Next best action is a concept originated by an Air Force strategist, John Boyd. Its roots are in the OODA Loop framework he developed for combat operations. OODA stands for observe-orient-decide-act:
Credit: Patrick Edwin Moran
OODA leans on holistic thinking and iterations to determine how to act effectively in different situations. Boyd’s framework has been instrumental in military strategic thinking.
Unsurprisingly, OODA jumped from military strategy to the world of business. Like military campaigns, business operates in a continually changing environment with myriad factors to consider. An approach that addresses differing circumstances resonated with executives. Along the way, OODA picked up the label “next best action”, an easier term to understand.
Next best action in marketing
Marketing historically has been a fairly blunt instrument. Maximize your messaging across volumes of consumers. It could leverage affinity marketing, via the types of people who watch a program or subscribe to a magazine. But marketing knew absolutely nothing about the individual consumer.
The emergence of the Internet utterly changed this dynamic and as the web has evolved, a vast array of information now can be captured and requested from consumers. With just a few CPU cycles, much more could be known about a consumer than has ever been historically possible. This dynamic particularly manifested with “inbound marketing”. Why? The consumer is engaged digitally, allowing companies to create a more tailored experience. An engaged consumer is one with whom information can be shared.
In analyzing the marketing value of next best action approach, consulting firm Bain & Co. notes:
A recommendation engine determines the appropriate offer based on the characteristics of the specific customer and opportunity. This is particularly helpful for organizations with large product sets or complex offerings that require configuration or customization.
Digital environments are powerful with regard to next best action. Why? They can provide first-level responses to customers, in a highly scalable way. As Deloitte observes (pdf):
Next Best Action is not about delivering a technology or interesting customer analytics. The capability operationalizes the insight which exists inside an organization.
That’s the key: how to better utilize the smarts of your employees in the service of improved results. Next best action need not be an exotic mysterious function. Think in terms of expanding the scale of your organization’s smarts.
What does ‘next best action’ mean in collections?
We intuitively understand the next best action for marketing: determine the right product to satisfy the customer’s needs. Both the company and the consumer come away satisfied. But how to think about next best action for collections? Well, one useful device for tackling an undefined area is to try thinking in extremes. In this case, what would be each party’s view of the “next best action”. Remember, we’re talking about credit customers whose delinquencies have put them into the collections group:
Lender: Ensure I get paid first, even if the customer has to default on other obligations and experience financial ruin.
Delinquent customer: Have my entire balance forgiven, allowing me to start fresh and not have any payments.
Talk about a difference of opinion! Of course those are hypothetical “best” outcomes, not outcomes. Neither party is going to those extremes when a customer enters delinquency. What it highlights though is the challenge of defining “best” in the context of delinquency.
Let’s start with this: the meaning of best starts first from the perspective of the lender. Why? There is a contractual obligation between customer and lender. The customer gets funds for their own purposes, and commits to repaying these funds with interest. In other words, the ball really is in the customer’s court. They’re on the hook.
But it’s not that simple. Considerations into what “best” means include:
- How long the customer’s delinquency is likely to last.
- The customer’s path to returning to good financial health.
- Regulatory policies that prohibit overzealous collections actions against a delinquent consumer.
- The brand reputation of the financial institution, particularly in the age of social media and online forums.
These factors inhibit lenders from running roughshod over delinquent customers, and the ethical institutions don’t want to regardless of those factors. A reasonable standard for determining “best” would be:
- What gets the delinquent customer current without sustaining a material hit to profitability.
- If the customer’s path to financial health is not visible and they cannot get their account current, how to maximize the amount collected on the delinquent balance.
Cast in those terms, a wealth of possible next best actions become apparent.
Determining collections next best actions
For purposes of this post, I’m focusing on customers who first enter collections. As I’ve argued before, the first 1-30 day bucket is the Grand Central Terminal of collections. Highest volume, people with all manner of situations are in it, and ultimate destinations cannot be known based only the individual’s appearance when they enter.
The state of most collections efforts right now resembles the early digital days of marketing. Use the same collection efforts in effect for decades, but apply a digital omnichannel veneer. What used to be a collections effort via letter or phone call can now be done as email, text, or mobile device notification. It’s good to meet the customer where they spend their attention. But in terms of dynamically understanding what is happening with the customer, today’s collections efforts are indistinct from what has always been done. The next best action digital wave has not yet washed over collections.
Earlier, I described the implementation of next best action as formalizing the deep experience of your employees. To make that more tangible, imagine you surveyed your best collections team members about the following situations. How would they answer?
While the initial best action would have been: getting payment and avoiding collections, what is the next best action for each case? Your collections team knows the answers. Think about how you would leverage their experience across more of your delinquent customers.
Click here to find out how Scorenomics BackOnTrack® analytics can help you determine the next best action for your delinquent customers.
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