The Empathy Fix Using an "E-Score" to monitor and drive great customer relationships in service organisations - SPP
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The Empathy Fix
Using an “E-Score” to monitor and
drive great customer relationships in
service organisations
Prepared by Phil Noble, Kade Brown, Jens Myhrman, Peter Slade and Thomas Tod
October 2019EMPATHY IN FINANCIAL SERVICES
What is empathy worth?
And how can it be
leveraged?
Large institutions need to rebuild trust. higher expectations to do “the right thing”.
The Hayne Royal Commission proved that In the current climate, maintaining profitability
Australian banks have lost the trust of large and sustaining a high ROE will require banks
segments of customers, and this trust needs to invest to build customer trust and earn
to be rebuilt. their social license to operate. Doing the right
thing equates to “doing better” from a moral
and trust standpoint.
“Trust is at the core of our financial
A core component of trust is Empathy – yet it
system and, as we’ve seen, once it’s
is a difficult attribute to manage.
lost, it’s not easily regained. Consumers
need to be able to trust that the Customer trust is a function of credibility,
reliability and empathy discounted for the self-
individual or the institution they are
interest of the organisation or the operator.
dealing with is putting their interests Rebuilding trust requires an organisation to
first, second and third. The royal demonstrate all of these attributes.
commission has shown that too often
While each attribute is large and complex,
this has not been the case.” SPP observes that empathy is an important
Treasurer Mr Josh Frydenberg in response to area that can get lost, and certainly warrants
the Hayne Royal Commission more attention.
SPP has focused on the empathy component
Large organisations must not take their social of this equation to better understand how
license to operate for granted. organisations may benefit from honing their
Australian banks enjoy a privileged position in ability to deliver an empathetic customer
part thanks to regulators having favoured experience and place to work. This means
stability at the expense of competition. looking at empathy from the perspective of
Australian banks are among the most embedding it in day-to-day business
profitable in the world, reporting profits as operations rather than from a more typical
high as the total value of all agricultural human resources perspective.
produce in Australia at 3% of GDP. Australian
big four banks’ average return on equity (ROE) Exhibit 1: Maccherone’s Trust Algorithm
“The Trust Algorithm” by Larry Maccherone link to
of nearly 14% is at least 4% higher than the
source
US average (~10%) and more than double
that of EU-28 banks (at 5.6%).
But despite a doubling of profitability since
the financial crisis of 2008, Australian banks
still score very low on customer trust both
within the domestic and global environments.
More recently, the Hayne Royal Commission,
shareholder concerns, and the debate in
media have made it clear that the big
Australian banks are faced with increasingly
2019 © SPP 2EMPATHY IN FINANCIAL SERVICES
Empathy is a distinct human characteristic happier at and outside of work, resulting in
that drives decisions and behaviour. cultural and social benefits that translate
Empathy is “an affective or cognitive process into financial benefits in the long term.
of tuning into another person’s psychological • Ability to respond appropriately and
or emotional state, while recognising the effectively to the findings of the Hayne
other person as distinct from one’s self” Royal Commission and to public and media
(Decety & Jackson, 2004). In layman’s terms, concerns.
empathy is putting oneself in another Many organisations have paid a high price for
person’s shoes and using this perspective to getting this wrong.
influence how one acts or responds to a
When organisations fail to convey empathy,
situation.
they put their customer relationships and
Empathy has three key components. overall reputation at risk.
This definition is derived from three types of One such example is the Wells Fargo account
empathy: fraud scandal that emerged in late 2016.
• Cognitive: knowing what someone else is Aggressive sales KPIs and ruthless
feeling. management led front line staff to open
• Behavioural: intention to respond millions of accounts for people without
compassionately. authorisation.
• Affective: feeling what the other person is Wells Fargo was among the few big US banks
feeling. enjoying a relatively strong position and
reputation during the GFC; however, the
Empathy is in partly innate and partly learned.
account fraud scandal greatly damaged the
Challenging oneself to develop more empathy
reputation of the institution.
will have positive spill-over effects to one’s
happiness (Bartlett & DeSteno, 2006 link to Wells Fargo CEO Tim Sloan recognised how
source). the scandal had hurt customer trust and
directly impacted the bottom line.
In addition to this, empathy is something that
people hold in varying degrees and have
varying capacity for. While some personality “Wells Fargo continued to make
types are well equipped to have an innate meaningful progress in the first quarter
feeling for how another person perceives
in rebuilding trust with customers and
one’s behaviour, others lack this capacity
entirely.
other important stakeholders, while
producing solid financial results.
For an organisation, this makes empathy a
difficult issue to tackle and too often ends up Of course it’s having an impact on
in the ‘too hard’ category. While the issue is performance at the moment.”
complex, SPP suggests that there is much to Tim Sloan, Wells Fargo CEO, Q1 2017 report
be gained from working on empathy in a
structured manner.
SPP’s E-Score can diagnose and monitor
Distinct benefits can come from an
empathy within an organisation.
improvement in empathy
While empathy is a complex issue to address,
For a large organisation, the benefits of
Australian institutions, including banks, can
improving empathy within the organisation
and should endeavour to make it part of
has three areas of benefits:
everyday business operations. SPP’s E-Score
• Improved customer experience leading to provides a structured method to diagnose and
financial benefits through increased NPS, monitor performance and progress on
satisfaction, loyalty and retention. building empathy across an organisation.
• More engaged and motivated people within
the organisation who are likely to be
2019 © SPP 3EMPATHY IN FINANCIAL SERVICES
Exhibit 2: SPP’s E-Score
A conceptual view of the E-Score framework to diagnose and monitor empathy within organisations.
SPP’s E-Score establishes a baseline
measurement against three core diagnostic With a structured mechanism to
components: customer experiences, staff measure empathy, organisations can
experiences, and governance. drive improvement across multiple
This enables the organisation to identify organisational dimensions – building
targeted interventions aimed at improving the trust among customers and staff.
way in which the organisation delivers
empathetic experiences at the right moments. SPP appreciates the importance of
These recommendations are likely to fall incorporating a structured approach to
under four organisational dimensions – working with empathy organisation-wide and
Structure, People, Processes and Strategy – would be happy to discuss how we might help
described below. your organisation improving in this domain. ◼
Exhibit 3: Organisational dimensions and activities to improve your E-Score
Examples of activities that can be undertaken to improve the way your organisation delivers empathetic experience.
Organisational
Description How it can address empathy
dimension
The vision, purpose, mission and Ensure meaningful empathy-led metrics at an
Strategy strategic priorities and initiatives of organisational level that are measured, valued and
the business. reported on.
Have roles at different levels within the organisation’s
Organisational hierarchy, reporting
Structure structure that focus on developing a deep
lines, spans and layers.
understanding of customer needs and behaviours.
People working within the Train, equip and recognise frontline staff for identifying
People business, providing the capability true customer needs and responding flexibly to deliver
and capacity to serve customers. empathetic experiences.
Procedures that define how the Build in flexibility to key processes to allow for an
Processes
business’ activities are undertaken. empathic outcome when staff deem it is warranted.
2019 © SPP 4EMPATHY IN FINANCIAL SERVICES
About the authors
Phil Noble – Managing Partner
Contact: +61 438 000 200
phil.noble@spp.com.au
Phil has worked in financial services, not for
About SPP profit, transport & infrastructure and
telecommunications, and across strategy,
corporate development and major capital
Strategic Project Partners is a
projects.
generalist, strategy consulting
firm.
We support Senior Executives Kade Brown – Engagement Manager
and General Managers on Contact: +61 416 778 900
difficult strategic and kade.brown@spp.com.au
operational challenges. Kade is an experienced strategy consulting
Established in 2005, SPP has manager, having supported clients in the
financial services, insurance, health,
delivered successful outcomes
consumer goods and higher education
for a broad range of sectors to solve a range of complex
commercial and Government problems.
sector clients.
As a result, we have strong Jens Myhrman – Senior Associate
relationships with many Contact: +61 434 087 033
businesses, from Top 50 ASX jens.myhrman@spp.com.au
listed companies through to Jens has extensive experience in leading
small enterprises. teams in service organisations. As a
consultant, he helps clients in the financial
When we deliver our projects, services, education, government and retail
whether it’s a strategic study or sector to solve complex problems and
the implementation of large- influence strategic direction.
scale change, we focus on:
• Strong project management Peter Slade – Senior Associate
Contact: +61 407 394 201
• Clarity of outcome peter.slade@spp.com.au
• An obsessive focus on Peter has a diverse background in audit and
project benefits business assurance, governance, project
management and physical security. He has
• Robust, fact based analysis extensive experience working with senior
• Simple communication leaders from the Australian Defence Force.
• Bringing experience to bear
Thomas Tod – Associate
Contact: +61 488 108 381
thomas.tod@spp.com.au
Thomas is interested in the intersection
between the social sciences and quantitative
financial analysis. He has previously
competed in competitions on behavioural
economics and moral psychology in business.
2019 © SPP 5EMPATHY IN FINANCIAL SERVICES Appendix Definitions of the components of Maccherone’s Trust Algorithm The definition of the four components of the trust algorithm is as follows: Credibility: How well you, the operator and by extension the organisation, know the subject matter at hand and is able to convey that to the customer. Reliability: The consistency of service delivery over time. How often and quickly you live up to your promises and do what you say you are going to do. Empathy: Recognising that there are sub-components of empathy presented earlier in this article, at this higher level it is defined as putting oneself in another person’s shoes and using this perspective to influence how one acts or responds to a situation. Self-interest: The interest and incentive structure that the operator and the organisation are working by and how the customer understands and interprets this. These four components interact as per the below exhibit to drive, or erode, trust. Exhibit 1: Maccherone’s Trust Algorithm “The Trust Algorithm” by Larry Maccherone link to source 2019 © SPP 6
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