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In the communications sector, customer loyalty is the
key to profitability it costs much less to retain an
existing customer than it does to win a new one. As
part of an organizational business transformation
project, XO Communications identified an opportunity
to improve its performance in the small- and medium-
sized business sector by increasing customer retention,
and needed a strategy that would help it achieve this in
a cost-effective way.
The majority of the customers in this segment spend
less than $1,000 per month with XO Communications,
so it was not economically prudent to allocate
dedicated client service managers to each account. At
the same time, it was vital to offer these clients a high
level of service and ensure that any issues they had
were dealt with quickly and effectively. Instead of a
brute force approach simply hiring more client
service managers the company needs to identify the
customers who were most at risk of changing
providers, and prompt the client service team to
intervene appropriately.
The XO Communications team worked with IBM
Education Services to build up a high level of
competence in-house and transitioned away from the
early models built by third-party consultants. This
enabled the team to identify the factors that indicate
whether a given customer is likely to change
providers, and build a sophisticated statistical model
that provides a monthly risk assessment for each
customer.
Customers are prioritized based on the score the model
calculates for them, and the client service team deals
with the highest-risk customers first: making contact
with them, finding out if they have any problems or
are dissatisfied with the service they are receiving, and
then taking appropriate steps to improve the situation.
By providing an analytics solution in-house and giving
client managers the ability to identify the customer
relationships that need most attention, XO
Communications has been able to reduce customer
churn without substantially increasing headcount.
 
XO Communications has applied the skills and
experience from this project to generate additional
returns in subsequent projects. With additional tuning
and analysis, the next phase of the customer churn
project has produced another $7 million in revenue
and the model is 50 percent more accurate than the
also increased the revenue stream. Other areas of focus
include profitability analysis, bad debt write-offs, and
some further levels of granularity with predictive
modeling on a per-product basis.
The project originated as part of a full-scale
transformation initiative to increase business
efficiency at XO Communications. During the
consultation phase of this initiative, the company
decided to look into an analytics solution, and began a
small project with a third-party consulting partner. The
results of this project convinced XO Communications
that analytics could be a vital tool, and also
highlighted the benefits of building up a capability in-
house.
The company formed a Customer Intelligence team,
tasked with purchasing and building a solution. The
team performed a very thorough vendor evaluation
before selecting IBM SPSS Modeler and IBM SPSS
Statistics. This decision was based on the perceived
superiority of the SPSS products in terms of
functionality, scalability, licensing terms and ease of
use.
The team utilized the Cross Industry Standard Process
for Data Mining (CRISP-DM) methodology to manage
the project through six main phases: business
understanding, data understanding, data preparation,
modeling, evaluation and deployment. During the
process, the team evaluated more than 500 variables to
see which had the most influence on customer
retention. Ultimately, a model was built based on the
25 most relevant variables. The model assigns risk
scores to each customer. The top 20 percent reflects 66
percent of the churn, so the top 10 percent are passed
on to the centralized retention team, and the next 10
percent are passed to the field retention team for
remedial action.
As part of the project, the Customer Intelligence team
received comprehensive training from IBM, which
helped not only to gain technical knowledge, but also
to build up a set of best practices for future predictive
analytics deployments. As a result of the expertise
gained, the teams churn prediction model has been
able to outperform the early third-party model by 50
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percent. With the success of this initial project, the 
team is now embarking on a number of new initiatives
using predictive analytics, as well as expanding 
information delivery with dashboards and business
intelligence. 

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1. What analytics solution is needed by the 

company? What are the necessary components
to solve the problem? 
2. Why should analytics be used instead of just
hiring more client service managers? 
3. Given the CRISP-DM approach that makes

use of the following steps in providing a
predictive analytics solution: 
a. Business Understanding
b. Data Understanding 
c. Data Preparation
d. Modeling 
e. Evaluation
f. Deployment
Give the phases that were described in the
case study given.
_________________________________________
4. Identify how the opportunity was identified
and explain why this solution was feasible. Copyright IBM Corporation 2013
5. Explain why data understanding and data IBM Philippines
preparation are important in this analytics IBM Plaza, Libis, Quezon City
solution. May 2013