Dell's Untimely Recall

The computer maker's efforts to improve customer service will be put to the test with a recall of 4 million laptop batteries

As if Dell (DELL) didn't have enough customer satisfaction issues to worry about. Now, the leading PC maker has disclosed that it will recall more than 4 million notebook computer batteries.

The recall, one of the largest in the history of the U.S. Consumer Product Safety Commission, couldn't have come at a worse time. According to a closely watched annual study by the University of Michigan, Dell's efforts to improve service, which it only recently acknowledged publicly was inadequate, appear to be paying off. That progress is a key part of a long-awaited turnaround at the world's largest PC maker, which is struggling with a host of problems, including sluggish sales growth in its core businesses (see, 7/13/06, "Why Dell, Apple Declined").

But any goodwill that Dell has won in recent months could be short-lived. Its customer service is about to be tested: The company will recall about 4.1 million lithium-ion notebook batteries because they could overheat and pose a fire hazard. A Dell spokesman says the company will post instructions for returning batteries on its Web site. But many consumers are likely to call Dell with questions or complaints. The Dell spokesman says the cost of recalling the batteries, which were made for Dell by Sony (SNE), will be "immaterial."


 The news of the notebook computer recall hits just as Michigan released its American Customer Satisfaction Index (ACSI) showing that Dell's customer-satisfaction score jumped 5.4% from a year ago, to 78—a point above the industry average. That puts Dell in second place, behind Apple Computer (AAPL), whose score rose 2.5%, to 83.

The PC industry as a whole posted a score of 77, an increase of 4.1% from a year ago. "Dell is making headway," says Claes Fornell, the Michigan professor who directed the study. But he adds that some of the improvement may result from Dell's picking "the low-hanging fruit" and addressing easier problems such as cutting hold times. "The real question is, can it take the next step and deal with all the different needs and problems that callers have. It's more difficult to combine a cost-effective service strategy with superior customer service," Fornell says. The ACSI scores reflect data collected during the second quarter.

Dell's showing compares favorably with its rating in 2005, when the company's score fell 6.3%, to 74. That score put Dell right at the average for the PC industry. But it was the largest decline and a particularly large black eye for a company that in the past had topped the list in some years.


 As part of a $100 million effort to revive its customer service, Dell is bulking up its sales and service workforce and increasing the percentage of full-time Dell employees, cutting its use of part-timers and contract workers. It is increasing training for both sales and service reps, raising both the amount of time spent in training and the number of areas taught.

As further evidence of Dell's progress, Rosendo Parra, a senior vice-president overseeing the consumer and small-business areas, points to one internal measurement in particular: In the most recent quarter, service-related calls to Dell fell 13% from a year ago even though its installed base of PCs was greater, he says. Dell has cut the number of call transfers by 45% since last year and has reduced hold times by 50% over the past several months, says Parra, although he wouldn't say just what the typical wait time actually is.

Dell, which is headquartered in Round Rock, Tex., has paid its service reps in part according to how long they spent reaching some resolution on the customer's problem. But Parra says that now Dell rewards reps in part according to how well they resolve problems on the customer's first call. "Now, we tell them that even if it takes you half an hour, an hour, just take care of the problem," Parra says, adding that the company determines whether a rep solved the problem on the first call by looking for repeated calls from the same phone number within a short time frame.


 Dell's recent improvements follow many quarters of poorer service that became fodder for countless customer complaints, sometimes publicized on high-profile chat rooms and blogs (see, 8/25/05, "Dell: In the Bloghouse"). Consumers, which account for about 14% of Dell's total revenue, have complained of hold times stretching for 30 minutes or more, numerous call transfers, dropped calls, and, perhaps most important, an inability of the call-center representatives to communicate clearly and answer their questions. Indeed, many consumers posting on blogs and chat sites continue to complain bitterly about Dell.

Earlier this year, Dell tapped company veteran Richard Hunter, who once oversaw its assembly plants, to lead its effort to boost service quality (see, 6/12/06, "Dell Spiffs Up Its Service").

Despite the signs of early progress, "we have a long ways to go," says Parra. Besides further hiring and training, Dell is still seeking to make operational changes in the call centers, including an instantaneous feed from far-flung call centers to Parra's desk at headquarters showing the number of callers in line and how long they've been waiting.

But regardless of how much Dell polishes its service quality, its competitors are moving in the same direction. According to the ACSI study, key rival Hewlett-Packard (HPQ) saw its score increase by a significant 4.1% from a year ago, to 77, and HP's Compaq brand jumped a hefty 7.5%, to 72. PC makes "can't compete just on price," says Michigan's Fornell. "Everyone is forced to try harder to win customer favoritism."

Parra, too, is well aware that the bar is only getting higher. "We do believe the better the customer experience, the more successful we'll be in the long run," he says. "Our competition has figured that out, too."

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