Booz&co a strategic-approach to self service. Capture the value, avoid the pitfalls

Ralph AlewineArindam ChatterjeeFlorian PötscherJoshua Swartz

Perspective

A Strategic Approach to Self-ServiceCapture the Value, Avoid the Pitfalls

Contact Information

AtlantaRalph [email protected]

Marjorie [email protected]

Arindam ChatterjeeSenior [email protected]

BerlinDr. Florian Grö[email protected]

ChicagoBret [email protected]

FrankfurtOlaf [email protected]

New YorkJoshua [email protected]

ViennaFlorian PötscherSenior [email protected]

Marjorie Taglieri also contributed to this Perspective.

Booz & Company

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EXECUTIVE SUMMARY

Self-service offers operational efficiencies, enables transformative business models, and enhances customer experiences. But if self-service channels and applications are not thoughtfully planned, they can also lead to customer dissatisfaction and attrition, loss of market share, and brand erosion. For this reason, companies should take a strategic approach to self-service adoption and implementation. Such an approach requires an analysis of a company’s core capabilities and its “way to play” in the market, industry trends, the proper mix of self-service and human interaction, and customer value propositions, as well as the development of six self-service capabilities.

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First American Financial Corporation recorded a 20 percent reduction in call volume after implementing an online self-service solution for policyholders with billing, claims management, and policy inquiries. According to Forrester Research, every 20,000 calls shifted online generates a cost savings of US$150,000 to $200,000.

In 2000, Wells Fargo became the first major financial institution to launch online self-service for corporate and commercial customers. Today, more than 330,000 of them use the bank’s Commercial Electronic Office (CEO) portal.

Netflix’s self-service business model has transformed the movie rental market. It has also overjoyed its owners, whose stock has appreciated at a compound annual growth rate of 45 percent over the past five years.

As the examples above suggest, self-service has significant benefits. It can be used to reduce costs, improve the customer experience (enhancing stickiness and retention), and power new business models. But self-service does not always create value. If it is applied improperly or in the wrong context, it can drive customers away, causing losses in market share and brand equity. To avoid this, companies should take a strategic approach to self-service.

SELF-SERVICE CREATES VALUE

Self-service can be used to reduce costs, improve the customer experience, and power new business models.

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1 Includes inbound and outbound touch-tone and speech IVRs. 2 U.S. online users. Source: Quantcast; Forrester Interactive Advertising Outlook; eMarketer; FCC reports for large incumbent local exchange carriers; Booz & Company analysis

Exhibit 1 Self-Service Channels, Monthly Unique Users (in Millions), 2007-2011

OF THE PAST THREE YEARS WAS HELPFUL BUT NOT SUFFICIENT TO PUT THE U.S. AUTO INDUSTRY BACK ON TRACK.

60%

50%

40%

30%

20%

10%

Industry restructuring put the industry on a path to achieving

full return on invested capital

Industry restructuring helped to address fundamental weaknesses

but did not go far enough

Industry restructuring was a missed opportunity to address

fundamental structural weaknesses

37%35%

53% 52%

11%13%

OEMSupplier

Per

cent

age

of R

esp

ond

ents

Marketing

2,200

2,250

2,300

2,350

2,400

2,450

2,500

2,550

2,600

2,650

2,700

2,750

2,800

2,850

2,900

2,950

3,000

3,050

8,000

8,200

8,400

8,600

8,800

9,000

9,200

9,400

9,600

9,800

10,000

10,200

10,400

10,600

10,800

5/225/155/85/14/24

Nikkei

Nikkei

Sony

Sony

4/174/104/33/273/203/133/62/27

-1%

-18%

-12%

-19%

5/29

SONY CORPORATION VS. NIKKEI 225 INDEX(TOKYO STOCK EXCHANGE CLOSING PRICES IN JAPANESE YEN)

Japanese Earthquake Sony PSN Data Breach

KiosksVideo2Social Networking2Portals2IVR1 Mobile

2007

7590

120129 127

30

60

128

3243

5967

92

121

95

135

203

82

2009

2011

1% 34% 13% 13% 16%

U.S. Retail U.S. MobileU.S. IVRs

4%

Google, MSN, Yahoo

Twitter, MySpace, Facebook

YouTube, HuluExamples

CAGR (2007-2011)

Channel

The benefits of self-service are driv-ing its adoption, and more and more customers are embracing its use. The usage trends in self-service channels, such as interactive voice response (IVR), social networking, video, kiosks, and mobile are all on the rise (see Exhibit 1).

Of course, the implementation of self-service by companies is not uniform across channels or industries. Some channels, such as IVR, which has been widely implemented for decades, are well established; others, such as mobile, are less mature, but have made early inroads in specific industries. Likewise, some industries, such as financial services, are already using self-service extensively and often

pioneer new channels and applica-tions. Usage is less widely adopted but still commonplace in telecom and consumer packaged goods (CPG)/retail. But others are early in the journey, even though they will likely adopt self-service at an accelerating rate going forward. Healthcare is a notable example in that last category: Currently it requires a higher-touch service experience, but as the pressure to reduce costs and expand access grows among healthcare payors and providers, their interest in self-service channels is sure to rise.

There is also a trend toward higher complexity in self-service channels. Less complex applications, such as using IVR to check account balances and tracking orders online, have been the low-hanging fruit in self-service, and many companies have already plucked them. Increasingly, however, they are seeking to apply self-service to more complex transactions and

gain the greater value that accompa-nies these efforts. For example, some telecommunications companies are currently leveraging social media by creating moderated forums in which their customers can get free support from one another. They are encourag-ing customers to provide support by offering status, such as expert badges, and incentives, such as points that can be traded for goods.

Wells Fargo’s CEO portal is a good example of this trend. When the bank launched the portal more than a decade ago, the handful of transac-tions it supported were of relatively low complexity. The first transac-tion conducted over the portal was a foreign currency exchange, according to Steve Ellis, the bank’s executive vice president of wholesale services. Today, however, the portal provides access to more than 60 types of transac-tions, many of them complex, such as Treasury swaps.

SELF-SERVICE TRENDS

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Although the benefits of self-service are compelling, it can cause more harm than good if improperly applied. There are three reasons companies should not try to imple-ment self-service on an ad hoc basis or without thorough consideration of its strategic ramifications.

First, self-service may detract from the customer experience. For instance, a Forrester Research study of customer service channels found that 57 percent of online customers in the U.S. are “very likely” to abandon an online purchase if they can’t reach customer service while shopping. Further, if self-service transactions are too difficult to execute or require expertise that customers do not have, they can create frustration and lead to loss of business.

Second, there are applications that may not be appropriate for self-

service. Grocery chains have been implementing self-checkouts for more than a decade, but in July 2011, Albertsons, which operates 217 stores in the U.S., announced that it was eliminating them in all of its stores because the lack of human contact hampered the development of cus-tomer loyalty. At least two other U.S. grocery chains, Kroger and Publix, are reportedly also reconsidering the use of self-checkouts.

Third, self-service may not support the corporate strategy; in some cases, it might actually conflict with it. For example, one of Goldman Sachs’s dif-ferentiating capabilities is the strong, personal relationships its partners build with their clients. Self-service applications could limit the number of opportunities for the one-to-one interaction on which such relation-ships depend and thus undermine the company’s success.

THERE ARE RISKS TOO

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In some industries, self-service may represent a viable opportunity to gain competitive advantage.

To mitigate the risks and capture the benefits of self-service, companies should use a measured, top-down approach to adoption. This approach should include four considerations: the fit with the company’s strategy; the self-service trends within the industry; the appropriate level of self-service in the application; and the customer value proposition.

Strategic FitBefore adopting self-service, executives should assess whether and how it fits with the three principal components of a comprehensive corporate strategy: the company’s way to play (its business model), with particular regard to the relationship it desires to have with customers; the select set of capabilities that enables it to differentiate itself in the marketplace; and its product and service portfolio.

They should also consider the place that self-service will occupy in the corporate strategy. At First American, where IVR is used to handle common customer queries more efficiently, self-service may be only one tool among many used to help reduce costs and streamline service. Conversely, self-service is the basis for the way to play at Netflix,

and accordingly, the company has developed it as a differentiating capability.1

Industry TrendsThe second consideration in evaluating self-service channels is the level of use and acceptance within the company’s industry. In some cases, one or more self-service channels may be considered basic options that every company must offer; in others, self-service may represent a viable opportunity to gain competitive advantage.

The most value-laden self-service applications tend to be those that customers have already accepted (and, indeed, are coming to expect) and toward which industries are currently moving. In financial services, significant self-service opportunities exist in sales and service. In healthcare, online insurance exchanges for retail customers (as mandated by the Affordable Care Act in the U.S.) and online discussion boards for patients are emerging as key self-service opportunities. In the CPG/retail sector, online shopping capabilities have matured in the past decade, but significant opportunities still exist for self-service at the store level—

FOUR STRATEGIC CONSIDERATIONS

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notwithstanding the actions of Albertsons, self-checkout is expected to grow 15 percent annually, according to NCR Corporation. In telecom, product and service customization has emerged as a top priority for self-service (see Exhibit 2).

The Service MixNext, a company should consider the proper place of self-service in its service channel mix. Typically, this requires determining the right mix of self-service and human interaction

for each of the company’s major customer segments.

The expectations and ability of customers vis-à-vis self-service technologies are widely varied. For example, companies that use a demographic segmentation will usually find significant generational differences in customer expectations: Generation X and Y customers tend to be very familiar with online and mobile channels for both self-service and information gathering; baby boomers, who came of age before

the Internet era, tend to favor channels such as IVR and kiosks for self-service and online channels for research; and senior citizens favor offline channels and expect a higher level of human interaction. Thus, a financial services company that provides 401(k) retirement plans would probably want to offer a mix of service channels based on the age of its plan members. Its youngest members may want to manage their own accounts and trade online, and utilize social media channels for

Source: Booz & Company

Exhibit 2 Self-Service Opportunities Across the Value Chain, Selected Industries

Financial Services

Industry

Telecom

CPG/Retail

Healthcare

CUSTOMER &MARKET INSIGHT MARKETING SALES SERVICE &

OPERATIONS

- User review on product/service- Social monitoring for brand- Personal info updates

- Marketing program utilizing outlets like social networking for users to spread and share content

- Lead and referral generation by customer- Retail product purchase and cross-selling

- Bill payment and claim filing - Balance check- Product/service renewal and modification- Inquiry management

- Product and network reviews and feedback on social networks, blogs, etc.

- Marketing program integration with social networks and campaigning

- Online shops for new handsets, contracts, etc.- Self-service for member programs (points)

- Bill payment- Balance check - Customer inquiry- Contract changes and amendment

- Product reviews on blogs and social media

- Marketing program utilizing outlets like social networking for users to spread and share content

- Online retailing and cross-selling - Self pickup and checkout (at store)- Lead generation through user recommendation

- Inquiry management- Self-service return management- Store navigation using kiosk service

- Health product/service usage preference

- Marketing of wellness programs managed through mobile devices and online venues

- Retail online shopping as exchanges emerge and introduce new markets

- Crowdsourcing disease management- Online bill payment and account updates- Online claim tracking

Significant Opportunity

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service or product research. Middle-aged customers may place a higher value on their time and expect the services of personal financial planners. And retirees may want fewer, more conservative investment choices and automatic withdrawals.

Additionally, the right mix of self-service will vary based on the complexity of the transactions and the desired customer experience. For example, when Capital One Financial Corporation adopted an IVR system to automate many customer calls, it did not use the system for calls regarding fraud. The complexity and urgency of these calls and the emotional state of the callers, who are often upset and stressed, precluded it.

The Customer Value PropositionIt is abundantly clear that companies can gain operational synergies and reduce costs with self-service technologies, but the value of self-service is not always so obvious to customers. As a result, if companies

expect customers to use self-service channels, they should consider and be able to articulate what is in it for the customer.

The airline industry provides a notable example. In recent years, the airlines have adopted an extensive array of online self-service choices for booking flights, selecting seats, checking in, obtaining boarding passes, and accessing and managing incentive and loyalty programs. The airlines have done a good job of communicating the customer value proposition of online channels—benefits such as “one-stop” online shopping for air travel, 24/7 flexibility for bookings and check-ins, and time savings, especially in avoiding queues at kiosks and counters. They have promoted online self-service channels through online and traditional advertising campaigns and have incentivized usage by adding fees for using more traditional channels, such as booking flights via call centers and delivery of paper tickets. As a result,

customer acceptance and use of online self-service have soared.

Like the service mix, customer value propositions should also be customized by customer segment in order to maximize the use of self-service options. This requires that companies understand the preferences of customers in each segment and, to the extent feasible, design the look, feel, and capabilities of each self-service application by segment. In marketing applications, this might include opt-in e-mail newsletters that offer customers a convenient way to learn about products and services, while saving the company printing costs. In sales, it may include automated recommendations based on previous purchases that add value to the shopping experience and drive new sales. In service, it may include a variety of self-service options that enable customers to choose the most convenient means of contact, while still allowing companies to reduce their support costs.

If companies expect customers to use self-service channels, they should consider and be able to articulate what is in it for the customer.

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There are six capabilities that support self-service strategy formulation and implementation: user experience; customization; education; promotions; analytics; and execution planning.

User experience• encourages self-service adoption and use by customers. Examples include the design of easily navigated interfaces, such as the simple, three-step movie rental process at Redbox’s 27,000 kiosks, and technologies, such as the iPhone keypad, that are intuitive and familiar to customers and can be used for multiple applications.

Customization • ensures that self-service is relevant for the customers by providing a mix of traditional service channels and emerging channels, such as mobile or social media, and allowing customers to select

among them based on their needs. Esurance’s tagline—“People when you want them, technology when you don’t”—communicates how the company aligns service channels to customers.

Education• ensures that customers learn how to use self-service channels. Good examples include interactive educational programs, like those that E-Trade uses to teach new investors how to open and manage their accounts and use the company’s investing tools, and streaming videos, which providers such as Google embed into new services when they are introduced.

Promotions • ensure that customers become self-service loyalists. Examples include providing incentives for the use of a self-service channel (for example, Bank of America has added a small fee for making loan payments over the phone that its customers can avoid if they pay online) and finding different ways to incentivize customers where regulations limit or prohibit promotional discounts, such as a reduction in insurance

deductibles to reward consistent online self-service users.

Analytics• enable companies to segment customers based on their behaviors, such as preference and choice. An example is using business intelligence tools to better understand customer data and to surface insights into customers’ behavior in self-service channels and their propensity to use self-service. Analytics are particularly useful in understanding IVR usage and adjusting IVR paths to facilitate the customer experience.

Execution planning • ensures that self-service applications are implemented effectively and integrated as needed. Examples include a focus on delivering an optimal customer experience, rather than just efficiency, and integrating self-service channels for faster response—for instance, redirecting inbound callers to the company’s website if an IVR channel is not optimal to address their needs. Customer safety and security, such as two-factor authentication customer log-in, must also be considered.

SIX CAPABILITIES FOR SELF-SERVICE SUCCESS

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Finally, companies should use a measured and proven approach to self-service implementation and management. Successful initiatives typically follow a three-stage process.

In the first step, which encompasses the work described in this Perspective, a company establishes the self-service strategy by

identifying the best opportunities for self-service and ensuring that they are aligned with its capabilities and its way to play. In the second step—testing self-service capabilities and channels—the application is piloted on a limited basis to ensure that it achieves the intended goals. The third step, growing and sustaining self-service capabilities and channels, encompasses the full-scale rollout of the application and its ongoing management and refinement.

This approach can go a long way to ensuring that a company captures all of the benefits of self-service, while avoiding the common pitfalls.

IMPLEMENTATION AND MANAGEMENT

About the Authors

Ralph Alewine is a partner with Booz & Company based in Atlanta. He leads the healthcare-IT customer solutions practice for North America.

Arindam Chatterjee is a senior associate with Booz & Company based in Atlanta. He focuses on marketing, sales, and service CRM capability development, innovation, and IT strategy in the financial services, retail, and healthcare industries.

Florian Pötscher is a senior associate with Booz & Company based in Vienna. He assists clients in consumer-oriented industries, such as telecom, high tech, and media, to develop new business and enhance their customer service capabilities.

Joshua Swartz is an associate in the Booz & Company IT practice based in New York. He focuses on sales and marketing automation, provider network and data management, and operational efficiency in the healthcare industry.

Endnote

1 For more information on capabilities-driven strategy and its three components, see The Essential Advantage: How to Win with a Capabilities-Driven Strategy, by Booz & Company’s Paul Leinwand and Cesare Mainardi (Harvard Business Review Press, 2011). www.booz.com/global/home/what_we_think/books/essential_advantage

http://www.booz.com/global/home/what_we_think/books/essential_advantage

http://www.booz.com/global/home/what_we_think/books/essential_advantage

Booz & Company is a leading global management consulting firm, helping the world’s top businesses, governments, and organizations. Our founder, Edwin Booz, defined the profession when he estab-lished the first management consulting firm in 1914.

Today, with more than 3,300 people in 60 offices around the world, we bring foresight and knowledge, deep functional expertise, and a practical approach to building capabilities and delivering real impact. We work closely with our clients to create and deliver essential advantage. The independent White Space report ranked Booz & Company #1 among consult-ing firms for “the best thought leadership” in 2010.

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Booz&co a strategic-approach to self service. Capture the value, avoid the pitfalls

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