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 / Winter 2004 / Issue 37(originally published by Booz & Company)


The Lean, Green Service Machine

To make customer focus profitable, service organizations can learn much from manufacturers.

Illustration by Lars Leetaru
Many companies prefer not to talk about service. But Dell Inc. does, and it has been rewarded for doing so: In 1998, the leading PC maker began investing in a customer service initiative that uses artificial intelligence (AI) software to automatically provide its telephone-based service agents a series of increasingly “educated” and specific responses to give to customers who are having problems with their computers. Gone is the frustrating interaction in which the first question the agent posed was the inscrutable “Have you tried reloading Windows?” Instead, agents are ready to ask relevant troubleshooting questions that quickly address and resolve almost any problem.

Dell’s returns from this AI system have been impressive: Today, 90 percent of customer issues can be handled in one phone call, and costly product returns from dissatisfied customers have declined. This service network contributed to a Dell cost-cutting campaign that reduced overall operating expenses by $1 billion between 1998 and 2003. Even though more complicated repairs are now being handled on the phone, average call times have been trimmed by 8 percent.

Dell is also learning from these interactions with customers by viewing every problem as a potential defect in product hardware, software, or documentation. By communicating call-center data to its engineering unit, Dell expects that any defects can be fixed in subsequent product releases. In other words, at the same time Dell is reducing the expense of customer service, it is using its customer service system to improve the quality of its products.

Most service operations — whether an entire company in a service industry such as health care, financial services, or telecommunications, or a service operation within any type of company — are a long way from achieving what Dell has. The problem is not that customers are being ignored, but that companies are paying the wrong kind of attention to them.

In the name of customer focus, companies incrementally add products and services, and in the process create disparate and redundant customer touch points. For example, adding a call queue to manage a new lending program or introducing another cell phone plan may appear innocuous enough. But when dozens of these new activities are combined, their impact makes the service business expensive, inefficient, and difficult to manage.

Companies rarely have a conscious strategy to migrate customers to the least-expensive service channel. This results in highly personalized service that is neither appreciated nor needed by many of the customers who receive it, and leads to the customization of products for all types of customers, regardless of whether it is cost-effective for the company or even valued by the customer.

Making matters worse for many companies, the million-dollar CRM and ERP systems installed to handle the information cascading through data-guzzling service operations have done little to improve operational efficiency or aid in cross-selling, because the underlying networks aren’t streamlined.

With service costs ballooning without commensurate returns, senior management has become more and more impatient, asking increasingly pointed questions: Why can’t the business get more revenue lift from customer service? Given the millions spent on technology investments, why do service centers still have trouble delivering high-quality service at low cost? Why aren’t service centers a source of intelligence for product development, marketing, and sales?

Lean Manufacturing Lessons
Executives managing service businesses or operations can find answers to these questions in the success of lean manufacturing. Since the early 1970s, the manufacturing sector has battled to keep pace with consumer demands for higher-quality products that match diverse customer needs, and to compete with new, more efficient startups. Out of this struggle have come numerous methods for improving cost and performance: From total quality manufacturing, to just-in-time production, to tailored business streams, each approach drove a fresh wave of productivity improvements.

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