Designed To Fail: Organizational Structure Torpedoes Successful Customer Experience

Tenacity Author: Tenacity
Tuesday, April 18, 2017 Costs and Measurement, Customer Experience

Given that successful customer experience is a key driver of who succeeds in the marketplace, almost every corporation is designed to fail.

The problem looks like this: Your employees drive a great deal of successful customer experience. And this is especially true of the employees who interact with your customers, particularly those who interact with your customers when the customer needs a problem solved, like your call center workers.

But who is responsible for investing in these employees?

Many companies are unsure. Some, rather laughably, think HR should handle this. Decently run organizations tend to lay the investment at the feet of the employees’ bosses, those who own the budget that covers the employees’ payroll. In this case that might be an SVP of Customer Service.

But there is a fatal flaw in this plan: the benefits of investing in the employee and customer experience are spread much more broadly than the source of that investment. This means that the company will necessarily underinvest in customer experience.  

Here is a detailed example of how this works:

Imagine you are the SVP of customer service. You run a customer service department with 2000 full time agents who cost a total of $40k a year each, all in (including support staff and management; you run a tight ship). Your budget is $80M a year. Like most call centers, you have a high attrition rate (80%), high absenteeism rate, high FMLA rate, and unsatisfied employees.

But your problems are eminently fixable. Imagine what it would take to transform the employee and customer experience in your centers. Let’s fantasize for a moment:

Start by investing. Raise pay by $5 an hour through a mix of incentives, a higher base wage and a taller ladder. You’ll attract and retain far stronger employees. Equip them better with more thorough training up front, and skills improvement training along the way. Your workforce will handle clients more effectively, and bring more resilience to their challenging interactions with customers.

Offer supervisors three extra weeks of training and mentoring per year. You will have happier, more motivated, loyal employees who deliver better experiences. Throw in an extra 30 minutes a day for employees to take an exercise, yoga, or meditation break, and your employees will be vastly more resilient to stress. And then spend an additional $500 per year per employee on fun, and $3000 per employee on standing desks, some even with treadmills! Even kick in $1M per year in improving the physical environment—plants, waterfalls, better headsets, brighter paint and better lighting, including more natural light. Once you have bought all the necessary equipment, plow the money the following year back into salaries and benefits.

The total cost adds up fast, it’s $38,350,000 per year.  

$5 pay raise per agent: $20M
Added agent training: $2M
Supervisor Training: $600k
$500 fun perks per employee: $1M
30 min extra wellness break per day: $6.25M
Standing/Treadmill desks: $7.5M
Plants/Paint/Light, etc.: $1M

Total: $38.35M

 

Now consider the financial benefits.

If this is well executed, you’ll likely cut employee turnover from 80% to 20%, saving 1200 employees per year. The savings will add up quickly. Just from avoiding recruiting, hiring and training, you are likely to save about $7.2M. High churn rates tends to beget lawsuits, which drives up insurance costs as well. And the productivity benefits will be tremendous. Your more tenured employees will deliver much more efficiently, meaning you can reduce headcount by 6% while delivering the same experiences. Add in the savings on unemployment insurance while you are at it.

Morale will also increase, which will increase productivity by another 2.5%. Call center workers typically have high absenteeism rates, but well-treated ones do not. This will save you another 5% per year plus a solid number of FMLA claims as well.

The company will also see tremendous benefits on the marketing side of the equation. Happier, better qualified and trained, and more tenured agents deliver better experiences. This will drive your customer satisfaction and net promoter scores up significantly. The financial benefit will be explosive.

Imagine you have 10M customers. First, you might increase your rate of brand evangelists (net promoters) from 20% to 30%, an increase of half. If your evangelists net you five new customers a year, this will cut your customer acquisition cost by 20%. Let’s make a much more modest assumption, though, that your “evangelists” only deliver one new customer every other year. Your acquisition costs will decrease by 2%. And given that your brand will get a boost, you might reduce general acquisition costs by another half a percentage point. If you start at a $300 CAC, that is $6 and $1.50 saved per new customer, respectively. If you have budgeted to grow by 10% (or 1M) customers), and you have an annual customer churn rate of 10% (1M customers), you will save $7.50, 2M times!

And of course you will retain more customers. If you reduce your annual customer churn rate by a half a percentage point, you’ll save 50,000 customers at the (new) price of $292.50 each, for a whopping $14.625M in savings.

If the investment adds up quickly, the savings add up even faster

Recruiting, hiring, training: $7.2M
Tenure based productivity:$4.8M
Legal/Insurance Savings: $850k
Unemployment insurance savings: $400k
Absenteeism savings: $4M
Morale productivity boost: $2M
FMLA: $350k
Reduced CAC from evangelists: $12M
Reduced CAC from improved reputation: $3M
Customer retention: $14.625M

Total: $49.225M

 

The return is outstanding. Invest about $38M and receive $50M. The annual return is 28% in addition to paying back the investment. While there are some small, targeted investments you can make that will yield larger ROIs, it is rare that you can get such an impressive return on so much cash. Given how cheap capital is, just about any company in the above situation should make the investment.

But almost none will. The reason? The benefits are spread too thinly, and the investment is concentrated. The investment costs over $38M. No one gets that much benefit. So for any executive beside the CEO, the investment is presents a negative return on investment.

Who do the benefits accrue to?

Recruiting: $1.2M
HR: $250K
Insurance:  $1.6M
Training: $5.75M
Operations: $10.8M
Customer Growth: $15M
Customer Retention: $14.625M

Who wants to make a $38M investment for the above benefits?

Now, you might cleverly point out to me that a bunch of these roll up into senior executives who do get the collective benefits. But the math still doesn’t pencil out.

If there is a general manager, or a president, or a COO who gets all the operational, training, HR and insurance related benefits, her total benefit is $19.6M. If she makes the investment, she loses nearly half her money. (This is why call center operators come up with such ingenious morale boosters as “taco Tuesdays.”).

And if there is a CMO, or head of growth, or someone to that effect, who gets every benefit to the business growth side of the company, he takes in $29.625M. If the CMO invests, he loses about a quarter of his money. And as most CMOs we talk to say, “Don’t talk to me about the call center. I don’t want anything to do with it.” And I left out the swear words.

There is only one executive (beside the CFO, who doesn’t drive operational investment) that all the benefits roll up to. That’s the CEO. And if the CEO says, “I trust my call center leaders (or COO) to make this decision” and kicks the decision down to them, the organization is doomed to underinvest.

And that, inevitably, is what the CEO says. Which is why your company’s customer experience is doomed for underinvestment.

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