Profitable insights

Editor’s note: Lois Koch is vice president, growth and retention programs at Digital Insight, Calabasas, Calif. John Chisholm is CEO of CustomerSat, Inc., a Mountain View, Calif., research firm.

Justifying the cost of a comprehensive, ongoing customer satisfaction measurement program can be a challenge even in strong economic times. Today, in an era of cost-cutting and uncertainty, it becomes even more important to provide a cost-based rationale for collecting customer feedback. Can the customer service organization make a credible case for the payback of its feedback program?

This case study describes how banking and financial services firm Digital Insight (DI) implemented an online customer feedback program to obtain measurable improvements in service quality and outlines how the company demonstrated a positive return on its investment in the measurement program. The program, developed in 2001, continues today.Headquartered in Calabasas, Calif., Digital Insight was founded in 1995 and grew rapidly to become a leading provider of Internet-based banking services for commercial banks and credit unions.  The company’s range of secure, hosted services includes retail and commercial Internet banking, electronic bill payment and presentment and online lending services.

Ambitious directive

In the summer of 2000, Lois Koch, the then-new vice president of customer service and client relations, was given an ambitious directive from the company’s CEO: raise the quality of Digital Insight’s customer service and client relations to a world-class level.

By mid-2000, it had become clear that Digital Insight’s rapid growth had strained the existing customer service and client relations infrastructure and was impacting the company’s reputation. At that time, fewer than 30 percent of Digital Insight’s financial institution clients were willing to serve as references to potential new clients, causing sales to be lost to competitors.

Koch was challenged to implement a scalable customer service infrastructure and the processes to support the company’s continued growth and expansion. Koch and her staff determined that improving Digital Insight’s service quality was their top priority. They understood that continuous customer satisfaction research was essential to identify and address key concerns as the support infrastructure evolved. The team envisioned the use of client satisfaction and loyalty measures to serve three purposes:

  • assist with prioritization of customer service investments;
  • provide a continuous stream of feedback for ongoing improvement;
  • facilitate coaching, rewarding, and recognition of customer-facing staff.

The team evaluated several strategies and technologies to measure and report on client satisfaction and loyalty. Because DI was itself an online service provider, the team recognized the importance of using online technology as a means for obtaining timely, accurate feedback that could be readily disseminated throughout the organization. DI chose to partner with CustomerSat, Inc., a Mountain View, Calif., research firm.

Measuring customer satisfaction and loyalty

CustomerSat worked with members of the client-facing team at Digital Insight and with a core group of DI clients to identify key satisfaction and loyalty measures and to define the feedback processes. The team deployed its first online customer relationship survey in October 2000 and added transaction-based surveys in 2001. Together, the surveys provided both an initial baseline and ongoing performance measures for Digital Insight’s sales, implementation, customer service, account management, product development, data processing operations and training.

The online, hosted feedback solution that CustomerSat designed and implemented for Digital Insight contained multiple automated functions:

  • selection of customers and closed service incidents from Digital Insight’s Pivotal CRM system to be used for surveys (business rules - touch rules - ensured that no customer was surveyed too frequently);
  • distribution of personalized e-mail invitations containing secure links to individualized online questionnaires;
  • online access for key managers to view service representatives’ ratings, verbatim suggestions and trend lines through real-time “dashboards” (interactive analysis and reporting systems), and tools to analyze data to pinpoint customer problems and concerns;
  • dissemination of selected results throughout DI using scheduled e-mail reports (“push” reports, standardized reports delivered to managers by e-mail on a pre-arranged schedule);
  • notification to the appropriate managers at DI when customers needed immediate attention, using e-mail “alerts.”

Using the initial baseline measures, DI’s management team established goals for improvements in performance by area. Digital Insight’s management incentive plan - for the entire management team, not just the customer-facing organizations - was tied to overall satisfaction score increases.

Using feedback to drive action and improve results

Digital Insight now uses online client feedback to drive action through a combination of processes, practices, and technology. Client feedback generates alerts to the appropriate individuals in the Digital Insight organization, notifying them immediately if clients are dissatisfied. Interactive dashboards allow managers and supervisors to pinpoint problems and opportunities. Push reports deliver up-to-the-minute statistics, trend lines, charts and graphs of survey results directly to the e-mail boxes of Digital Insight managers.

Digital Insight managers use these services to: recognize and address client concerns; reward and recognize Digital Insight customer service staff for outstanding performance; and provide targeted training and coaching, including issue-focused cross-departmental training.

As a result of findings from the first survey, four key issues were identified as drivers of customer dissatisfaction with the current level of customer service:

1. Lack of standards for answering and returning calls.

2. Inadequate product knowledge of the service staff.

3. Lack of customer service skills.

4. Inadequate follow-up and resolution of issues.

In response to customer feedback Digital Insight took a wide range of actions from late 2000 through 2002 (see chart).

As a result of these actions, Digital Insight enjoyed improved results:

  • Customer assessments of service (level of satisfaction on a 10-point scale) improved from 6.5 at Q4 2000 to 8.0 in Q2 2002
  • Customer assessments of account management (level of satisfaction on a 10-point scale) improved from 6.4 in Q4 2000 to 7.7 in Q2 2002
  • Referenceable client percentage improved from less than 30 percent at year-end (YE) 2000 to 75 percent by YE 2001 and to 85 percent by YE 2002.

In addition to these overall results:

  • Improved service times meant that 97 percent of service calls were handled before customers abandoned the call, up from 84 percent previously.
  • The abandon rate for calls dropped from 12 percent to 3 percent.
  • The average queue time dropped from two minutes to 20 seconds.
  • The average number of days to resolve an incident dropped by 50 percent.
  • The average incidents outstanding dropped by 100 percent.

Scores and performance have continued to improve since 2002.

Impact on client loyalty

Digital Insight’s service quality improvements gradually showed up in the company’s quarterly client renewal scorecards, tools used by account managers to project the likelihood of client renewals. The quarterly scorecards define risk levels for each client scheduled to renew their Digital Insight services, and identifies possible drivers of non-renewal: change of DP vendor; pricing; merger or acquisition; IT interface; service/support; product; other.

In prior years, the service/support factor had contributed to non-renewals of customer contracts. But for 2002 through 2003, service/support did not contribute to non-renewal in any quarterly renewal scorecard.

Measuring ROI of customer feedback

Digital Insight’s revenue is divided into three categories:

1. New - revenue from new contracts won during the year (i.e., revenue from new clients plus new products sold to existing clients).

2. Renewal - revenue from existing contracts retained during the year.

3. Lost - revenue from existing contracts lost during that year.

Of these, the largest category is revenue from renewals; the smallest category is revenue from lost customers. The process used to measure ROI was as follows:

  • Estimate changes in revenue by category due to actions taken as a result of customer feedback.
  • Identify full costs of customer feedback programs, internal and external, initial and ongoing.
  • Estimate total change in gross profit attributable to the changes in revenue.
  • Subtract full program costs from the change in gross profit to determine net profit changes.
  • Compute the return (change in net profit) on investment (full program costs). (Refinements to this process include consideration of depreciation, amortization, interest and taxes.)

Revenue impact assumptions

The team took a conservative approach in their assumptions of the impact of customer feedback processes on revenues. From a percentage standpoint, the impact of customer feedback processes on contracts that would otherwise have been lost was greatest, for two reasons. First, the feedback processes enabled DI staff to promptly recognize and address concerns causing client dissatisfaction. Second, the base of lost customers was relatively small to begin with.

In contrast, the percentage impact on new customers was smallest, since these sales benefit less directly from improvements in customer service. Revenues from new customers benefit indirectly, through stronger and more favorable word of mouth about Digital Insight. Finally, the impact on existing clients was intermediate between the other two.

The following assumptions were made concerning the impact of the customer feedback program on revenue:

  • 2 percent increase in revenues from new clients won per year;
  • 3 percent increase in revenues from retained clients per year;
  • 5 percent decrease in revenues from lost clients per year.

These assumptions alone had significant implications for Digital Insight’s growth rate. Given these assumptions, over a five-year period, Digital Insight’s compound annual growth (CAGR) was five percentage points higher - 44 percent vs. 39 percent - as a result of improved customer feedback processes and the resulting customer loyalty (Figure 1).

Cost assumptions

The next step was to estimate costs of the client satisfaction programs. Costs included a percentage of management salaries as well as fees for online and professional services to CustomerSat.

Most costs of customer service staff and infrastructure would have been incurred with or without customer feedback programs, and so were excluded from the analysis. Real-time customer feedback allows customer service to take actions faster than if feedback was not available, allowing greater productivity and effectiveness with the same staff. However, savings due to increased employee efficiency were not included in cost assumptions.

Investment assumptions

To calculate ROI, two financial investment assumptions are required: the time horizon of an investment and the interest rate at which future cash flows are discounted (discount rate). A three-year time horizon was selected. This is shorter than the five-year time horizon widely used by accountants for depreciating physical assets, but appropriate for a fast-paced, technology-intensive business such as Digital Insight’s. A range of three discount rates with 15 percent as the mid-point – 10 percent, 15 percent and 20 percent – were used to calculate ROI. The shorter the time horizon and higher the discount rate, the lower the ROI would be.

Calculating return on investment

ROI is the net present value (NPV) of a series of cash flows - here, increases in gross profit - divided by the present value of the investment required to generate those cash flows. The NPV of a series of cash flows is the present value of those cash flows less the initial investment, where:

Present Value =

(Cash flow at end of year 1)/(1+interest rate) +

(Cash flow at end of year 2)/(1+interest rate)2 +

(Cash flow at end of year 3)/(1+interest rate)3 + …

Using a 15 percent/year discount rate and a three-year time horizon, the present value of the cash flows was approximately $1.2 million. The present value of the required investment (which consisted of an initial investment plus incremental investments each year over three years) was approximately $840,000. At 15 percent, the ROI was approximately 44 percent. Figure 2 measures Digital Insight’s ROI at three different discount rates. The fact that ROI far exceeds DI’s discount rate (cost of capital) indicates that the investment in customer feedback systems is well worth making.

These measures do not take into account other benefits of real-time feedback that further contribute to ROI, including direct cost savings from more streamlined service and support operations, and product, market, and competitive intelligence.

Strong by any measure

Digital Insight now has a solid baseline of data it can use with confidence to compare its customer service and client relations with those of any financial services organization worldwide.

By any financial measure, Digital Insight’s ROI on its customer feedback programs was very strong. “These feedback programs, with a relatively low investment on our part, make our customer-facing staff much more effective,” Koch says. “We feel more informed about what our customers want, and the real-time feedback allows us to take faster and better action to deliver on those wants. We feel that the ROI justifies our investment in service quality and feedback.”