Upside Down Operations: Self-Service Can Increase Labor Costs

A “self-service” play almost always has a strong cost component.  The model’s logic is that if your customers are doing more of the work, then your employees can do less of it — and can be paid less for it.    Of course, firms look for additional advantages to customers meeting their own needs such as increased retention, but the desire to drive down costs anchors most of these initiatives.  (For a dated look at these type of motivations, see this link.)

I want to share a recent research finding that upends this logic in surprising ways.  Dennis Campbell and I studied what happened to customers after they adopted online banking services, which are essentially designed to drive people away from retail branches that are costly to build, maintain and staff.   The web’s promise of low-cost, scalable self-service business models seemed like a reasonable direction for the banking industry, and so we studied the option to measure just how much companies could save.  We were then shocked to discover that the cost to serve these customers increased after they moved online.

As we investigated this phenomenon, we uncovered something interesting.  When customers move online, they become more engaged with their financial information.  They can suddenly spend hours examining each transaction, and no one is line behind them to hurry them along.  This new consumer behavior, on its own, is not problematic for the banks.  But the  heightened level of engagement can also drive customers to consume more full-service resources from the bank.  Customers now call more.  They have more to say and more to inquire about.  They even visit branches more often.

In other words, an unintended outcome of self-service is increased engagement, and a predictable outcome of increased engagement is the desire to engage even more.  The lesson I take from this research is that managers must anticipate the potential impact of self-service on their customers’ engagement.  If it seems likely that engagement will increase, make sure that the goals of a self-service model go beyond potentially elusive cost savings.  Make sure that improved service is a central part of your agenda.  Indeed, make sure that the project will be considered a success even if costs go up.

Who should pay attention to these findings?  New self-service options that make customer information more accessible are ripe for this dynamic.  Think online health records, not pumping your own gas.

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