Authored by Ravi Gilani, Founder and Managing Consultant, Goldratt India and Ira Gilani, Director, Goldratt India
This article was originally published in Outlook Business Magazine. In trying to woo customers with new benefits and schemes, service providers often go horribly wrong, becoming an annoyance instead
Service organizations often try to increase their business by trying to delight their existing customers or offering great benefits to potential customers. However, in many cases, customers end up irritated or annoyed.
We’re all familiar with these attempts, as we are no strangers to phone calls from banks, insurance companies or telecoms offering great deals at the most inopportune times. Service organizations say the market is extremely competitive, making it difficult to grow the business or increase profits continuously.
Many of us would be familiar with Dr. Goldratt’s Theory of Constraints (TOC) that has helped countless organizations increase their profits. Since most of these organizations are into manufacturing, most people assume — erroneously — that TOC is applicable only to manufacturing.
In a previous article for Outlook Business (titled First, get your house in order), I had shared that the essence of TOC is surfacing the assumptions behind our actions. And in almost all cases, the constraint — or limiting factor — for achieving a goal is a wrong, though deeply held, assumption.
The basics of TOC
TOC’s basic premise is that the performance of a system is governed by the performance of its weakest link or constraint. Unless we improve this, system performance cannot improve at all. The five steps to improving any system’s performance are:
- Identify the constraint, which could be the suppliers, operations, or the number of customers
- Exploit the constraint. In simple words, this means get the maximum output out of the constraint
- Become subordinate to the constraint. Since the constraint does not operate in isolation, all the other parts of the organisation must support the constraint
- Elevate or strengthen the weakest link
- Go back to the first step, as after the strengthening process, the weakest link may have shifted
Most service organizations invest an enormous amount of time and money to attract more customers. Why? The obvious answer is that they believe the existing number of customers is the constraint. So, they pull out all stops to woo new customers or retain existing ones by introducing new schemes and offers.
We know that most service organizations complain about customers being fickle and changing their suppliers at the slightest opportunity. In fact, on the face of it, organizations are actually trying to follow the five steps outlined above. So, why aren’t the results materialising?
My hypothesis is that wrong assumptions about the current reality (in this case, the customers) are the real culprit. Let me explain this with examples from various service sectors, including some of my own experiences. Telecom companies come up with new plans on a weekly, if not daily, basis. So much so that customer service representatives are often clueless about most of these plans. So, what are the wrong assumptions here?
The first is that all customers want lower prices all the time. Is that really true? How often have we all gone through frustration due to call drops? Aren’t we willing to pay slightly higher prices so that these call drops become rare, instead of the norm? What ends up happening is that since we are not sure about the performance of any operator, we choose the lowest price as the default option.
The second wrong assumption is that more number of offerings means more sales. In fact, more choices also confuse customers. I am not saying that we should have no options, but I do have problems choosing when I see a 20-page menu in a restaurant! Apart from confusing customers, these countless plans take a heavy toll on the front line serving the customers. Since service organizations are primarily people businesses, reducing variability from person to person is a big challenge.
For instance, I faced some unnecessary trouble at home, with one of the largest direct-to-home (DTH) service providers. Last year, I observed that we stopped getting quite a few channels. On enquiring, I was informed that they have upgraded their systems — to improve picture quality, etc — and so, we need to change our set-top boxes. The customer service representative informed me that we do not have to pay anything for this, but the decision makers of this service provider do not understand that though customers are not paying any money, they will have to waste their time for the technician to come and change the set-top boxes. Incidentally, after the change, I did not observe any improvement in the reception at all. The wrong assumption here is that the operator’s representatives have a good enough understanding of customer issues.
Frankly, most service providers don’t have to delight their customers. They just have to make sure customers are given what they have been committed and are not inconvenienced for receiving the promised service.
Banks aren’t much better. I have a savings account with an international bank, where I have a few term deposits. I received monthly statements with details of the individual deposits, but the total was missing. Even though I approached the country head of the bank to have this feature incorporated, it was implemented only after five or six years. I wonder what delight this bank could provide if it takes years to do something this simple. The result: I am in the process of closing my accounts (and my family’s) with this bank.
And then there are credit cards. An international credit card company offered me free domestic return air tickets, provided there was a certain amount of purchase within a particular period. I can only share that the conditions were such that it would be impossible for anyone to make use of this generous offer. Net result: I discontinued my relationship with the bank.
Most customers do not want to change service providers, so long as they get what they have been promised. Losing a customer should be viewed as sacrilege for the organisation, because only when things get out of control will a customer walk out. So, that should be seen as a red flag for the company. Moreover, companies also need to realise that the acquisition cost for getting a new customer is also rising.
In short, service providers can do a world of good by focusing on a few things. First, deliver what you promised. No more, no less. Second, don’t assume that all customers are the same — each one has a different pain point. Identify and solve these through customer engagement.
Finally, I would like to share a quote from Warren Buffett in response to a question from the audience at the 2003 AGM at Omaha, on how to achieve success. He said, “Take a few right decisions, provided you do not take too many wrong decisions.”