COM M. Maoz, E. Kolsky
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1 M. Maoz, E. Kolsky Research Note 21 November 2002 Commentary Predicts 2003: Proving the Value of Customer Service Enterprises are drowning in customer information, but a lack of effective metrics and accompanying processes will prevent them from making informed, real-time decisions during interactions that deliver business value to both customer and business. Most customer service initiatives will be wasted effort in the long run, because they elevate customer expectations in one area, only to disappoint customers in another area. Funding of customer relationship management (CRM) projects must be based on the projects' ability to achieve specific business improvements, either through additional cost reduction or proven revenue enhancement, but consistent with improving customer service. Though exhaustive empirical data demonstrates the benefits of excellent customer service on loyalty and retention, enterprises that fail to identify, gather and analyze specific performance measurements and their effects on profitability will be at a disadvantage in the eyes of upper management and shareholders. The key is in correlating business metrics, such as improved margin, close rates, churn and order processing, with operational service metrics, such as phonehandling times, abandon rates and agent churn. Prediction Enterprises that view customer service as an enterprise business objective first and as a stand-alone department second will gain market advantage. With the convergence of higher customer expectations and the shareholder movement to quantify the quality of the customer base as one factor in the valuation accorded the enterprise, customer service performance measurement will become a corporate imperative. The challenge is that enterprises do not devote resources to define the five to seven specific key metrics required at each level in the organization high-level executives ("CxOs"), upper management, externally facing employees to deliver superior customer service. The difficulty for the enterprise is that measuring and managing a strategy of customer service excellence are not a recognized career path, but are a recognized way to "short circuit" a career. Measurement is a highly visible and threatening activity, and, to be effective, it needs to be endorsed by upper management. Through 2006, only 25 percent of enterprises will be rated by customers as deserving of their repeat business (0.6 probability). Gartner Entire contents 2002 Gartner, Inc. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.
2 Impact on 2003 Customer service performance management is the process by which an enterprise defines and measures the metrics for superior customer service, and then executes against the metrics. These metrics will need to be hierarchical (defined for all levels of the enterprise) and reinforcing at all levels. Customer service will be coordinated across the customer life cycle from planning through acquisition and renewal. It will affect technology acquisition, processes and customer interactions across the enterprise, and extend into collaboration with partners beyond enterprise boundaries. Enterprises that harness the varied elements responsible for effective design of customer interactions will be in the best position to streamline decision making, to speed time to delivery of new processes and to lower customer service expenditures. Customer feedback will become the basis by which the enterprise recognizes and reconciles conflicting service goals. Enterprises should define the specific controllable customer service activities that can be performed, measured and improved, at each level of the organization, from the subdepartmental to the interenterprise. A customer officer, reporting to the CEO, should have authority to determine whether the defined metrics and activities support or inhibit collaboration between and among multiple groups. This officer should be able to create a comparison with competing businesses and have the authority to enact change. Failure to dedicate such a resource will lead to a failure to contain customer service costs. Enterprises should groom and compensate customer service managers based on their enterprise vision of customer service. The enterprise must deal with customer service at this level, yet executives fail to reward managers who develop the appropriate skills, experiences and vision. The concept of customer life cycle management should evolve from its current status as an oftendiscussed but poorly administered concept. Businesses must begin to map out the customer relationship based on its known past, its current status and the best guess as to its future state. Management should begin to measure what, if any, specific effects technology has on decision making, organizational structures, business processes and customer expectations. Enterprises should build a real-time analytical framework that will ensure that a customer is treated appropriately at every phase in the customer life cycle. Prediction The contact center will begin a transition to the "customer interaction hub." The concept of the contact center is shifting. Leading enterprises worldwide will begin planning for the next step in customer service and support, which is the creation of an integrated customer interaction framework, or hub, that provides a real-time, and thorough, view of the customer across channels to all relevant customer-facing employees. This will include a segmented, analytical evaluation of the specific customer, along with a determination of the level of service resources to apply to the customer based on the customer's profile. By 2008, an enterprise will be valued based in part on its ability to deliver insight and relevant customer information specific to the employee or software agent, together with the communication tools, as part of the customer interaction (0.8 probability). Impact on 2003 Businesses conceive of contact centers as specific, isolated functional groups within the enterprise. The challenge is that the increasingly pervasive access that customers have to the 21 November
3 enterprise results in the quality of customer relationships being increasingly dependent on interactions with personnel outside of the traditional marketing, sales and service organizations. Relationships are as likely to be shaped based on interactions with employees in logistics, shipping and billing as they are in sales and service. Yet businesses quarantine the customer knowledge and insight and the rules by which individual customers are treated in isolated departments, such as marketing. The result is a gap between customer demand and the enterprise's ability to meet that demand. Enterprises should consider how customer initiatives planned or under way in one part of the enterprise (for example, building a customer self-service knowledge database) can be leveraged in another department. The enterprise should begin to map the specific touchpoints that customers have with the business, and examine whether or not those touchpoints are equipped to deliver a consistent customer experience. There should be an enterprise customer service road map that is clearly communicated to all externally facing employees that clearly articulates how their actions affect customer service excellence and help achieve enterprise objectives. Prediction Customer requirements will drive technical architectures. Businesses will prioritize competing technology initiatives based on what is required to create a framework that best captures the information that the customer expects the enterprise to have "at its fingertips," moving away from internally focused prioritization. Through 2005, customer service architectures will evolve as technologies improve and mature, but the architectures will not change radically (0.7 probability). Impact on 2003 Specific customer service projects will continue to be unique to each industry and business model. For example, in the sale of beverages or chemicals, the manufacturer's immediate customers are the distributors, rather than the end consumers. Solutions must be addressed specifically (for example, they must have the necessary industry-specific connectors, support the business model and be consistent with the corporate integration framework) rather than generically. The architectural demand will be to create an environment that delivers to all customer-facing personnel a view of the distributors' orders, order history, preferences, interaction history, promotions, pricing (current and anticipated), inventory and production levels, and delivery schedules. This will generally require a fundamental understanding of application architectures and integration standards. The challenge for the enterprise is that more than 90 percent of current customer service managers lack the technical knowledge to understand what will constitute the ideal technology set necessary to achieve the best interactions with customers. Enterprises must put an end to the empty platitudes about fostering tight collaboration between IT and the management of customer service. An effective method is to tie compensation directly to measurable examples of collaboration (resource pooling, shared budgeting, establishment of shared key performance indicators). 21 November
4 Expect a combination of approaches to integration, such as Web services, Java Connector Architecture (JCA), and enterprise application integration, to coexist within the same customer service environments and within the same vendor application suites through Prediction The demise of the majority of customer service vendors will complicate application selection. Venture capitalists who invested in startup CRM vendors continue to hold out hope of receiving high multiples for their (failed) investments. In 2003, they will finally capitulate in their bid for extravagant prices for failing vendors. This will force the collapse of dozens of small vendors. Many of these will be absorbed by larger vendors. An exception will be the application vendors founded and initially funded in the 2H01 time frame and later. They should be largely resistant to the collapse and consolidation trend during this period, as funding came from investors with more-realistic expectations of company performance. With the exception of the largest enterprise application vendors, such as Oracle, SAP, Microsoft, PeopleSoft and Siebel Systems, users will face heightened risk of vendor collapse from older application vendors. Customer service vendors will remain under strong price pressure through 2003, and 60 percent (of 125 vendors) will fail or cease as independent businesses through 2005 (0.7 probability). Impact on 2003 Vendor consolidation will accelerate in 2004, and this rapid change in the market will have an impact on package selection in New productivity bundles from the surviving vendors (for example, cross-application solutions to specific problems business flows, corporate performance management, supply chain, customer service) will lead to solution suites not customer service suites. Solutions will vary by industry. Users should be skeptical of vendors claiming applications with deep cross-industry capabilities, as the required development expertise is in short supply at most vendors. Industry-specific suites will emerge, but they will be composed of applications that cross CRM boundaries to include supply chain management and enterprise resource planning. Users should determine the urgency of acquiring a functionally rich application from a high-risk vendor compared with the need to change processes and marginally improve automation capabilities, based on customer expectations and the broader enterprise's go-to-market strategy. Escrow agreements and other contractual terms should be used to protect technology investment. Evaluate whether an installed enterprise application has the basic functionality to cover the majority of user needs, as the stability of an enterprise application vendor may be higher than that of a smaller best-of-breed provider. Prediction Manufacturers will leverage partner relationship management (PRM) to deepen bonds with customers. A challenge for businesses that sell through distributors and resellers is to provide excellent service to the end customers and the partner channel. Key risks in dis-intermediating product delivery include the loss of control over service levels, customer experience with the product and a lack of insight into future product requirements. Better management of the service function for products delivered through partners will be key to improving corporate performance. 21 November
5 Through 2007, manufacturers that best manage service processes with distributors will gain competitive market advantage because of increased customer loyalty and increases in service revenue (0.7 probability). Impact on 2003 With PRM, customer service moves beyond the "four walls" of an enterprise. Suddenly, manufacturers find themselves struggling to manage contracts, installed base information, warranties, maintenance, service-level agreements, regional service costs and conditions, and, most importantly, end-user satisfaction. Investors will reward the companies that best manage this process, because service revenue will be captured as a more dependable annuity and service will be delivered at a lower cost. Manufacturers should measure the current level of post-sale product data that they capture from distributors, including warranty, service level, geographic distribution and user satisfaction. Distributors should be given incentives to engage with the manufacturers in data gathering. A manufacturer can achieve this by demonstrating the mutual revenue advantage of capturing aftersales information that can be mined and exploited, and by compensating the distributor for its efforts. The manufacturer should invest time in training the reseller partner on how to upsell in the aftermarket, through explicit results such as the percentage of renewals that happen through the service center, which often exceed 60 percent. Bottom Line: Investors will reward those businesses that have the most profitable and renewable customer bases. To meet this challenge, the enterprise will model customer service processes based on the business value of those processes as seen from the customer perspective and consistent with the need to be profitable. Over time, a larger portion of what shapes customer experience is determined beyond the boundaries of the customer service department, and beyond the four walls of the enterprise. This will require the business to elevate customer service from a departmental function to an enterprise objective. 21 November
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