Effective service costs less
For over 50 years, service organisations have been on a mission to make the delivery of customer service more efficient.
Customer service was once personal and local – you’d pop in to see your local bank manager for a mortgage and a man would come to your house to collect your life insurance premiums.
But then, in 1972, Harvard professor Theodore Levitt wrote a game-changing article entitled “Production-line approach to service” in which he argued that “service industries, in comparison with manufacturing industries are widely and correctly viewed as being primitive, sluggish and inefficient.”
Ever since then, adopting techniques from old-school manufacturing, service leaders have been seeking to run services more efficiently.
Many of these industrial methods have been directly applied to the delivery of service. Work is split into different processes, which are allocated to different teams. Standard operating procedures have been developed and workers expected to follow those processes and procedures to ensure optimal efficiency. In turn, many of those processes have been automated, removing the need for human involvement, or turned back over to the customer who now has to do much of the leg work that was previously managed for them by the service provider.
Innovation in service industries has become synonymous with new technology. And most new technology has heralded new ways to do work faster or efficiently, but sadly very little on how to do it smarter or more effectively. That only happens when you think about how work and service organisations are designed and for whose purpose.
Efficiency is all about reducing the costs and resources required to execute an activity. Increasingly, however companies are realising that in order to remain competitive in today’s climate and deliver good levels of service they need to focus on improving their effectiveness.
What’s the difference between efficiency and effectiveness?
Peter Drucker famously wrote “There is nothing so useless as doing efficiently that which should not be done at all.”
In service organisations, unlike in factories, much of the work coming in from customers (phone calls, emails, chats) fits into the second category. This is because it represents Failure Demand-contacts the customer is having to make because something hasn’t gone as expected, been done in the required timeframes, or couldn’t be achieved through self-service channels.
In many service organisations, up to 80% of the work received can be made up of Failure Demand -avoidable work. Worryingly, most organisations do not measure this, nor do they know the top causes of failure demand in their business. But they end up spending more to deliver unnecessary service work faster. This problem is huge, drives poor CX and is hidden in plain sight in every industry.
The implications of this reality are huge:
It costs more to deliver wasteful and poor service
Organisations are spending huge sums to upset their customers, stress their staff and deliver lower returns to their stakeholders
Billions are being needlessly spent on technology, outsourcing and inflated wage bills trying to the wrong things, faster
Typically businesses are trying to be more efficient, by reducing their service costs – usually through automation and/or outsourcing. Effective service organisations understand what their customers are trying to achieve, and then set out to deliver that to them as simply as possible.
When you only focus on cost – the efficiency way – you end up driving more cost back into your business. If you focus on effectiveness – doing the right things right the first time, huge cost savings occur; always greater than efficiency alone can ever achieve. The answer lies in effective service – which always costs less.
For example, we worked with a life insurer who were about to invest in new technology to digitise documents they received in connection with Claims. But a review of processes we carried out with an effectiveness lens revealed they didn’t actually require this paperwork in the first place, enabling them to speed up handling of claims, and avoid unnecessary spend on technology.
The economics of service are more complex than simple cost cutting and efficiency. Few organisations understand the true end to end cost of delivering a service, especially when multiple teams or departments are involved. It’s quite common for efficiency savings in one team to show up as increased costs in another team, meaning the organisation as a whole is no better off. And if those cost reductions lead to worse service, reputational damage, lower sales and lower retention, any savings could be soon swallowed up.
If you’ve been focusing on efficiency, you and your customers are not getting the outcomes you want, try shifting the focus to delivering services more effectively – you’ll be pleasantly surprised at the results!