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Can compliance contribute to a competitive advantage?
The Value Chain describes how a business takes inputs and converts them into some sort of value that the customer wishes to pay for. It consists of a collection of "Primary Activities" that converts inputs into outputs and "Secondary Activities" that support these. This careful orchestration of moving parts allows a business to take a few lumps of aluminum, rubber, plastics and glass and turn it into a car, a computer or even an eCommerce offering.
Typically the model is drawn with four supporting Secondary Activities: the firm's infrastructure; human resource management; technology development and procurement. I believe this is one activity short of a full set. In the modern world of Corporate Social Responsibility (CSR), conflicting global regulation and de facto best practices a fifth supporting activity has evolved. That of "Compliance." 
The Value Chain Redrawn. (Click for larger image options)
Compliance stretches right across the Primary Activities, covering everything from the socially responsibly sourcing of raw materials, to adherence to labour laws around production, monitoring carbon footprints when products are shipped, sales messages used in brochures and telesales scripts and even the service that the customer can expect after the sale is complete. It requires its own management structure, often with a clear reporting line directly into the board and pulling together the structures of "Quality", "Regulatory and Legal Compliance", "Business Risk" and "Internal Audit."
If the objective of the value chain is to demonstrate how a business creates value (and ultimately find a competitive advantage), what role could Compliance possibly have? It is often seen as a destroyer of value, putting in place additional barriers and controls to ensure the business doesn't mis-sell products or poison customers or upset special interest groups. As such it is typically put into the "firm infrastructure" layer, usually the holdall for all "overheads" that the firm has to carry.
My experience tells me that Compliance can be a significant contributor to the formation of a competitive advantage. The type of activities this layer can undertake - from forming policy on which regulatory and de factor regimes to apply (and how), establishing standards of performance and quality, approving and overseeing other activities - can influence how successful a business is in pursuing a particular generic strategy, or even close off entire strategic options.
For example, in the UK it is a regulatory requirement that no more than 3% of outbound calls are "abandoned": that is the person receiving a call hears silence because they are not connected to an agent or a voice message. Some compliance teams will insist on keeping as far away from this as possible, which adds between 5 and 10% to the resource requirements for their call centres compared to those willing to go closer to the mark. This can be a significant cost burden to the more cautious call centre firm and compromise cost leadership.
Differentiated strategies can also be assisted by the Compliance layer, particularly where the buyers are themselves heavily regulated. Manufacturing products to suit niche markets can often only be possible where the entire compliance landscape is understood, from laws that may affect the use and disposal of products to standards that ensure interoperability and safety. Healthcare is one example of a market where it isn't just the purchase of the product that the buyer has to consider, but also the way it is used, how it is disposed of and who is trained to use it. Embedding these considerations into the design, manufacture and servicing of the product is only possible if a coordinated Compliance layer is in place.
Supporters of the Value Chain model (and I do consider myself one) will argue that "Quality Assurance" is one of the activity types, and that legal and governance is part of the Firm Infrastructure. This is true and not in dispute. What I do question is whether there is a clear and distinct role for Compliance to play in the formulation of a competitive strategy. Perhaps in the "regulation lite" days of the mid-1980s it was entirely appropriate for this to be incorporated in such a way. Today, however, we have an extensive network of regulatory and de facto standards that can affect the way a business operates and influence its competitiveness profoundly.
Compliance used to be seen as a business layer that got in the way of being competitive. Today the potential for it to contribute positively to competitive strategies is greater than ever. That has to be harnessed as we move into an ever more regulated and standardised world.
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The true operating cost of accepting failure
A week ago I was told that mis-selling was inevitable in financial services, and that as such processes had to be designed so that such errors were trapped after the event and dealt with. My challenge to that was that the process should be designed to minimise the risk of a mis-sale in the first place. It would be better for the customer to know that this particular firm had taken steps to ensure the right product was sold in the first place rather than there were measures in place to pick up the inevitable mistakes that would be made.
Aside from the cultural and brand ramifications of such an approach I started to think about the cost. I wondered if the financial impact of a mis-sold insurance policy or a poorly manufactured product was clearly understood. Compared to the cost of getting it right first time just what would the cost of fixing after the event be?
Quickly mind-mapping the problem starts to produce a massive variety of costs, some hidden, some not so. Intuitively most people would agree that the cost of reworking is a big one that stares everyone in the face. It costs me money to divert a person to redo the work that someone has done before them. I can measure that too, using an Activity Based Costing approach I can work out, pretty much to the penny, what it costs me. And to be honest this simple measure is what most businesses will use as a figure to justify retraining staff or reworking a process.
But hold on. Retraining staff? There's another cost straight away, and it isn't just the cost of putting someone back through sales training or widget making training. What about the cost of carrying out the analysis to determine what that training should be? And preparing the materials? And having to employ an extra trainer just to cover the retraining? Or the lost opportunity cost because the trainer is back filling skills rather than developing people forward?
We can also start to look at the lost revenues. If I have to take people off of the sales line to retrain or coach them to fix quality issues that's time they could be spending working through outbound sales lists, or answering inbound customer calls. How much business will I have lost if my team is down 2 or 3 people for an afternoon. And when they come back on stream they're going to be less productive as they rebuild their confidence and comfort. There can also be bigger impacts, such as commercial (B2B) sales teams who back off of closing certain deals or exploiting opportunities because their confidence in the ability of those who follow is lower than it should be. I have seen RFPs flash past the Sales Director's desks unanswered because they do not believe their own company can deliver on quality.
Which brings us into management costs. How much time is wasted investigating quality issues, or tracking trends or discussing how we can fix this or that failure rate? There is nothing wrong with looking at how we can make processes or working practices better, more efficient, more effective, but this should be about driving the business forwards, not trying to stand still and deliver what's been promised.
A friend of mine who used to work for NASA made the observation that spotting an error during design cost about $100 dollars to fix, but if it made it through the checks and was put into orbit on a satellite the cost of fixing the problem could be tens of millions of dollars. I wonder how many of us truly understand the amount of cost that we carry in our operations for fixing quality issues that would be better dealt with if they were engineered out of the business to start with.
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The art of retaining customers
There comes a point when every customer decides they no longer want to do business with you. It is inevitable. What is not inevitable is that their mind cannot be changed and they cannot be convinced your business is the one that can still service their needs. Keeping these people on side is what customer retention is about.
In my experience this vital activity is often ignored or done badly. Ignorance usually comes from smaller businesses where the emphasis is placed on driving revenues by selling to new customers rather than protecting the money coming in from existing ones. Badly knows no type or size of business, often appearing either as an "add on" task within the customer contact centre, or as something that's done without understanding how it fits into the business. Either way, the results can be disappointing and sometimes damaging.
At its most basic, retention falls into two camps: passive and active. Passive retention is the approach we may be most familiar with. We wait for the customer to contact us and then we encourage them to change their minds with "save the sale" techniques in our call centre, or "loyalty discounts" behind the online cancellation pages. For the most part this is undertaken by those firms who have a subscription or regular payment model, such as online content, insurance or utilities. In theory it is relatively easy to establish as it requires simple modifications to a website, or some additional training and support for agents.
Active retention requires greater business intelligence and often investment. The objective is to identify those people whose behavior suggests they are about to become disloyal, then proactively contact them before they can make that conscious decision to go elsewhere. This is not the same as blanket loyalty programs or untargeted discounts for long-term supporters, but about picking up the phone or writing an eMail that saves future revenues.
Being active requires a constant watch on the customer base for signs that something is going on, then having in place a suite of tools to reach out. Some years ago, during my consulting career, I worked with a retailer who was disappointed with the performance of their loyalty program. By looking into their data my team was able to identify an indicator of disloyalty developing - toilet rolls. If a shopper did not buy toilet rolls on the visit their normal purchasing patterns suggested there was a high probability that within a couple of weeks they would stop coming back.
Their retention strategy was built out of constantly mining their data in search of potential disloyalty, and then sending vouchers in the mail. Initially sent as blanket "money off" coupons, the mailings were eventually tailored to offer a discount on a product the customer normally purchased, which proved to be much more effective. The strategy even produced an instance where a specific cheese was ordered into a specific store because just one person with a high spend purchased it.
Clearly delivering this level of sophistication required a substantial investment in technology and may be beyond the reach of many. Yet even simple approaches can yield results. When home insurances were due for renewal, one insurance broker I knew would call the policyholder and talk to them - but only if that customer had cancelled or lapsed another policy during the previous two years. A few years before he'd noticed how those who cancelled one policy would gradually move away over a couple of years. His simple intervention of a phone call limited this effect and typically he saw a third of the people he spoke to come back into the fold within two years.
The key to both of these examples is that the approaches had been thought about as part of the overarching business strategy. Volume mattered to the supermarket, so it made sense to invest in automation and technology. Profitable customers mattered to the broker, so while he was happy to allow transient policyholders to come and go, those who had more than one policy were typically more profitable and therefore worth protecting. The personal touch of the phone call enhanced his brand as the "local" expert.
When you start to form your retention strategy it must be considered within this context. If your aim is to increase your customer base you may decide to use techniques that hit as many people as possible, regardless of profitability. On the other hand, profit hunters may be more selective, willing to lose outright revenue because the cost of winning it is too high. Whatever decision is made, it must be a well informed decision, which is where I have often seen retention strategies fall flat.
A small business I was working with had adopted a fairly traditional passive retention strategy because it seemed like the right thing to do. Customers would call in to cancel their subscriptions, at which point the agent would try and talk them out of it. They were reasonably successful, and an Activity Based Costing exercise had shown it cost twelve pounds to field the cancellation call. Based on margins it would take about four months to recover the extra expense, and as on average a saved subscription would last for another eight or nine months before it was finally cancelled. It appeared there was profit to be had.
What I saw wasn't twelve pounds, but more than forty. Yes, it cost twelve pounds to handle one call, but only one call in four resulted in a saved subscription. A simple maths error had resulted in the management team buying into a strategy that was making an operational loss. This was not good news for a business actively seeking profits.
A simple solution - one taken too often perhaps - would have been to give the agents some more sales oriented training and then set specific retention targets. In some cases this may be the answer, indeed sometimes retention teams perform so poorly because they are treated as a customer service team rather than a sales team. For this business the strategy took on a more rounded approach.
The passive component was moved largely online. Many customers managed their accounts via a website, although providing a "cancel my subscription" option had been resisted to drive people into making a call. The new cancellation page was designed to focus on the benefits of membership, while follow-up eMails were designed that counted down to the date access was withdrawn, each giving an option to repurchase at a "welcome back" discount. It was simple, cheap to set up and although retentions were barely in the double digits, the investment was recovered within a few weeks.
Two active components were also created to target "desirable" customers - typically those who bought additional services or who recommended other people. First was an outbound phone call from the customer service team to those who did not log into their accounts during a four week period. Structured as a survey, the call was designed to both collect information to determine whether or not to continue trying to retain them, and to remind them they were subscribed to the service. Second was an outbound call from the sales team to those who did cancel online. Already subject to the passive tactics, this gave the desirable customers an extra nudge in the right direction.
Finally, the payment structure was changed. Direct debits had been accepted, but these can be cancelled directly at the bank, therefore bypassing the retention strategy completely. New subscribers were only offered cards as a payment method, drawing them into the pool of potential retentions.
It is true to say that revenues dropped marginally as a result of lower retention rates, yet so too did operating costs. With greater discipline and understanding within the strategy it became easier to tweak components, making them more effective. The result was an increase in profitability, freeing up money for investment.
To my mind retention is one of the key, and often overlooked, strategies. I've seen too many businesses who seem quite content to watch customers leave without even talking to them to find out why. I've also seen good money thrown at bad ideas which may keep numbers on the books, but do little for profits. With a well thought out strategy there is no reason why you shouldn't be able to retain customers who might otherwise walk away.
Originally published on Customer Management IQ
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Who to follow on Twitter - June 11 2010
Another week has flown by and another collection of tweeters, retweeters and mates have been adding to my enjoyment of using Twitter. After last week's more serious flow, this week is a little more light hearted.
Dunning Design asked one of the most important questions on Twitter this week. My answer was McCoys, but only the grilled steak ones.
On the topic of infographics, my what did we learn in January image popped up on a couple of blogs. Miss K Patel liked it so much she made a request for her own. Happy to oblige!
Mark W Schaefer continued to introduce some interest topics into the discussion. He's worth following for his insights into this whole social media marketing thing. He also introduced me to Brian Solis.
Thinking of naked audiences was Nikki Smith-Morgan's contribution to the week's discussions. Something to do with overcoming presenter fears.
It was an odd thing, but somehow I managed to connect with Odd Git who shares a similar sense of humour to mine.
And last, btu not least, Pritesh Patel has tried so hard to rejoin the weekly #ff that he deserves a mention just for trying!!!!
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Self-promotion can only come from self-confidence
An article on Harvard Business Review - The Toot-Your-Own-Horn Gender Bias by Whitney Johnson - could've been an insight into how individuals could promote their achievements. Instead it came out as a "women are victims" attack that failed to address any real issue and offered nothing that hadn't been written about a thousand times before. HBR, frankly, you should be ashamed!
To my mind it doesn't matter about gender, race, age, etc; there are people who don't appear able to stand up and say "this is what I've done, this is the value I bring." Instead they sit in corners and squirrel away, getting the job done with little or no recognition. And frankly business needs them more than some people are willing to acknowledge.
Smart managers will, hopefully, recognise these people and help those who want to grow and develop do so. But such managers are few and far between.
For the rest of the workforce only action on their part will change anything. A lack of confidence or sheer unwillingness to stand up and be counted can only be addressed by the individuals concerned. Some will be happy to work hard and take no praise. Some will want to progress. To the former I say, "carry on - your contribution is acknowledged."
To the latter I say, "Until you change nothing changes."
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Practice safe Facebook #1 - The friends request
They come thick and fast. Requests from people you do not know to become your friends. Blindly you accept and the next thing you know your content is spread across the web, you're seeing updates that are no more than adverts and every 5 minutes you're being tagged in photos promoting someone's something or other.
Print this poster. Place it on your wall. Spread it around the globe! 
(And don't forget this is only for fun!)
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Follow Friday for 4th June 2010
It has been a few weeks since I've done one of these. In part that's because of construction work I've had going on that has robbed me of many of my usual tools. Enough excuses. These are the people I've tracked a little more closely over the past week or so ...
Mike Bennett has had an interesting word or two to say, particularly during the run up to the election. But his real passion is meaning and semantics, with a few useful posts in the data exchange and standards direction.
Fay Feeney, meanwhile, continues to fight the good fight to - amongst other things - get more women into the boardroom. And while we're on the subject, let's add India Gary-Martin to the list of people to follow if you're interested in corporate governance.
Lamenting the passing of Dennis Hopper was Bruce Baron. When not talking about the lack of acting talent in modern film, he also has great insights into Project Management.
On the artistic side, I continue to love the world inhabited by I Was Out Walking. I love her imagery and how she manipulates it to dramatic effect.
And finally a word to Igor Ovsyannykov. A couple of problems on his website when he moved bits of it from one platform to another, but now all up and running again.
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Agile Project Management Template
Keeping track of everything can be difficult on Agile projects. I have seen them descend into chaos simply because there is no central place where requirements are being kept and sprints being tracked. Equally I have seen them come to a grinding halt where a well meaning project manager has decided a GANTT chart and Microsoft Project are essential to success.
Between the two is a happy medium that allows a centralised and disciplined approach to be applied to record keeping and management, while still offering the flexibility for Agile to deliver what it does best. This template is designed to do just that, offering the three core documents used to manage projects: the product backlog; sprint backlog and burn down chart.
This is a simple, yet powerful tool. The product backlog is where you keep the key deliverables that you expect your projects to deliver. You can allocate these against individual scrums and sprints (if you're using one product backlog across multiple projects), set their priority and keep track of whether they are being worked on.
There's also a template sheet for you to use as a sprint backlog. Using this you can keep track of which products you're delivering during the sprint and the tasks needed to complete them. With effort required and effort expended tracking across 10 day sprints a burn down chart is generated, allowing the project manager or scrum master to monitor progress.
Kept in a central location, shared across the project teams, you have the potential for a truly transparent approach. What's more (and this plays to the psychology of the traditionalists) the key criteria of having a structured plan, an estimate of effort and measurement of progress are there and demonstrable.
At the moment this template is in OpenOffice format. An Excel version will appear in due course.
Download
As always, any comments, suggestions and thoughts are welcome.
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Newer Entries Older Entries
Previously on this blog...
the global leader in Contact Center Consolidation 2.0
2.0 has become a meaningless addition to already poor tag lines.
A dozen beautiful images of Saturn
Wired presents a dozen of the best images from the Cassini mission
Setting up shop in a new country: beyond the website
Building a website for multiple languages is not just about translation. It is a critical business decision that has to be taken carefully.
Why call centre staff deserve your respect
If call centre staff set the first impression for your business, why do we treat them so badly?
Becoming a Specialist? A hard decision to make ...
Specialising requires hard strategic decisions to be made about your business.
When good people move on
Losing a member of staff to another company is not necessarily a bad thing
The quest for quality in Agile Software Development
Why quality assurance remains a central part of project management, regardless of the use of Agile methods
© 2010 Ross Hall. All Rights Reserved.
If you wish to use any of the content from this site please contact me.
All contents provided for information purposes only.
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