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Cost Center to Profit Center

5/10/2012 --

Case study details how American Express Co. changed its customer service center philosophy from transactional to a relationship-builder.

ANN ARBOR, Mich. — Companies that operate or outsource large-volume call centers usually try to get the job done as quickly and cheaply as possible. But this cost-centered viewpoint misses a key detail — calls equal one-on-one time with your customers. A case study by Ross professor M.S. Krishnan, Customer Service at American Express: A Relationship, Not a Transaction, details how Executive Vice President Jim Bush brought a new philosophy to the credit card giant. Bush saw the value in these customer connections and shifted the company's call center operation into a profit and opportunity center, changing employee incentives, training, recruiting, and IT systems. He also gave employees more flexibility and empowerment along the way. As a result, customer satisfaction is up, card member spending is up, and handling time is down. In this Q&A, Krishnan, the Joseph Handleman Professor of Business Information Systems and Innovation at Ross, says this transformation is part of the growing movement toward co-creating experiences with customers, one at a time. The case also touches on how technology enables this trend.

How did you discover what American Express was up to in terms of changing their customer service approach?

Krishnan: This originated from a MAP project [Multidisciplinary Action Projects]. We build on MAP in terms of leveraging the connections and contacts to develop research projects or teaching cases. About five years ago, I was interested in how American Express was using technology. One MAP project worked on the technology side, and two others worked on customer personalization and new projects. I got a deep look at what American Express was doing and began a relationship within the company. I had written the book The New Age of Innovation with C.K. Prahalad, which centers on the idea of a co-created, customized experience requiring partners and suppliers. Two of our alumni, Sanghy Vatsa, MBA '07, and Rohit Bery, MBA '98, connected with the concepts in my book and introduced me to the initiatives at American Express. They told me what they were doing and introduced me to Jim Bush. That's how I got into looking at moving customer service from a transaction to a relationship.

That's really the key message in the case, isn't it? American Express shifted its thinking on customer service from something to be done as quickly and cheaply as possible to this valuable touch point that can forge a deeper relationship with customers.

Krishnan: It bucked the tradition. Traditionally, customer service was viewed as a core problem — and not just for American Express. Large-volume companies view growing call volumes as a problem, and the engagement is reactive. That creates an atmosphere where agents are incentivized to handle as many complaints as possible because what they are doing is viewed as a cost, not an opportunity to connect. American Express, at the time, took a uniquely different view.

But another problem was unique to American Express, and that was that customers were not fully informed about the difference between American Express and other credit cards. American Express is a closed-loop operation, since it controls the entire purchase and payment cycle, issues cards, and manages its card member network and merchant network. It charges an annual fee but offers many benefits through corporate partners. So Jim Bush looked at the calls as an opportunity for innovation. He thought, "I'm talking directly with the customer. How can I solve the problem and use this call as an opportunity to build a relationship?" The minute the call comes in, the cost is the same no matter what. Whatever problem happened to prompt the call has happened already. So stop looking at this as a cost center. We are talking directly with the customer. Let's take advantage of that.

Easier said than done. How did he make it happen?

Krishnan: He had to connect the organizational and social incentives and get the right technology. He refined the roles of their call center agents and called them customer care professionals, and he took a different approach to recruitment and training as part of building a different culture. He recruited from the hotel and hospitality industries, since they train their employees to connect with the customers. Then he found customer agents were limited in what they could do by the technology — they had a script and a screen and were timed, which was a big constraint. And Bush learned their training was 70 percent on the technology and script, and just 20 to 30 percent on working with customers. He flipped that around. In addition, the incentives changed. In the past, it was how many calls you did and how fast — very traditional call center metrics. And if you look at it as a cost center, those metrics make sense. But Bush looked at it as a profit center, an opportunity center. He moved to giving customer care professionals a net promoter score, which measures satisfaction. They changed the metric and the behavior. Now everyone on the team has to promote the business, solve customer problems, and educate customers about other opportunities. It becomes a much more comfortable call for the customer.

Because of American Express' closed-loop model, they can leverage their partner relationships to benefit their customers. That means these customer care professionals know about those opportunities and how to understand each customer in that context. So the technology had to move in that direction. The care professional had to have data on this person, their spending habits and interests. If the customer had a history of buying golf merchandise, they could tell that person that they have a partnership with a certain golf supplier or tour event and can find them deals. So the technology prompts the agents to who this customer is. That's the N=1 concept in our book at work.

But they also took the N=1 customization approach with their employees. Earlier they all worked in groups, had shifts and a supervisor, and were regimented like factory workers. Bush made it more open and collaborative. They used technology to create a portal where the employees could exchange their shifts without a chain of supervisor permissions. The system has a net promoter score for each shift, and who is on that shift. It's transparent. So it increases the work-life balance for the employees, empowers them, and makes performance transparent.

How did Bush get buy-in from top executives?

Krishnan: It was difficult, but he had a logical plan. In hindsight, he's shown that you can empower employees and reduce costs. Customer satisfaction is up, card member spending went up, and handling time went down. But at first it was difficult to make a case. There always are cost pressures, and to go to those executives and ask for this kind of change, which involves training and technology spending, never is easy. That's why you have to say the leadership at American Express was bold and open to new ideas. It was not an easy time to do it. That's why it requires leadership to make a decision. And certainly Jim Bush took a risk. It was his vision, and going into it you never know if it'll really work or not. You have to kind of make it work. Now American Express is taking this model global. They are looking at a global service strategy.

You note this did involve upfront costs. Not to downplay the risk, but American Express is a large company with means. What are some strategies for companies with fewer resources?

Krishnan: For smaller or more capital-constrained companies, I would advise they do this in a phased manner. You have to do some experiments so that you can see how things work before scaling them up. So experiment in a phased way, and then learn from it so you can figure out how to internalize it.

For the IT portion of this, even American Express had to do some things gradually because of how tied they were to legacy systems. But it seems like technological demand is growing exponentially. How can companies keep up without incurring massive costs?

Krishnan: Cloud computing and social media have a role. Often these legacy IT platforms and systems are intertwined in multiple aspects of the company, so it's not easy to just throw them out. The new platforms that the technology industry is developing are interesting. For example, cloud computing allows companies to dramatically reduce capital requirements. For smaller companies, they don’t have to incur huge costs. It shifts how companies look at computing. It used to be about products. You would buy products off the shelf. But now we get computing as an experience. You can buy on the go and pay only for what you consume. This reduces capital intensity and democratizes access to capability. There's much more access to capabilities that previously were available only to large companies with deep pockets.

-Terry Kosdrosky



For more information, contact:
Terry Kosdrosky, (734) 936-2502, terrykos@umich.edu