The Cost of Doing Nothing

I went down to a local electronics shop to buy a specific device the other day. Their website listed three in stock, but when I got to the shop, I couldn't find any. I found an employee and asked about it. Here is how customer service works in this chain of stores:

1. Employee goes to the public-facing website to find the device
2. Employee tries to memorize the model code
3. Employee goes into the actual inventory system, which has a nice retro look with green monospace characters on black background
4. Employee mistypes the model code and finds nothing
5. Employee goes back to the website
6. Employee fumbles for a mouse, finds one, and copies the model code from the website
7. Employee pastes the model code into the inventory system
8. Employee regrets to inform the potential customer that the device is not really in stock.
9. Potential customer leaves the store and buys from a competitor

Let's have a look at what this costs in lost business:

• Assume this store has about 700 customers/day
• Assume 2% has this experience. That's 14 angry customers per store per day
• Assume average customer spend is $500/year
• Assume customer remembers bad experience for three years
• Thats $1,500 in lost turnover per customer
• Assume a 2% profit margin (consumer electronics is a tough business). That's $30 lost profit per angry customer
• There are 14 angry customers per day per store. That's about 5,000 angry customers per store per year. That's $150K in lost profit per store
• There are 40 stores in this chain (I'm in Denmark, things are smaller here). That's $6M lost per year

And let's not forget the wasted employee time:

• Assume each employee serves 35 customers/day
• Based on observation, it takes 3 minutes to make a customer angry
• That's approx 100 counterproductive minutes per employee per day
• Assume an employee costs $60 an hour with sick days, benefits etc (we're in high-wage, high-tax Denmark)
• That's approx $100 lost per employee per store per day
• With 10 front-line customer service employees per store that's $1,000 lost per day or $360K per year per store
• That's about $14M lost per year across the 40 stores in the chain

The cost of not integrating these two systems is thus around $20M per year.

There are intangible costs as well, for example customers who will bad-mouth the company to all their friends and on social media, and unhappy employees faced with irate customers.

When building a business case, list each assumption so it can be challenged. Maybe there are 1,000 customers per day per store. Maybe an item is only missing in 1% of cases. Discuss the numbers with the business and calculate the total loss in money. The business doesn't understand that you want to implement an Event-Driven Architecture with Apache Kafka. The business does understand that they are losing $20M per year.

An IT organization that cannot calculate value like this will be considered a cost like building maintenance. An IT organization that can calculate business value becomes a trusted partner.

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