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Situation analysis

The starting point in any strategy: Situation Analysis

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Whether in business, the military, government or indeed non-profit organizations, the the first step in generating a strategy is a comprehensive analysis of your current situation. This is primarily focused on what is happening outside your company. For most companies, it should cover the six areas below and lead to deep strategic insights. ‘Insight’ is a powerful word. Done correctly, you will understand the environment better and more quickly than your competitors, and make superior investment choices.

Six areas of situation analysis

Set up the analysis

Ideally you will run the situation analysis in parallel in each of the six areas. I suggest using small teams of people from different businesses or functions. In a small company, a single person could do each one. The most important rule is that you can only get new answers by asking new questions. If you ask and answer better questions than those your competitors are asking, you will win.

People who implement must do the planning

A fundamental rule of any successful project is that the people who will have to implement the new strategy should also do the planning. This means that the people who represent each relevant part of your company should do so with the full authority, delegation and agreement of the person leading that entity. If you do not take this approach, critical stakeholders will reject the results of the analysis and you will be unable to implement.

Let’s consider each of the six areas in a little more detail. I have used the development of a customer experience strategy as an example. The principles and analysis areas apply to all businesses. I have included just a few questions for each area below. I will supply a more comprehensive list if your feedback to this article suggests it would be useful.

Customers

This team asks and answers questions about what customer experience expectations your customers have had up to now and how you expect them to change in the future. Here are some sample questions that may help get you started:

  • What experiences do your traditional end-customers want at the most important customer journey points? How reliable is your evidence for this?
  • How and why are the expectations of your traditional customers changing over time?
  • Are there useful ways you could segment customers and provide differentiated experiences to each segment? Should all customers of all sizes and from all industries be treated exactly the same or should you tailor a specific experience for each?
  • Do you have any information on how your traditional customers consider their experiences with you compared to what they experience with competitors?

At least half the day-to-day work of most customer experience teams is about listening to customers and partners, then summarizing what they want you to improve. This means that much of the necessary situation analysis information is directly expected from, and controlled by the customer experience leader. Naturally, in small companies, there is no single central reference point, except perhaps the owner or CEO.

Partners

The majority of companies have partners for at least some of their business. The three main categories of partners available to most businesses are resellers, implementation partners, and subcontractors. While you may have some partners who do not work with anyone else, it is more likely that you compete for their attention. Here are some possible questions that may help you to get started with the partner analysis:

  • What are the critical touchpoints for your resellers, implementation partners and subcontractors? How have these been changing over time? Are these three categories useful, or is there a better way to segment your partners from a partner experience perspective?
  • Should the top few partners, in terms of revenue generation, be treated differently from the rest?
  • How does your partners’ experience with your company compare to that with your traditional and emerging competitors?
  • Who are your potential new partners, and why?

Competitors

There are two main categories of competitors: traditional and emerging. The emerging category includes companies you do not know about yet, but who may be about to take over your market. There are industries such as steel manufacturing where barriers to entry are high, and you are unlikely to be surprised. There are also low-barrier industries such as software, and pure import-export businesses. Here are some questions that may help analyze the competition:

  • Do you have competitive benchmark survey data that lets you understand where your competitors provide a superior experience and the situations or touchpoints where you lead. If so, how do you compare with traditional competitors and are new competitors emerging with differentiated customer experience?
  • How have competitors’ customer experience strategy and results changed over time? What investments have they been making in people and systems? (Going to their website to look at their list of job openings may help with this.)

Customer experience industry trends

All industries change over time. Customer experience itself has been changing, from at least two perspectives. First, the products and service offerings that help companies to provide better customer and partner experience change over time. Second, there are industry-specific customer-experience changes. For example, ‘Customer Success Teams’ have been implemented by most large software vendors over the last five years or so. These teams help customers to install and understand software, free of charge. Here are some questions that should help this part of the analysis:

  • What is happening in the customer experience industry? What ways of listening to customers are most popular? What new improvement processes and technologies are emerging?
  • What is the impact of social media on customer perception of your products and services? Do you know what is being said about you on social media, and does it matter?

External environment

These questions are about the environment in which your company, your competitors and your customers live. It includes government regulation and general concerns and hopes of the people in countries where you operate. You may find these questions useful:

  • How does government regulation affect the way you want to go about measuring and improving customer experience?
  • What current and emerging rules about data privacy affect your current and potential survey processes?
  • Do you know what surveys are being run in your company and whether they respect relevant laws?

Internal realities

While the first five areas are all about what is happening outside your company, you are unlikely to be able to sell and implement every conceivable idea within your company. These questions may help establish what you can achieve:

  • What is the state of executive sponsorship for your current efforts?
  • How likely are you to be to get any additional funding and people you may need to implement?
  • What can you do to prove the value of your work?
  • How can you secure enduring sponsorship for your work; sponsorship that will survive leadership changes?

Insights

The result of the situation analysis in each area should be a short list of insights. Each team should aim to have one to three insights and potential initiatives ready to explain and propose at the end of the analysis cycle. If a team has more than three ‘top priorities’, they have probably not put enough thought into it. As French philosopher René Descartes said when writing a letter to a friend (and this is often mis-attributed to Mark Twain), “Please excuse me for writing such a long letter. If I had had more time, I would have written a shorter one.”

Useful insights often take the form of “so therefore…” statements. “We looked at the industry benchmark data from Temkin Group and saw that Acme is outperforming us in this area. We believe we are stronger than Acme here, so therefore here is what we need to do…”

The quality of your insights depends on the quality of your questions

The quality of your insights depends on the completeness of the questions you ask. If you do not ask questions in a critical area, your strategy will be defective. A good question to add in each working session is “What questions have we forgotten to ask?” Before looking at customer research results on a particular topic, you can reduce bias by asking what factors could matter for a decision. It will then be easier to spot things that may be missing from the research. It is even better to do this before you decide what to research. If you have a customer advisory board or simply a set of friendly customers, you may like to ask them the same question.

Cat videos

Conclusion

Situation analysis is quite easy to communicate and understand. It takes about six weeks to do it in depth in a medium to large company. The process described here has been adapted from the one Willie Pietersen describes in his book Strategic Learning. This article is a shortened version of a chapter in my book Customer Experience Strategy – Design & Implementation, available from Amazon in Kindle and print formats. If you disagree with what I have written, or have other comments and suggestions, please reply below. If you like this sort of article, be sure to sign up for my newsletter here.

Maurice FitzGerald – VP Customer Experience at HP and HPE (rtd.), author, speaker, trainer

Three books

Customer Experience Leader

More thoughts on the role and team of the Chief Customer Officer or customer experience leader

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Thank you for the feedback on my first post on how to think about the work of the Chief Customer Officer or customer experience leader. I realize the majority of readers will see this by clicking on a LinkedIn link, rather than going directly to my website. One comment included links to useful articles on the role, and I have included them at the bottom of this article. Now, onwards to a discussion about the CCO or customer experience leader’s teams. I use the plural because I feel the leader needs to be a member of other teams too.

Focus produces results

It is easy to say, “Everybody is responsible for the customer”. The problem with this statement is that when everyone spends a little of their time on improving things for customers, but nobody does it full-time, nothing is likely to change. If you are already the loyalty leader in your industry, that may not be a problem in the short term. Success in improving customer experience requires a dedicated person or team. That leader must be well-connected and respected in your organization. Where they report does not matter much. The teams of which they are members matter a lot.

Relationship with sales leadership is critical

If you are successful in measuring and improving customer experience, you will sell more. Your sales team should find that value proposition quite compelling. The customer experience leader needs to have an excellent relationship with sales and should be part of their leadership team. I am not suggesting that he or she should report to the sales leader, simply that they must be in the team. My own approach has been to start by proposing to attend an internal sales meeting to present competitive benchmark data. Sales teams find the insights about their competitive advantages and disadvantages to be really useful, so they have always been attentive. Using that positive feedback, I then propose to be a permanent member of the sales leadership team. That has usually worked for me.

Reporting lines in larger organizations

In a large organization, each major business should have a customer experience leader. The job title does not matter. Customer Advocacy is used quite often. Personally, I have held a full-time customer experience role reporting to the EVP of Software at HP, and have also combined the job with the Chief of Staff role for other businesses earlier in my career. The Chief of Staff tends to be well-connected, neutral, and controls the leadership agenda. Having editorial control means customer experience can always be part of strategic discussions. If the Customer Advocacy leader is a full-time role, a great relationship with the person setting leadership meeting agendas is important. Customer Experience falls into the general category of things that are important, but not urgent, and can easily become an agenda also-ran.

Chief Customer Officer role

There are aspects of customer-centricity that cannot be addressed within a single business or function. We have seen the rise of the Chief Customer Officer (CCO) over recent years. The CCO should report to the CEO. The job description should include most of the following areas, depending on the size of your company:

  • Chair and run a cross-organizational Customer Experience Council that shares successes and agrees strategy across your company.
  • Define, fund and implement the on-boarding and refresher NPS training that should be mandatory for all employees of all levels, including the executive leadership team.
  • Define and implement appropriate NPS measurement and reporting standards across the company.
  • Regularly report progress to the Executive Leadership Team.

The only advantage I see with the CCO title is that it is better recognized externally than, for example, the Customer Advocacy Officer title. The job content is the same. I believe what I have written here is largely in line with what Jeanne Bliss writes in Chief Customer Officer 2.0 and elsewhere.

Customer complaints team

It is a good idea to have a single customer complaints team for your entire organization. You should consider having that team report to the CCO / CX leader. The phone and email contact details for complaints should be visible at the top level of your company website. “Log a complaint” is a reasonably clear heading. The person or people should accept complaints from both internal and external sources. It is difficult for complaints team members to be effective if they are new to the company. The ideal profile is a relatively experienced company veteran who understands the organization and can get things done quickly. A single person could do this on a part-time basis in a small company. A team is needed for a large organization. When I managed this for HP, covering consumer and enterprise business, there were over 100 people in the complaints team in Europe alone. We had 350,000 employees in the whole company at the time. The range of work was quite extreme, even including representing the company in small claims courts when people went there to get satisfaction on a printer or PC problem.

The complaints team, and perhaps your full organization, should have the authority to spend a certain amount of money to resolve complaints immediately, without further approval. That amount should be something between $1,000 and $10,000. In HP, the Swiss complaints team could leave the office, go to a local electronics store, buy a product and drive it to the customer’s home near Zurich, if that was appropriate. Flowers and other small gifts are a good way of apologizing when you make mistakes or a product is defective. Think about this when you are trying to turn around detractors. Note in passing that most countries have rules prohibiting gifts to government employees, so your processes need to take this into account.

Conclusion

If I had to pick the single item from the above that has most helped me, it would be the one about influencing the agenda for formal leadership team meetings, ensuring customer experience is always there. Integration with the sales team would be second on my list.

What I have written here is a slightly edited version of a chapter in our book Net Promoter – Implement the System which combines the science of NPS with behavioural economics, cognitive psychology and personal experience. All comments and suggestions welcome. Yes, spam attacks mean I have to ask you to click either on a kitten or a puppy before posting, but they don’t bite!

Bain Net Promoter System Framework

Here is how to think about the work of the customer experience leader or Chief Customer Officer

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I would like to propose a way of thinking about the work of the customer experience leader. It has four elements:

  1. Core work
  2. Supporting work
  3. Coordinating work
  4. Strategic work

Introduction

Here is a way of thinking about the work of the customer experience leader, whether they are called the Chief Customer Officer or something else. In large companies, the model should work well at division level, assuming divisions are largely independent of each other. I will use the Bain Net Promoter System Framework, shown at the top of this post, to structure the discussion. Each of the types of work is indicated with its name and an arrow. Some other improvement systems have similar components, so you should be able to apply these principles, no matter what system you use.

An exception that confirms the rule

Let me start by defining one type of work as being out of scope. Each individual business and function drives its own listening and improvement work. The customer experience leader generally does not get involved, with the exception of measurement systems, mentioned below. That is why I show the ‘Inner Loop’ in the framework diagram without an arrow.

Core work

The main work of the customer experience leader, the reason for his/her existence, should be to drive measurement and improvement work that crosses business and functional lines. These are things that no individual business or function can improve on their own. In Net Promoter System terms, this means running ‘Huddles’ that consider and work on items that cross organizational boundaries, and leading the ‘Outer Loop’ improvement work at company level.

Supporting work

This is work that has to be done well so the core work can happen. The most important supporting work areas are:

  1. Ensure that the measurement systems used are trusted and reliable. The entire company has to be able to understand the key metric or metrics, and believe that it/they do indeed correctly represent customer views of your company and of your competitors.
  2. Ensure that a reliable team and infrastructure exist to manage and correctly interpret customer input, and to drive improvements. The Net Promoter System, for example, depends on customer answers to open text questions. If your company gets a lot of these answers, you need software to analyse them reasonably accurately. If your customer research depends on sending people surveys by email, a single infrastructure for doing so should be your standard across the entire company. Without this, you will never be able to manage ‘opt out’ lists and other things that may be legal requirements in your country or countries.

Coordinating work

I believe training is the most important single piece of work that needs to be coordinated across an entire company. Teams should have a common understanding of the corporate position and tools for measuring and improving customer satisfaction. Letting each business and function do so on their own will confuse customers who deal with more than one part of the company.

Strategic work

This work is probably the hardest. The CEO and leadership team need to speak a common language and need to have customer improvement initiatives as part of their ‘Top 5’ formal objectives. The customer experience leader needs to have the diplomacy, empathy and organizational knowledge that will allow them to propose such initiatives and even to draft the initial documentation. It is unreasonable to expect that leaders with short-term objectives will spontaneously devote time to customer experience work that provides its benefits in the medium term. And I would put communication at the top of the strategic work list. This means both the communication work the customer experience leader does on his/her own and the content and platforms they provide to other leaders for them to use.

Conclusion

The fit between these four categories of work and the Net Promoter System Framework is reasonably good, even though it is not perfect. Excellence in the core work is what allows the customer experience leader to work on the other areas. I should note that this way of categorizing work was developed by Lawrence Megson as part of what he calls the ‘Fit Model’ methodology for organizational design. Lawrence worked at Digital Equipment Corporation (DEC) while I was there. While I have not used this structure in my books Customer Experience Strategy – Design and implementation, or Net Promoter – Implement the System, it still helped me to think correctly about the work of CX leaders. As always, the fact that I have opinions does not make me right. Your views are welcome.

You can also email me, Maurice FitzGerald, at mfg@customerstrategy.net.

Richard Branson helping Virgin customers

Virgin Atlantic and how to over-recover Detractors

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All of this talk about the United Airlines customer experience fiasco reminded me of the opposite experience Virgin once gave a colleague…

Don’t be afraid to over-recover Detractors

When I joined the Digital Equipment Corporation (DEC) Software Product Group at the European HQ in Geneva, we had to travel regularly to Boston. There were no direct flights, and we tried a variety of airlines. The team favorite quickly became the relatively new Virgin Atlantic. To get to Boston, we transited via London’s Gatwick airport. We all loved the airline’s ‘Upper Class’ and were rabid promoters, often asking other colleagues why they would go any other way. I am sure we contributed lots of money to the Virgin bottom line.

After about a year of this, one of my colleagues, Peter van de Moosdijk, had a relatively serious incident. His flight from Boston to London was delayed for three hours due to a technical issue. Virgin realized that it was the middle of the night back in Europe and handed out a form for each passenger to fill in, saying whom they wanted Virgin to contact in the morning and what they should say. Peter filled out his form, and boarded the delayed flight happy that his wife would know that he was going to miss the connection in London and would take a later flight. I suppose I should add that I believe this was in 1993, so well before you could easily send your own messages from an airport.

Peter phoned home on arriving in Gatwick, and spoke to his panicking wife, who had been to Geneva airport to pick him up, and had heard nothing. The following day, Peter wrote a (paper) letter to Virgin’s CEO, Richard Branson, recounting what had happened and saying that this was not what he had grown to expect.

Amazing reactions from Virgin Atlantic
Three things then followed. I particularly like the first:

  1. A few days later, the doorbell rang while Peter was at work and his wife was at home. Virgin had sent her a huge bouquet of flowers and a card with an apology. I feel this demonstrated a rare level of insight about who actually had the problem. Not their customer.
  2. The following day, a letter arrived, apparently signed by Richard Branson (or someone who could copy his signature). He said that what had happened was unacceptable, and that he had sent a copy of Peter’s letter to every Virgin office in the world to ensure it would never happen again.
  3. At the time, Virgin was the only European airline with a frequent flyer program. Peter’s account was credited with enough miles for his family to go on vacation in California the following summer.

A Detractor immediately became an avid Promoter
Now that’s over-recovery. Rather than talking about the negatives, Peter, his colleagues and friends all wound up being Promoters, telling this story over and over again. Our manager even attended a customer experience event hosted by British Airways. He asked whether any of the BA people had flown with Virgin and they had not. Then he told the story. Silence in the room.

Conclusion

Selectively over-recovering your Detractors can be a great tactic. Even before the advent of social media, we all spread the word. With modern technology, we could have helped Richard Branson to take over the world.

This is an edited version of one of many stories told in the books below. This particular one is from the Net Promoter System book. Our books are now available as paperbacks too.

You can find links to the major Amazon stores on our books page, here.

Waiting for jeans to shrink

I suppose it all started in a bathtub in 1981

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I suppose it all started in a bathtub in 1981. I was working for the Wrangler jeans company in Paris. My boss was in his bathtub. (I hasten to add that I was not present at the time.) We had a line of ‘shrink to fit’ jeans. The idea was that you would get into a hot bath with the new jeans, soak for a while, and they would shrink 12% to fit your body perfectly. In the trade, we called these ‘spray on jeans’. I leave it to your imagination to understand why. The target market was of course shapely young women.

What to do while waiting for the shrinking to happen

While my boss was waiting for the shrinking to happen, he played around with a pumice stone, rubbing it on the jeans. These are the stones people use to rub excess skin off their feet and elsewhere. The more he rubbed, the more he exposed the white fibres at the center of the indigo-dyed fabric. He liked what he saw, went out and bought all the pumice stones he could find, and destroyed his home washing machine trying out his idea. In short, he (David Hayes) was one of a number of people at the origin of high-volume stonewashing of jeans. I was his quality and engineering manager. He came into the office the following morning and told me to make what he had done into a high-volume commercially-viable process.

Read on below the drawing to learn what happened next…

Spray-on jeans

Let’s ask customers what they want

While that would be a story in itself, what is relevant here is what happened when I decided to ask our customers what they actually thought of our jeans and what they wanted us to improve. It was not at all what we expected. Like most large companies that are perceived as consumer businesses, we were actually a B2B company, selling only to retail stores and chains.

Since nobody had ever gone out and asked store owners for their opinions in a formal way, I consulted with my corporate colleagues first. My HQ friends in Greensboro, North Carolina were sure the store owners would mainly have huge concerns about how stonewashing was destroying the stitching, weakening the fabric, damaging the rivets and so on. Others thought the input would be around the accuracy of order picking. Still others were certain the jeans would be ignored and that all the input would be about the new line of shirts. Overall, the message I received loud and clear was “Don’t waste your time asking. We already know what the customers want.” They were all wrong. Since I initially believed what they said, I was wrong too.

A sales person wanted to go ahead

One of the sales people (Jackie Zerbib) was enthusiastic about the research, so we went ahead, despite the input from my colleagues. I also ignored advice to ask a series of detailed question about the stitching, rivets and so on, and just went out with a few open questions. We visited the major boutiques in Paris and got a lot of surprises.

Lots of surprises

The most important thing by far to them was that we should deliver all goods during the half-day we promised. It turned out that they would arrange for family and friends to come over to help unload the cartons and put things on the shelves. Order picking accuracy did not matter much. They were happy to put whatever they received on the shelves and try to sell it over the weekend, returning it on the Monday if we had made a mistake. The quality of the fabric, stitching, zips and rivets was never mentioned. The uniformity of stonewashing mattered a lot. “We get women who want the look they see in a jean that is not available in their size. You really need to make the stonewashing more uniform, so it looks the same in all sizes.”

Demand was not an issue. We were #1 in the market, had launched the ‘Rock Wash’ jeans together with pirate radio station RFM, and had great advertising billboards everywhere. French readers who were teenagers or more at the time may remember ‘Cool Raoul’, ‘A l’aise Blaise’ and other slogans developed by Robin Hunter-Coddington and his team.

None of the top customer wishes were what we expected

In short, none of the top five priorities were on the list of what we expected. The corporate expectations were even further from the customers’ reality.

I regret to say that the main reaction of the HQ people was “That’s just those crazy French people. You shouldn’t pay any attention to what they say.” Locally, we implemented a plan to improve the main things they suggested. It worked, and we retained leadership over Levis, Lois, Jesus Jeans, and Lee. Thanks to David Hayes for the leadership.

So… what is the message here?

The message here is not about jeans or Parisian clothing stores. The message is that if you believe you know what your customers want, but have not actually asked them, you are probably wrong.

All comments and stories welcome!

Maurice

 

own-boat-800

Do your company leaders care about customers? Here is how to know

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“Our customers are our top priority.”

“Everything we do, we do for our customers.”

“Customers come first.”

Internal and external corporate communication is full of statements like these. Do they actually mean anything? Here is how to know, at least for your own company.

The nature of business strategy

The reason you need a strategy is that you do not have unlimited resources. Effective business strategy is about concentrating your scarce resources on a small number of things that will allow you to crush your competitors. So, if your CEO keeps saying things like the statements at the start of this post, there must be corresponding investments, right? The actions must match the words, right?

How to know

It is quite simple, really. There are three steps:

  1.  Go to your company intranet. Your CEO and senior leaders should each have descriptions of their objectives and investments. (If they don’t, your company has a different sort of problem.) Do any of those objectives mention customers? Will any of the formal initiatives and investments that are listed do anything to improve customer experience? Or do you only see things like “Reduce operating costs by 15%”, “Move our travel expense administration to Poland”, “Move our HQ building to a less expensive part of town,”, “Migrate our manufacturing systems to SAP version x.x.”
  2. Read the emails sent to all employees by the CEO and the leaders of each business and function. When talking about quarterly results, do they mention things done for customers? Where the leadership team members set out the priorities for the coming months, do they mention investments in areas that customers have requested? Look for statements like, “Our customer research has told us we need to reduce hold times and let more people bypass the IVR system to talk immediately to a human, so we are investing there.”, “Our customers need us to cut our delivery times from three days to one…”, “Our customers tell us they want help understanding their data, so we have decided to hire 100 data scientists and train 100 existing employees in this important area.”
  3. Examine the formal job objectives for your team and for yourself. Do you see anything based on customer research and feedback?

OK, so the what you have found is disappointing

Companies that have to report quarterly results have an understandable tendency to concentrate communication on things that will take a single quarter, or at least produce clear financial results in the short term. Things like brand marketing and customer experience improvement work have their effect over time, usually taking 12 to 18 months to make a real difference. If you find your company in this situation, you should make it as easy as possible for executives to communicate on customer experience. Find out who actually writes their all-employee emails. Find out who prepares the material for their intranet sites. Supply those people with short paragraphs that describe customer feedback and what is being done with it. Make communication as easy as possible.

Make the communication gap your problem, not theirs

If you are in charge of customer experience, find out when each leader has to set their formal annual or quarterly priorities and how they will communicate them. Give them a single fact-based customer priority as a starting point. Try to think about it the way I thought about language the first time I visited a country where the people around me could not speak any language I spoke. I considered it to be my problem, not theirs. I had to fit into their way of communicating, not the other way around. Yes, I needed an interpreter in China. You may need a friendly interpreter to help you fit your thoughts into your executives’ communication styles.

Conclusion

The mid-term nature of customer experience improvements make them challenging for executives to communicate in a short-term world. Customer experience leaders need to internalize this and make CX work and initiatives as easy and memorable to communicate as possible. As mentioned in my newsletter last week, this means communicating using personal examples rather than statistics, leading with emotion rather than numbers.

And of course a word about a book

Our book Customer Experience Strategy – Design & Implementation is now available in paperback format on Amazon. Personally, I think the ‘Look inside’ preview on the Amazon sites is nice and it lets you read the table of contents and first pages. At the time of writing, the paperback is listed on amazon.com, amazon.co.uk, amazon.de, amazon.it, amazon.co.jp. It should also become available on amazon.fr and amazon.es. The paperback version will only be available on these stores. The Kindle version is available on all Amazon stores.

 

Hygiene factors

‘Hygiene factors’ and ‘Motivators’ in customer experience – The Bain Anger-Delight Matrix

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American psychologist Frederick Herzberg invented the ‘Two-factor Theory of Motivation‘ in the context of his work on how to motivate employees to perform. The two factors are ‘hygiene factors’ and ‘motivators’. I believe the theory also applies to customer behavior. Herzberg’s work is far simpler than Maslow’s and is easy to understand:

Hygiene factors

These are things like being paid enough to live on, general working conditions, job security, company policies and procedures, relationships with colleagues, a reasonably work-life balance, and good supervision. Once they are in place, the result is what I would call a ‘lack of dissatisfaction’. When the hygiene factors are all in place, a basic level of job performance and competence will be the norm. However, adding more of them does not achieve anything. If you are already satisfied with the comfort of your office chair, giving you a more comfortable one will not improve your performance. The same applies to things like your office PC. Once you are not unhappy, that is good enough.

Motivators

Things like challenging work, a sense of achievement, promotion opportunities and recognition fall into the category of motivators. The more they are present, the higher the productivity and achievement of the employees. In this category, the more you add, the better the performance. However, it is possible to destroy the motivation if the hygiene factors are not in place. Employees will be motivated, but will have a lot of complaints. Absence of the motivators returns employees to a basic level of performance, but has no ability to dissatisfy them.

Controversial

I have to say that Herzberg’s work is somewhat controversial. Many people disagree with it. I think the illustration below captures one of the objections, which is that there are hygiene factors that can indeed provide positive motivation, at least in extreme cases. OK, so maybe an extremely nice office chair can be a motivator.

Nice office chair

Relationship with customer experience

Jim Dixon of Bain has done a great job translating Herzberg’s work into the world of customer experience. I have to say I am not sure it was his intention, but that is certainly the result. He refers to it as the Anger-Delight matrix, seen below.

Bain Anger-Delight Matrix (Jim Dixon)

 

The question, naturally, is how to determine which things fall into which category. The answers is: ask your customers. To really learn, you need to ask open questions. If you decide that you know all potential factors and ask customers to rate each one on a long list, you will have two problems. First, you may miss some important items. Second, you are presenting them to the customer as all being equally important, and they are not. A far better approach is to categorize your customers by level of happiness, and read and group their answers to the question about why they gave their rating. If you use NPS, you should expect the things Detractors mention to be biased towards the ‘Anger’ category. The same would apply to the people who give you the lowest scores on a CSAT scale. Customer Effort Score research tends to mainly capture ‘Anger’ items. Absence of significant effort is not usually a motivator.

Jim Dixon adds an important element, which is the comparison with your competitors, as shown by the red circles above. As always when communicating anything with red status, it is important to show very few of them. The red items represent the investment proposals.

Conclusion

Herzberg’s two-factor theory of motivation sacrifices the accuracy of Maslow’s theory for ease of communication. Even though Maslow only used five levels of motivators, few people can remember all five without assistance. Both the hygiene / motivator and the anger /delight models are easy to remember and to communicate. Definitely worth trying. As always, your comments and suggestions are welcome below.

Maurice

Which companies do employees and customers love and hate?

Introducing the Customer-Employee Love-Hate Matrix for the 31 Best and Worst Large Businesses

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Introducing the ‘Customer-Employee Love-Hate Matrix’, shown above

Following on from last week’s post Proof there is no relationship between employee and customer satisfaction, I would like to provide the ‘love-hate matrix’ above. It is for large businesses serving US consumers. The four cuts are:

  1. Companies that are in the top 10% for both employee and customer satisfaction.
  2. Companies in the bottom 10% for both.
  3. Companies in the top 10% for customer satisfaction and simultaneously in the bottom 10% for employee satisfaction.
  4. Companies that are in the top 10% for employee satisfaction and the bottom 10% for customer satisfaction.

There is a call to action after the data and surprises.

Data sources, defects and notes

As discussed in last week’s post, there are not many public sources of data on these subjects. The best information I can find on customer satisfaction for large companies selling to US consumers is ACSI. The American Customer Satisfaction Index team gets input from 70,000 consumers on over 300 companies. Some companies, such as Apple and Samsung, have more than one business and there are scores for each.

The only public source of employee satisfaction data I have found for the same companies is Glassdoor. Current and former employees of a company provide an overall rating for their employer. Some companies do try to game Glassdoor and some scores may therefore be overly optimistic. That does not seem likely for the companies at the bottom of the list. Glassdoor covers 600,000 companies, right down to tiny businesses. Very few of them are included in the ACSI research, which concentrates on large companies selling to US consumers only.

Wherever more than one choice was available for a business covered in the tables below, I have selected the most positive available data. I have triple-checked every number, and still welcome any error detection you may like to carry out.

Since the ACSI data is for all of 2016, I have generally used Glassdoor numbers I researched in mid-2016. There are some exceptions where the January 30th 2017 number is better and I have used it.

Best publicly-available data

If I had a choice, I would far prefer to use customer and employee Net Promoter Scores, but there is no public source for such data at all for eNPS, and public NPS scores have limited company coverage. There is no standard for measuring employee engagement. Most people promoting an employee engagement index seem to be promoting a proprietary methodology, software or consulting services. Yes, they all seem to be able to prove that their index predicts customer satisfaction and financial results, and I believe that this should indeed be the case. An agreed open standard backed by research would be nice.

I suppose I should once again note that some of the companies in the table below do not sell directly to end consumers. Their customers are resellers, brokers or other intermediaries, for whom no satisfaction data is available.

Method

I have used the data in the Excel file that you can find on our resources page here. It is simply a copy of what was on Glassdoor and the ACSI site at the time the data was prepared. The steps I followed were:

  • Rank the 336 ACSI scores from highest to lowest.
  • Establish the ‘Top and bottom 10%’ marks by counting down 37 rows from the top and 37 rows up from the bottom.
  • Use the conditional sorting function in Excel to produce four tables, using various combinations of these ranges.

The best of the best

At the considerable risk of using ‘the D word’, here are the companies that delight both their customers and their employees. These companies are in the top 10% on both the ACSI and Glassdoor rankings.

Employees and customers love these companies

Chick-fil-A’s ACSI position should surprise nobody. It is great to see that they are also in the top 10% of Glassdoor ratings. There is no Glassdoor rating available for Lincoln automobiles on their own, so I have used the overall Ford number. I have also used the Toyota Glassdoor rating for Lexus, as there is only a single Glassdoor rating for Toyota North America. As noted last week, consumers may be dealing directly with franchise operators, rather than Ford or Toyota employees. Apple has an ACSI score of 80 for its phones, and I have used the overall Glassdoor score for Apple, as no separate number for the PC employees is available. The Subaru Glassdoor rating is for Subaru of America.

The bottom 10%

Let’s be optimistic: these are the companies with the greatest improvement opportunities! They are the only companies in the bottom 10% of the 336 businesses for which I have both ACSI and Glassdoor ratings. These are the only companies that are in the lowest 10% in both. Mediacom has had the worst ACSI score in both 2015 and 2016. This positioning of cable TV and ISP providers confirms what Bruce Temkin has found in his research.

Customers and employees hate these companies

ACSI rates Windstream and Mediacom for two different businesses, while Glassdoor has a single overall score.

Loved by customers, but…

Here is the list of companies that are in the top 10% of the ACSI ratings, while being in the bottom 10% of the Glassdoor ratings. You will see companies in trouble and ones that have constant cost pressures.

Customer love employees hate

Employees love working there, but…

This is the category with the big surprises. These companies seem to have the unfortunate combination of happy employees and unhappy customers. Each is in the top 10% of Glassdoor ratings, while being in the bottom 10% of of the ACSI scores. I can find no evidence that any of these companies is gaming the Glassdoor scores. Glassdoor says they do not allow companies to remove negative reviews. This is somewhat subtle in that they do indeed accept requests to remove reviews consider as defamatory by companies. Perhaps a little less happiness might motivate these employees to look at things from more of a customer perspective. These are companies where employees have little or no contact with customers, so there is little opportunity for their enthusiasm to become contagious.

Companies employees love and customers hate

Conclusion and call to action

Medium- and long-term business success can only be achieved by engaged employees who improve customers’ overall experience with their employers. There is no common standard or public data for employee engagement, so I have used a ‘second-best’ approach. I accept that happy employees are not necessarily productive employees. Companies can do well on Glassdoor because they have great food in the canteen, on-site child care and attractive vacation policies. None of those contributes directly to positive customer outcomes. A happy employee is not necessarily doing positive things for customers.

Companies that have high employee satisfaction but low customer satisfaction will be forced to improve if they can see competitors taking share from them. Some companies have effective monopolies, and probably won’t change quickly. They should bear in mind Willie Pietersen’s words in a Columbia lecture I attended. “Somewhere in the world, somebody has just had an idea that can kill your business.”

As I argued in last week’s blog, if you were to take a clean sheet of paper and brainstorm all the things that can affect customer satisfaction, employee engagement and / or satisfaction would probably be on the list, but not at the top. A railroad company, for example, would be likely to find that on-time arrival of trains and the availability of seats at rush hour matter more to customers than their very occasional contact with an employee. Motivated employees are of course enablers of many other things, such as getting the trains to run on time. The most important thing companies can do is to listen to customers, internalise what they want to see improved, and engage their entire workforce to make it happen.

Thank you for reading. Please sign up for our newsletter here, and spread the word to your colleagues and friends.

Maurice FitzGerald mfg@customerstrategy.net

Employee satisfaction

Proof there is no relationship between employee and customer satisfaction

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This article is an update to my January article on the same subject. At the time, 2016 American Customer Satisfaction Index data for 71 companies was not yet available. I used 2015 data for those companies instead. All 2016 data is now available, and the new results should surprise readers even more than the original article.

It is obvious to everyone who works on customer experience that happy employees make happy customers. But… is there actually any evidence for this? Not much, though you would not know it at first. This research I am about to report uses a new method to study the relationship between the two, using public data sources. In short: happy employees don’t count for anything, on average. Nor do unhappy employees. Employee happiness explains about 1% of customer satisfaction variations across 336 businesses that sell to American consumers. I believe one reason for this is that many companies have no direct contact with their end customers. What this means for most businesses is simple: your customer experience investments should be concentrated on other things. To find out what things, ask your customers.

The pitiful state of research on the subject

Try an online search for ‘Employee and customer satisfaction.’ Most results are about employee engagement rather than satisfaction. As this is written, the top result is Employee engagement: the wonder drug for customer satisfaction, on the Forbes website. The author, Kevin Kruse, provides a link to a list of over 30 studies that are intended to be relevant. They make excellent points on employee engagement, which differs somewhat from employee satisfaction. However, only one of them contains multi-company deep research: the Northwestern University Forum for People Performance Management and Measurement report. It showed that 8% of the variability in customer satisfaction was explained by employee satisfaction. Other studies on the Forbes list cover individual companies, including one on Caterpillar, and one on an unnamed department store, for example. Most of the studies listed make no mention of customer experience at all, but focus on other business outcomes.

Yes, more engaged employees produce better financial outcomes. Employee engagement indices are calculated as an average of answers to multiple survey questions. When I worked for HP, it was an aggregate of eight answers, including questions about training, processes and procedures, and ongoing feedback from your manager. There is no standard measurement. The Temkin Employee Engagement Index asks three questions, none of which is about happiness. Employee satisfaction and employee engagement are different concepts.

I don’t exclude the existence of good research. I just have not been able to find it. Admittedly some research is only available for a fee, and I have not been willing to go that far.

American Quality Digest article from 1998 put me on the right track

H. James Harrington made a lot of people uncomfortable in 1998 when he published ‘Happy Employees Don’t Equal Happy Customers’ in the American Quality Digest. He used the American Customer Satisfaction Index (ACSI) numbers for as many of the Fortune ‘100 Best Companies to Work for’ as possible at the time. Only five of the Fortune list were in the top 100 of the ACSI list. Surely his results were a fluke, or were not logical in some other way?

My new data sources

At the time, Harrington used the American Customer Satisfaction Index benchmarks and compared them to the Fortune list of the best 100 companies to work for in America. The challenge is that the ACSI benchmarks cover consumer industries and a lot of the Fortune list are companies that are B2B, so are not covered by ACSI. I have therefore used a different, broader, and perhaps controversial source for employee satisfaction data: Glassdoor. We can debate the level of positive or negative bias that may be present in Glassdoor data. My working hypothesis is that the bias is equal for all companies. As the comparison being made depends on relative rather than absolute numbers, I don’t believe the bias has any significant effect.

Overall Results

In short, there is almost no relationship between employee satisfaction and customer satisfaction. I was able to match 336 ACSI ratings with corresponding Glassdoor ratings. Using linear regression, just 0.9% of the variability in customer satisfaction is due to employee satisfaction. For the stats experts, the number rises to 1.1% with quadratic regression. This graph shows the results and gives an idea of the variability.

High-touch and low-touch companies

I used my own judgement to define some industries, such as restaurants, as ‘relatively high-touch’. This gave a list of 117 such companies and these are in the first graph below. I call the remaining 219 companies ‘relatively low-touch’ and they are shown in the second graph.

  • Using linear regression, employee satisfaction explains 3.4% of the variation in customer satisfaction, compared to 1.1% in the low-touch group.
  • Using quadratic regression, the numbers rise to 6.1% and 3.9% respectively.
  • Whichever regression method is used, the message should be clear: for two-thirds of companies, employee satisfaction does not matter at all. For the high-touch companies, it matters far less than you might expect.

ACSI and Glassdoor scores for 117 high-touch companies:

ACSI and Glassdoor scores for 229 low-touch companies:

Not really surprising

I don’t find these results surprising at all. If you were to start by brainstorming all possible things that could impact customer satisfaction, employee satisfaction would be on the list along with a lot of other potential factors, such as product quality and brand image.

Think about what can make employees happy, as distinct from engaged. A person can love the meals in the company restaurant and the short commute to work. Neither of these do anything for customers.

As far as employee satisfaction is concerned, my hypothesis is that it matters most in high-human-touch businesses. There is a major challenge in proving this. Many large companies outsource their service and sales call center operations, for example, so the ‘high human touch’ is not being handled by company employees at all.

Feel free to use the same data to find a different conclusion

Here is a link to my resources page that includes the Excel data file and a PowerPoint presentation. The Excel file includes simple instructions for changing the selection of ‘high-touch’ companies. Feel free to see if you can find a different result.

Read more

This article is an edited and shortened version of a chapter in my book Customer Experience Strategy – Design and Implementation, available in Kindle format in all Amazon stores worldwide now. A print version will follow at the end of April. To stay in touch, please sign up for my newsletter, and read my blog.

Thank you for reading.

Maurice

Customer Lifetime Value

How to calculate the lifetime value of a customer

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Calculating the lifetime value of a customer is somewhat like calculating the value of a company you would like to acquire. While you can find many methods of doing the calculation on the web, there is only one correct answer. For mergers & acquisitions, and for lifetime value of a customer, the only correct calculation method is Discounted Cash Flow, meaning the present value of all future cash flows the acquired company or customer is likely to generate. No other method is correct, though there are some acceptable approximations.

The theory and experience of NPS practitioners is that the operating profit per customer is highest for Promoters and lowest for Detractors. Do not confuse revenue and operating profit. You can have customers that generate lots of revenue, but even more cost. They have negative lifetime cash flow, unless you can turn them around.

The main problem you will face

Unfortunately, most companies are not able to calculate profitability by customer. Financial reporting usually works by product line, not by customer. Asking your finance person to provide you an accurate cash flow from each of your top 100 customers individually will probably be a waste of time. Businesses that depend on large contracts are an exception, and you may well be able to calculate the cash flow and therefore the lifetime value of each contract.

Suggested method

In the absence of accurate standard reporting, a good starting point is to work with your finance person to calculate a ‘proxy P&L’ for each of your different customer categories. Unfortunately, there are accepted accounting standards for many things, but not for the precise methods used to calculate the lifetime value of a customer. Segmenting customers in a useful way is a critical step. The first distinction to be made is between customers who have an ongoing contractual relationship with your company, and those who buy things, but have no contractual relationship. The former category is easy to work with. Past contract renewal rates can be used to determine future expectations. Direct Marketing principles need to be applied to the latter category. Direct Marketers think in terms of ‘RFM’: Recency, Frequency, and Monetary value.

Other customer segmentations that are useful will depend on your business model. If you sell both direct and via resellers, lifetime value expectations will be different. They will also differ between very large customers who depend on your company to run their business, and others. If you have the data, NPS categories can be used to refine renewal rate expectations. Here are some examples of what needs to be used in the calculation:

  • List prices.
  • Contra-revenue, meaning discounts you give from the list price. While large customers tend to attract higher ‘standard’ discounts, you will generally have easier discount negotiations with Promoters than with Detractors. Since contra-revenue is not part of any standard P&L, it is often forgotten.
  • Net revenue, meaning list price less contra-revenue.
  • Cost of Goods Sold. This includes costs of ‘free’ replacement items and additional merchandise that you may have to supply Detractors to help turn them around. While ‘Cost of Goods Sold’ sounds like it should include the cost of selling and marketing, it does not. Selling, General and Administrative costs are ‘below the line’, which means they are not counted in the Gross Margin calculation, but are considered when calculating operating profit.
  • Where Detractors or Passives leave you sooner than Promoters, you can assign a cost of attracting a new customer. Many sales teams are split into ‘Hunters’ who go after new customers and ‘Farmers’ who develop deeper relationships over time and are measured on retention and additional business for existing customers. Farmers generally cost about a quarter of the Hunter cost per revenue dollar. If you don’t split your sales teams this way, agree a reasonable rule of thumb with your finance partner while you try to measure it more accurately. Marketing costs can be split that way too.

If you are not able to get to this level of detail, calculating expected lifetime revenue per customer is a lot better than doing nothing.

If you can only work on one thing for a contract business

If all this is too sophisticated for the time you have available, here is the single area you should focus on, if your business depends on annual contracts. Just agree the value of a one-percent improvement in contract renewal rates. It is easy to calculate, and you probably have the data on past renewal rates. If you work in a large company, you have de facto experiments in place. By this I mean you can simply observe different measurable business practices or levels of customer-centric performance that have happened by accident, rather than by design. Look at how they have affected renewal rates. If you seem to have nothing relevant, test new practices in part of your company and compare renewal rates. You can test multiple things simultaneously, provided you keep a control group, where nothing has changed. Improved renewal rates were how we justified Customer Success teams at HP Software. These teams worked with customers, free of charge, to make sure they were using software effectively and achieving the benefits they expected.

Conclusion

Compared to the others, Promoters stay with you longer, buy more products, escalate less, are less price sensitive and are less expensive to sell to and service. Once you have agreed the lifetime values of the different NPS customer categories, you and your CFO (or delegate) should present it together to your leadership team for approval. Even if you are not able to do it right away, it should be part of your formal NPS implementation plan. Your credibility depends on it. Your company’s long-term commitment to NPS also depends on it.

Final note: the above is a somewhat shortened version of a chapter in our book Net Promoter – Implement the System.

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