Previous month:
February 2016
Next month:
June 2016

Cost-to-Serve(CTS) Vs Cost-to-do-business(CTB) - Looking at it from customer's eyes!

I often hear a lot of businesses and managers talking about a metric Cost-to-Serve(CTS) - reducing cost-to-serve a customer. They continuously talk about moving customers to lower cost channels and hence reducing the cost-to-serve & improving profitability. I find this ridiculous as an independent metric measured by businesses.



Let me explain you why:

What does Cost-to-Serve(CTS) mean?

Currently, if a business is using high cost channels, resources to service customers and hence it eats into the  profit margin of the business. Hence, the managers & leaders in the company are mandated to move customers to lower cost channels so that it is a self-serve channel for the customer and minimizes resources from the business's end.

Let me now look at it from a customer's point of view - What is Cost-to-do-business(CTB)?

I reached out to my service provider thro' the phone( a relatively lower cost channel) and spent about half hour explaining my problem to the associate on the other side of the phone. I was told that the problem will be resolved in 24 hrs and that they were transferring it to another technical team who will address it. I waited and nothing happened - no response or no resolution was in sight. I called my service provider on the phone again and this time to my horror, I had to repeat the problem all over again for another half hour. Here's one hour of a customer's time that has been wasted by the company -that's pretty precious, in my view which businesses give a damn, as it does not cost them anything.

I also emailed the problem I was facing, to put things in writing to customer service - which took me another 15 mins and then there was a spate of automated mails that were generated promising resolution within further 2 working days! Now, I had lost close to 72 hours in addition to an hour over the phone. Now, the web channel again was a low cost channel to business but it was a high cost-to-do-business for me, as a customer, as nothing was resolved. Neither, the channels were integrated to treat my problem on priority given my prior poor experience. The Cost-to-do-business with the company was too high for me, as it was eating into my time and effort - that close to 73 hrs and 15 mins( 72 hours of lost opportunity and 1 hour and 15 mins of interacting with them over different channels). How does business pay for these costs and factor for these?

Many of the financial services companies who I do business with, have asked me to move to e-statements, mobile app, online banking etc. Now, I am increasing my storage space on cloud to factor for these and storing them as if I ask for an e-statement beyond a year or so, then they charge me for it. However, none of these businesses have optimized the charges they debit to me - as earlier they were sending me all of these and providing services. Now, all my online fund transfers are charged, my POS transactions on debit card has increased but my debit card annual fees is not reduced, it is the same as I had paid couple of years back! Since, the time I moved to online & mobile banking, am not visiting their branches which saves them a lot of money as they have reduced their cost-to-serve me. The cost of doing business- CTB- with my bank has in fact increased for me - If I factor my time and transactions charges that I pay to them.

I believe there is a balancing metric that companies need to look at -which is Cost-to-do-Business(CTB) for the customer while they look at cost-to-serve metric. For my bank, if my branch visits have come down, if my ATM transactions have reduced & POS transactions have increased or my problems with my utility service provider is not resolved over phone, web channel etc. the cost-to-business in fact has increased and they must pass on the benefit.

It's time for business to think from a customer's point of view and then factor for these as customer migrate to newer channels & touch points. The cost-to-do-business(CTB), then it is to be tracked as a metric and differential value of benefits passed on to customers too.



We live in a complex world today where customers reach or talk or share their views about companies or the products they like, own or use or their experiences thro' a multitude of ways. The touch points, the IT systems and channels are quite fragmented. Each day there is a new one that comes-up and there are more new ones that will emerge too. And to provide expert solutions there will be many specialists who will there. Specialists by terminology, means they specialize in one thing and they may not know enough about the others. This creates "information islands" in companies & acts as a huge barrier to solve a customer's problem. Customers too are left confused or dissatisfied as disparate touch points complicate their interaction with companies, waste their time due to repeated or failed interactions & therefore delayed resolution of their problems.

But to configure an optimum solution, it needs "integrativeness" in individuals who bring this diverse set of data & knowledge together. It needs integrativeness in understanding, thinking and connecting the dots intelligently to identify patterns and solve the problem. No amount of technology or analytical insights or process can solve this problem.

For the sake of analogy, let's take status of healthcare today - There are hundreds of specialists like oncologists, gynecologists, cardiologists etc. The patient however wants to be diagnosed and cured. Period. The hospital provides an umbrella for the generalists and specialists to work together for a successful outcome - curing the patient- they want the best healthcare experience. The integrativeness is provided within the boundaries of the hospital where these expert doctors practice & thrive.

Integrativeness is increasingly going to become a source of competitive advantage for businesses & professionals to manage superior customer experience. Today, APIs-for example, are integrators between diverse systems, integrating internal data & external data is becoming the norm for superior analytical insights, real time business decisions & technology integration is becoming a reality.

The question people must ask themselves -"Do I practice integrativeness in the way I think & work?". They might not know enough about everything deeply but they must have integrativeness in their work flow thinking, accessibility & process to quickly connect diverse sets of only relevant data or resident knowledge in companies to quickly comprehend, develop insights and solve customers' problems.

Integrativeness can change the way customers are managed by companies and how solutions are effectively delivered for them. Integrativeness in individuals is about quickly identifying "match keys" for every problem and having a set of APIs in their brains to connect available knowledge assets within companies, accessing this across departments or specialist functions, succinctly creating powerful insights to deliver superior customer experience or solve a customer's problem like never before.

Because, they may not be experts in everything that they do, Integrativeness is the new normal around how people will need to learn & adapt at work. Else customers can see and feel the difference!