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HOW TO MEASURE AND IMPROVE CUSTOMER SERVICE AT THE INTERNAL REVENUE SERVICE:
AN EVIDENCE-BASED APPROACH

Pacific Consulting Group
September 4, 2007

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Background                                   

By law, the Internal Revenue Service must measure customer satisfaction with each of its interactions with taxpayers. This has led to a proliferation of surveys and reports for every office at every level and for every major function the IRS performs. These surveys and reports had consumed considerable $ and staff resources without noticeably improving either customer satisfaction or operational efficiency. As a result the IRS re-examined its customer satisfaction measurement and improvement approach. Using evidence-based management, it has adopted an alternative way to capture and use customer measures to change its processes, products and communications with taxpayers. With the new approach, the agency has saved about $2M/year in survey costs while producing impressive customer and efficiency gains.

The Case Against Using Surveys for Site-Level Customer Satisfaction Measurement

Figure 1 shows that in an IRS service environment, service performance at the site level has a negligible impact compared to case and demographic factors.¹ This means that there will be site differences in survey scores, but they will not be due to service performance. In addition, Regulation RRA 98 language permits and even encourages alternative “meaningful” ways of reporting customer satisfaction information. Subsequently, IRS Counsel determined that for balanced measures purposes the Small Business and Self-Employed Division (SB/SE is one of the IRS’ four major operating divisions) could abandon expensive territory/site level survey measurement and substitute operational measures for important customer service attributes (like timeliness), provided they retained the corporate-level survey measures.

Table 1 compares some commonly held beliefs about site level customer satisfaction measurement with the evidence from both the IRS experience and elsewhere. The overwhelming conclusion from this table is that site-level customer surveys are a bad idea, even at zero cost. The fact that they are expensive and serve to focus attention on measurement vs. action compounds the problem.

The Alternative Approach

Figure 2 illustrates the customer-driven innovation approach finally adopted within SB/SE. The results have been dramatic, with several important innovations having been delivered over the past three years. Perhaps the most dramatic improvements came from the Adjustments program (the project started in SB/SE and was later taken up by the Wage and Investment Division in a subsequent reorganization). Using the develop-pilot-disseminate system, Adjustments achieved a 40% reduction in time to close a case (a key customer and operational measure) and a 25% increase in efficiency. Because the improvement ideas were developed by Adjustments employees, they dealt directly with Customer Service Rep frustrations and had a positive impact on employee satisfaction. No changes in law or even the Internal Revenue Manual were needed to achieve these breakthroughs, only changes in processes and customer communications.

Figures 3 and 4, taken from a presentation Tom Cooper and Ellen Bell (now retired) made to the Council for Excellence in Government, show the dramatic pilot-control differences from the Adjustments project.

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1. In light of the evidence, why do many organizations persist in investing substantial resources in site-level customer satisfaction measurement? Part of the answer is that market research delivers numbers, even if they are based on subjective opinions; everyone assumes that numbers are objective and valid. Furthermore, the balanced scorecard methodology was developed by accountants and engineers not familiar with market research data, so they just assumed survey numbers were as valid and accurate as financial and operational measures. Moreover, upper level managers like the feeling of control and accountability that the numbers seem to provide and are reluctant to part with them, even if there are problems (and subordinate managers are reluctant to complain too loudly). Finally, there are business incentives for consultants who develop the balanced measures and market researchers who collect and report the data to perpetuate the system. More numbers means more work for consultants.
 
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