LTV at LTC: Learning from it: Design Rules

In software it's all about the implementation – actually writing the code. In business intelligence projects actually doing the implementation isn't that big a deal. There are lots of packages to make implementation easy compared to writing software from scratch. What that means is that business intelligence projects are all about the design, and the design team needs to be in control and actively involved in all stages of the project.

LTV at LTC: The Large Activity Based Costing (ABC) Project

During and after the LTV project, there was yet a fourth value-based project at LTC. The Finance department brought in a large consulting company to design a database for activity-based costing to help LTC get a handle on their operational expenses. The goal was to build an ABC database where a manager could look at expenses, drill down into the specific line items, and then drill into the company and customer activity that was causing those expenses and so have a clear grasp of the actions needed to manage expenses.

The project started out by having the consultants come in and have roughly a year of large meetings on what should go into the system. This was done without considering implementation issues. At then end of the meetings a large and detailed specification was developed, which was then handed off to the LTC IT department. The LTC IT department estimated that implementation would cost several million dollars and the project was killed right then and there.

In many respects, the ABC project was the antithesis of the LTV project.

1. Instead of identifying a group within the company to build the project, an outside consultant was brought in to run the project. This meant that the understanding that comes from doing a project like this left LTC with the consultants.
2. There was a complete disconnect between the design and implementation teams. This meant that implementation issues were not considered during the design, and that the design could not be modified later to take implementation factors into consideration.
3. Instead of a small group working to understand the business, ABC had large meetings to poll people on their issues. This meant that every possible issue was included in the project design. Because the design was simply thrown over a fence to implementation there wasn't any negotiation over project scope to achieve what was reasonable.

LTV at LTC: The International Consulting Company (ICC)

At the same time as our project was going going an International Consulting Company was brought in to do pretty much an identical project, Lifetime Value for customers. We were able to work fairly closely together and our projects wound up being very similar. The ICC team was very valuable to us in that ICC was working with the CMO directly and so our project was able to gain tremendous credibility through association and to some degree confusion with the ICC project.

ICC and our group had slightly different methodologies; ours was adopted because we had resources to deploy the results in the data warehouse and the ICC didn't.

Pay Close Attention to What Everybody Tells You to Ignore

Organizations develop blind spots. The drill is: people decide something isn't important, so all of the reporting ignores it, so nobody thinks about it, so nobody gets it put on their goals, and the cycle reinforces itself. Opportunities develop that everyone ignores.

A good example is involuntary attrition (attrition due to bad debt) at LTC. People concentrated on voluntary attrition and ignored involuntary attrition, and forgot that involuntary attrition was very much the result of a voluntary choice on the customers part. As a result, there were actually more opportunities for helping LTC with respect to involuntary attrition than voluntary attrition.

LTV at LTC: After the Project -- Education and Explanations

When the LTV project was rolled out and data was being published I immediately found myself with two new tasks: educating the company about the LTV project and explaining why particular customers got negative value.

I anticipate that education will be part of any analytic project. The most important decision we made about education was to explain everything. There was no part of the LTV system that we did not discuss and even give specific parameters for. Explaining everything allowed people to understand the LTV system.

What really made people accept the LTV system was being able to answer why particular customers had negative scores. In particular we got a number of calls from Customer Care. LTV had been integrated into the Customer Care system and it effected what kind of equipment offers could be made to customers. The Customer Care department needed to know why some high-revenue customers were getting low or negative value.

We were able to answer questions like this easily and convincingly. As it turned out, the usual reason high revenue customers had negative LTV was because they hadn't actually paid their bill in a number of months. Being able to answer these questions went a long way to establishing our credibility.

LTV at LTC: Building the System

Building the LTV system took a small team approximately two months out of a year spent on the project, from building the lifetime models to coding the formulas to finally building a system of monthly HTML reports. Ironically actually building the LTV project was the simplest part of the whole project.

LTV at LTC: Alarms and Diversions; the New Media Department (NMD)

In LTC, we had a department dedicated to exploring new technologies and new media applications. The technology to really make NMD's projects really go wasn't slated to go live until the year after the LTV project, but they were still very interested in the LTV project. Their interest culminated in a meeting that nearly ended the LTV project.

NMD had segmented the customer base, and had identified the segment they wanted to market to. NMD was horrified that one of their potential customers might get a poor score, and so perhaps not get the best possible service. Never mind the equal possibility that their potential customers might get good scores and receive preferential treatment – NMD was terrified at the possibility of anything bad possibly happening to their potential base. The most vivid quote of the meeting was “We have to stop this!”

If NMD really tried to stop the LTV project, I am fairly sure that we could have overcome their resistance but I'm certain that if the meeting ended there we would have a lot of unnecessary turmoil. What I did was I put back on my Project Designer hat and let NMD specify a value formula just for them that would identify the customers NMD most wanted. This approach was successful because I was able to promise right then and there that NMD could design the formula the way NMD wanted and that it would be published along with the other LTV scores.

In a typical project situation there would have been an initial meeting with NMD, their concerns would have been taken back the the larger group, possible solutions discussed, project forms filled out and signed off on, and all this over a course of several weeks. During these weeks NMD would have solidified their position and the LTV project would have been threatened by a protracted political fight that would weaken the project at best and conceivably stop the project all together.