Despite implementing carefully designed processes supported by expensive IT systems, businesses do not get the cost reductions and customer satisfaction levels that they expected.
“What are we doing wrong?” they ask us. “We have used tried and tested analysis methods“:
- We estimated demand by type and quantity and we have defined step-by-step processes to deal with each type of demand.
- To optimise our resources and costs, we route complex items to specialist resources and allocate simple tasks to less skilled staff.
- We designed and built our ICT systems to support these processes and routings.
- We have very detailed process guidelines and training materials for staff.
“Why are we not achieving the outcomes we expected?”
Pathfinder regularly must explain that there is a false assumption underlying this approach which means that it will never reduce cost or increase customer satisfaction.
The assumption is that all types of demand can be predicted and dealt with through standard processes. It is very appealing to manage neat categories of demand with standard processes because these can be proceduralised and IT systems can be built to support them. All this makes life easier for the Business Analyst, the Trainer and, up to a point, the Manager.
However, for all its appeal, this assumption is wrong and creates waste. It is wrong because it does not consider the variety of demands that can occur when we are dealing with humans with diverse circumstances and needs, which do not always fit neatly into predefined categories. It becomes wasteful when ill-fitting demand is shoehorned into them and the associated pre-defined step-by-step processes lead the customer to the wrong outcomes. What was once thought to be neat becomes a mess.
Even the simplest systems can be the source of an unimaginable amount of variety.
Figure 1: Example of system comprised of 3 elements
Figure 1 shows an example of a system comprised of 3 elements and their relationships, where element 2 has an influence over element 1 and elements 2 and 3 influence each other. When building all the possible combinations of elements and relationships, a 3-element system can produce 64 different combinations, that we can interpret as potential types of demand, for example, one customer having 3 products that have interactions or dependencies between them.
A system comprised of 5 elements can produce 1 million variants. A system comprised of 20 elements can produce a near-infinite amount of variation (more variety than atoms existing in the universe). It is possible to get a sense of the source of a variety of demand that can be expected from an organisation considering the individuality of their customers, staff, products, and services.
Does this mean that categorising demand is a waste of time? Of course not! It is still possible to create useful categories for quite a lot of demand. These categories are useful as long as it is accepted that there will always be some demand that could not possibly have been anticipated and doesn’t fit neatly into a category.
Figure 2: The long tail of unpredictable demand
Figure 2 represents a common situation for a service organisation designing how to deal with demand. Business Analysts have identified demand and defined standard processes or decision trees to deal with, for example, 50 to 100 different demand typed. They will expect that most or all demand will be dealt with by those processes. In fact, typically a company can manage about 80% of its demand types in this way.
However, the remainder 20% comes from a population of near-infinite possibilities of variety and cannot be predicted. And these are the cases that cause the sleepless nights for Customer Service Managers as they are the ones that cause bigger issues with customer satisfaction and cost.
It is what we call failure demand: the process fails to meet customer’s expectations because standardised processes that were not suited to solve them the first time were used.
When standard processes cannot deal with unpredictable demand, processes do not produce the desired outcome. It takes multiple touches, handovers, investigations, customer complaints and excessive time to resolve. Typically, these cases will take on average 3 or 4 times the number of touches and cost to solve than compared with standardised demand.
Figure 3: The cost of failure demand
From a cost perspective, the failure to deal effectively with unpredictable demand can create c. 40% more of preventable costs or waste (as c. 75% of the cost of dealing with unpredictable demand will be waste)
The resolution to this situation is to recognise that attempts to fully standardise processes are futile and counterproductive. Systems thinkers have long recognised that the most effective way to ensure high levels of customer service is to build purposeful systems.
A purposeful system is a system designed to obtain the desired outcome no matter how unpredictable the demand is. Systems and staff working in a purposefully designed organisation will recognise upfront when the use of standardised processes is appropriate and when they need to use their ingenuity and skills to find the best course of action for the customer and the organisation.
Pathfinder works in a tradition of designing and implementing purposeful service systems using our customer-centric and human-centered design approach. We have demonstrably implemented service systems that have driven out failure demand and driven out costs. Our Commitment Based design approach is central at building organisations committed to high levels of customer service and efficiency.