The J TAB personnel would be able to address all inquires and handle customer problems 90 percent of the time on the first call. The remaining 1 0 percent of the problems would be resolved in one day with a follow-up call. Danni Raman was assigned as the project manager responsible for the creation and development of the ICC. In developing this center he was tasked to display the kind of entrepreneurial behavior the chairman of JET was seeking to develop. Mr.. Amoral, the energetic and dynamic chairman of JET seeking to change JET tactful company from a stiff bureaucracy to a nimble entrepreneurial-driven-firm.
The design was to have the center function as a central services profit center supporting the separate tactful business units of JET. Danni, a seasoned manager, saw this assignment as a real career opportunity. He began to think about meaningful indicators and measures for success of the center. He was politically savvy and wanted the performance of this center to stand on its true accomplishments. Background: Product Lines Responding to Declining Growth Rates JET was one of the largest tactful firms based in Asia. It had a worldwide operation and was recently acquired by another major tactful company.
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JET had enjoyed remarkable growth of more than 25 percent each year over the past 10 years. The firm had used a series of acquisitions to broaden the type of tactful offerings and had also grown internally to meet the expanding needs of its served market. It sold various forms of tactful in the health, life, casualty, property and automotive areas. Over the last couple of years the growth Of premium income in the Malaysia tactful industry had leveled off. In 1993 and 1994, the industry still enjoyed high growth rates and grew at 10. 3 percent and 9. 5 percent, respectively.
By 995, however, the growth rate had decreased to only 4. 8 percent. By 1 996 and 1997, growth was flat instead of the planned 3 percent and the expectation was that “growth will only be moderate, if any growth is recorded at all”. The declining growth rates resulted from a set of reinforcing trends: 1 Worsening economic climate with increasing economic downsizing, increasing unemployed, and stagnating real income. 2. Higher taxes, in part due to the unstable economic. 3. Increasing competition resulting from the deregulation of the Asian market, which was “fully noticeable for the first time” in 1995. Extensive satisfactions of the basic demand for tactful in Malaysia, an area of sustained growth Upton 1994. Despite these worsening market conditions, the operating divisions of JET were often able to gain market share. However, the squeeze of increasing competition and increasing client price sensitivity led in the private tactful market to shorter contracts and more cancellation of existing contracts. This effect varied in intensity by product line. In response, product lines and the branch offices began to pay more attention to providing a better service as a way to keep agents, brokers and existing clients satisfied.
There was a range of ideas and responses to the problem, varying from remaking newsletters for customers to creating a “Calling Center. ” The latter was in response to the complaints of many customers, agents and brokers about the difficulties of reaching clerks and about the level of service they received if and when they could reach them. Within the decentralized structure offset, in which product lines operated rather independently, a number of “calling centers” were created. Those more concentrated product lines, such as Life and Health, created their own central loophole centers.
Some branch offices also created “telephone centers” for those product lines that had decentralized much of their clerical work to the branches. Reforming the “Lapse Rate” Problem as a Customer Loyalty Problem Traditionally the firm, through its two brand names, JUST and 41ST, had focused on the lower middle segment of the market that was not very price sensitive. Exclusive agents handled 70 percent of this business. The increasing defection rate began to draw the attention of some senior executives. They ordered a study by an international management consultant.
In March 1996, this firm reported that the ” lapse rate”- the number Of customers canceling contracts compared to the total amount of contracts- had reached ARM millions in 1995 (ARM mom in 1996), which is around 10 percent of total premium revenue. The lapse rate percentage was comparable to other Malaysia tactful firms. In some products, such as car tactful, the figures were much higher (20 percent) and had passed a pain threshold. The firm also reported that the commissions of the agents were almost exclusively tied to generating new contracts.
The agents were pending 70 percent of their time just generating enough new business to keep up with cancellations. If this trend were to continue, they would have to spend 100 percent of their time by the year 2000 on just finding new business to keep up with cancellations. In depth interviews with defected customers, or “root cause interviews,” indicated that 58. 7 percent of the defections could be influenced by JET (without changes in the contracts), indicating that 5. 8 percent of the customer base of the firm was lost through the firm’s own fault. Dissatisfied customers mentioned (apart from price, 33. Recent): problems with agents (34. 7 percent), bad claims processing (13. 3 percent), slow and bureaucratic responses (9. 3 percent), and too little information (4. 0 percent). When customers mentioned high price, it would often not be an issue as such but in combination with other problems such as dissatisfaction about the agent. Finally, the firm found the following: Customers who had more than one tactful contract were less likely to defect. Trigger events (e. G. , exasperation about being passed from one clerk to another without getting any help) seemed to precipitate cancellation.
If a customer with several policies cancelled one, it was likely that the customer would not continue when other contracts came up for renewal. The traditional market research techniques used by JET, the consultant maintained, were not able to detect these kinds of problems because they were geared more toward customer satisfaction with a (new) product and not event/action related. The “lapse rate” problem for JET was summarized by the image of a leaking bucket; new customers would flow into the bucket while at the same time many leaked out through big holes.
The focus of product lines was on was on increasing the inflow rather than intelligently addressing the outflow. This was not only the case within JET but also the case throughout the Malaysia tactful industry. Instead of focusing on the “lapse rate” or “customer defection rate” of individual product lines, the problem was restated as a customer loyalty problem that cut across product lines and was considered a corporate problem. A Corporate Problem: From Vicious to Virtual Cycles Customers looked at the firm as a whole, not as a product line with whom they had one contract.
It turned out that the more contracts customers had, the longer they remained loyal to JET. The longer they remained with the firm the lower the commissions for new products and the lower the damage rate. If this virtual cycle were to lead to small improvements in customer retention, profitability would be significantly improved. Conversely, if customers had only one contract, they cancelled much more frequently. Replacement then led to a commission for the agent. And when this process gained enough momentum-as it did-all tactful firms suffered from high lapse rates and paid high commissions, hence a vicious cycle.
To introduce a virtual cycle, customer retention would have to become a tragic target. There were many positive ideas and responses in J Tab’s product lines and branch offices at the time. There were also mangers who thought quite differently. They felt the responses were often geared to symptoms, and would have little positive effect on the business. With regard to the telephone centers, a senior manager from one Of the product lines mentioned that they lacked critical mass.
There would be in sufficient sophisticated technology and training of personnel, and not enough would be learned from the customer. The customer needed to be viewed as a person, a family, or even an extended family, going through a life-cycle with critical with critical events (like getting a driver’s license, getting married, having kids, buying a house, setting up a retirement fund, etc. ) each creating new tactful needs. The firm was a collection of product lines. In anticipation of future business, JET should try to satisfy the customer needs in all of these stages.
Moreover, rather than the risk of each customer being treated as part of a large pool with certain statistical averages, customers could and should be segmented into highly profitable groups, not profitable groups, and loss-generating groups. The firm as a whole should proactively pick and target the most profitable groups, and learn more about the customers. At the same time, it should defend its existing customer base through (i) becoming sensitive to early signals of defection, (ii) monitoring carefully trigger events, and (iii) trying to recover “lost” contracts/customers.
While the efforts of individual product lines would be important, clearly, some executives at the corporate level felt that there was a need for a comprehensive and integrated approach. However, such an approach should be taken in incremental steps. The First Step: “Quick Hits” and New Discoveries The data suggested that JET could benefit from using a number of ideas for customer retention derived from the practices of leading Malaysia tactful firms and banks as well as new internal intentions.
The JET Board of Directors ordered a specific study of customer loyalty for J TAB between May 1 996 and October 1996. It was anticipated that this would create ideas for “quick hits” and begin to close “the holes in the bucket. ” But the project also led to new discoveries about the prevailing thinking in the firm concerning the customers. According to one of the consultants: 1 A customer typically called because his or her agent was either unreachable (either a part -timer, or trying to generate new business) or could not effectively address a question.
When a customer called one product line, say, Health, and then had a question about Life Tactful, the Health clerk would say, “l don’t know. ” On average, it would take a client four contracts to get to the right person, and even then, in 30 percent of the cases, the questions were not resolved. Customers tended to cancel when a specific question or problem was dealt with in the wrong way. 2. A clerk working in one product nine had only one screen (related to the contract that line had with the client) and had little access to information about other contracts the customer may have had.
However, if a customer with multiple policies cancelled one policy because the customer was dissatisfied with the service in one product line, this person was likely to cancel the other policies as well. The clerks often did not sense the business was at risk because, quite literally, it was “not on their screen,” and therefore the pattern of defections remained hidden. 3. Car tactful played a critical role in binding clients because it was often the first interact. It appeared that most people bought a car on the weekend when tactful firms were closed.
In addition, it was difficult to create a team to help clients because, in general, customers could not reach a clerk after 5:00 and trade unions did not allow work after 6:00. Therefore, the response to the idea was often “yes, but it can’t be done. ” 4. Most people talked about the customer but didn’t do anything about improving the customer service. The firm had a strong analytical culture. When confronted with the figures, they would say, ‘this is true for health but not for life” or “it is worse with other tactful firms. 5. When customer focus groups were organized in June 1 997, the Board of Directors members were invited to attend.
Only one showed up apart from the manager of the study. The others maintained that “we know the customer. ” The Customer Care Center By October 1996 when the results of the customer loyalty studies were in, the Stab’s Board of Directors ordered a feasibility study for a ICC reaching far beyond specific products lines. The key idea was to provide customers with one telephone number and professionally trained people who could effectively answer a variety of questions, and thereby increase the service aromatically. In addition, a center would be able to eliminate process steps in the future and eliminate sources of errors.
Finally, it was believed that the center would be a cheaper and more efficient way of processing information. By January 1997, an outline for the center design was ready and specified the following goals: 1. Stab’s private customers would have one and only one telephone number for all their questions and problems. This service would be available to them in addition to the agents. 2. The center would be open 24 hours per day and 7 days per week. It would be able to finalize 90 percent of al customer inquiries in one telephone call. It would lead to a significant increase in service quality efficiency. 3.
J TAB would benefit from a reduction in the lapse rate, specifically, In cases where, in the past, the clients inquiry was not addressed or the service was unsatisfactory. 4. Additional goals of JET were (a) becoming a service leader in the tactful industry, (b) increasing the number of customers with multiple policies. Concern and Inventing Solutions The proposal generated a number Of concerns. For instance, the agents saw the center as a threat to their relationship with the client. In response, it was cited that agents would be informed of any communication between the center and his or her clients.
Moreover the center could act as a backup for the agent in case the agent was inaccessible to the client (e. G. , at night and on the weekend). Finally, the center could help agents by contacting prospective clients. Typically, an agent might get one out of ten potential tactful contracts. The center could provide a first screen by telephone and improve this ratio. The product lines had a different concern. They thought that it was impossible that a “generalist” could address questions related to their peccadillo business and that it would take “at least ten years” of experience to learn to do this.
However, it was discovered that product line clerks got caught in a vicious cycle. Typically, the clerks intended to provide the highest possible quality when talking to customers but in doing so tended to become too technical. Their response was “over-engineered” and they tended to waste their time while the client became exasperated. In addition, many customers had the same kinds of questions. An expert might become annoyed when having to repeat the answers or might forget etc mention part of the answers. Less specialized persons with additional skills, however, might quite easily answer questions based on scripts that provide “good answers. Finally, it turned out that at least 70 to 80 percent of the questions (depending on the product lines) were rather mundane and did not need a specialist to answer them because the question was merely about the Status of a claim or the customer gave a change of address, etc. Again, an expert might become exasperated with such questions. A special team with extended product knowledge could still address the remaining 20 to 30 Recent A final set of concerns had to do with the fact that calling centers were already established in some product lines and branch offices.
For instance, if somebody changed an address, a product lines would argue that this couldn’t be dealt with by a center because a change of address might have implications for tactful related to the house. Or some product lines would say, “We are learning from the market through our own calling center, and now we lose our ear,” or “Why break up a winning team? ” At the time that a central center was discussed, some of the branch offices ad just installed their own telephone centers as a way to screen calls to the back office. Branch office managers had received employee acceptance by claiming that “this was their future. Dismantling their unit would undermine trustworthiness. The first two concerns could be dealt with through agreements about making information in the center readily accessible to the product lines. The latter concern might be dealt with, in part, by a promise that the center would be in Or around the two branch offices with telephones centers. This would make it easy for employees to apply for jobs in the central enter. By April 1997, the Board of Directors had agreed on the following critical aspects for the centers design. 1 . The ICC would be a “Greenfield” solution and it would be the only center within the JET.
Other newly established calling centers in branches and some product lines would be closed down. 2. It would centralize all customer inquiries and be available 100 percent of the time, and able to address effectively 90 percent of all questions and problems. 3. The center would be established outside the existing organizational structure of JET, i. E it would not be part of any of the product nines or operating divisions. This would also make it possible to sign more flexible employment contracts (flexible working hours and com penetrations). . The center would be profit center and be paid on a telephone call basis by the product lines rather than a cost center supported by corporate or the operating divisions’ overhead. 5. The center would be a stand-alone central service business unit with a mission to support the product lines. 6. The product lines would supply tactful technical know-how and competent personnel, and interface with the product lines would be clearly organized. During the first year, the center would focus on “inquiry” initiated by the client.
In addition, it would also initiate inquiries on behalf of product lines in case a customer canceled a contract. This initial set-up would require and EDP system with the least integration into the rest of the IT infrastructure of the JET, allowing for an autonomous EDP center for the ICC with only a relatively small link to the Central EDP. However, as soon as the center operated effectively (expected within half a year of its opening), new tasks could be added. For instance, the center could become involved in the claims recessing, in correcting errors, or changing information such as addresses, etc.
It could also carry out marketing research at the request of the product lines. And finally, it might become the care center for agents and brokers as well. The customers (depending on the product line) would expect the center to address 70 to 80 percent of the inquiries through its generalists. The remaining 20 to 30 percent of questions would be passed on to specialized teams with extended product knowledge in the center. Not only would the processing within the center be “transparent and traceable,” thereby reducing errors, the links to the product lines would be transparent and traceable as well.
Indicators and Measurement of Success The center would have to be up and running within one year, in May 1998. The effort would be widely watched within the firm and within the Malaysia tactful industry. If successful, JET would have a first-mover advantage and be instrumental in reshaping the industry. But what were meaningful indicators of success of the ICC and how to measure that success? Should Danni, the project manager for the new center, focus on one indicator, or on a set of indicators reflecting a wider sense of performance? How many should he focus on, and which are really critical?
Which indicators can he really influence and how? When asked how we would measure success with the clients, Danni initially mentioned: “a decreasing lapse rate-that part of the lapse rate, connected to the service quality of the JET, should decrease. ” However, other executives differed about what constitute a “Balanced Score Card. ” For instance, a senior executive suggested: “speed of processing efficiency in terms of cutting out process steps, quality in terms of fewer errors, accessible all the time, and friendliness of the telephone operators. ”