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.

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.