Credit by: By Richard Hatherall, Priscilla Dell'Orto and Karsten Fruechtl

At a Glance
  1. Improving the customer’s experience with an insurance company or bank does not automatically conflict with cost-containment goals.

  2. Reducing bad volume, offering more self-service options for basic transactions and rationalizing the product mix can deliver a better experience at lower cost.

  3. To make headway on both goals, companies should focus on discrete customer episodes—such as “I want to purchase a life insurance policy to protect my family”—identify the episodes that matter most to customers and target the unit cost of each episode.

  4. The key characteristics of more effective and efficient episodes are simple, digital, fast and right the first time.

The customer episode as a unit of change

Virtually all banks and insurance companies have been migrating many transactions to digital channels. Yet there is substantial variation in the pace of change and the return on investment. How can they make substantial progress?

We have found that the most effective unit of transformation is the customer episode, which provides a powerful lens to reduce companies’ cost position without degrading the experience. When customers have a task to complete or a need to fulfill through the company, that’s an episode. It has a clear start and end, marked by the customer completing what he or she set out to do. Episodes encompass a variety of purchase, usage or service activities; they range from a single interaction (such as paying a bill online) to an intricate series of interactions spanning weeks (financing a new home). The sum of episodes over time constitutes the entire experience of dealing with the company. Focusing on episode costs allows the company to determine how efficiently it is serving the customer’s needs (see Figure 1).  

Figure 1

Many episodes cause customers pain and incur unnecessary costs for the company along the way

For the cost side of the equation, leading companies find it useful to take an activity-based approach to understand the unit cost of each customer episode. First, you map the full spectrum of activities in an episode. Buying an insurance policy, for example, would include data entry and processing, underwriting and fielding customers’ calls about their application status. Then you take the functional costs from the general ledger (operations, distribution, IT and so on) and assign them to each activity, such as how many contact-center calls pertain to buying a policy (see Figure 2). This analysis allows you to identify hot spots—the activities that cause customers pain and have high costs—that should be prioritized for resolution.

Figure 2

Functional costs from the general ledger are allocated to each episode according to the activities involved

Using the episode lens helps you pinpoint issues that might otherwise slip through the cracks, such as why customers are calling the contact center. An episode lens also holds executives accountable for episode performance, by measuring both the cost and the quality of the experience.

To reduce drivers of cost (see Figure 3), and improve the episode in the bargain, companies use levers ranging from digital submission of forms, to automatic status updates, to optimized workforce scheduling of contact-center agents. These levers also enhance the quality of the episode. For instance, switching from paper to digital applications eliminates data entry, and an auto-underwriting engine can automatically assess the vast majority of cases, which translates to faster processing times and happier customers. 

Figure 3

For each customer episode, various levers can reduce costs

Automation can support a simple and digital shift by minimizing human intervention and creating a true end-to-end process. Episodes also tend to improve through simplified product lines and processes, which make for greater reliability and speed. In addition, you can reconfigure where and by whom the work gets done. Each of these levers involves behavioral change, especially overcoming barriers to both employee and customer adoption of digital tools—whether those barriers consist of lack of confidence, lack of understanding the benefits or simply inertia.

Simplification appeals to customers in the form of faster and mo