When downturns strike, companies sometimes blindly cut customer service costs, sacrificing service quality in a quest to hit short-term financial targets. When the economy starts recovering, they beef up investments in customer service to win back customers. And find it's too late. That's what happened to a U.S technology company that we'll call ABC-Tek. It was one of the first to move tech support to India. Offshoring cut costs, but at the price of customer satisfaction, which plummeted along with sales.

Too often, managers view service efficiency and customer satisfaction as incompatible goals. But our research shows that they can have it both ways—and need to. Companies that maintain superior service operations in a slowdown have higher customer loyalty scores, which correlate with sustained growth and a competitive edge. They do this by learning about customer needs and translating those insights into innovations that continuously improve services. Service leaders determine what to focus on, they measure it, and they create business processes to manage those metrics over time.

One powerful example is an Asian telecommunications company. To keep up with a flood of broadband orders, the company needed to boost the performance of its army of field technicians. Innovations like automated scheduling helped increased service efficiency. But the company also invested in an incentive system that promotes quality and productivity. Each day, communication tools show field technicians how many productivity points they've earned-points are deducted for quality issues. Technicians are awarded bonuses based on their field performance and quality. And they're not the only ones whose bonuses are affected by service delivery. The company implemented shared accountability for results. Field performance and quality are among the metrics used for calculating executive bonuses for up to one level below the CEO.

The results: field productivity is up 45 percent along with customer satisfaction and the company is ahead of schedule for targeted cost savings.

How to Balance Efficiency and Service

We've identified three ways in which companies are able to balance efficiency and quality in their service operations:

Companies like U.S.-based electronics retailer Best Buy are segmenting their service levels. In stores with more upscale suburban customers, employees were trained to serve customers in subtly different ways than in stores with a younger, more urban clientele. For example, staffing was increased during peak shopping hours so that higher-value customers could receive focused assistance. By differentiating service levels and matching them to different customer segments, Best Buy boosted store sales and satisfaction ratings while keeping a lid on costs. The company constantly measures the cost of its different service levels against the value provided by the corresponding customer segment—and just as constantly searches for ways to reduce inefficiencies.

Companies like FedEx are balancing customer service costs and service levels by striving for consistency over several budget cycles. After FedEx completed a number of strategic acquisitions beginning in the 1990s to diversify and expand its portfolio, the company institutionalized what it calls "The Purple Promise"-a pledge to put the customer first on every interaction. This unifying theme promises the same high-quality service from all companies in the FedEx family, whether they offer air, ground, or freight delivery, or office business solutions.

To ensure consistent levels of service across its subsidiary companies, FedEx established FedEx Services to give customers access to the full range of FedEx transportation, supply chain, e-commerce, business, and related information services. By integrating sales, marketing, information technology, pricing, and customer service support for the global FedEx brand, FedEx Services has been able to better coordinate its revenue and yield management programs across the enterprise. The strategy of centralizing customer-service functions has helped FedEx attain and maintain customer loyalty scores that are among the highest in the industry.

FedEx manages customer service over a multiyear time horizon and sets continuous improvement goals. A strategy and planning group focused on customer service looks a few years out to determine what the customer experience should be, how operations should be structured, what new technology can be leveraged, and how core processes can be improved to reduce inefficiency and cut costs.

Finally, companies that successfully balance efficiency and service are sharing accountability for results - while constantly looking for ways to improve efficiency.

A leading insurance company that we'll call InsureCo discovered that a lack of accountability was the culprit when costs per calls went up—not down—after it invested heavily in automation technology at its six call centres.

An analysis found that while nearly all of the targeted cost savings were dependent on technology improvements, no one in IT or customer service was held accountable for realizing results from the IT investments. What InsureCo needed was good old-fashioned management oversight and process reviews.

InsureCo overhauled its call centre plan using primarily non-IT-dependent initiatives to immediately reduce costs per call without significantly affecting customer service. And clear accountability for meeting performance targets was established within the customer service organization. The results: the company cut costs by 15 percent while handling 15 percent more calls—generating $35 million annually in cost savings.

Now, more than ever, companies need to achieve such dramatic improvements in efficiency and customer service.
  
Jeff Melton is a Bain & Company partner based in Sydney.  Pratap Mukharji is a Bain & Company partner in Atlanta. Both are members of the firm's Performance Improvement practice.