In an Expert Focus article for Waterbriefing, Paul Clark, CEO of Charter UK, a leading provider of enterprise complaint and feedback management software discusses the limitations of Ofwat’s Service Incentive Mechanism, why businesses should not wait for enforced regulations to provide a catalyst for change and how the water  companies should be using customer engagement and feedback to drive continuous improvements in their businesses.

Paul Clark: For years, Ofwat has been keeping a close eye on complaints being made about Britain’s water companies. When the regulator launched its Service Incentive Mechanism (SIM) back in April 2010 in order to incentivise good customer service and to punish any failings in this area, it was defined as a pivotal moment in water regulation.

The scheme, which runs in five year increments - the first concluding in 2015 – works on a basic but effective premise; those companies that perform better for their customers will be rewarded with higher price limits. Conversely, those that perform less well will have a penalty imposed.

Even though initiatives like SIM should be applauded, the problem is that the penalties and incentives on offer often fail to elicit any real change. This is compounded by the fact that water companies in Britain don’t have any real competition, as customers are simply served by their local provider. SIM seems to be much more of a ‘carrot’ than a ‘stick’. Do more and you can charge your customers more, do very little and those same customers will still be there, paying the same amount.

Compare this approach with what we’ve seen in the financial services sector where the Financial Conduct Authority (FCA) clearly favours the stick over the carrot, and where the results have been very positive. Even though financial services firms have suffered their own fair share of bad press and reputational damage, service levels have improved dramatically as a direct result of increased regulation in recent years to the benefit of their customers.

Not only are banks publicly accountable with twice-yearly published complaints data naming and shaming the worst offenders, but they also must have processes in place that enable them to understand the root cause of customer complaints. Further, to ensure complaints are given appropriate ‘top-level’ exposure, financial firms must appoint a Nominated Head of Complaints with access to the board to keep them apprised of any issues.

If, after following a bank’s complaint process, the customer is still not happy, he or she can escalate the matter to the Financial Ombudsman Service (FOS) who has the power to uphold the complaint, and if all else fails the customer can switch to another bank.

Without this competitive dynamic, Ofwat needs to go much further than the FCA in supporting and encouraging improvements in customer care. If customers want to escalate their complaints to the Consumer Council for Water, they will soon find that the body lacks the legal standing to uphold any complaints or to issue any fines, as it is merely a mediator.

Understanding the Three Ps: People, Processes and Platforms

Whilst regulation is still seen as burdensome by many, there are some shining examples of smart organisations in the financial services sector that have realised the extent to which complaints can be leveraged for profitability. These firms are now going further than even regulation demands and reaping significant operational and financial benefits, including the reduction of complaints, understanding of the operational issues that led to the complaints in the first place, and increased customer retention and advocacy levels.

With benefits like these on offer, businesses should not wait for enforced regulations to provide a catalyst for change. Any company, in any industry, is in a position to leverage complaints for economic advantage right now, but in order to do so they need to concentrate on their abilities in three key areas: people, processes and platforms.

Getting the culture right for a company’s people is actually the hardest part.  By comparison, implementing the processes and software platform that is needed to obtain an enterprise view of complaints coming in at any customer contact point across the business is relatively easy.

This holistic view of customer complaints can provide extraordinary benefits, as this level of insight can help businesses to see their systems and processes from the customer’s point of view, and therefore prevent unexpected processing errors, customer-service bottlenecks and other inefficiencies from damaging public confidence – and the bottom line. This will form the basis of a strategy of continuous improvement that will far outweigh any initial investment.

After all, if a company doesn’t have the ability to tackle complaints at any point, how can it truly understand the problem? Many companies are blind to this kind of information, however. A company’s culture needs to address this fact, and management should encourage all staff to see customer complaints as an opportunity, rather than a threat.

Above all else, in a climate where businesses are cutting budgets, Britain’s water companies will soon realise that these benefits will translate into increased revenue and reduced costs and will also provide a strong foundation for a programme of continuous improvement.  Also, because they are responsible to shareholders, these same businesses will want to ensure that they are controlling their costs, satisfying their customers and delivering maximum dividends.  The right people, processes and platforms can deliver all of these benefits and more.

Using customer feedback for continuous improvements

In an interview with the Institute of Customer Service last year, Regina Finn, the CEO of Ofwat, revealed that more than 50% of total complaints were about billing, price rises not being explained, tariffs not being clear, failure to pick up calls, and not acting courteously. 

While it is interesting to note the reasons for these complaints, it is more difficult to explain what the root causes are. Why are customers so confused by their bills?  Why aren’t calls being picked up more quickly? Are the problems being caused by the people, processes or platform being used?

Industry benchmarks alone won’t help Britain’s water companies to answer any of these questions. Treating complaints as information that simply needs to be logged and resolved is now very ‘old school’.  Today, the leading view is to maximise the organisation’s learning capability and make operational improvements as a result. This internal ‘socialising of complaints’ facilitates using intelligence from the complaint – together with root cause analysis – to identify the underlying issues and get to the hub of the problem, so that it can be repaired at source.

As with the financial services sector, some water companies might push back on taking such a far-reaching approach to complaints, but these changes are good for the consumer and also good for the company. It will be the progressive companies who embrace the benefits that this approach can deliver right now, rather than waiting until these changes are forced upon them, that will ultimately benefit the most.