Archives for posts with tag: profit center

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We’ve heard it many times before: Customer Service is the new marketing. Books have been written about it, presentations given and blogs are filled with this insight. And, most executives understand the importance of delivering supreme service to their customers? Given all that, why are most companies still delivering sub-par Customer Service? Why are we still dealing with phone trees, scripts, badly designed forms? Where id the disconnect?

Most companies are not designed to deliver on the ‘Service as Marketing’ promise

David Armano wrote an insightful post “Social Media Marketing won’t fix your infrastructure problem.” He explains:

“Every business has a series of systems and infrastructure in place to keep it running. Even if the goal is to EVOLVE the communications/marketing arm of your organization because you fundamentally believe that the game is changing—there is no way to do it without picking up the hood and looking at the engine. Not just the oil or the windshield fluid level, but the ENTIRE engine.”

While many marketing departments are evolving and trying to tap into the power of Social Media, the rest of the enterprise continues to work under the old paradigm of Customer Service as a cost center. The much lauded @ComcastCares can’t hide the fact that Comcast as an enterprise doesn’t value their customers as much as they should. Or as Jonathan Salem Baskin writes in his brilliant column titled “The Twitter Tax”

“Tools like Twitter aren’t some dream of customer empowerment, but rather the nightmare reality of the broken relationships between consumers and brands. Responding to online complaints is a tax that companies pay because of the chronic mismatch between what consumers expect from brands and what they ultimately get. An individualized response might momentarily bridge the gap, but it won’t fix it. Never will.”

While I encourage companies to listen and respond on these new channels, the highest priority of companies should be to work on the basics – and improve Customer Service to a point where no more complaints will be expressed and employees and more focused on helping people, less on servicing them. (Just in case you need a few stats to convince the decision makers in your enterprise: Among customers who leave a customer interaction angry, 91% will never come back and 96% of those people will never tell us why they left)

It requires a corporate-wide rethinking of all customer touch points: phone, email, forms, attitudes. But, most importantly, Customer Service Departments have to transform from cost centers to profit centers. No, I’m not talking about up-sell scripts.I’m talking about improving loyalty and customer satisfaction. It requires the design of a new enterprise system that puts Customer Service at the center of all activities. This allows companies to regard each customer interaction as an opportunity to deliver a superior experience and be sincerely helpful.

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Image: Courtesy of waxinandmilkin

For the sake of scaling, enterprises tend to create internal service divisions that are bureaucratic and monopolistic: Accounting, Procurement, R&D, Human Resources are usually run as subsidized monopolies. The pool that pays for their services is covered by an overhead charge imposed on the units served.

In general, subsidized monopolies are generally insensitive and unresponsive to the users of their services, but they are sensitive and responsive to those who subsidize them. Subsidizers are often not users of the service, hence less aware of the services’ deficiencies from the users’ point of view. In addition, bureaucracies try to ensure their survival by becoming as large as possible; they operate on the (not unreasonable) assumption that the larger they are, the more important they are and the more difficult they are to eliminate.

Centrally controlled corporations stimulate the increases in costs of internally provided products and services because the supplying units do not need to compare their costs and prices with those of external suppliers. How can you value a subsidized internal unit? It’s impossible. In a market controlled enterprise, users, not subsidizers, evaluate suppliers and express their evaluation in a way that counts – by their purchases.

As organizations of any kind become larger and more complex, the ability of centralized controllers to know all they need to know to manage their organizations effectively diminishes. Thats’s why an enterprise based on market economy works better in large systems: it disperses economic control among many enterprises that must compete with others in order to survive. And survival requires meeting or exceeding the expectations of customers and consumers.

Market Enterprise

A few requirements are important for an internal market economy to work within an enterprise:

  • Every unit within the enterprise has to be either a profit center or a cost center that is part of a profit center that is responsible for the cost center’s performance. Profit Centers are not always expected profitable but they have to be accountable.
  • Profit Centers have the freedom to buy any service or product they want from whatever source they want, and to sell their outputs to whomever they want at whatever price they want or are are willing to accept.
  • A corporate unit that reduces the value of the corporation shouldn’t be part of it no matter how profitable it is when looked at separately. For that reason, the enterprise has the ability to intervene in a unit’s purchases and sales bot only when it benefits an organization as a whole.
  • If there any executive reasons to buy services from internal resources even though outside suppliers are cheaper, the executive can force the unit to buy from within but has to pay the difference out of his own unit’s budget. This means that a selling unit will never have to sell its output at a price lower than it wants to and can.
  • A manager doesn’t tell his or her subordinate units what to buy and sell unless a negative effect on other parts of the corporation or the corporation as a whole can be perceived.
  • The executive units receives income from two sources: a) it charges for the operating and investment capital it supplies to subordinate units b) it imposes a tax on the profitability of each unit.
  • Each profit center can accumulate profit up to a certain level that all stakeholders agreed on. Profits in excess of the specified amount will be passed up to the corporate level for its use.

Why a market enterprise?

Every enterprise unit operating within an internal market economy becomes a profit center. Therefore, for each unit the same success metrics can be applied. It allows managers to hone their skills better since they have a lot of autonomy and it gives each stakeholder an opportunity shine. Managers will be more concerned to get all the information they need to run a profitable unit and offering that information to other units to improve interactions.

The biggest challenge in implementing this system is the tendency of managers to withhold information. They fail to see that empowering all stakeholders might decrease their stranglehold on information and power but, at the same time, empowers all stakeholders to run a much more profitable organization. And an organization everybody is invested in. It is often recommended to remove managers that are more concerned with their own power base and not the overall health of the organization.

These managers often form connections with units that are unable to compete effectively or are no longer needed in the enterprise. While dealing with these challenges, the enterprise should never forget that without converting to a market enterprise, the whole organization might become extinct.

In the next installment, we will talk about organizational structures.

Previous installations can be found here: Part 1, Part 2, Part 3, Part 4, Part 5, Part 6 and Part 7, Part 8.