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TM
Sense and Respond
Avoid the waste but not the value.
Stephen Parry
INDUSTRY STRATEGY WHITE PAPER ON CONTACT CENTERS
Paper originally prepared for the Customer Contact Association Leadership Council.
First Published by the CCA 2008. Second Edition v1 January 2013.

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Sense and Respond: Avoid the waste but not the value.
Stating the obvious but is it right?
At the risk of being accused of stating the obvious, a well-known research company has
recently demonstrated that contact centers resolving customer issues at the first point of
contact will increase customer satisfaction.
This influential report has fuelled the drive by many companies to increase their first-
contact-resolution performance through the introduction of call eradication or call
avoidance schemes. All well and good, you might say. But hang on a moment. The
research results may seem obvious but everybody appears to have missed a very
important point. Does anybody truly know whether these first-time resolutions are
actually creating value for the customer or are we unintentionally creating cheaper, faster,
neater forms of waste?
The research is fundamentally flawed, because it fails to consider the customers’
perspective of value, and the company actions are quite literally the wrong solution to the
wrong problem. Why? Because our own findings have demonstrated that in many call
center operations, as much as 90% of the demand made for the service is actually waste
that has inadvertently been created by the organisation itself. Fixing things which should
not have gone wrong in the first place is not creating value for the customer. And to add
insult to injury many companies are calling customers to let them know in advance that
they will fail to meet their commitments. Again this seems reasonable until you dig a little
deeper.
We all accept things can occasionally come off the rails so calling customers in advance to
let them know may be thought of as proactive and ‘good-service’. However when you look
at the army of people many contact centers employ on this task, it reveals these
‘occasional’ incidents for what they are, predictable failures of a badly designed and
unorganised service. A service where incidents are allowed to proliferate leaves front-line
staff with but one option, to try and tone down the situation and pacify the customer. This
is anything but proactive, it’s institutionalised waste.
There is also a human cost to these strategies. Research has demonstrated that the
biggest source of call center staff turnover/attrition is created when staff are expected to
continually calm down irate customers, it is a cost paid for by emotional stress.
If companies design contact centers around the problems of their own products and
services, these operations end up as a mere corporate waste disposal units.
The Modern Contact Center is not designed to meet the needs of the modern customer.
Take a closer look at the costs associated with this type of approach. A conservative cost
estimate of a call center with 1,000 staff will be around £30m per annum, and anywhere
between 40-90% of the calls handled by a typical call center, add no value to customers.
This means that businesses incur unnecessary costs of between £12m-£27m. It’s no
wonder there is a drive to reduce costs through the use of automation or ‘offshoring’ to
low-cost labour markets, but again, this is the wrong solution to the wrong problem.
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All businesses have costs, but waste is optional. So, let me pose a few important
questions:
Do you have any idea how much value you create for your customers today? Even if you
think you do, can you quantify it? And can you identify how much waste presently resides
in your processes and how you could create value at no additional cost?
If you answered ‘no’ to any of the above, the likelihood is that you’re generating
unnecessary waste with associated negative cost implications.
The answer is to create a framework for defining what is and is not value from the
customer’s perspective. To understand this we must examine the customers’ purpose, for
it is the customer’s purpose which provides the one true definition of value, not the
organisation’s belief. Once the customer’s purpose has been identified it becomes
obvious what types of calls are valuable and must be resolved first time, and those which
are waste to be eradicated.
This change of emphasis has a significant impact for the role of the contact center. It is no
longer about simply understanding the transaction, but is about seeking out a thorough
understanding of the customer’s purpose within the context of the whole value stream. It
really is a different type of organisation with a different purpose.
CORE Profile: A Purpose Framework
The customer purpose defines value, and value defines meaningful work, everything else is
waste. The organisation and its leaders need to know what to optimise, what to remove,
what types of demand to increase, and what types of demand may present opportunities
to create new products or services. Our research indicates that most operational
managers and leaders think they know what waste is, but in reality what they consider to
be value is in fact intuitional waste, habitualized by calling it value.
Most companies genuinely want to create value for their customers and sincerely believe
that their customer-service operations are indeed doing that, but often they are simply
restoring lost value caused by a failure to do something right the first time. Customer
demand can therefore be classified into two types: demand that is essentially driven by
the customers’ positive needs, and demand that is negative or remedial in its origins.
CORE Profile: Value definitions
Is defined by ‘Customer Purpose’. Deliver value
effectively to customers and efficiently to the
organisation.
CREATE
(Optimise)
Creates the possibility for developing new services that
OPPORTUNITY will satisfy customers or increase production and
(Innovate) revenue.
RESTORATIVE Occurs when the organisation delivers unfit products or
(Restore and Remove) services. Production is lost, the customer is unhappy,
resulting in loss of money, time, and reputation.
EXTERNAL
(Restore and Re-think)
Originates externally and is usually waste or demand
that is created by other organisations, agencies or
institutions.
Fig 1.
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Positive and negative customer demands each have two sub-components, as shown in
Figure 1: Creation and Opportunity demands, which are both positive in origin; and
Restorative and External demands, which are both negative in origin. Identifying the
proportion of positive to negative demand is an integral part of improving services and
reducing operating costs.
C = Creation demand
Creation demand comes into a service organisation because customers want to
understand how to optimise the functionality of their service or product, or how to obtain
more of what they already have. Creation demand is not the result of something being
wrong, but rather the result of customers’ questions such as: ‘Which product is best?’ or
‘How can I get more out of my product or service?’
The customer is looking for a highly efficient answer to their questions. Optimised
efficiency can be achieved by helping reduce the number of decisions a customer has to
make to obtain their desired outcome and streamlining the processes and information
required to fulfil the request. This type of demand is often suitable for automation or web-
based assistance provided the customers’ purpose does not require a human touch.
O = Opportunity Demand
Opportunity demand occurs when the customer wants something that is not currently
offered. Most organisations will merely apologise to customers, saying that they can’t
fulfil the demand, and will then terminate the transaction, but it is critical to capture this
type of enquiry. Opportunity demands can provide a rich source of ideas and data for new
services or product lines. Organisations ignore this type of demand or eradicate it at their
peril; they might just be throwing away their future existence. Many organisations don’t
realise they are often standing on a mountain of diamonds looking for gold.
R = Restorative Demand
Restorative demand occurs when the organisation delivers unfit products or services,
generating unwanted demand as a consequence. The work involved in correcting this
situation is deemed to be restoring lost value but the main results are customer
dissatisfaction and loss of money, time, reputation and loyalty.
Restorative demand needs to be removed by identifying and rectifying the originating
cause, which may even reside in other parts of the organisation. It is a huge drain on
resources and risks the future wellbeing of the organisation.
And here’s the golden rule: Never automate or outsource restorative demand. Automation
for this type of demand locks in frustration for the customer and for the frontline staff.
The customer has to make repeated calls when the problem is not resolved and support
staff feel disenfranchised because existing constraints prevent them from making any
difference in this situation. The spiral continues, with the customer becoming more and
more disillusioned, which generates additional negative demand, while the frontline staff
feel increasingly powerless to change things.
Only in poorly run or unethical companies would you find revenue being generated
against demand of this type.
E = External Demand
External demand is failure generated externally by other agencies, institutions or
companies. Organisations can generate revenue against this type of demand as long as the
external failure continues to present itself, or until a competitor metaphorically fixes the
road and removes the need to fix tyres.
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External demand should be addressed by rethinking the environment that allows it to exist
and by developing new solutions. In this context it is perfectly respectable for a company
to restore value, because the things that are not working are the responsibility of other
organisations. In fact, some businesses are set up specifically to handle this type of
demand, for example, company X produces bad software and company Y makes money
from problems the unsuspecting public encounter when trying to use it. Organisations
with this business model have to question the basis of their future. Are their profits
largely dependent on other companies failing to perform their duties? If so, what happens
if those companies start performing well?
Once demand has been classified, each type needs to be treated in an appropriate way.
Most organisations do not separate types of demand and treat all demand in the same
way, as units of work to be processed efficiently. The result, of course, is on-going and
unnecessary waste.
Think before you respond
Remember: Creation demand needs to be supported with optimised processes.
Opportunity Demand needs to be evaluated for potential new products and services.
Restorative Demand needs to be removed completely at source (not optimised).
External demand should make you think before you optimise because you might just
produce a better product or service to take you into a new market or differentiate your
business.
A Selection of CORE Profiles
CORE Profile: Broadband Provider
Create 4%
Opportunity 0%
Restorative 58%
External 38%
Approx. 300,000 enquiries every month: These enquiries are due to one of three principal
causes:
1. Problems with the provision of internet services.
2. Consumers experiencing problems with their own equipment, such as personal
computers.
3. Consumers requiring additional services or enhancements.
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Analysis demonstrates the following:
8 per cent of the demand is generated when consumers experience a problem with the
supplier’s internet infrastructure (restorative demand).
■ Another 38 per cent originates from the customer’s equipment (external demand). A
significant proportion of this demand includes revenue opportunities currently not
considered.
■ The remaining 4 per cent represents demand that provides a real potential to add value
to customer experience, such as increasing their bandwidth or helping them use their
broadband connection for new purposes (creation demand). On-going revenue from
connecting customers to the network has only a limited lifespan. Future revenue has to
come from providing greater content and services, as well as enhancing and expanding
existing usage.
The current support philosophy of this company is to design against problems. To change
the demand profile, a new philosophy is required that removes root causes and provides
value to customers. The current demand profile, with 5–6 per cent creation demand and
1–2 per cent opportunity demand, demonstrates the effect on customers of the current
approach.
CORE Profile: Financial Services Company
Approximately 90,000 enquiries are made every month.
Create 7%
Opportunity 5%
Restorative 71%
External 17%
This analysis conducted at a financial services company, revealed that seventy-one per
cent of the call demand was generated when consumers experience a problem with the
company’s financial product. Since using the CORE profile to pin-point negative demand
and remove the root cause, the company has reduced Restorative demand by half.
Interestingly, the CORE profile also identified that seventeen per cent of the demand was
generated by poor financial products supplied by this company’s competitors. This
knowledge provided insight into how their competitors’ products were performing and
allowed the organisation to develop better products and marketing strategies.
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CORE Profile: Catalogue Business Telesales
Create 30% 73%
Opportunity 1% 14%
Restorative 66%
External 3%
This operation had many broken and inefficient processes, there was little in the way of
informed information gathering or corrective action. Each function was only worried
about its part in the process, and no one measured or even looked at end-to-end service
delivery. The telesales staff accused marketing of withholding information about
catalogue drops. The delivery issues were blamed on the distribution center and the
complaints department were inundated with re-delivery requests. Product line managers
blamed the sales staff for not selling hard enough.
Identifying CORE. Demand types provided a current state analysis and data upon which to
base their rescue plans. It provided the evidence the call center needed to demonstrate
that it was the way in which the whole organisation worked together which needed
changing. Once they understood the nature of CORE demand and determined the root
causes, the organisation as a whole was able to take effective action.
There were many significant improvements as a result. For example,
• 32 per cent reduction in Restorative demand
• 82 per cent, reduction in customer complaints
• 35 per cent, reduction in order entry time
• 75 per cent reduction in compensation payments
When managers say they have little or no resources to create operational improvement. I
point out that they already have the resources but they are squandering them doing the
wrong work. In this case, sixty-six per cent of the available resource in this company was
spent on doing the wrong work; they were just institutionalising waste and locking in
resources and costs.
As a consequence of using the guiding principles of the CORE profile they were able to
remove the customer complaints department. Today the operation has more customer
focus and its managers have a new customer perspective. They have created an
organisation that is capable of understanding changing customer needs and responding
accordingly. This provides a long-term competitive advantage.
The CORE profile is a Value Compass for call center operations. It provides organisations
with the information they need to identify existing demand types and make the required
changes. The results are a reduction in waste, minimised cost, an enhanced customer
experience and improved customer loyalty, leading ultimately to increased business
success.
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From contact-centers to management centers.
Businesses must take a fundamentally different view of the role played by call centers and
migrate to ‘management centers.’ In this type of organisation, the customer-facing staff
and service management capture the customer context and then influence senior
management with data to change the very nature of the organisation and the products or
services it delivers. This calls for the contact center management community to view their
role very differently, stepping into a position of responsibility for the delivery of service
end-to-end, even if it leaves the confines of the management center. Changing the mind-
set of the people in the business will lead to a change in the business as a whole.
This is just the starting point for business transformation but a very important one, to
learn how you would gather this information and leverage it to influence the whole
business including your suppliers, clients and customers then more can be found in the
Book Sense and Respond; The Journey to Customer Purpose by Stephen Parry or by
contacting Lloyd Parry directly. Details are found below.
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White paper references.
S. Parry, S. Barlow and M. Faulkner (2005) Sense and Respond: The Journey to Customer
Purpose. London: Palgrave Macmillan.
Parry, S. and B. Marr (2004) Managing and Measuring for Value: The Case of Call Center
Performance (Fujitsu Call Center Case). Cranfield School of Management.
Sense and Respond Book Citations
Douglas Mcgregor (June 2006) The Human Side of Enterprise. Annotated Version. By Joel
Cutcher-Gershenfeld
Jones, D. and J. Womack (March 2005) ‘Lean Consumption’ (Stephen Parry: Fujitsu Case).
Harvard Business Review.
Womack, J. and D. Jones (2005) Lean Solutions: How Companies and Customers Can
Create Value and Wealth Together. Fujitsu Case Stephen Parry: Intelligent Feedback in
Action pp. 58– 63. London: Simon and Schuster.
Calvert, N. ed. (2004) ‘Developing Customer-Centric Processes’ Chapter written by
Stephen. Parry and published in the Gower Handbook of Call and Contact Center
Management pp. 169-81. Aldershot, England: Gower.
Other industry white papers from Stephen Parry
A Demanding World: How much value do you create for customers? (Parry)
The Service Climate and Customer Intelligence Workers. (Parry and Fisher)
Climetrics ®: Translating the Service Climate into operational action. (Parry and Fisher)
Measuring for Value. Transformation Pitfalls and Lessons. (Parry and Marr)
Managing and Measuring for Value Fujitsu Case Study. (Parry and Marr) Cranfield
business school.
Articles by Stephen Parry
Service Climate Management
Cracking the Customer Code
Seven Deadly Sins of Transformation and Change
Office Products Direct: A Service Turn around. Detailed complete case study
with project plans, task lists, organisational redesign, interviews and results.
TV and Radio
BBC Documentary The Crunch, Change, Innovation and Creativity.
Channel 4/Einstein CIPD. Sense and Respond a new concept for services.
BBC Radio 4 In Business with Peter Day: Lean Service
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Stephen Parry is an internationally recognised authority and strategist in the creation of
Sense and Respond, Adaptive, Learning and Lean Enterprises. He has applied ‘Lean’
principles to the design and operation of corporations in Europe, Asia-Pacific and the USA.
He is co-founder of Lloyd Parry: a Sense and Respond strategy, structure, leadership and
change consultancy providing services to several FTSE 100 companies.
He is the principle author of Sense and Respond, The Journey to Customer Purpose,
published in 2005, which outlines a new operating model for organisations based on the
principles of the Lean movement.
He adopted and developed the innovative Lean ‘Sense and Respond’ post-industrial
business model to provide organisations with the strategies and practices to deliver
profitability and establish a real competitive edge by placing the customer at the heart of
their business.
His management approach resulted in being awarded the ‘Best Customer Service Strategy’
in the National Business Awards 2003 and European Service Center of the Year ‘Best
People Development Programme’ and ‘Innovation and Creativity’ Awards both in 2001.
Stephen regularly speaks at leading Business Schools such as Cambridge-MIT Institute,
Aston Business School, Cranfield School of Management and international industry events,
including the annual World Lean Summit and ‘Strategy and Customer Service’
conferences.
His work at Fujitsu was covered in the Harvard Business Review ‘Lean Consumption’ by
Professor James Womack and Professor Dan Jones.
He is also a visiting fellow at the Professor Dan Jones Lean Enterprise Academy.
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Sense and Respond - The Book
The book outlines an innovative and proven framework for
organisational change, which enables companies to move away
from a “mass production” mentality to one of “on-demand
adaptation’ and deliver greater customer-value right across the
corporate enterprise.
Sense and Respond: The Journey to Customer Purpose. Parry,
Barlow, Faulkner (MacMillan 2005)
About Lloyd Parry
Organisational change and improvement.
‘We help you create organisational service climates which generate creativity, innovation,
employee engagement, memorable customer experiences and long term profitability’
Retail, Logistics, Financial services, Legal and professional services, Public services, Back-
office services, IT, HR, Procurement, Shared-services, Outsourcing, Customer services.
Sales, Software application development.
As experts in organisational diagnostics, organisational design, organisational
development, culture change, change management, leadership development and
continuous improvement approaches, we integrate our unique, scientifically rigorous
methods and change strategies for your individual situation using the Adaptive, Learning
and Lean principles outlined in Sense and Respond: The Journey to Customer Purpose.
Our Climetrics® diagnostic has been developed in
partnership with the work psychology departments
at a number of universities and business schools. The
diagnostic indicators provide a bench mark and
insight into what needs attention and facilitates the
design of the transformation route-map using our
navigation suite. Periodic surveys are used to ensure
the change program is on track and to produce
evidence about performance improvement and
culture change.
Videos, slide-sets and publications are available here: http://www.slideshare.net/SGParry
Contact email: info@lloydparry.com
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Diagrams and Trademarks remain the property of Lloyd Parry. Climetrics® and Customer Value Enterprise® are registered trademarks of Lloyd Parry. All Rights Reserved.
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