Executive Thought Leadership

Migrating to Interactions-Based

For 200 years, productivity has been one of the most important concepts in business. By focusing on efforts to improve productivity—from 18th-century production-based developments such as the automobile assembly line to 20th-century transaction-based developments such as credit cards and IT-enabled supply chains—companies have been able to increase revenue, improve their competitive advantage, and expand their businesses.

But in today’s hypercompetitive marketplace, where companies of all sizes can take advantage of the same productivity enhancements, success now depends more than ever on a company’s ability to attract new customers and to maintain the loyalty of existing customers. Meeting this new challenge requires going beyond productivity enhancements to a renewing the focus on customer service. It also requires a fundamental shift in business: Companies must migrate from a 20th-century transactions-based business model—where the value is in computing and data processing—to a 21st-century interactions-based business model, where the value is in the real-time exchange of information and the connections between people and companies.

Interactions-Based Business Model

An interactions-based business is one in which the primary emphasis is on the information exchanged between parties rather than on the efficiency of transactions between the parties. This is not to say that such transactional efficiency is no longer important; rather, it is to recognize that the returns of a transaction-based business model are diminishing.

For example, given the maturity of information technology in most companies, it is almost impossible to create a significant competitive advantage by developing a better enterprise resource planning (ERP) system because best practices in ERP are well-known and most ERP costs are already budgeted as a cost of doing business. By contrast, the quality of the interactions between a company and its customers—whether human-to-human, such as negotiating a sales deal; human-to-machine, such as responding to alerts on a dashboard or control panel; or machine-to-machine, such as scanning a package in a warehouse using a radio frequency ID (RFID) reader—can create a competitive advantage because these interactions can be controlled.

Thus, by focusing on and controlling the quality of their personal and electronic interactions with customers, companies that employ an interactions-based business model are able to positively affect the overall experience of the customer; this sets the stage for higher levels of customer satisfaction and longer-term customer loyalty.

Migration to an Interactions-Based Business Model

For companies that have historically been focused on transactions, these four business initiatives can speed the migration to an interactions-based business model:

• Examine the current business structure and determine where to add value. For example, can you outsource lower-level tasks to allow your staff to focus its efforts on providing a higher level of customer service? Can you add more subject-matter experts to your staff to speed critical issue resolution for customers? Such efforts will create new opportunities for collaboration and cooperation among employees, with customers, and across your partner ecosystem.

• Examine the current technology structure and determine where to add value. For example, can you automate repetitive processes such as placing orders or searching for documentation by making tools and information available to customers using your Website? Can you implement technologies that will allow customers to meet their own support needs and handle their own transactions? Can you increase the speed and accuracy of employee decisions by providing new electronic tools that deliver summarized information in real time and narrow large amounts of data into specific nuggets of actionable information? Can you improve the use of your existing networking technologies such as broadband and voice over IP (VoIP) to eliminate barriers of time, language, and distance? Such efforts will help your employees and partners focus on delivering higher value interactions and better service to customers.

• Balance volume to value in customer interactions. For example, can you provide electronic tools and resources to customers so they can quickly and easily resolve low-priority issues on their own? Can you find other ways to empower customers so that your highly trained support personnel focus their time and efforts on high-priority issues that customers cannot resolve on their own? Such efforts will enhance the value of interactions with customers and also improve the overall effectiveness and productivity of your support staff.

• Segment customers as appropriate. For example, have you segmented customers and partners by size, geography, and business? Do you have a unique value proposition and delivery model for each segment? Such efforts will help you judge your overall success with customers and quickly make any changes that may be necessary.

Benefits of an Interactions-Based Business Model

The interactions-based business model generates real value for customers—and companies—because it allows companies to:

• Effectively focus on individual customers or partners, groupings of them, or all of them together
• Effectively examine and measure their ability to meet current customer needs
• Anticipate and work proactively to meet future customer needs
• Resolve potential issues before they affect the customer
• Serve more customers with the same number of employees and create a stronger relationship with those customers in the process
• Deliver the products and services that customers want and provide those products and services at a lower cost
• Decrease the variables in delivery outcomes so customers know what to expect and when
• Take specific steps to increase the repeatability and success of complex tasks, eventually allowing those tasks to be automated
• Use networking technologies to automate the lowest-value routine tasks, allowing employees to focus on richer, higher-level interactions
• Create new opportunities for collaboration and cooperation among employees, with customers, and across the partner ecosystem
• Share training and knowledge among employees, partners, and customers to strengthen relationships among them

Interactions-Based Business in Action

Companies in a variety of industries are shifting from a transaction-based business model to an interactions-based business model to increase customer loyalty and improve their competitive advantage. Below are some examples of the interactions-based business in action.

Retail Industry

In the retail industry, a certain large discount retailer conducts ongoing analyses to determine customer wants and trends. In so doing, the store discovered that flashlights, batteries, and beer (yes, beer!) are the top three things people stock up on before a hurricane. By harnessing the power of its network to manage its distribution centers in real time—and by tracking the progress of weather systems near store locations—this retailer can ensure that those three items, among others, are routed to stores in the projected path of a hurricane to help customers buy the products they want.

Other large retailers have installed self-checkout kiosks to allow customers to scan their items, bag them, swipe their credit cards, and walk out the door without any involvement from store employees. This innovation has allowed more associates to be out on the floor influencing buying behavior—and the customer shopping experience—long before the point of sale. That, in turn, has improved customer service and increased the amount of sales per square foot.

Healthcare Industry

For decades, insurance providers of all kinds have been able to price policies based on actuarial tables that predicted very accurately what services customers would consume. Now, by using this same customer data, healthcare providers can predict health events at various stages of a person’s lifespan and proactively inform customers of such potential events before they arise. This also allows health insurance companies to focus on preventive health and maintenance as a way to decrease the average cost of customer support.

Cisco

Cisco Systems began as a company focused on business transactions; over the past decade, its focus has shifted to business interactions. For example, Cisco has created and implemented the tools and intellectual property necessary for customers to resolve 80 percent of all their support requests online without ever opening a case; the industry average, by contrast, is 22 percent. This shift has not only lowered support costs for Cisco; it has also allowed Cisco engineers to have higher-level interactions with customers. In addition, Cisco has also shifted its focus from reactive support to proactive assistance, helping to prevent many troublesome network events from ever occurring. This has markedly increased the uptime of installed customer networks and had a significant impact on customer satisfaction and loyalty. In quantitative terms, in the past four years the number of "high-risk" customers has shrunk by 24 percent while the number of "truly loyal" customers has increased by 21 percent. The financial value of that increased customer loyalty is worth hundreds of millions of dollars.

Future of the Interactions-Based Business

Companies are just now beginning to discover the true value of their interactions with customers, partners, and employees. Although it may take time to migrate from the old transactions model to a more modern interactions model, the benefits are well worth the effort, as many companies—Cisco included—already realize. An interactions-based business model sets the stage for success in the 21st century, and any business—including yours—can realize its benefits.