The hidden potential of eliminating failure demand
You and your organisation (private or public) want to deliver value to the customers or users. However, up to two thirds of contacts with most organisations are non-value-adding or failure demand caused by the organisation's failure to do something or do the right thing for its customers. By eliminating failure demand, you improve customer satisfaction, reduce operating costs and increase employee job satisfaction. A triple win!
Failure demand is present everywhere. If you start observing it, you will find it in both your professional life and in your personal interaction with companies and organisations. You may have received an invoice from a phone company that you did not understand, you may have to follow up on the order you placed on the web, or you may be in doubt whether you filled in a form correctly. And the list goes on.
Working to reduce failure demand is essentially about shifting the effort made in the organisation further towards value demand (what the customer really wants) and away from failure demand (something the organisation has inflicted on its customers/ users).
When the customer calls because he does not understand the instruction manual for his TV, the manufacturer has failed to write clear instructions or make a self-explanatory user interface, and when the customer calls because he has not heard anything about his insurance claim that was filed three weeks ago, the insurance company has failed to process it within a reasonable time (or failed to communicate clear expectations).
Failure demand is demand caused by a failure to do something or do something right for the customer.
Definition of failure demand according to John Seddon
We see five forms of failure demand exist along with two types of value demand. These are described in the figure on the following page.
The examples in the introduction are based on contacts with external customers, however, failure demand is just as present internally in large organisations. Within organisations, examples of failure demand could be:
And the list can easily be extended. Thus, a structured effort to reduce the internal volume of failure demand emails, phone calls etc. can add significant value.
Service organisations are designed to help their customers and have built their operations and performance measures accordingly. But with 40- 70 % of customer contact being failure demand, these may not be the right measures. We often see the following KPIs in call centres:
The customer decides whether it is failure demand! It is the customer who decides whether it is value demand or failure demand. When working with failure demand, you will identify demands that can be shifted from an expensive channel (call centre/personal contact) to a cheaper self-service channel, but it does not address the initial dissatisfaction with the company or product from a customer perspective.
Many organisations have worked to shift the demand to a cheaper channel. Just read the letters you receive from your bank, insurance company, municipality etc. They frequently end with a statement like: “If you want to know more, please go to our website where we answer the most frequently asked questions …”. Or “You can see the status of your case, if you log on to our website …”. This may reduce the cost for the company, but it is just a way to fix the symptom – not the root cause.
Customers using an expensive channel to buy a product or collect a service are often wrongly seen as creators of failure demand. This is not the case. If the customer wants to use the call centre rather than the self-service solution to buy the product, it is his or her choice (assuming that it is not because he tried and failed on the self-service solution). Instead the organisation must build incentives to use the cheapest channels by making it easier or cheaper etc. as a multi-channel strategy effort. Just remember that even if you could convert all of your value demand (approx. onethird) to the cheapest channel, it usually still has less potential than eliminating the failure demand responsible for up to two-thirds of your demand.
Failure demand is anything the customer would NOT be willing to pay for!
Implement's operational definition of failure demand
When evaluating whether something is failure demand, ask yourself: Would the customer be willing to pay for this demand? The customer accepts that he is already paying (as part of his premium) for an agent being available to take his call 24 hours a day with roadside assistance, if he has had an accident. The call for roadside assistance is thus value demand. On the other hand, would he be willing to pay for knowing the status of his order, for you to explain your letter, to fix the product you have sold him etc.? Of course, the answer is no, and thus it is failure demand.
As a rule of thumb: If you are in doubt, it is failure demand.
The extent of failure demand varies depending on the industry. Some organisations experience up to 85 % failure demand – typical for companies selling complex products – but 40-70 % failure demand is the standard in customer service centres.
An Implement survey shows that 68 % of all contacts with organisations fall into the category of failure demand across industries, as can be seen in the chart below (figure 2). In addition, 19 % of the respondents are not able to categorise the interaction, and thus it is likely to be failure demand as well.
Furthermore, the survey shows that 24 % of all respondents, based on their past 3-5 contacts, answer that the contact could have been avoided “most of the time” or “every time”. Customers do indeed experience placing non-value-adding demands on organisations.
The Implement survey also identifies the main causes of failure demand (see chart below, figure 3). The respondents’ inability to find the right information accounts for 43 % of total failure demand, and unclear information accounts for another 26 %. Fixing failure demand is never easy because then the organisations would have already done it, but resolving communication issues is simpler than most other improvement efforts.
It is important to acknowledge that there is a difference between the measured failure demand in an organisation and the optimisation potential – not all cases of failure demand can be eliminated. Some types of failure demand are simply unavoidable. No matter how clearly a letter is written, some customers will not read the letter but just contact the organisation, and elderly or disabled customers may need additional support. Other cases of failure demand are too costly to fix (complex IT improvements) compared to the potential cost savings.
Our experience working with failure demand in different types of organisations shows that you can eliminate at least 20 % of failure demand.
There are three obvious benefits from working with eliminating failure demand – we have translated these benefits into a triple win (figure 4) – realised in all successful failure demand projects.
A study conducted by the Customer Contact Association (CCA) shows that after implementing failure demand initiatives, almost one-third of all call centres have realised savings of 11-20 % in their total cost base, and almost 50 % have realised savings of 5-10 % (see figure 5).
In customer contact centres, there is a very direct correlation between the number of calls received and the total cost of operation. In other departments, the correlation might be less obvious. Nevertheless, the more contacts they receive, the more the employee gets distracted and interrupted from their work.
Traditionally, operational excellence initiatives focus on ensuring resource utilisation (avoiding idle time between calls or lack of tasks to do) or on making the work more efficient (reducing AHT), both valuable and needed in the organisation, but the potential of failure demand elimination (working on the number of incoming contacts) usually has a larger potential and is easier to resolve.
To customers, obvious benefits include avoiding unclear and ambiguous instructions, wasted time waiting on the phone and, overall, being more satisfied with the product/service delivered by the organisation, which will reduce the churn/improve the likelihood of repurchase. Happy and satisfied customers stay loyal to the company, buy more products etc., which helps increase the top line.
Addressing internal failure demand will have a similar effect on colleagues and co-workers. There will be less need for colleagues to follow up on tasks sent to you or reversing the contact because they do not understand your communication. This, in turn, will drive up efficiency as well.
To employees, a considerable benefit is spending less time dealing with frustrated customers or colleagues. It is energy draining having to deal with the same type of complaints from customers who cannot find the right information, have received unclear instructions or do not know how to use the product or service they just bought. As an additional benefit, involving the employees in improvement initiatives to improve customer satisfaction will create engagement and a sense of purpose, since the employees in fact make their own work easier in the future. Delegating responsibility and ensuring project involvement will further boost the employees’ feeling of ownership of the solution.
To address failure demand in an organisation, the first step is to analyse existing failure demand. The type of analysis depends on how far you have come in your effort. You might be in the initial phase trying to create momentum, or you might be well into an ongoing failure demand reduction effort. Either way, some of the essential questions are:
A failure demand analysis is not a one-off event, but rather an ongoing effort to continuously identify new ways to ensure that the organisation spends time and energy on value demand for the benefit of the customer.
The analytical approach must be tailored to address the questions above.
Four different analysis approaches are illustrated in the figure below (figure 6).
Observation has a high degree of accuracy, because people trained in spotting failure demand will classify more calls correctly (as failure demand) as opposed to self-registration. However, it requires substantial resources to conduct the observation. With an AHT of 5 minutes plus some waiting time between demands, an observer will be able to collect 40-80 observations a day, and, to be statistically valid, the number of observation days will be considerable.
The advantage of self-registration is that it generates relatively high accuracy in failure demand volume at a low cost, especially if front-line staff have been trained in identifying failure demand. The challenge of self-registration is that responses are usually categorised in broad categories with little specific information about the individual failure demand, which makes it difficult to act on and eliminate the most frequent types of failure demand.
Conducting workshops with the employees will usually be a way to mitigate the lack of specific information. In our experience, the employees usually have quite a good sense of the most common types of failure demand and have often spent mental capacity on designing potential solutions. The workshop approach can usually be combined with self-registration to guide the workshop discussions towards recommendable solutions with the largest potential impact.
Complete elimination of failure demand is not an option, neither in the short term nor in the long term. It is rather a continuous improvement mindset that is required with ongoing prioritisation of the effort, balancing effort and impact.
Each improvement idea needs to be described very briefly. For small initiatives, this may be as little as 2-3 lines describing the overall case, but some of the larger improvement ideas may require more detail such as using a standard Lean A3 project template (a one-page description of a project named after the paper size).
We recommend working with a simple prioritisation matrix to prioritise the ideas for failure demand elimination (figure 7).
The vertical impact axis must reflect a mix of the three win dimensions mentioned above (cost-saving potential, increase in customer satisfaction and improvement of employee satisfaction).
The horizontal axis contains two important aspects worth digging into:
The examples of failure demand (Figure 8) illustrates the organisational difficulty of eliminating failure demand.
The number of the individual failure demand is usually small, but it does not make them any less attractive. If you can eliminate one call a day, each representing a cost of EUR 6, an investment of EUR 1,500 will have a payback time of one year. This is significantly better than most projects, and you can improve a lot of invoice texts, instructions etc. for that price.
Unfortunately, failure demand grows like seaweed. Implementation is thus not a one-off activity, but a continuous improvement effort. As the business changes, new interactions with customers emerge, and new types of failure demand arise. Implementation must focus on building and training the muscle of eliminating failure demand on an ongoing basis, rather than focus on eliminating the first few cases of failure demand that have been identified.
A few tips are needed to ensure that the benefits are realised:
A governance structure is needed because failure demand elimination is about executing several small initiatives and doing it across multiple organisational entities. Many organisations hope to find the silver bullet that can eliminate failure demand, but we are still waiting for somebody to find it. If it existed, organisations would most likely already have found it.
We recommend defining a two-tiered governance structure. At the first tier (CXO level), guiding principles for failure demand elimination must be established.
Guidelines could include the following:
What is the goal/ambition for the failure demand initiative in the organisation?
Who is the day-to-day failure demand governance body?
What is the overall IT investment allocated to the failure demand initiatives?
The second tier is a failure demand board with representatives from each of the CXO areas who execute the daily governance of failure demand. This includes areas such as:
Establishment of a governance structure is a parallel track to the resolution of failure demand initiatives (figure 9).
What gets measured gets done. Hence, it is key to track the performance of the improvement initiatives that are carried out. We recommend working with both leading and lagging indicators towards the objective of reducing failure demand.
Tracking the number of contacts and knowing the actual effect and potential benefits of the efforts can be a key motivational driver and create buy-in throughout the whole organisation to carry out more improvement projects.
Most organisations have not assigned a person responsible for the number of incoming contacts. We often experience a narrow focus on measuring KPIs such as Average Handle Time (AHT) and cases closed per hour. However, we rarely see organisations pay attention to demand management, focusing on actions that reduce the number of incoming contacts. Actively using the failure demand KPI board is a way to ensure ownership and have frequent dialogues about how to eliminate failure demand.
In addition, we recommend tracking leading indicators such as the number of initiatives executed, the number of days for executing the initiatives, the number of ongoing initiatives etc., whereas it can be difficult to see the effect of the number of calls because of natural variation, external events etc., and thus, these indicators will show how well your failure demand elimination muscle is working.
Even though failure demand exists throughout the organisation and therefore should be eliminated in various departments in companies, customer service is a typical outset of failure demand reduction initiatives. However, in most organisations customer service is not granted the largest of authority to push for change. Thus, it tends to be David (customer service) fighting against Goliath (the wider organisation). David won his battle through trust and dedication, which may also be required for you to succeed.
We recommend exposing the problem to the organisation by inviting managers and employees who cause failure demand to observe failure demand for themselves, e.g. schedule sessions where they can listen to calls and observe other contacts for a couple of hours. When they have experienced two of three contacts being failure demand and how much bad customer experience the company is generating, they are much more likely to get involved in resolving the issues.
You can demonstrate that failure demand reduction is possible by driving implementation of the initial failure demand initiative, though, to show that it is doable and that there are potential savings. This is a delicate balance, because dedicated project resources can of course drive the implementation, but it does not train the organisational muscle in executing on failure demand in the future. Thus, it should be used to show effects and create motivation – not to create results.
On the next page, you can find a case from Telenor showing that it is possible with the right sense of urgency to significantly reduce failure demand within a short time frame.
Failure demand is about building a muscle to deal with failure demand that exists today and that inevitably grows in the organisation in the future. It is not easy because in many ways it is a cultural change in the organisation that is the necessary cure. Companies wanting to eliminate failure demand often face a compelling, positive business case, and at the same time they have the chance to create a better customer experience, happier employees and, last but not least, help their organisation be customer-oriented. Just go and get it!
Article in Danish: Build a solid project foundation and make sure that the relevant parties are involved from the start.
Implement Consulting Group