A BDO report based on a survey of more than 800 senior business leaders around the world reveals that almost two thirds (59 percent) of all companies have experienced customer service failings that had a significant impact on their financial performance. Yet one in four companies failed to invest in customer service in the past two years, and most firms struggle to measure its effect.
Good customer service can be defined in different ways. It may be linked to the speed of service delivery, quality, or responsiveness to customer queries. Increasingly, BDO says, it encompasses the entire customer experience based on a broader set of values ranging from initial marketing to the ongoing after sales relationship with the customer.
Although businesses throughout the world acknowledge that good customer service is essential for their long-term success, measuring the impact of customer service remains difficult.
The results of BDO’s report “Service 2020: Return on Service,” however, paint a clear picture of the effect poor customer service has on a business.
A quarter of the companies surveyed (27 percent) lost customers as a result of customer service failings, 15 percent saw a direct share price decline from poor service and 23 percent had to compensate customers.
These figures might even be higher if more than just a third of companies (36 percent) had a strategy to measure the link between customer service and financial performance.
Measuring customer service
Monica Woodley, managing editor of the Economist Intelligence Unit, says many businesses find themselves in a service catch-22 situation. While they intuitively understand that customer service impacts financial performance, they are unsure how to make a clear link with the bottom line. “So they don’t prioritize service at a board level because they don’t fully understand it, and they don’t fully understand it because they don’t prioritize it. More businesses need to take action now to break this service cycle or risk losing out to competitors,” she says.
At least a significant number (41 percent) is following the old adage that you can only manage what you measure, and they are working on developing a system to ensure they have accurate figures on the overall customer experience, the performance of front-line staff and problem resolution. Still there is little consensus on the best approach, both for measuring service quality and its impact on financial performance, the report noted.
Glen Trenouth, managing partner at BDO Cayman, says the report’s findings have implications for most businesses in Cayman. “As well as the many small businesses here that are generally more aware than larger companies of how important customer service is, Cayman’s economy revolves around the two giants of tourism and financial services, both of which live and die by their customer service,” he says.
“Companies and government should take a look at this report and see how they can leverage the deep skills and experience in customer service that reside here in Cayman due the tourism and financial services entities.”
The majority of companies think they offer good quality customer service and believe it is one of the most important factors in retaining their customers. But in general, they view quality and value as more important in winning new customers. Only 15 percent of companies say customer service quality is their primary means of competing. “This may be due to companies thinking of quality and value as separate from service, rather than including these attributes as part of the overall customer experience,” the report said.
Allan Evans, global head of Clients and Markets at BDO, says companies are right to focus on quality, value, price and innovation but not to the detriment of service quality. “Boardrooms are blinkered – even with clear evidence that poor service is hindering profitability, businesses are failing to invest in, track or apportion sole responsibility for service. We’re calling for more companies to put service on the boardroom agenda and have a clearer focus on the link between service quality and the bottom line. Only then will companies be able to develop clear and effective strategies to make a return on service.”
Despite customer service draining profits for many, one in four businesses (27 percent) have made no investment in service whatsoever in the last two years, BDO said.
The companies that invest in customer service focus predominantly on enhancing customer experience, customer loyalty and satisfaction, service delivery and upgrading technology. Other important areas of investment are research and development and staff training with 40 percent of companies expecting to spend funds on improvements.
But even when companies do invest in customer service, they struggle to measure a return on investment. Less than a quarter (22 percent) has seen a measurable improvement in financial performance after the investment. The majority of firms (34 percent) believe there has been an improvement but they are unable to find figures to confirm it.
Improvement needed at the top
Jo Caulson, chief executive of the Institute of Customer Service, says financials tell the CEO where the organization has been, but customer satisfaction data gives good indications of where it is going. The report’s findings confirm that companies must regularly review the metrics they use to measure customer service. “If they don’t, it is impossible for boards to measure the impact that service makes to the bottom line and ultimately take action. A genuinely aligned, joined-up organization sees customer service as a key part of its strategy and integral for every aspect of the business.”
BDO found that one of the problems is that customer service is under-represented at the board level. Only 28 percent of companies worldwide have a head of customer service on their board. Generally, these functions are filled by the head of sales and marketing or human resources.
As only a quarter (29 percent) of business leaders feel being seen to be customer focused is key to career progression, the awareness of the importance of customer service needs to be established at all management levels of an organization, the report noted. In fact, employee and other internal issues are taking precedence over customer concerns in nine in ten organizations.
Low tech engagement
Going forward, customer service will need to adapt to changing consumer behavior. The globalization of markets and the effect of social media are empowering consumers. How companies respond through effective online engagement will become essential for companies in all sectors in the future.
Currently customer engagement for many companies is still low tech. Only 36 percent of companies use social media to engage customers and just 15 percent believe social media will become the most important method of engaging with customers.
Surprisingly, more than a quarter believe its importance in 2020 will be the same as it is now.