The importance of the customer in the IT services environment puts satisfaction at the core of delivery value. It is evident by customer satisfaction aspirations in IT departments’ mission statements, but do such statements help departments to deliver better service?

Today’s IT departments think of service in terms of technological systems and the most cost-effective models for driving down the cost of IT provision.

The initial point of contact for customers is increasingly via the web and each successive step in the customer interaction process is being examined with the same intent. Cheaper and faster are the key issues, but what about the relationship with the customer?

IT services leaders have refocused on their clients and have a new understanding of the value of the relationships.

Many IT service providers think that an 80 per cent satisfaction rating – comprising satisfied and very satisfied customers – is a reasonable score.

Yet research shows that a organisation with an 80 per cent customer satisfaction rating, is an average performer in the industry and the service – whether delivered internally or externally – has no real point of differentiation.

In fact, it is only very satisfied customers who are truly loyal – all other customers just feels indifferent about your service.

In an external environment, these customers will swap to another provider as soon as they see a cost advantage. In an internal environment, while swapping may not appear to be an option, they have an even bigger say, and such individuals have the power to marginalise the people behind IT services.

Businesses should, therefore, draw parallels from published results in customer support from large publicly traded enterprises – and discover pockets of customer value within their organisations.

Xerox, for example, found its very satisfied customers were six times more likely to repurchase company equipment than were customers who were merely satisfied, according to the Harvard Business Review.

But measuring such customer loyalty is not straightforward. Rather, it is a combination of several interdependent factors – see box, p28.

And while most companies and service organisations will buy into the natural relationship between customer satisfaction and profitability, they find it difficult to analyse the impact of an increase of customer satisfaction on the bottom line.

For an internal support situation, the difficulty translates into the cost centre dilemma and an inability to demonstrate value to the organisation.

The American Customer Satisfaction Index (ACSI), one of the leading bodies of research in the field of customer satisfaction measures, has specific findings in the IT services arena.

The ACSI study shows that when the stock market grew, stock prices of companies with highly satisfied customers grew faster than others. When the stock market dropped in value, higher satisfaction served as a safety cushion.

So, time and money is everything – and for IT functions in a business-to-business relationship, knowing the customer lifetime value (CLV) becomes critical.

It is not enough to guess at the current or future value, you need to quantify and qualify the value of the customer relationship over time because you need to know which customers to keep most satisfied.

Understanding which customers are providing the greatest value requires understanding a customer’s behaviour throughout their life span and the true cost of providing service.

CLV can make visible the activities required to create and maintain customer relationships and can help expose resource consumption patterns that traditional cost accounting procedures cannot. Properly used, it also enables us to clearly identify those loyal customers with whom we wish to build a deeper relationship.

But how can we realise the true value of customer satisfaction in a technical support environment? It is not enough to improve they way you do something that has no consequence to the ultimate CLV. We can no longer view all customers and all interaction modes as equal. And the CLV model guides management towards making significantly different decisions.

CLV is always managed as a portfolio and requires dynamic rules of engagement for customers based on their interaction and value attributes.

The customer base should be profiled along two dimensions: interaction volume intensity and customer value.

Interaction volume intensity is a combined measure of the volume of support requests received, weighted by a measure of where these support requests are resolved within the system.

The higher the interaction volume intensity, the higher the need for automation, but the deeper the escalation rate, the higher the need for improved process flows.

The customer value percentage, on the other hand, is the true cost margin of serving a customer. Traditional customer profitability measures, which are based on gross margins, are simplistic and result in serious errors of judgement.

Gross margins based on uniformly spread costs hide the inconsistencies and complexities of serving a customer, leading an organisation to inadvertently retain underperforming customers at the expense of good customers.

Customer value percentage is a purely financial measure and is the margin earned by the organisation after offsetting all direct and indirect costs associated with serving a customer. A higher customer value percentage is better for CLV, provided that these customers can be retained and their numbers grown.

The matrix suggests strategies for maximising the CLV of a customer services portfolio – see diagram.

Stage 1 The customer base with a high value and high interaction volume intensity is the competitive advantage and should be protected and continuously improved through collaboration and resolution process transparency.

Stage 2 Customers with higher value and lower interaction volume, meanwhile, need to be grown. The support organisation can play a significant role here, growing the size of the customer base by adopting a flexible model that focuses on speed when it comes to first-time resolutions and by building process visibility as the cases escalate up the resolution chain. The key element for this zone is delighting the customers.

Stage 3 Customers with high interaction volume intensity and low customer value offer the biggest improvement opportunity for any customer support organisation. There is enough case volume to dedicate management time and support resources, but lower customer value means the support costs are higher.

Significant cost reductions should be pursued through process improvement initiatives that focus on improving business process flows. The organisation cannot afford to lose these customers, but at the same time cannot afford to serve them with the current cost structure.

Stage 4 The low customer interaction intensity and low customer value quadrant is no more than a black box for the majority of support organisations.

Customers in this category consume more time than the value they generate – and there is not enough volume to deploy operational improvement initiatives. Clearly these customers are better served by alternative support models.

After you have reviewed your CLV portfolio and made decisions regarding its optimisation, it is critical that you focus your resources on your high-value customers.

The typical experience across a range of industries shows that five per cent of customers provide 40 to 50 per cent of the CLV in an organisation. These customers would fall in the far right quadrants of the matrix.

Getting close to these potentially loyal customers is a start, but the ongoing interaction between companies and customers is what makes or breaks a relationship.

In the most trying times, customers have problems that need extra attention – and this is when the strongest bonds between the client and supplier can be formed.

Your core customers are your most critical and it is imperative that the support they receive from you reinforces the value they see in their relationship with you – and you with them.

Christoph Goldenstern is a partner at consultant Kepner-Tregoe and is the Global vice president of the KT Technology Practice. Arun Shukla is practice leader at Kepner-Tregoe.