Richard Moir, Vanguard Consulting
Consumers are bombarded with information about financial products and services. Every bank account, credit card and insurance product comes with a series of leaflets, letters and emails. It’s the norm, whether we are applying for a standard current account or complex investment product. The volume and complexity of what we should be reading seems to be growing. Some product information can run to 70,000 words.
It’s almost as if companies are trying to prevent customers from buying.
After we buy, the small print is unleashed. Terms and conditions have become part of the barrage of communications from financial services companies.
As Personal Finance Reporter for the Telegraph, Katie Morley puts it:
“Most terms and conditions are written in lawyer-speak that should never see the light of day. It may as well be written in Chinese as far as most savers and borrowers are concerned.”
Why are terms and conditions written in this way? It’s not as though they can’t write communication that is far more accessible; they certainly manage it for their marketing material.
As part of the ‘Save Us The Small Print’ campaign, Fairer Finance’s James Daley claims that
‘Dozens of banking and insurance documents would only make any sense to people who have a post-graduate degree’
This doesn’t bode well for the 16% of UK adults who, according to the National Literary Trust, have the reading age of an 11 year old.
Even being able to read doesn’t guarantee you will understand what the words mean or know what to do next. For many customers, their only hope is to ring the call centre and speak to a human being. Many more ignore the letters or put them in the bin.
We already know there is a problem. For years the Plain English Campaign and their Crystal Mark have encouraged organisations to improve the clarity of their documents. Consumer programmes such as ‘You and Yours’ and ‘Watchdog’ cover the campaign by Fairer Finance. Even the Financial Conduct Authority (FCA) recognises the problem. Their Director of Strategy and Risk, Christopher Woolard says:
“A well-functioning market needs informed and engaged consumers. It requires consumers to have access to high quality, appropriate information to help them understand the product or service they plan to buy. This is especially true in the financial services sector, where it is important that the information helps empower customers to make informed decisions about their finances.”
The FCA also claims that: ‘greater transparency in firms’ communications with consumers can also lead to greater efficiency for the industry, with less time spent handling complaints’.
However, few realise that reducing time spent on handling complaints is the tip of the iceberg. The bigger prize is the commercial benefit that comes from improving communication with customers.
When you observe and study directly the transactions between consumers and service organisations, there are predictable reasons why customers contact the organisation. Many customers would rather not have to make the transaction, and indeed the organisation would prefer not to process it. The Vanguard Method labels these transactions as ‘Failure Demand’ and defines them as ‘failures to do something, or to do something right’. In service organisations they occur with alarming frequency. Failure Demand not only has consequences for customer satisfaction and reputation but it has a massive impact on operational costs. Where Failure Demand occurs, employees engaging directly with customers spend time dealing with transactions that could have been prevented.
The volume of failure demand always exceeds by far the number of customer complaints.
Poor communication is a major cause of Failure Demand. Typical instances include:
• Asking for clarification because they haven’t understood what they’ve been sent.
• Asking for something they’re not entitled to as they haven’t understood the terms and conditions.
• Asking for help to complete forms and applications as they can’t understand what they’re being asked for.
• Customers responding to prompts from the organisation for more information having not understood the original request.
Failure Demand is therefore a very powerful concept for improving performance. If failure demand is reduced then the experience of customers improves and the reputation of the business is enhanced. Operating costs fall and call handling capacity is released. Employees who interact with customers spend less of their time dealing with confused, frustrated, disgruntled and annoyed customers.
So how did we end up in this mess? A high volume of failure demand is such a common and frequent problem across service industries that we cannot attribute it to specific individuals and their skill and ability to produce clear prose. It is a systemic issue.
An FCA discussion paper advises firms to embed an organisation-wide culture, where the importance of communicating effectively with consumers is recognised and prioritised. On the face of it, this appears to be an inarguable piece of common sense, so why is it not already happening? The reason is simple: it’s because traditional management thinking does not see things from the customer’s point of view.
The typical perspective in organisations is to make decisions and take actions based on an internal view point.
Lawyers, Compliance teams, IT departments, Marketing, Financial functions and even executive leaders have little interaction with customers. Organisational structures, permissions, internal political sensitivities, decision making and change mechanisms make it difficult to understand and maintain a perspective based on that of a client, customer or service user. As a consequence of these systemic limitations, employees appear to ignore the customer or user when producing communications. Organisational needs are therefore unintentionally prioritised over the needs of the customer or users.
When a systems based approach is taken it requires organisations to take an outside-in perspective. In service organisations this means understanding how organisational decisions and actions appear to the customer, client or service user. This is more straightforward for the employee dealing with service users directly. For others in the organisation who are not in these roles, such as marketing professionals and lawyers, taking this sort of outside-in view is much more challenging.
The good news is that all these systemic limitations can be acted upon and changed. They don’t exist because of the laws of physics and nature, nor are they enshrined in law. They are there because current and previous leaders have made decisions about how the organisation should be designed and managed. As such they can be changed, but the changes must first be based on knowledge. A great place to start that study is at the point of transaction with the service user. The knowledge gained, and subsequent action, can lead to great improvements in organisational performance. Failure demand plummets, operating costs reduce by up to 40%, employee engagement scores and NPS scores double.
Imagine if we went back to basics and asked the question ‘What are terms and conditions actually for?’
This fundamental challenge is something I intend to explore further in my next post.