| Contents | Exhibits
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Tuesday, April 5, 1994, was another typical day for managers at MAG Services (MAG), the marketing services division of Northeast Mailing Company (NEMCO), an entrepreneurial direct-mail marketing company. Jed Jensen, Director of Marketing and Sales, had come back to his office from a morning meeting to find a voice mail message from USA Bank, a major MAG client. The bank executive had expressed concern that their MAG account executive (AE) was not sufficiently focused on the needs of a major marketing campaign scheduled to launch in less than three weeks. Jed immediately walked down the hall to get details from Diana Bourne, the USA Bank AE.
Diana was in Boston meeting with another client, a major ad agency, and didn't return until late in the afternoon. When she got back she listened to 12 voice mail messages, read 4 urgent handwritten messages from the AEs' secretary, and then found Jed's note looking for information so that he could return the call to USA Bank. At 4:00 p.m. Diana was able to start returning phone calls. Her messages had included a request from Software, Inc., a new client, for a quote to be faxed Wednesday morning, and for an output diskette containing trade show leads; a call from a staff member at USA bank who was worried that telemarketing lines were not being answered correctly and wanted to schedule additional training; and an ultimatum from the ad agency she had just visited: they had spent their yearly budget in six months, and they wanted an immediate meeting to review all invoices line by line - particularly those for two months ago, where an agency executive was questioning the prices charged for MAG services.
While she was returning calls and reading messages, Diana had to work standing over her desk because someone had piled ten billing folders containing client invoice histories on her blotter and office chair. She needed to complete a manual billing process on those accounts by Wednesday morning. As she made notes from her phone mail, Diana noticed that one of the handwritten secretary's notes relayed a message from the telemarketing vendor who was supporting the 800 number for USA Bank, asking where MAG was shipping certain bank applications. Consumers were calling the vendor back and complaining that they hadn't received information packages requested a week earlier.
At 4:20 p.m., Diana asked Marilyn OConnor, another AE, whether she had seen Jed. Although Marilyn had been in the office all day, she had not seen anyone because her phone had been ringing every twenty minutes with questions and requests from her clients. Debbie at Communications, Inc., a new client, had called several times. She wanted to be sure that "hot" telemarketing sales leads were being faxed to Communications' sales force within one hour of receipt. She also wanted a quote for a mailing faxed on Wednesday morning, although she did not have all the details yet.
Wendy, also from Communications, Inc., called to question a $600 programming charge for uploading historical data into Communications' database. Wendy insisted that the NEMCO salesperson had implied at the time the account was sold that this service would be part of the setup agreement and performed at no charge. NE Semi Company, an MAG client for five years, had called to set up a meeting to discuss the redesign of their database now that all NE Semi's divisions were going to use MAG for inquiry management and fulfillment.
IQ Medical Devices, Marilyn's largest client, had three trade shows in-house and the print room had called to say that they were about to run out of letterhead. Marilyn's inventory report indicated that there should have been 2,500 pieces left. Marilyn had called and left messages for her client, who was at one of the trade shows, to ask for additional letterhead, but no one had called back. Finally, a different contact at IQ had called, but only to ask when a literature package had been shipped: a doctor had called her twice to complain that no sales representative had called him nor had he received his product information. Marilyn also knew that a pile of end-of-month billing folders were headed her way.
At 4:35 p.m., Diana located Jed and the two discussed the USA Bank situation. At 4:55 p.m., Jed called USA Bank, but his contact was not there. Jed left a message, half expecting that the executive would think that Jed was trying to avoid him. It turned out that Diana had not been ignoring USA Bank; it seemed rather that the bank had kept changing the details of its marketing campaign on almost a daily basis and was expecting Diana to solve immediately all the problems that those changes generated.
As Jed left the office that night, the USA Bank incident stuck in his mind, because to him it represented a fundamental shift that was occurring in MAG's business: larger and larger clients were demanding increasingly customized services at accelerated turnaround times. The parts of MAG's business that were growing fastest appeared be increasingly dissimilar from the services that the division originally offered. What, if anything, should MAG do in response to this trend?
NEMCO, founded in 1868, was a private, family-owned direct-mail and marketing services firm whose annual revenues of $14 million made it a leader in the mailing services business in the northeastern United States. George Harris, President of the company, represented the fourth generation of the family to run the company. Over the past three decades the company became a specialist in mass mailings and direct mail services such as postal sorting, bar coding, and picking, packing, and mailing large volumes of promotional literature. Since the mid 1970s, as clients sought to develop a more targeted and personalized approach to direct-mail campaigns, NEMCO increased the sophistication of the computer services offered by the company, particularly with regards to personalized letter campaigns and generating mailing lists.
NEMCO's work force fluctuated around 250 people depending on the level of business. Three-quarters of employees received an hourly wage for executing production tasks such as stuffing, collating, and labeling large volumes of direct mail, as well as for computer-related tasks such as data entry and fulfillment package preparation. The company had one layer of management comprised of department heads who reported directly to George Harris. Largely due to his example, the organization never emphasized a management hierarchy, instead focusing very closely on cost control and effective execution of work.
MAG Services (MAG) was organized in 1984 as a division of NEMCO to build a business around sales inquiry and customer/prospect database management services. The name MAG was chosen to refer to "Marketing, Analysis, and Guaranteed performance", suggesting the division's value-added charter. The division started with four salaried staff: a sales person, an account executive, a programmer, and an information systems R&D specialist. Ten hourly employees performed data entry and fulfillment tasks.
By 1994, MAG generated more than $3 million per year in revenue, and employed over 70 people. The customer base had grown beyond 25, and covered a range of industries - representative clients included companies such as Kodak, Hewlett-Packard, W. R. Grace, and PictureTel. More than three-quarters of these customers and over one-third of revenues came from MAG's inquiry management services. A potentially lucrative new business was developing in custom processing, which already accounted for over 40% of revenue. Frequency marketing was another new area that promised rapid growth; one customer in this business was generating nearly 20% of revenue. The remainder of the business was comprised of order processing, job shop direct mail and bulk literature fulfillment, which provided services used by many inquiry management clients on an ad hoc basis.
By 1994 MAG had grown into three departments: Account Management, Operations, and Technical Services. In Account Management, three account executives and two account coordinators maintained the bulk of the MAG's customer contact. Technical services included a vice president of research and development and four programmer/analysts. Operations was divided into data entry, telemarketing/order processing, warehouse/fulfillment, production, and print room.
Andrea Rolli, a systems analyst involved with supporting MAG's product line, described the core services provided by the company:
Inquiry management and literature fulfillment represented MAG's original concepts. The idea was to build a prospect or customer database, using it to support customized fulfillment based on the source of the lead, demographic profiles, or other appropriate criteria. Sales leads came to MAG on paper or through our telemarketing department. They were then batched, keyed, and proofed by our data entry group and stored in the client's prospect database. The batched leads go to our production department for processing. There our software may sort the leads by demographics, regions, sales potential, type of product literature to be sent, name and address, or some combination of any or all of the above, and produce letters and envelopes. New business increasingly requires personalized letters. Once letters and envelopes are printed, the batch is sent to Fulfillment to be picked, packed, and shipped.
About two years ago, MAG inaugurated its customized response processing service, which we expected to be similar to a one-time inquiry management/fulfillment service. Instead, we discovered that it differs in several important ways. For example, each customized job is potential rather than actual high volume. Custom work usually covers campaigns of shorter duration than we have worked with before - often only three or four months. There are specialized processing requirements which require large amounts of technical resources. This is true even if the processing tasks themselves are familiar, since often they have to be accomplished in varied order, in low volumes, or in very tight time frames. As a result, these projects require that we control many operational details - indeed, we often bring expertise to the situation that places us in more of a consultative role than a servicing role. We end up putting the operational and quality control mechanisms in place to ensure that the client's marketing vision is achieved, which means intensive customer contact and careful coordination with the operations of other service vendors.
Frequency marketing maintains frequent traveler programs for hotel chains. Member applications and hotel stay vouchers are batched, keyed, and proofed by the data entry group. The programs issue credit-card-style membership cards, quarterly statements, and various awards. At present, we use our databases to support one client's six customer service representatives in New Mexico.
Order processing involves using the same part-time hourly sales staff employed to process sales leads. PC-based software supporting order processing has recently been installed by the Director of Operations: he sets up each new order processing client. Very little account management time is required to run these accounts.
Job shop direct mail represents one-time low-volume mailings for a client. Usually this involves sending personalized letters and marketing brochures to a targeted list of customers and/or prospects. A job shop contract will normally involve two thousand to ten thousand names with perhaps three or four different lots. For example, a technical seminar mailing may have three different locations, meaning that there would be three different lots of letters generated. The letters would in turn be collated with three specific fulfillment brochures.
The processing flow of job shop contracts is straightforward. The client sends a list of names to MAG on disk or on magnetic tape. Technical support converts the data into a format acceptable to a PC-based word processing package. Production takes the data, sets up the client's letter, and performs a mail merge. Letters and envelopes are printed by print room personnel, and the packages are collated and mailed by the fulfillment staff. Account executives spend time with the client understanding their request(s) and writing up the work order(s) that explain the requirements of each job. Developing these instructions is seen as routine and not particularly time-consuming.
Bulk literature fulfillment involves only the fulfillment and warehouse staff. These jobs consist of large numbers of literature pieces that need to be hand collated and bulk-shipped to one or more customer sites. Temporary help is frequently used to perform these jobs, since the nature of the task is simple.
In the mid-1980s, MAG developed software called Salesbase for supporting inquiry management and fulfillment services. Salesbase ran in-house on a Prime minicomputer, providing support for production and reporting but not for billing. Clients had access to Salesbase reports for analyzing the effectiveness of their marketing programs, including which campaigns produced the highest number of hot leads. The software could also produce demographic descriptions of potential target markets.
In 1994, Technical Support was in the process of redesigning Salesbase and moving it to a Local Area Network (LAN) using client/server software. The objective behind this effort was to enable the software to support MAG's newer business services, such as customized response processing, in addition to traditional inquiry management.
Morris Blakeman, Vice President of Research and Development, commented on MAG's infrastructure and technical support:
We have had very low turnover in technical support and have the advantage of a team of programmer analysts who have spent years with MAG's business. We work relatively independently, however, and are assigned individually to specific clients. Work does not get redistributed except under crisis conditions, largely because each client's needs are seen as unique enough so that explaining the client's request to another support person may take longer than actually completing the work.
Where we have projects that cut across clients and jobs, such as the LAN-based client/server redesign for Salesbase, our client focus can make some projects somewhat more difficult than they might otherwise be. This is a classic situation where we need to work together, yet last year the analyst who was assigned to this project was reassigned full-time to customized service development for a large client.
By early 1994, MAG managers began to focus on pricing as a potential problem area. Specifically, the company appeared to be accepting at least some contracts that performed services but did not make money. Rolli described pricing practices:
Clients are typically charged a small monthly management fee to cover account management and reporting, separate fees for technical support and non-routine data processing, setup charges, and a volume-related rate. Depending on the type of service provided, some or all of these fees might be applied.
The pricing philosophy for inquiry management clients has been to waive some or all setup charges in return for new business. The major portion of monthly inquiry-management revenue is derived from unit charges applied to the number of leads processed. The higher the volume of leads, the more revenue for MAG. In practice, that means we need to develop volume estimates of any new account before determining how much of the setup costs will be waived.
The growing complexity of custom response processing directly affected pricing accuracy. Setup charges were typically highest for this type of work. Not only did custom jobs require technical support staff to invest hours in building customized systems, but they demanded significant amounts of time from account executives who had to organize and set up operational project work flows. Technical staff time was typically recovered with direct charges. Account executive time, however, was expected to be covered through margins covering volume rates. As jobs became more customized, it became increasingly difficult for account executives to estimate either actual process steps or anticipated volumes.
The remaining services represented fewer pricing problems. Frequency marketing appeared to work well with the waive setup/make it up on volume approach. Order processing required little account management time because the Director of Operations was able to set up each client directly on PC-based software. Job shop direct mail used letter setup charges and a unit rate for each letter printed. Bulk literature fulfillment was priced on a piece rate basis. For each of these processes, temporary help was added in line with volume increases, and pricing provided a relatively constant margin over such costs.
Jed Jensen emphasized the implications of pricing issues:
Pricing is the tip of the iceberg. The more customized business we take on, the more of these types of problems we are going to have because customized work is fundamentally different from routine inquiry management. We need to understand our business differently: we need to know our production tasks better, we need to be able to predict the cost implications of specific work flows more accurately, and we need better consistency in our quoting processes. Our business is growing, but it is growing in a direction that leads away from our traditional support strengths, and we have to adapt.
Account executives managed the relationship between MAG and its clients. Often the only face of the company that clients saw, AEs played a critical role both in directing operational work and managing expectations. Rolli described the AE relationship:
A client needs to be able to trust MAG's abilities and be comfortable that their needs are being met, especially since the client has little contact with the end result. Although a tangible fulfillment package is sent to each sales lead, inquiry management and response processing are intangible services to the client. Clients receive no physical products beyond periodic status or activity reports.
There is an inverse relationship between a client's level of trust and the amount of direct client contact required to service an account. If a client is no longer comfortable with MAG's service, their managers tend to question MAG's capabilities and to monitor daily activities more frequently. MAG AEs begin to have to gather and communicate daily operational details, many of which are not readily available and require hours to collect. Once a client becomes involved in MAG's daily operations, MAG becomes more vulnerable to the degree that the organization loses their operational flexibility in processing the client's work. In the worse case, client presence at MAG facilities has in the past proven very disruptive.
As the company's business has grown, AEs have become increasingly constrained by our manual methods of quoting, billing, managing inventory, and coordinating client requests. As the volume of jobs increases, the AEs currently have no choice but to add additional personnel to track details and communicate information, in an increasingly time-sensitive environment.
Jed Jensen identified AE issues in a similar way:
We have to find out how to do tasks more efficiently than today's labor-intensive manual methods make possible. We continue to add bodies to the problem as opposed to working smarter.
We need to refocus on a perspective that I call 'profitable customer satisfaction'. While MAG people almost uniformly focus on customer satisfaction, on 'whatever it takes to get the job done', that attitude needs to be tempered by additional realism, i.e. 'so long as the client is willing to pay for it'. We need to do a better job of understanding what a job - particularly a customized job - actually entails, so that we can deliver profitable customer satisfaction consistently, with a minimum of iterative question/response cycles.
In an attempt to understand in more depth the processes involved in delivering MAG's services, Andrea Rolli interviewed AEs and other participants in MAG's operating departments, trying to understand both the activities involved in executing customized response contracts and the role of AEs in managing MAG jobs. She described her preliminary findings:
MAG is increasingly generating revenue by undertaking one-time projects that are complex and operationally difficult to manage within the existing infrastructure. Custom work can best be described as 'unstructured problems' that AEs must carefully define in both client's and MAG's terms. Examples of these one-time jobs might include: a one-time direct mailing to a client's prospect list, or response processing for a specific marketing campaign.
The process of quoting, coordinating, and invoicing these one-time jobs is somewhat defined at a high level but extremely difficult to execute at an operational level, since there are few process or service definitions shared across organizational boundaries between MAG and the client or across departmental boundaries within MAG. Cost-effective pricing and work flow management of customized jobs by AEs is only achieved after several months of on-the-job experience, yet still can be incomplete and lack consistency from job to job. MAG's current infrastructure, based largely on manual procedures, supports neither client needs for prompt, written quotes and answers nor MAG's needs for effective contract coordination, rapid job completion, and timely billing.
MAG is more than a service bureau or a fulfillment house. Revenues depend on a staff of professional AEs who are skilled in organizing the tedious but critical details necessary to launching and executing effective marketing campaigns. Our current procedures encourage us to react to client problems rather than proactively service their needs. This position becomes weaker to the extent that clients become familiar with PC-based software that demonstrates how quickly MAG should be able to respond. Clients are using PC software on their own desktops and becoming more demanding of MAG as a result.
Against this background, we are trying to understand better the processes that AEs must coordinate. We have been able to identify three groups of activities that consume large amounts of AE time.
First, the AE is responsible for the preparation and communication of instructions about the job. This involves defining the customer's request in terms that can be understood by the client and again in terms understood by MAG operations. For example, a quote identifies the steps and costs of a job using client terminology. Departmental work orders define portions of the client's job in MAG terms. Other free-form instructions explain procedures for data entry, telemarketing, and production in terms understood by those departments. Instructions are prepared and distributed manually under intense time pressure; perhaps it is not surprising that sometimes they can be less than perfect.
Second, AEs are often asked to provide a client with the current status of a piece of work. Examples might include receipt dates of literature and leads, inventory usage and availability, mailing dates of leads or other outputs, process dates of jobs, expected completion dates, and turnaround times. Providing this type of information should not be difficult, and in theory could be provided without the AE's assistance. Too often, however, the information available is either stale or incomplete, and requires legwork for an answer. Inventory information, for example, is available on-line, but is rarely up to date with received stock. Average turnaround times for processing daily leads can only be derived by manually tracking batches and calculating the number of days from receipt to mailing. Mailing dates are not tracked at an individual level and are not available on-line at the job level.
The third group of activities relates to exception reporting, which AEs currently experience as customer requests for information. Typically, clients ask why or why not some event did or did not occur. The range of requests is very broad, and, like status reports, each request requires research in order to provide an explanation. Production steps are often retraced to understand why some set of processing stages contributed to an unexpected end result. Errors are sometimes the result of mistakes, but more often they are the result of misinterpreted instructions. Frequently a client will not fully understand the details of a particular process and as a result receive an 'incorrect' end result. Clarifying quotes to a client and explaining departmental work orders to MAG operations can be time-consuming if the AE is not readily available to answer questions or if clarification depends on a client's decision.
Jed Jensen had received the results of the process study in late March, and was still considering their implications. Three parts of the study had captured his attention. The first was a set of the forms used by MAG to order and bill a customized response job. These forms, a mailing services work order, a technical services work order, and a NEMCO invoice form, are reproduced here as Exhibits 1-3.
The second that caught Jensen's attention was a list of the activities undertaken by AEs, expressed in the words that AEs used to describe them. This list is summarized in Exhibit 4. The third was a list of activities grouped by 25 standardized services that MAG Operations had expertise in producing. These are shown as Exhibits 5 and 6. A floor layout and workflow description from the study are included as Exhibits 7 and 8.
It occurred to Jensen that a large part of the solution to MAG's
current problems lay in developing a better, faster linkage between
thorough descriptions of client needs and the tasks that Operations
was proficient in producing. His remaining questions centered
on how MAG might best design and support these process improvements.