation of the builder to carry sufficient lifeboats for all aboard by using a new (and more expensive) type of davit and carried only enough for about half those on board. The rest is history.

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What has this got to do with customer service? Quite a lot, according to Stefan Michel of the Thunderbird School of Global Management. Michel has coined the phrase “The Titanic Effect” to describe companies who are steaming along blissfully unaware that they are sailing through a sea of customer dissatisfaction icebergs, utterly convinced that everything is fine and that they are not subject to or impacted by customer satisfaction issues. Often with similarly spectacular results.

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In a brief podcast interview with the Wall St Journal, Michel outlines the common indications that a company may be cruising into an iceberg:

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• Customer service process improvement processes that do not include sales, marketing or top executives in a meaningful way.
• A tendency to rush to fix the blame instead of the problem.
• Making the same service mistakes over and over again.
• Employees who are frustrated with their inability to meaningfully resolve customer issues.

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Michel speaks in terms of a process he calls “service recovery” and gives a few examples of companies who suffer from the Titanic Effect, and some who have avoided the icebergs. Worth a listen. You can also read a companion article by Michel and co-authors David Bowen and Robert Johnston here.

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The lesson here is that 3/4 of the iceberg is under the water and it is all too easy to ignore it until it is too late.

It seems intuitive that satisfied customers are good for business. Customers who have good things to say about our products and services and who return to purchase again and again are normally thought of fondly as a very good thing. Certainly disappointing customers or, worse, angering them by providing service that fails to meet their expectations is considered a poor idea. But is there any hard evidence that improving customer satisfaction actually improves the bottom line? Does the value of a company rise with improving customer satisfaction?

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It turns out that there is a substantial volume of research that indicates that just such a relationship does exist, and that the financial impact of improving customer satisfaction can be significant. A 1999 study entitled “Customer Satisfaction and Shareholder Value” by Mazvancheryl, Anderson, and Fornell established that a 1% improvement in customer satisfaction (as measured by the American Customer Satisfaction Index) produces a 2.75% increase in a firm’s market capitalization. This may not sound like a lot, but for a large company it can be enormous. For example, Microsoft Corporation has a market capitalization of approximately $256 billion (June 2008). A 2.75% improvement in Microsoft’s ACSI rating translates into more than $7 billion of additional shareholder value.

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A study by Gruca and Rego entitled “Customer Satisfaction, Cash Flow and Shareholder Value” concludes that “The positive effects of customer satisfaction on future cash flows are both statistically significant and managerially relevant. For the average firm in our sample, a one-point increase in customer satisfaction translates into a $55 million increase in net operating cash flow in the next year. That same one-point increase in customer satisfaction results in a reduction in the variance of future cash flows of more than 4%. Such outcomes boost the value of a firm to its shareholders.”

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These are big numbers. And they clearly demonstrate that customer satisfaction improvement programs are not just a good idea, they are also a good investment.

A few weeks back, one of my clients suggested I look into a company called MetricNet. We’d been discussing the topic of “benchmarking” and he had been impressed with what MetricNet was doing in that regard. So off I went into Web World to look them up. Turns out they are fairly new with fairly impressive credentials, including an Ex-VP from META Group. Their site was simple, well laid out and informative, and their mission in life, they said, was “to provide you with the benchmarks you need to run your business more effectively.” I am not really a cheerleader for call center benchmarking, but I was intrigued. There was an invitation to learn more by signing up for their Webinar, so I clicked the button, filled out the registration, got my confirmation back and put it aside.

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Later that day I received an email (a real email from a real person) informing me that my request to join the webinar had “been denied by the organizer” and that I was no longer registered. That seemed odd. Perhaps it was oversubscribed, or there was some other perfectly reasonable explanation. So I wrote back to the sender to say that I was interested in the webinar and would he (yes, he) please either register me or explain why my request was “denied”. No response. Not that day. Not the next day. Not ever.

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I figured that was that. But no. I began getting regular emails asking me to register for their webinar. I wrote back explaining what had happened, and asking for either an explanation of the denial or to be removed from their mailing list…. since clearly I was persona non-grata for some reason. Again, this was to a person, not a generic email box. No response. Not that day. Not the next day. Not ever. So now I am regularly invited to participate in a webinar that the sponsor denies my participation in for reasons they do not care to explain.

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So is there some point to all this besides me whining? Two come to mind.

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First, automation is our friend in the call center world. We could not do our jobs without it.  But much like the autopilot in an airplane, automation should never be left to run the business without adult supervision. We need to check it, regularly, to make sure it is doing what we want it to do and think that it is doing. This is especially true when it is interacting with our customers (or potential customers). Do we really want an automated process to be annoying them (or worse) and not even be aware of it? I am thinking most of us would say no. Yet how often do we test our automated response mechanisms to see how (and what) they are doing?

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The second thing I am going to do as a result of this experience is to monitor my Spam folders more carefully to make sure that nothing important gets flushed with the Viagra ads, incredible opportunities from Nigeria and fabulous work at home offers that flood into it daily.

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As for MetricNet, all I want at this point is to be off their mailing list.

If you are responsible for hiring and retaining employees, or for helping your staff to reach its full potential, you need to be aware of the “Gallup Q12“. The Q12 is a set of 12 questions designed to measure employee “engagement” with their jobs. The Gallup organization defines “engagement” as working with passion and feeling a profound connection to the organization. Engaged employees are the ones who drive innovation and move organizations forward. “Disengaged” employees are the opposite. They are so unhappy in their work that they spend a good deal of their time undermining the efforts of their peers and poisoning the atmosphere with negativity.

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Here’s why you should care. In a study of over 1.5 million employees in the United States, Gallup discovered that only about 30% of the workforce was “engaged”. Nearly 20% were”actively disengaged”, and more than half (54%) of employees were “essentially checked out…. putting in time.”

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Can we afford to have 70% of our workforce so dissatisfied with their jobs that they are no longer even trying to contribute or do their best? According to a recent poll of 2,600 workers conducted by web portal Yahoo, almost half (47%) of your employees are are actively looking to find a new job in the next 12 months. Unless you really believe that Jet Engine Staffing (stuff em in the front door, burn them up and spit them out the back) works and are unconcerned about the enormous cost associated with turnover and low worker productivity, the Q12 is worth becoming familiar with. And putting to use.

In a July 7th article in the Wall St. Journal, authors Jonathan Whitaker, M.S. Krishnan and Claes Fornell discussed the results of a study they had done examining the impact of offshore outsourcing vs outsourcing to domestic service providers on customer satisfaction. Their conclusion? Customers dislike both about equally. The study analyzed results from 150 North American companies over the eight years ending in 2006 and showed that, as a group, those companies that outsourced their customer service function saw a drop in their customer service scores (American Customer Satisfaction Index). The decline in customer satisfaction was about the same regardless of whether companies outsourced domestically or overseas.

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Much has been made of the negative impact of offshore outsourcing, usually proposing that language and cultural differences are viewed unfavorably by North American audiences. The Whitaker, Krishnan, Fornell study suggests that such factors are overdone and that there is no measurable penalty for shipping your service operations to Bombay rather than to Des Moines. There is, however, a “significantly negative” impact to outsourcing this function at all. The study suggests that the average decline in a company’s ASCI score was associated with a 1% to 5% drop in its market capitalization (stock price for a corporation). That is a pretty steep price to pay for the cost savings expected from outsourcing.

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The authors do not conclude that outsourcing of the customer service function is without any benefit, pointing to the considerable cost savings that can be achieved. But they note that few companies re-invest any of the the savings back into improved customer service or even into reducing the price or improving the quality of their products. Instead the savings are usually pocketed as additional profit. The real benefit to outsourcing, they suggest, is the opportunity it creates for companies to devote at least some of the savings to upgrading their customer service. And they suggest several areas in need of an upgrade.

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Among the suggested improvements? Upgrading CRM systems so that agents (wherever located) have accurate and up to date customer information; giving the customer service agent the skills and authority to make decisions on the spot to best assist customers; taking full advantage of support technologies such as remote systems control and online chat. They also suggest the outsourcing of some “back office” functions offer cost savings similar to customer service outsourcing, but without the negative impact on customer satisfaction.

Is good customer service a skill or an attitude? Is it process or culture? Does a well trained agent or a tight, well thought out process produce a more satisfying customer experience than a less polished execution of the procedure by an enthusiastic agent who seems to really enjoy working with people and care about the customer’s issue?

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There is no doubt that there are identifiable (and teachable, learn-able) skills required to produce excellent service. Problem solving skills, communication skills, product and organizational knowledge and technical skills among others. A friendly, empathetic agent without an ability to provide much actual assistance is not going to produce happy customers for very long.

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Yet how many times have we dealt with the Mr. Spocks of customer service? Cold, logical, efficient and able to get our problem resolved, but lacking anything remotely resembling empathy and leaving us with the clear impression that he would much rather be doing something else than dealing with (your problem here)-challenged people like you? Which experience did you find to be the more “satisfying”?

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Eileen Brownell, President of California-based Training Solutions, argues in a recent article that “The most important quality an individual must have to succeed in business or in life, by far, is a positive attitude.” I would suggest that there is no business discipline where this holds more true than in the customer service profession.

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Skills can and must be taught, must be practiced and must constantly be improved. But the nature of things is that the skills required for success are themselves constantly changing as strategies, products, organizations and processes adapt and evolve. Attitudes, on the other hand, cannot be taught at all. With a great deal of effort an individual may cultivate an “attitude adjustment”. Supervisors and organizations can make this kind of adaptation easier or harder but they cannot “train” someone to be empathetic or trusting if it is not their nature.

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Our attitudes produce our behaviors, which in turn produce consequences and results. Organizations who want to be proficient in consistently delighting their customers will seek to hire people with an outlook and attitude of genuine interest in helping people, interacting and solving the customer’s problem (not necessarily the technical one). Hire for attitude and train for aptitude. And see if your customers don’t take notice.

A recent post on Tom Vander Well’s blog entitled “Customer Service Hall of Shame” offered a list of 10 well known companies who, according to an MSN Money/Zogby survey, are well known for delivering memorably poor customer service, and doing so consistently. There are some pretty familiar names on the list, and they offered some pretty familiar excuses their poor performance. Among them were:

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• We’re really big so we’re bound to mess up now and then.
• Yes, but lots of people were pleased with our performance too
• Its just a tough industry and we’re really not doing much worse than everyone else.

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In fact only 1 of the 10 worst companies was willing to acknowledge that it had a real problem with its customer service performance. Several of the comments pointed out that most of these companies had been “making the list” for years and that if they were even making an effort to improve it wasn’t working. How can this be? Surely no company would deliberately ignore the fact that up to half of their customers were very unhappy with them.

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My first job after graduating from business school was at the Ford Motor Company. This was back in the days of the exploding Pinto and even Ford employees joked darkly that the company’s name stood for Found On Road Dead. They were producing poor quality vehicles and even as the Japanese began to take their market away from them nothing seemed to improve. How could this be? Possibly a deadly combination of ignorance and denial. I had the fascinating experience of working at Ford’s World Headquarters in Dearborn, MI. The company executives lived, quite literally, in their own world on the top floor. They arrived at work each day to park in the “executive garage” and ride a private elevator to the executive suites. As they plotted the destiny of Ford, mechanics swarmed over their vehicles making sure they were as perfect as the day they left the factory. I remember vividly the company flying an automotive engineer to NYC to replace the bent license place frame of a member of the Board of Directors. As far as these executives knew their vehicles were perfect, or close to it. They never broke. They never got dirty. They never even had to put gas in the tank. Quality problem? What quality problem?

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It’s natural for people to want to shield executives from bad news, problems and less than perfect performance. If this is successful however, the leaders of the company are in real danger of forming an unrealistic and incorrect perception of how their customers view them. Executives have a responsibility to be in touch with the customer, to understand how their company is perceived from the customer’s perspective. All the more so if the news is not good. Ignorance is not only no excuse, its a recipe for failure. Executive or not, when is the last time you “tried out” your company’s service? If it has been more than a month or two, do it now. The last thing any of us want is to be formulating excuses for ending up on someone’s Hall of Shame list.

We’ve finally got the blog operational and we’ll be posting regularly starting in June. Check back in a couple of weeks and weigh in.