“EBITDA minus CAC” or how Hutchison Whampoa redefined the financial 2005 results of its 3G division to exclude the cost of bad or indifferent Customer Service.

By Niels Kjellerup Editor and Publisher; Ashgrove, March 29th 2006.

 It’s also a story outlining how ‘Customer Outcome-based Measures’ (COM) can help Senior Management understand the effect of Customer Service on the bottom line.

Do we want to satisfy Senior Management and make Customer Service corporate heroes? Bring down CAC – the cost of acquiring and loosing customers (Churn)! The latest example shows how Hutchison Whampoa has to redefine its yearly results for its G3 division to mitigate the colossal ‘investment’ in winning and keeping customers. But can Customer Service measure its results in CAC?

The weakness of Customer Service role in corporate business model:

Since the mid 1980’s the Service Delivery Industry has been adopting and reporting Vendor Defined benchmarks & measurement without much reflection as to how such ‘adopted’ measures reflected contributions to the business model of the Company. As a result senior management has mostly given up trying to understand how Customer Service contributes to profit & growth and instead relegated call centres & Service Delivery to the cost cutting part of the organisation with resulting lower investment in new technology and increasing outsourcing to low cost providers. The idea, that the customer-experience is a central part of future sales and growth, got lost and was relegated from the business model. The vendor defined measurement adopted by na´ve or inexperienced call centre managers is the main reason service delivery lost its customer focus, its role in the business model and the support of Senior Management. (I prefer to call these measures  IVM*s (Idiotic Vendor Measures)). 

The story of 3G’s “EBITDA minus CAC” or how Customer Service can help deliver valuable solutions to senior management.

Before all interactivity with customers is outsourced as non-core competency, it is worth noticing that the importance of customers to the success of any business still weighs heavily on the mind of Senior Management as illustrated by this story from Hong Kong Tuesday March 28th 2006 – “Li coins a phrase for 3G’s future- EBITDA minus CAC ” was the headline in The Australian.

Not too many call centre managers will see the connection between the story headline and the lack of Customer Outcome-based Measurements in the Service Centre.

‘Li’ happens to be one of the worlds most successful businessmen (Li Ka-shing) based in Hong Kong and in control of Hutchison Whampoa – a very, no make that extremely successful business corporation. 3G reflects the investment in next generation Mobile-phone services and Hutchison has invested US$ 25 billion to become one of the world’s primary suppliers of 3G-network service. (In case you didn’t know Mr Li owned the Orange-mobile brand and sold it for a profit of $10 billion eight years ago). Yesterday in reporting missing its 2005 3G earnings result Hutchison introduced a brand new accounting term: ‘EBITDA – CAC’ .

By excluding Customer Acquisition Costs – the earning before interest and tax would have been positive!!! The CAC for 2005 is us$ 1.6 billion. This company spent $1.6 billion acquiring new customers – let me add, that most of its Customer Service is out-sourced and that ‘Churn’ figures from Ireland and the UK are unreported but estimated to be in the +35% range.

Here is the worlds biggest Mobile player in the 3G-space investing heavily in customer acquisition and at the same time excelling by giving ‘indifferent to bad customer service’ and loosing 35% to churn. The Lost CAC equals US$ 0.7 billion. Service Delivery should be busy measuring “Value of regained CAC” and document how the call centres unlike any other area of the 3G organisation proactively can improve customer satisfaction and considerably bring down Customer Churn and in $-terms deliver value to bottom line ”EBITAD minus CAC”.

Surely senior management will reappraise its understanding of the impact of Customer Service and it potential active role in the business model.

We in the Call Centre Industry must identify & understand the needs of Senior Management for Customer Outcome-based Measures and focus on results that contribute to bottom line of the company. 

* The Term Idiotic Vendor Measures was first used in the 2001 seminar “Senior Management Satisfaction- how to achieve”

 

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