In our roles as business system analysts we think a lot about control. In fact every process from balancing cash flow to hiring and promoting the right staff is carefully designed to maintain control. In the operations of any business the most important “KPI” is the Net Performance Score. NPS is a measure of how customers feel and what they think about the business. We take informal measurements of NPS every day in the ordinary course of doing business. If we have no complaints it means that everything is under control. If we were to plot this on a graph we would identify the baseline as zero. X would indicate time and Y would reflect each incidence of a customer complaint. Our goal in business is to encounter the nearest to zero errors possible. Inversely we strive to have one hundred percent positive resolution of complaints.
To illustrate how this works in practical terms imagine walking barefooted on an urban parking lot. Everything is fine until you step on a shard of glass. The nervous system instantly signals the brain that a problem is occurring. You wouldn't ignore a wound to your foot. To do so would be ludicrous, it might get much worse if you were to ignore the problem. If left unattended, the laceration could even get infected and in turn poison your bloodstream. What started out as a very minor problem could kill you. A similar fate might result to a business that ignores its customers concerns. Remember the goal is zero complaints and one hundred percent resolution. Taking care of business means taking care of our customers, and how well we do that directly impacts the top and bottom lines of our income statements.
In a case study let’s examine an Equipment Rental Company called ACME RENTALS. ACME is in the business of leasing tools and equipment for special events. As a part of the operating process ACME has a lease agreement which includes itemized charges particular to the depreciable assets and peculiar expenses attributed to them. On Tuesday June 13th, Mr. Smith rented a high velocity cutting tool which included a three hundred dollar diamond studded blade. Because the blade is an added recurring expense, (An additional item that must be replaced) its usage costs are spread evenly to customers who rent the saw. In terms of system language we call this a reference point. While it is true that some customers might use the saw more heavily than others, but it is cumbersome to track actual usage by a particular customer and the saw is rented on a per day basis. The blade costs $300 to replace so we charge $25 since we know that eight hours of use cutting a concrete surface wears the saw about one inch.
Mr. Smith is upset after scrutinizing his bill and realizing that he had been charged the twenty five dollar fee. He had this to say:
“I only used the saw for five minutes to cut an expansion joint into a bulkhead at a stress point that my mason had overlooked during the concrete pour, I’m working out of town and it was cheaper to rent the saw than to make the two hour drive back to the company yard to retrieve our own. I agreed to the forty dollar rental fee because that seems fair but $25 for the wear on the blade seems excessive. Really they seem to be taking advantage.”
You are the manger and it is your responsibility to enforce your company’s policy. One of those policies is to make money and another one is to achieve complete customer satisfaction. In this instance the two mandates might seem at odds with one another. Other factors which might not be as apparent (because they are less urgent) are the lifetime value of Mr. Smith’s patronage to the business. Butlifetime value is a hugely important factor as it has a big impact on the business over the long haul. If Mr. Smith spent only $40 per year over the next twenty years it would mean revenues of $800. That is how much direct cost mishandling the situation could mean to the business.
Moreover indirectly, your treatment of Mr. Smith’s “owie” can mean the difference between a future where he sings sweet melodies when the subject of ACME RENTALS arises or perhaps instead it could mean that Smith baulks to the local building inspector, (who just happens to be his brother in law) and anyone else who will listen telling everyone (and from his perspective meaning it) that ACME RENTALS are a bunch of crooks.
On the other hand the mechanism for revenue is an urgent and important one. It is quite necessary to achieve revenue and profit sufficiency, some of the value created must be captured by the business. You might feel that it is unfair to make an exception for one customer while excluding others. But will you be swayed by your feelings or will you act from intention and reason?
It is true that there are many ways to think about different kinds of value. Do you really value your customers? How you handle this situation will have an impact on your reputation, and what is more that effect will accumulate as either profit or loss over time. I know exactly how I would handle this situation. But let’s hear what you would do.
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