Monday, 31 January 2011

How Do You See Your Customers?

The way a business sees its customers influences the way it serves them and therefore its continuing success.

Perceived management “wisdom” dehumanises customers by teaching that they are a source of income and that one should find as many ways as possible to extract this. This has resulted in the development of Customer Relationship Management (CRM) systems designed to track, record and analyse a business’ interaction with customers and how much revenue is earned from each customer, contact or product, as well as how much each customer costs to serve. Customers become fruits to be squeezed for juice, and they’re clever enough to tell!

Systems segment customers by age, income, socio-economic group, education, sex, postcode and any other number of categories. Systems “slice and dice” them to determine the best way of squeezing more out of them, identify new opportunities to sell a particular product, or reduce costs of service.

As pressure mounts to increase revenues and productivity and/or to cut costs, customer service gets relegated to low-cost “service centres” far from the customer they’re meant to “serve”. Typical examples of this in the UK are the offshore Call Centres so often vilified in the press. So intense have the complaints become in some cases, that some organisations are bringing their Call Centres back to the UK (albeit still to more remote – read “cheap” - locations).

Another strategy is to push customer-handling further “down the line” to more junior (and therefore cheaper) staff who have little authority and work from “decision trees” to handle up to 95% of possible customer enquiries. When they get a problem they can’t solve, they have to refer “up the line”, causing delays.

A friend of my parents had a typical encounter with one “Call Centre”. She called up to ask to speak to her bank branch and was told that the person to whom she was speaking could handle any question. She said that in her opinion only her branch could answer her question, but was assured that this was not the case. Her question: had she left her glasses on the counter at her branch?

With all the “science” and cost-consciousness, what people forget is that it’s the “traditional” methods that often produce the best results. As technology improves, it is becoming cheaper to provide certain services, but in the end, it is the customer’s experience that dictates whether they will continue to use a particular supplier. Cheap can work, but many of us have encountered expensive and poor service more than once.

Good service begets customer loyalty which begets repeat business. Although people have realised that it costs more to bring one new customer on board than to keep one happy, processes seem to focus more on extracting more cash rather than making the experience pleasurable and therefore maximising that which is already there. Yes, one has to have “new customer initiatives”, but how many “existing customer initiatives” does one hear about? How many initiatives does one hear about designed to treat customers as the people that they are?

Michael Heppell in his book 5 Star Service offers some great insights into what makes for good service – and it’s all about treating customers not as piggy banks but as people. As long as customers are seen as cash cows, there will always be room for organisations who “treat them right”.

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Thursday, 20 January 2011

Brand Damage By Others

One of the risks that businesses often fail to take into account is the damage that can be done to their reputation or brand by the acts or omissions of others. Reputation/brand are often what make customers choose one supplier over the other and you need to make sure that you don’t forget this vital marketing tool.

In a previous article, I showed how a business can damage its brand by its own acts/omissions. These can be controlled. The acts/omissions of others, however, are a trickier issue as you don’t have as much control over them (or do you?).

Here’s a story of a friend of mine. Tom (let’s call him) recently switched to a new gas supplier as they offered a lower price than his current one. The new supplier was a “household name” and their promotional literature painted a rosy picture of “quality service” and “reliability”. Tom’s gas is stored in a tank on his property and has to be refilled by a tanker truck. Tom pays by direct debit and never misses a payment.

He ordered a delivery of gas in mid-December 2010, and was told that his new supplier couldn’t give him a delivery date. The UK was suffering at the time from unseasonably heavy snow and cold weather and the resulting dangerous driving conditions prevented delivery trucks from reaching outlying areas. They were having to prioritise and it was felt at the time that Tom’s gas levels were still sufficiently high not to constitute an “emergency”.

Over the following weeks (which included the Christmas and New Year holidays), Tom called his supplier regularly to update them. The weather improved, but then it turned out that his supplier got their gas from a third party and that this third party was rationing the supplier!

Situation: Tom’s supplier’s reputation was now being damaged by another party who couldn’t supply gas in sufficient quantities. Tom wasn’t the only one in this position. As his gas levels sank lower and lower, he began to worry for his young family as they needed gas for heating and cooking. In his eyes, his supplier wasn’t performing. When he pointed out that he considered this a breach of his Supply Agreement, he was referred to a clause in the small print which any half-competent lawyer would have had thrown out.

He asked to speak to a senior manager and was told that this was not possible.

Lesson: if you rely on someone else to enable you to deliver a product or service, you need to understand what could go wrong for them, how it could impact you and what you need to do to limit reputational damage. Tom’s supplier hadn’t assessed this properly and therefore hadn’t developed an Action Plan for when things went wrong. The weather in the UK turns colder in winter and therefore demand for gas for heating will rise. Physical conditions may prevent safe delivery of the product/service, but that’s no excuse for not having a well thought-out and communicated plan.

Your customer service staff will be critical – there’s no point in them hiding behind technicalities, “policy” or “other parties” – this is not what customers want to hear! As far as they’re concerned, they deal with you and it’s up to you to ensure delivery. They want empathy and action, not platitudes.

So what do you do?

First: assess what could go wrong with the supplier (you may need to understand how they work).

Next: ask what is the worst impact that this could have on your ability to perform?

Third: develop a plan to deal with this. It may involve having an alternative supplier, prioritising which customers you will supply, special training for staff to handle unhappy customers, additional insurance cover, maintaining a “buffer stock”, agreeing with your supplier a plan for restoring “normal” service as soon as possible and so on.

Fourth: have a plan to deal with any resulting negative publicity. The internet is a powerful tool and with Facebook, Twitter and various consumer complaints sites, it’s all-too easy for people to damage your reputation beyond recovery. Northern Ireland Water failed to do this when 40,000 customers lost their supplies due to pipes bursting in during the cold winter weather in 2010.

Finally: when the crisis is over, thank all those who helped you – your staff, other suppliers, customers who were particularly patient or understanding and so on. “Thank You” costs nothing to say, but will buy you masses of goodwill!

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Wednesday, 12 January 2011

The Men At The Top: Antonio Horta-Osorio

António Mota de Sousa Horta Osório (to give his full name) was born in Lisbon in January 1964. He is the eldest of four children of António Lino de Sousa Horta Osório, a lawyer and champion table tennis player, whilst his grandfather was a lawyer and politician. His great-grandfather is described as a nobleman, magistrate and jurist. His maternal grandfather was Procurator General of the Republic and President of Portugal’s National Sporting Club.

He graduated in Management and Business Administration from the Catholic University of Portugal in 1987. In the same year, he married and is now a father of two daughters and a son. He also received an MBA from INSEAD - where he was awarded the Henry Ford II Prize – in 1991 and completed an Advanced Management Programme at Harvard Business School in 2003. His educational and academic pedigree is, to say the least, strong!

He was created a Commander of the Order of Civil Merit of Spain by Juan Carlos I in August 1998 and of the Order of the Southern Cross (of which his maternal grandfather was a Knight) in October of the same year.

In June 2009 he was appointed as a non-executive Director to the Court of the Bank of England. He is believed to be close to Mervyn King, making him that rare specimen – a banker favoured by the Governor (according to The Telegraph). This may also give him credibility as he tries to convince the Independent Commission on Banking this year competition is alive and well in the UK banking industry.

He began his career at Citibank in Portugal in 1987, becoming Vice President and Head of Capital Markets until 1990. Concurrent with this, he was an Assistant Professor at the Catholic University. After receiving his MBA from INSEAD In 1991, he moved to Goldman Sachs International Limited, working in New York and London on Corporate Finance activities in Portugal.

In 1993 he moved as CEO to Banco Santander de Negócios Portugal at the invitation of Emilio Botin. From here, a well-documented series of moves saw him climb the Santander management ladder in Brazil and Portugal until he became a non-Executive Director of Abbey in 2004 and then Chief Executive in 2006 of its successor – Santander UK. He also became Director General and a Member of the Direction Committee of Banco Santander in Spain, President of the Administrative Council of Banco Santander Totta and Banco Santander de Negócios Portugal. With the purchase in 2008 of Bradford & Bingley’s savings business and the acquisition of Alliance & Leicester his responsibilities increased again. He cleaned up the businesses, taking them out of the mortgage market before the crisis, enabling Santander to weather the storm. This is the success that set him apart from many of his peers and may have been what attracted Lloyds Banking Group (LBG) to him.

His motto at Santander is described as “Efficiency, service quality, value for money, customer loyalty and a meritocratic environment.”

In 23 years since graduating from university, Horta-Osorio’s career path and success in Abbey and Bradford & Bingley have attracted the approbation and admiration of the markets. His appointment to LBG where he takes over as CEO in March this year may mean a focus on costs and divestments. The sale of the Cheltenham & Gloucester branches may be moved up the agenda, underperforming loans may be sold cut-price as the bank seeks to reduce its loan book. Bad assets will be reviewed and cleared out. After his success at Santander in the UK, Horta-Osorio knows about running large financial organisations, and he will need this for the new LBG.

What did the markets think of the appointment? The share price rose by £1.23billion when his appointment was announced, and other market commentators have been favourably impressed by the charm and political skills of this scion of Portugal’s hereditary, legal and sporting aristocracy.

One colleague at Santander speaks highly of him, describing him as “charming and smooth”. “He has an aura that says, ‘I’m in charge’… We’re very disappointed he’s leaving and would rather he stay,” he said. “People who have worked with him are loyal and filled with pride.”

It wasn’t all good, though. When details of his remuneration at LBG came out in late 2010, it sparked comment from Shadow Chancellor Alan Johnson and Brendan Barber of the TUC. To put it into perspective, his package is (according to LBG) "substantially" less than his maximum potential pay at Santander, where his salary and bonus for 2009 were £3.4million according to The Telegraph. He had to give up 17 years’ of pension benefits, a lot of goodwill and perhaps even a shot at the mantle of global Santander Chief Executive.

Not being a member of the “Botin Dynasty” might, however, have been a deciding factor against him and a contributor to his decision to move to LBG… The Chancellor has said that part of his pay package depends on him boosting business lending, but targets need to be set. Additionally, LBG’s shares must rise to 114p before a £4.3million share incentive plan comes into force. This, according to the Chancellor, will give UK taxpayers a profit of £11billion on their 43% stakeholding. As at time of writing, LBG’s shares are trading at 67p, so there’s a way to go…

Horta-Osório wrote in his INSEAD profile that he “would like to create the best and most successful commercial bank” in the UK. Noone can doubt that he has moved Santander well up the league tables. However, he is described as “a ruthless cost-cutter” - around 10,000 Abbey roles were cut in the three years after Santander’s acquistion. Customer service has been seen as a weak point. Abbey/Santander, have consistently finished at the bottom of the customer service tables. In their favour, though, Santander has also offered the best deals according to The Telegraph.

In the same profile he writes, “Throughout my business life my success has stemmed from my ability to recruit and build high calibre teams, without whom the companies I have led would not be where they are today.” For LBG, this means that Juan Colombás, Head of Risk at Santander UK, is scheduled to join this month as Chief Risk Officer. He replaces Carol Sargent who will leave. Antonio Lorenzo, Santander’s Chief Financial Officer, will join in March as director of its Wealth and International Division, replacing Truett Tate, head of LBG's wholesale banking business.

Commenting on the UK banking scene, Horta-Osorio says, "I wouldn't say bankers are being victimised. I would say that as an industry it has to work hard to improve its credibility." At the time of writing this, the new Chief Executive of Barclays is in front of a select committee defending the industry… Horta-Osorio is optimistic, however, "I think the UK has all conditions to emerge even stronger from this crisis on a relative basis and will continue to be a key competitive advantage of the economy. That does not mean errors don't have to be corrected." The Telegraph November 2010.

The challenge for Horta-Osorio can’t be understated. He needs to shrink LBG (albeit by a modest 5%) to avoid a break-up being forced on him, but at the same time re-shape the organisation into a force that delivers value to its shareholders and a return to the taxpayer. Perhaps expansion overseas will figure on the list of strategies to examine. This would reverse the previous trend of LBG’s contraction into a large UK-oriented bank. Is there the expertise within, though, or will he need to hire more from outside?

Additionally, LBG faces a funding problem over the next two years and will suffer if house prices fall further, as many expect they will.

The press have commented that Horta-Osorio is known to swim with sharks during his holidays. Without knowing where, how often and with which type, I won’t attempt to draw parallels, but he will certainly need his nerves about him over the coming years.

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