Kaizen at AOL Broadband – You’ve Got Mail, my friend.
We, lean folks, sometimes develop a narrow worldview that lean is just for manufacturing. While we know that lean is being applied to many different industries, we are sometimes surprised to hear of companies applying lean, especially if they are unconventional companies we never expected to be adopting lean; such is the case with AOL.
We’ve all heard of AOL – America Online. “You’ve got Mail” has become a staple phrase in our lexicon. What people don’t realize is that AOL is also a company that has adopted lean and lean is a part of their continuing cultural transformation.
In fact, recently, CEO Tim Armstrong, in a letter to all AOL employees used the word “Kaizen” in his letter, encouraging all AOL employees to contribute to the mission of doing better in 2012.
I came across a case study on how AOL has implemented lean thinking that I think will be helpful. At the time of this case study, AOL had implemented a blended version of both Lean and Six Sigma and appears to have followed the DMAIC approach for the case study. Continue below to learn more about how lean was applied in the AOL Broadband Division.
Under the AOL Broadband division is a group called the Carphone Warehouse. Below is some history on this group:
- The Carphone Warehouse was set up in 1989 by Charles Dunstone. Today it is Europe’s leading mobile communications retailer, generating annual turnover of £4bn (year ending March 07), offering customers impartial and expert advice, the widest choice of the latest products and unbeatable service.
- The company operates across 10 markets and employs over 17,000 people.
- The vision and core values first introduced by Charles remains unchanged and the company continues to be driven by a total dedication to customer satisfaction:
- The Carphone Warehouse’s Product Truth: A product bought from The Carphone Warehouse will not only be the most appropriate for the customer’s needs, it will also benefit from a comprehensive range of products, services and after-sales care that cannot be found elsewhere.
As with most businesses, The Carphone Warehouse operates a customer service center. AOL Broadband claims that their Customer Service Center is unlike the traditional customer service center which they define as:
- Operators working from a script
- Non-expert operators (call screening)
- Incompetent or untrained operators incapable of processing customers’ requests effectively
- Overseas location, with language and accent problems
- Automated queuing systems—this sometimes results in excessively long hold times
- Complaints that departments of companies do not engage in
- Complaints that departments of companies do not engage in communication with one another
- Deceit over location of call centre (such as allocating overseas workers false English names)
- Requiring the caller to repeat the same information multiple times
- High staff turnover, low moral
Contact centers are traditionally Efficiency driven, with the following supporting metrics:
- Average Handle Time (AHT)
- Call volumes
- Queue times
- Agent & customer
- Abandoned Calls
To their credit, they realize the following realities:
- Competition is more intense
- A more balanced approach is required on service delivery & value creation with the strategic direction of the business
- Call centre performance is more important for delivering CRM
- The growth in off-shoring of contact centres is having positive & negative impacts
- Regulation is constraining and demanding a new response
- Cost improvements are required to ‘plug’ falling prices & margins
- Customer are more disloyal & demanding of consistency & service
- Staff retention is critical to a consistency of delivery
Because of the new realities of customer service, AOL Broadband decided to apply the concepts found in lean manufacturing and six sigma. Doing so meant having a dedicated process team that:
- Focusing on Customer touch points
- Lean thinking & methodologies
- Value Stream & process mapping
- Identification of process improvements from Customers
- The Pursuit of Excellence at AOL Broadband perspective
- Integrated knowledge management strategy
- Customer call listening
- Proactively supporting Waterford as a centre of excellence and sharing best practice.
And this team applies Lean methodologies that are focused on delivering maximum value and eliminating waste:
- Using the DMAIC approach
- Understand the drivers of contacts
- Creating value
- Analysing root cause
- Measuring end to end response & process capability
- Transforming culture & engaging staff
- Building change capability & agility
Given AOL Broadband’s new approach, they decided to look at Repeat Calls.
Customer Service Repeat Calls
Repeat Calls presents a significant opportunity for improvement for AOL. Some data supports this:
- The current level of repeat calls are costing the business €2.38 million over budget.
- This addition cost & call volume also affects service levels & the overall quality of service.
The initial problem statement is stated below:
Some initial data collection was taken, primarily from the call logs from the call center. Below is the data collection plan.
The initial data pointed to the following major areas of opportunity:
Apparently, for all repeat calls during the data collection period, 53% of the cause can be attributed to the customer service agent behavior.
After the Pareto above was obtained, the next step for the AOL Broadband team was root cause analysis:
Following root cause analysis with the team, they organized their findings into a second level Pareto Chart below:
Once the root caused were identified and validated and quantified, the next step to address these primary call drivers was for the team to brainstorm practical solutions or countermeasures in the Improve Phase.
A number of insights were gleaned from these sessions.
- Current AHT targets were restricting first time fix rates
- Need for more skills & training for bottom performers.
- OSP Contracts were driving wrong behaviours.
- Culture of Tech Support lead to lack of ownership, lack of interest in resolution & AHT myopia.
To address the findings above, several improvements were made. One of those areas was in reporting. This new report included the following:
- New Stake Holders Report Created.
- Repeat Call Volumes & AHT.
- Call Driver Tracker Created to Capture Call Reasons.
- New Control Dashboard Created.
Before scaling changes to the entire enterprise, the AOL Broadband team decided to pilot the changes in a small scale at first. Their pilot test consisted of the following:
- A group of 24 Agents running 2 pilots schemes set up.
- 1 team using new operating procedures brought about by initiative.
- The second team being used as a control to benchmark against.
- Data Capture tools in place.
- Reporting set up on scheduled basis.
- Communication & Training was delivered to both teams.
Results from Pilot Test
Based on early results from Trial. The following Data shows significant business benefits. By Improving the time taken with each customer on the initial call, the team reduced repetition on subsequent calls. Through Improvements to the AOL Broadband Knowledge Base & the new operating procedures, the team forecasted a potential benefit of €2.1 Million per year and €600,000 to the end of the current financial year.
While the improvements to reporting might seem trivial, they were not, for the changes in reported added critical items that were not previously collected and reported on. The team made other changes in training and in also policy changes, involving human resources.
- Lean Must be led by the Top Managers
- Aligning contact strategy & delivery with the business goals
- A Lean approach will contribute to an improved Customer experience and retention rates
- Reduced resource costs
- Better Agent engagement & working environment
- Lean Green belt training is vital
- Cross functional team works well
- A more customer centric methodology based on adding value and reducing waste
- Release resources to focus on growing the value proposition
- Makes the contact centre a key strategic tool
- Lean thinking is applicable to all industries
Below is Tim Armstrong’s email to all AOL Employees:
I hope you all have a great New Year’s and are spending this time with family and friends. As we close 2011, I wanted to share some reflections on the year and look forward to some important themes for 2012. In 2011 we accomplished a great deal as a team and we set the company up for long-term growth in key segments of the Internet’s future. We are leaving the year a healthier and more disciplined company – and a company poised for continued improvements in 2012.
Looking Back – 2011:
During 2011, AOL touched over 250 million global consumers, millions of customers, tens of thousands of publishers, and a growing list of important partners. Our transformation has been substantial and we continued to invest in our bold strategy throughout the year. From a tangled set of brands, products, regions, and technology platforms two years ago, we now have a company that contains powerful brands, powerful products, and a simplified technology foundation that will allow us to scale in key markets.
In the last 24 months we have completed an impressive list of concrete items that form the foundation for our work in 2012:
- AOL grew OIBDA sequentially for the first time in 3 years in Q3 2011
- AOL grew total Advertising year-over-year for the 2nd consecutive quarter in Q3 2011
- AOL grew Global Display advertising year-over-year for the 3rd consecutive quarter in Q3 2011
- AOL grew Third Network Revenue year-over-year for the 2nd consecutive quarter, and sequentially for the 5th quarter in a row in Q3 2011
- Search revenue declines were the lowest in almost 2 years in Q3 2011
- We implemented the new search product in 2011 as part of our significant 5 year extension to our Google search partnership
- Subscription declines continued to moderate and the core subscription business is now leveraged into selling broader subscription services
- Video viewers, views, and revenue all grew at over 100% Y/Y during Q3
- Huffington Post expanded from 27 sections to over 50, opened two new countries, and increased video insertion rates to over 70%
- Patch expanded from 30 towns to over 850, added over 10 million unique consumers, and increased to over 5,000 new customers
- Mobile pageviews doubled during 2011 and mobile advertising was integrated into AOL’s core advertising system
- We launched major redesigns, partnerships, and new products across all of AOL’s endemic content brands, including Engadget, TechCrunch, Moviefone, MapQuest, the AOL Homepage, and AOL Mail
- AOL re-entered the International marketplace as we had planned to do after the successful International restructuring of 2010
- We announced major partnerships (Examples: The Sporting News, Move.com, Everyday Health, Cambio, Yahoo/MSN, Vivaki, Le Monde, El Pais, and a number of branded entertainment deals)
- We simplified over 30 advertising and content platforms to 5
- We restructured our advertising systems, sales structure, go-to-market strategy, and integrated video, local, and mobile into the core advertising business
- AOL Technology Operations fundamentally rebuilt AOL’s core serving, data-center, and platform infrastructure, and it launched the first “lights-out” data center in 2011
- We repurchased close to 10% of the company’s outstanding shares at attractive valuation levels during Q3 and Q4
- We restructured the company from 10,000 employees and contractors to approximately 5,000 employees, while recruiting approximately 2,500 new team members
- We exited approximately $250M of unprofitable revenue and sold non-core assets
- We removed over $500M in expenses
- Having begun 2010 with ~$100 million cash and acquired significant assets for the company since then, we are ending 2011 with ~$400 million in cash
The corporate groups, which work to support our business units, also had a series of important accomplishments during the year. We were able to streamline operations and costs throughout the company. AOL continues to get more and more nimble – we are doing more with less.
The technology infrastructure got many needed upgrades and new capacity built on cloud computing infrastructure. Our M&A team was able to do fantastic deals for the company, including the Huffington Post deal. Business Development was able to set up large partnerships with device, wireless, and important content partners. The finance team was successful in driving our rigorous company planning process and an improved forecasting system. The HR team consolidated the recruiting process, the review process, and the level of transparency we have on our team leaders and performance. Our legal team continues to counsel and guide us through our transformation and the re-entry into new markets. Our brand marketing continued to re-invent how AOL is perceived, as well as started the process of building a house of brands that have global appeal and consumers love.
We also learned a number of important lessons during the year. The first lesson was around maintaining and accelerating a culture of high expectations. “Beat the Internet” has been an important theme in the turn-around of AOL. In 2010, we had a very strong year of organically improving our experiences. In 2011, we spent needed time on integrations and transforming our brand portfolio. In 2012, we will be back to maniacal improvements of our consumer experiences and a host of important product launches.
In 2012, we must be a culture centered on the principle of Kaizen, the practice of constant improvement – and that applies to all of our products as well as all of our corporate services.
The second lesson is centered on a more ruthless consistency of only operating within our strategy and giving our teams the ability to work on important projects that will accelerate our transformation. With the Top Box priorities we launched in 2011, the company was able to move key growth initiatives and say no to the projects that were not important to the long-term success of AOL. In 2012, we need to be even more disciplined, and we have room for improvement on this front.
The third lesson is the need for a deeper injection of a consistent technology thread in our product development. We need a more technology-centered differentiation in all of our products. We have to avoid building products that are just incrementally getting better or trapped in the cycle of only building features for other platforms – we are not a feature company. We have to solve real human problems with our products and technology.
A lesson for 2012 will be the need to shift our talent culture from one where talent changes result from brand changes to one where talent is a corporate asset that we grow within our streamlined stable of brands. I would expect us to continue to be a very attractive place for the world’s best talent and a place that our current talent will see opportunities for growth and exciting challenges.
Ending 2011, we believe our stock price does not reflect what our team achieved during the year. In our opinion, the company remains undervalued, and we will eliminate the value gap by improving our operating results through the disciplined execution of our long-term strategy. Execution is the most important driver of our valuation growth, and we’re going to have another big year of improvements in 2012. We reinforced this view by executing the stock buy-back program.
Looking Forward – 2012:
We enter 2012 for the first time in many years with one agenda item – to create. The word “create” defines everything we are trying to accomplish as a 21st century digital media company. We are creating world-class experiences and delivering high-value content that is rooted in the innovative spirit that defines our industry and AOL.
There are some specific areas that we would like to see created and built during 2012. We want products to be created and built with a technology-centric model that is differentiated and leverages our investment in content and operational scale. We have great examples our of engineering teams’ game-changing products at AOL, but 2012 is the year we move from examples to an always-on technology process for products – including the internal tools we use as a company.
As part of the focus on technology and building, we have scheduled a weekly engineering meeting with the executives where our engineers will have an open platform to show product work and ideas. Alex Gounares and I have been planning the session, and we have made it part of our executive session every Monday. We expect the engineering teams and operations teams to press the company on innovating all areas of our business.
We will also be adding a deeper process around talent recruitment and talent management internally. Creating great Internet experiences for our customers starts with being a place where our people can thrive at work, where they know how their efforts contribute directly to the company’s important purpose in the world; where they can learn and grow in their careers; where they are paid for performance and have opportunities to build wealth; and where the environment supports high performance at a sustainable pace. I’ve been working closely with Chief People Officer, John Reid-Dodick, to review our people strategy to ensure we are competitive in these dimensions and that we are innovating to create opportunities for our people to learn and grow in ways that lead our industry.
We will also be going deeper into our purpose and mission as a company in 2012. We are building the first branded media and technology company of this century – a mission we started in 2009 and we must drive that mission forward in 2012. To create a more meaningful purpose behind our mission we must measurably improve consumers’ lives. We need to be the brands that people rely on to make themselves smarter, wiser, healthier, sexier, faster, funnier, more connected, more interesting – and more fulfilled. As much as the digital age has disrupted many aspects of life and work, the basic tenants of what people care about endure. Our purpose will move further into touching all aspects of human lives in more human ways – online and offline. The Internet has been built by discrete segments of people and there is a big opportunity to expand the design, content, and services to some of the most meaningful groups of consumers in the world.
We also want to continue to create a more profitable company in 2012. Growing healthy profits while we re-create a powerful Internet asset in AOL is our goal and it has to be the foundation of our mission and purpose. Being a very healthy company will allow us to provide more and more powerful services to our global audience.
As a reminder, here are the 2012 company goals we’re focused on:
- Unique Visitor Growth
- Revenue Growth
- Adjusted OIBDA
- Free Cash Flow
- Consumer Net Promoter Score
- Advertiser Net Promoter Score
- Employee Pulse Survey Index
In closing out 2011, I want to thank all of you for your effort and contribution, and for the passion you bring to work every day. We have a company that is poised for growth and the external world hasn’t seen or recognized our hard work yet – they will take note during 2012.
For 2012, let’s create. We’re set up and organized to have a great year. Our mandate is to create awesome products, sell those products, and have fun transforming one of the best brands in the world. Let’s go get it done – GO AOL – TA