Cost Reduction AND Customer Focus
Most organizations struggle with finding the balance between reducing operational costs in the organization and the need to service customers better. How to measure the trade-off is not well understood and even then very rarely practiced- however, it forms the core of competitive behavior in a market that is now increasingly price conscious but poses the danger for major carriers in terms of losing customer loyalty as they strive to reduce costs across the board.
The value of customer focused operations is usually measured along the following lines and business case for the same is justified accordingly
- Producer or customer demand for competitive service models that meet market expectations (example- self service capabilities) => table stakes, no real justification needed!
- Customer Satisfaction surveys (example- Dalbar) in addition to benchmarking analysis at industry level => survive as a leading brand, marketing justification!
- Cost of acquiring new customers vs. retaining existing customers and/ or cross-selling => sales cost based justification!
As one would notice, the above focus of customer focused improvements do not really address the core expectations of operating cost optimization that most operations organizations are typically measured on. Cost reduction usually focuses on optimizing the resources deployed to service existing customers, the above metrics are usually not quantified in typical ops improvement initiatives.
One of the challenges in using some of the above metrics is the responsibility of sales goals in the organization. While the above parameters can easily be tied to revenue performance of the company, the division of responsibility at the executive level between operations and sales goals usually forces a reluctance on the part of the operations organization to identify tangible metrics for improvements from a revenue standpoint.
The usual result of a purely cost-focused approach to operations improvement is a sub-optimized initiative that does not capture all the potential benefits that can improve the Return on Investment for the initiative. Companies need to take a comprehensive and balanced approach to setting goals for their transformation initiatives in order to realize the full spectrum of benefits and optimize the RoI from their investments. Focusing only on one silo (operating costs vs. revenues) would lead to weakening of the competitive position as more nimble players gain the upper hand by winning more eyes & minds from existing & potential customers.
