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Employee satisfaction and customer satisfaction

Does employee satisfaction drive customer satisfaction? In general… no!

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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 much. Nor do unhappy employees. Employee happiness explains about 2% of customer experience variations across 340 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. More on this below. Other studies 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. At HP, it was an aggregate of eight answers, including questions about training, processes and procedures, and ongoing feedback. 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.

The media industry

The Forbes article links to research by the Northwestern University Forum for People Performance Management and Measurement that is the only one of the list of 32 that actually includes deep and relevant research. The team studied 100 companies in the media industry. They did indeed find a statistically significant correlation between employee engagement and customer satisfaction for the companies studied. The R2 number from their analysis was 0.08, meaning that 8% of the variability in customer satisfaction is explained by the employee-satisfaction data.

Is the state of current research really “pitiful?”

When discussing the state of this research in various internet forums, I am systematically told that I am wrong about it. When I ask for proof that I am wrong, I am pointed at articles that the person ‘correcting’ me has usually not read or understood. Indeed, as often happens in scholarly papers, the writer has read the abstract of an article they refer to, but not the full article. I don’t feel this is the place to go into extreme detail on the subject, but would still like to pick one example, just to be clear that I  am not making this all up.

A search on the subject quickly reveals a quite old Harvard Business Review article on The Employee-Customer-Profit chain at Sears. The summary that others, such as Yingzi Xu and Robert Goedegebuure have taken away from the article is that 60 to 80 percent of customer satisfaction depends on employee satisfaction. The article does not say this at all. It says that 60 to 80 percent of customer satisfaction was shown to correlate with just 10 of the 70 questions on the Sears employee survey. None of the 10 is the overall satisfaction question (though “I like the kind of work I do” is on the list) and the HBR authors position the 10 questions as being a “management scorecard.”

I don’t exclude the existence of good research. I just have not been able to find it. I admit that 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 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 a very weak relationship between employee satisfaction and customer satisfaction. I was able to match 340 ACSI ratings with corresponding Glassdoor ratings. Using linear regression, just 2.0% of the variability in customer satisfaction is due to employee satisfaction. For the stats experts, the number rises to 2.9% with quadratic regression.

ACSI-GD 340

 

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 120 such companies. I call the remaining 220 companies ‘relatively low-touch’.

  • Using linear regression, employee satisfaction explains 15.9% of the variation in customer satisfaction, compared to 0.3% in the low-touch group.
  • Using quadratic regression, the numbers rise to 22.2% and 0.6% respectively.
  • The numbers for the 340 companies as a whole and for the high-touch companies are highly statistically significant. This means they should be representative of all large companies whose end customers are US consumers.
  • 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 less than you might expect.
ACSI-GD HT
ACSI-GD LT

 

Not really surprising

I don’t find these results surprising at all. Almost everything you read on this subject is anecdotal. It is easy to find articles on single employers who make both their customers and their employees happy. Nobel-winner Daniel Kahneman has written about ‘What You See Is All There Is’ as a common cause of misinterpretation. Where the only data being presented is on customer and employee satisfaction, humans jump to an unconscious conclusion that these are the only factors that matter. 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.

Most articles you read on the subject of the current research just present the two factors, leaving you to conclude that only these two are important. I am not going to say employees don’t matter at all. They just don’t matter much for the average company. Think about the number of companies you like where you have no interaction with the employees at all. This is the case for most eCommerce interactions, for example. Amazon is an outstanding customer experience performer for eCommerce, but just about average for employee satisfaction.

One difficulty with the study

One potential objection to some of the data points in the study is that the Glassdoor data is provided by employees of the company, while consumers may actually interact with franchisees or other resellers. This would be the case for General Motors brands included in the study, and for some restaurant chains for example. There is no known public source of employee satisfaction data for franchisees and resellers.

Conclusion and hypothesis

If you brainstorm a list of possible factors that could impact customer satisfaction, employee happiness deserves a place on the list. So do many other factors. In one such brainstorming session a senior manager suggested that the financial health of a supplier is an important factor for large corporations engaging in long-term contracts. I suspect it would be easy to come up with twenty or more factors that could bear scientific investigation. 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.

Finally, if you would like to do your own analysis, visit our ‘Resources’ page here to download the Excel file and a PowerPoint presentation. I also put the presentation on LinkedIn SlideShare here. When doing your own research on the subject, bear in mind that employee engagement and employee satisfaction are different concepts. And as always, drawings are by Peter FitzGerald.

Late breaking totally fake news The Donald has commented on this article

“All my guests are happy. They’d be happy even if my workers weren’t happy, but they are all happy. It’s happening in all of my hotels and I have lot of them, all over the world but not in Russia, and they’re all paid for. Maybe some of my workers aren’t happy, I don’t know, it doesn’t matter, it doesn’t make much of a difference whether they’re happy or not, it’s the name that counts, the Trump name is huge, everyone knows that. No one pees in my hotels. It’s disgusting and made up, fake news!”

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Cost-cutting hatchets

Customer-centric cost reduction – there are just 3.5 ways to reduce cost

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This post is about customer-centric cost reduction, an apparent oxymoron. It includes the list of the only 3.5 ways of sustainably cutting costs that exist.

Unfortunately, faced with a profitability crisis or a need to find money to invest, most companies want to sort our their P&L first, and worry about keeping customers onside later. That approach has a tendency to produce a corporate death-spiral. While you sacrifice customer happiness in the short term, your competitors may not. They will make it their business to find out where you are cutting costs and how that affects your customers. They will then go in and empathize, taking share from you. You then wind up with a predictable but unanticipated revenue problem, just as your cost-cutting exercise finishes. So, the next  round of cost reduction starts. And so on. RIP.

There are only 3.5 ways of reducing costs. I will cover various methods of getting there in this and future posts, adding advice on how to avoid losing customers as you go about it.

Good and bad cost reduction

Unless you are in survival mode, where almost any cost reduction is good, a good cost reduction is one that either improves things for your customers, or simply one that they will never notice. Improving things can be as simple as being able to pass on lower costs as lower prices. Reductions that customers don’t notice concern areas with which they have no direct contact, for example your real estate costs, or the costs of regularly changing employees’ PCs. Bad cost reduction makes things worse for customers, whether by making a product or service worse, or putting them in regular contact with demoralized employees.

Ways to reduce costs

While this may seem surprising, there are exactly 3.5 ways of reducing costs. The first three are:

  • Fewer people
  • Lower costs of capital, such as real estate and inventory
  • Pay your suppliers less

More about the 0.5 below.

Seems too simple?

This may seem too simple, but it is not. I have been taught many ways of making things more efficient and put most of them into practice. My bachelor’s degree is in Industrial Engineering, which is all about productivity and effectiveness. Over the years, I have improved hundreds, perhaps thousands of work processes. I started in the clothing industry which is absolutely obsessed with cost. I moved on to logistics and repair centers at Digital Equipment Corporation, before migrating to software, services, alliances and hardware at DEC, Compaq and HP. When Mark Hurd was CEO of HP, he was fanatical about cost reduction. Quite a lot (thankfully, not the majority) of the cost improvements we implemented over the years turned out not to make any real difference to our financial results. Here is why some projects failed: the people were still there, so the people costs did not change; all of the buildings were still there, so those costs did not change either; we continued to pay our suppliers the same amount, so those costs remained the same.

And two common ways cost-reduction initiatives fail

Many companies work out that they need to cut back in some areas to be able to invest in others. The two most common reasons for failure are:

  • Inability to effectively communicate the purpose, scope and timing of the reductions to customers, investors and employees causes delay, customer defection and employee disengagement, durably damaging your business.
  • Incompetent or inexperienced program managers define terms of reference, tasks, deliverables and milestones without involving the people who will have to do the work. All too often, this is driven by a misguided desire for total secrecy before the reductions are announced. If the people who will have to do the work do not also do the planning, there is absolutely no chance whatsoever that the reduction work will be completed as planned.

Change or no change

If you improve a work process, and do not change the number of people you have in a given location, the people costs do not change. They just spend part of their time doing nothing, or find unimportant new work to do. If you reduce the amount of space you need, but keep all the buildings, your real estate costs do not change. If you make fewer demands on your suppliers, but continue to pay them the same amount, those costs don’t change either.

‘Making it real’

I call the process of ensuring savings ideas turn into reality ‘Making it real’. In this process anyone with a reduction project should be able to describe which line of the P&L will be impacted, and exactly how. If less work is needed, what are the names of the people who will be let go, so the Cost of Sales or SG&A lines go down? If less space is needed, who will buy or rent the free space, or which buildings will we vacate? If the savings ideas just produce fractional differences spread across the entire population or all buildings, they are not worth pursuing.

Less is more

If you want to be pedantic, the first three items could be more accurately described as less people cost, less capital cost and paying suppliers less. If you move work offshore, you may reduce the cost, providing you let the onshore people go. If you move from an expensive city-center location to cheaper choices on the outskirts, you will reduce your real estate costs if you close the original building. Bear in mind that in these scenarios you will have both the old and new costs simultaneously for some period of time.

And the 0.5?

The remaining half a way of reducing cost is by making one-time accounting changes. You can change the accounting treatment of certain items. You can move your HQ to a low-tax jurisdiction. You can sell your buildings and lease them back. Since your competitors can do the same, it is debatable whether they produce sustainable competitive advantage.

I object

The objections I have heard to the above are mainly around the definitions. For example, if you make a process more efficient in a growing company, you may avoid hiring new people. That is true, but you have not actually reduced your absolute costs, which is the subject here.

Cost reduction versus cost avoidance

Cost avoidance may feel good, but it is usually not a real thing. We will cover one aspect of cost avoidance, more correctly a high-impact way of avoiding the need to reduce costs, in a future blog post. I learned about the specific method quite late in my career, as it is not intuitive. Cost reduction normally covers things that are mentioned in standard P&L, Balance Sheet and Cash Flow statements. There is one major opportunity to improve bottom-line profit that does not appear in any standard accounting statements.

Behavioral economics principles

Dan Ariely and Nobel-winner Daniel Kahneman are two leaders in the emerging field of behavioral economics. Their research, and that of others in the field, show convincingly that humans do not behave as traditional economists would have us believe. As Ariely puts it, we are “predictably irrational”. Traditional economists would have us believe that people’s reactions to reductions will be equal and opposite to their reactions to gains. This is simply not the case, and future posts will cover the consequences in some detail. Humans’ aversion to losing something they already have is a major reason some cost reduction initiatives fail. Planning for it is essential.

We are talking about people

Reducing costs means taking away people’s space, reducing their benefits and perceived well-being, bringing fear to the workplace and sometimes ruining lives and breaking up families. As people managing cost reduction, our natural human tendency is to avoid dealing with it. Change management is an essential skill and some suggestions on how to do it will will be provided in future posts and in our book on cost reduction.

Customer-centric cost reduction

Even employees who are not at risk of job loss will be upset if they believe the changes put customers at risk. It has to be said that making large-scale reductions damages your brand and will make some customers believe you are not a safe supplier. Your competitors will be busy helping grow that perception. Think about your competitor talking to your customer saying “We are talking about a multi-year contract here. Look at what Acme has just announced. Are you sure they will still be around two years from now?”

If your employees also believe that the changes will have an unfavorable impact on customer perception of your products and services, that feeling will be communicated to your customers. To keep the maximum number of customers and employees on board, you need to understand how to put customers at the center of the reduction exercise, ensuring you make things better for them, or at least no worse, and that your entire team knows it. These are difficult messages to communicate, and even more difficult to put into practice. That is why our book and this blog exists.

As always, feedback is welcome. The drawing, at the top is by Peter FitzGerald. Learn more about his artwork on our illustrations page. If you want to be kept up to date, be sure to subscribe to our newsletter here.

B2C

Differences between B2B and B2C

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My experience is mainly in business-to-business (B2B) situations. Most of what you read elsewhere about customer experience is in the context of business-to-consumer, and at least some of it is not directly relevant to B2B. The reasons B2C methods may not work for you are the following:

  1. In B2B, a single person is never responsible for all of the client organization’s interactions with your company.
  2.  The difference in the relative financial importance of your largest and smallest customers is much greater than for B2C.
  3. The people who use your products or services are usually not the ones who make the purchase decisions.
  4. Your relationship with your customer requires more constant attention because multiple sales and support engagements are likely to be happening at the same time.
  5. Relationships with individual people in the customer organization matter as much as relationships with positions on organization charts.
  6. It takes time to know whether you are improving things.
  7. Your customers want and need you to be successful.
  8. Angry customers stay with you.

There are businesses that look like B2C but are actually B2B. Kentucky Fried Chicken (KFC) is an example, and so is General Motors. Most of their income comes from franchisees, not directly from consumers. Keeping franchise operators happy is more important to KFC than the views of the end customers. It is largely up to the franchise operators to keep the end customers happy.

No single person responsible for everything

When I shop at my local supermarket, I start by scanning my loyalty card and picking up my barcode scanner. I then scan each article as I put it into the caddy. I check out on my own, and speak to nobody. The same happens when I buy something from Amazon. More commonly, my retail interactions involve a single person. If I buy a pair of shoes, it is possible that I won’t go back to that store for a year or two, no matter how happy I am with the shoes and the shopping experience.

When a business buys from another business, things can be far more complex. Yes, a business can still buy Amazon Web Services and never interact with a human being. At the other extreme, a decision to no longer handle invoicing internally in a large company but to outsource it can take two years. It can involve many different people, from the CFO to Procurement to labor unions at the customer end, from a sales person to an implementation project manager at the supplier end. And that is just to get to a decision. Implementation can be complex and involve a lot of different people. Management and organization changes can call the whole project into question and delay things significantly.

Differences in customer size matter

In most B2B situations, you have customers who matter more to you than others. There are two main reasons some may be special. The obvious one is revenue. A typical Pareto curve means that 20% of your customers may bring 80% of your revenue. The 20% need to be treated differently from the 80%. While you might like to think this is in the case in B2C, it has a different scale in B2B. There are very few B2C situations where a consumer is spending millions with one company. The second reason a customer may be special is that they are the pilot customer for a new product or service. You need them to be particularly happy with you, so they are willing to recommend the new product or service to others. (Of course, you should not expect a B2B customer to recommend your product to one of their competitors.)

In the graph below, you can see that just 8 customers bring in a quarter of this company’s revenue. These 8 need to be treated differently to the 219 customers at the right of the graph who also bring in a quarter of the total. The impact of one of the 8 buying more or leaving you is critical. The top customer currently spends $30 million.

Pareto

Users are not purchasers

Perhaps most importantly, the user of a product or service is rarely the one who signs the purchase order. If you are a catering company, you may bid to supply canteen / restaurant services to a large client. The people who eat the food are unlikely to be consulted in any way in the purchase decision. Unless your food is awful, they are also unlikely to be consulted at all about renewing the contract. Of course there are exceptions and end users can be decision-makers. A noteworthy example is software. Before the emergence of cloud computing, most decisions to purchase software required you to buy hardware. This meant that the central IT department could control everything. That has changed. An individual user can download a free trial version of some application and use it. It can spread to a department, if the department has a credit card, and then throughout a company, no matter what the CIO wants. Slack is an example of software that uses that business model.

Constant attention required

The nature of large transactions and large projects means that some B2B customers require constant attention from your teams. The attention may be from different teams at different points in the implementation of a large project. Multiple multiple sales, project and support engagements may be happening simultaneously.

Relationships with both positions and individuals matter

Large customer organizations are dynamic. Their structures can change, and people move from one position to another as they develop their careers. People you know at one customer can suddenly pop up at another. This has profound implications for research and improvement methods. For relationship surveys, it usually means that an overall score for a customer has no value. What matters is the state of each individual relationship, particularly with decision makers, decision influencers, and to an extent with the end users of your product or service. The same applies in the other direction. Customers need to be carefully prepared for a change in ‘their’ account manager, for example. If your customer project takes a long time to implement, you can be reasonably certain they will change their organization and that this will have an impact on what you have to deliver. Plan on it.

It takes time to know whether you are improving things

If you run a supermarket and want to improve sales of something, you move the product to the head of an aisle. You learn about your success or failure right away. When selling to businesses, it takes much more time to know whether customer experience improvements are helping or hurting. For most types of B2B businesses, it will take 12 to 18 months before you know whether a change is giving you a competitive advantage. The reason is the typical purchase cycle. Customers will use a product or service for some time before needing to buy more. If you are working in a company that considers thinking two fiscal quarters ahead to be long-term planning, you may have difficulty retaining the funding for your customer experience improvement efforts. Maintaining sponsorship was the subject of the second blog post last week.

Your success matters to your customers

Most of your customers want you to be successful. Think about the procurement people, for example. In their ideal world, they want as many companies as possible – including yours – to compete with each other to offer products and services at the lowest possible price. Others want to see as many different innovations as possible, believing that your innovation will be to their competitive advantage. If you have already sold them something, your continued financial survival is important to their belief you will be able to support and improve your product or service. While the same may be the case in consumer businesses, consumers are more likely to have short-term relationships with companies, not caring much if one goes out of business. The consumer’s livelihood is unlikely to depend on the survival of a company that does not employ them.

Angry customers may stay with you

Customer satisfaction is easy to understand in consumer businesses, less so when selling to companies. If the waiter in a restaurant treats you badly, most people (in the USA at least) still leave a tip and never go to the restaurant again. That is life in consumer land, with the possible exception of banks, gyms and cable TV companies that make it difficult for you to leave. Let’s suppose your company supplies restaurant services to corporations. Six months into a contract, a customer’s employee finds a worm in one of your salads. The customer gets angry. You devote large amounts of resources to fixing the issue so it never happens again. The customer stays with you. I will talk about this in more detail in a post just before Valentine’s day.

Conclusion

B2B and B2C are very different, and your customer experience improvement strategy and tactics need to take the differences into account. As always, if you agree or disagree, feel free to comment below. If you would like to be sure to get my latest updates, subscribe to our newsletter here.

News flash: Survey giver actually responds to survey taker!

Considerations as you start your NPS journey

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The Net Promoter System® is the most widely adopted system for managing customer feedback and improvement. It is used around the world and works well in all cultures and languages. Like most management systems, it has advantages and disadvantages. Its principal advantage is its simplicity. It is easy to understand and easy to communicate. Its disadvantages are two-fold: its lack of sophistication means it is tempting to find more intellectually pleasing solutions, and many implementers confuse the Net Promoter Score® and the Net Promoter System. Before going into detail on NPS® in future blog posts, let’s cover a few important points that should be considered as you start.

Current state of customer feedback systems on planet Earth

Like most readers, I receive requests to take surveys almost every day. Since I am interested in the topic, I fill out a lot of survey forms. I almost never hear anything from the people who sent the survey after that. What have they learned? What are they doing with my input? I took fifteen minutes to answer their questions, why can’t they take two minutes to keep me informed? Maybe they had no plans to do anything with the input other than report numbers to their management? Six months or a year later, I can observe that none of my improvement suggestions have been put into practice. I wind up feeling that my time has been wasted, and theirs too, since no action seems to have been taken. (In case it seems cryptic, this is what the drawing by Peter at the top of the article is about.)

This blog and our book on implementing NPS help eliminate that waste, moving from survey processes to a mutual feedback and improvement process. The content builds on my experience in implementing the Net Promoter System at HP, and helping other companies to do the same. While the system set out by Fred Reichheld and Rob Markey in The Ultimate Question 2.0 serves as the basis for most of what will follow in the coming months, I feel I have improved the system in a number of ways that should speed up both implementation and results. I suppose I should add that Fred and Rob have also improved in the years that have passed since writing the book.

Do I actually need a feedback and improvement system?

Maybe you don’t absolutely need one. If you have a monopoly in your market and have government-imposed pricing, there may be nothing to gain in the short term. Why spend money if you already have all the income you can possibly get? Of course, your monopoly may not last. As well-known strategy guru Willie Pietersen told my class at Columbia Business School, “Somewhere in the world, somebody has just had an idea that will destroy your business.”

Cable TV companies discovered this to their cost when telcos started to compete with them. Most businesses are not monopolies and care about winning in their markets. They care about growth. According to Bain and Satmetrix, co-holders of the NPS service mark, NPS trends predict 20 to 60% of business growth trends, depending on the industry. Understanding how happy your customers are compared to your competitors is usually at least as important as comparing your sales coverage models and product features.

Make sure your customers are a company priority

Rather than reacting by saying “Of course we care about customers!” check your intranet, corporate annual reports, press releases and quarterly earnings statements. Do they actually mention customers? Check your CEO’s latest motivational email to all employees. Are customers mentioned in the top three priorities? Is cost reduction above customers on the priority list? Are things like “It is critical that we deliver the current quarter” at the top of the list? Checking the evidence is easy enough. It allows you to determine whether your company cares about customers from a strategic perspective. If customers are close to the top of the formal priority list in your company at the moment, get formal sponsorship for your NPS work and move ahead. If they are not on the list, you have some persuasion work to do first, and last week’s post on securing sponsorship for your work provided some things to consider.

Use operational data, not NPS, to run your company daily

All companies use operational data to ensure their processes are working as designed. The processes are in turn designed to maximize revenue, optimize cost, and respect defined service levels. Many operational metrics are delivered in real time. NPS has a time lag. Customer research and feedback needs to be used to adjust, prioritize and improve operational metrics. It is also particularly useful for the study of the relationship between cost and growth. For example, you may be able to show that pursuit of a particular cost metric has a measurable positive or negative effect on NPS, and therefore on future revenue.

In many cases, lower-cost processes are better for customers, as they may be faster and more efficient for them too. Operational data often has gaps or “white space”. This means your operational data may look good while the customer feedback may be bad. The most common example of this is the difference between the way customers measure delivery time for their orders compared to the way companies measure it. This will be covered in more detail later. NPS should be used to supplement, correct and prioritize operational metrics, not as a substitute.

So this blog and our book on NPS are for you…

Customers are important to your company. Implementing a feedback system will improve their lives and your financial results. This blog and our book will speed up your NPS work and will help you to avoid many implementation mistakes. You will benefit from mistakes made by the author and others, and at least know that any errors you make are likely to be new ones.

Content of future posts

Future NPS posts will cover the topics listed below, among others. Some are big subjects and it will take several posts to cover them. The general structure is the same one Bain proposes in their implementation framework.

  • Refresher on the main aspects of the Net Promoter System.
  • Ensuring NPS is a reliable, trusted metric.
  • Feedback, learning and improvement processes — the heart of the system.
  • Implementing a robust operational and analytic infrastructure.
  • An employee and team environment focused on loyalty.
  • Ensuring sustained leadership commitment.

Since this blog is not only about NPS, other subjects will interrupt the flow. I will try to make connections between what I write about strategy, NPS and cost reduction. More soon. If you want to be sure to read the latest news, sign up for our newsletter here.

Sponsorship

Four rules for enduring sponsorship of your work

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Ah… sponsorship. Do you have it? Can you get it? You may have a brilliant new idea and need people and money to move it forward. You may want to understand whether you and your team will survive the latest cost-cutting efforts. The results and answers depend on the sponsorship you have for your work from your CEO or other senior executives. We often see business, NGO and public sector projects, and even careers start with great fanfare, then grind slowly to a halt a year or so later. All too often, they disappear silently, without delivering anything. What follows are the observations about projects and work areas I have seen succeed or fail over the last thirty years at HP, Compaq and Digital Equipment Corporation. The observations are presented in the form of rules that must not be broken. I have seen the first three rules right from the start. The fourth observation came as somewhat of a surprise during Léo Apotheker’s brief reign as CEO of HP.

Rule #1 ­ Do senior leaders talk about your project or area of work?

If senior leaders who have to approve new investments do not spontaneously mention what you are working on when they list their top five priorities, it will be challenging to be successful, at the very least. This applies to all investments and indeed all jobs, not just those in customer experience or strategy development. For the purposes of this discussion, “senior leaders” start with your manager’s manager. If your manager leaves, you are totally dependent on their manager for your project or work area to continue. Your manager’s manager controls more resources than your manager does. If your work is not on his or her priority list, you will either not get the resources needed to make it successful, or you will lose the resources over time. I have not seen any exceptions to this rule. If your company has an intranet, look for senior leaders’ websites and study their priorities. See if you can find their typical meeting agendas. Is your area of work ever on the agenda? Of course, if it isn’t, you have a role to play in changing that, assuming you don’t just want to give up.

Rule #2 ­ Does the project name make sense?

This should not matter, but it turns out to be essential in large organizations. The name of your project or work area has to describe the work in a simple way. You should avoid code names and acronyms if at all possible. The following example is real, though I am leaving the description vague enough to avoid embarrassing people. One the businesses I worked in had a major global customer happiness initiative called the Diamond program. It was well-funded and well-resourced, and had recently gotten off to a good start. The company needed to split up the relevant business to prepare for a major acquisition. The belief was that any costs held at the corporate headquarters level could be eliminated…

The cost review took place in a room of finance people, none of whom had detailed content knowledge of the cost areas in question. The following discussion was reported to me by two different people who were in the room. The discussion leader said, “… The next item is the Diamond program. Does anyone know what this is?” Since nobody did, it was immediately and irreversibly de-funded. That would never have happened if it had been called, for example, “The customer happiness program.” The decision-makers would at least have tried to find out what it was.

There are times when things need to be secret temporarily. If your company is planning on acquiring another company, the project will have a code name until the deal is public. Similarly, your project may involve an organization change and use a code name before it has been approved by the leadership team. As soon as the reason for confidentiality goes away, get rid of the code name or acronym and call it what it is.

Rule #3 ­ The pregnancy test

Yes, this rule has a slight lack of political correctness… If you can’t deliver the project in nine months, don’t bother starting. There will be no baby because you are not pregnant. Let me explain. If your first major deliverable worth the investment is more than nine months away, something is certain to change in the environment that will make you fail, or at least lose sponsorship. Your manager may change. Their manager may change. The company may have a bad quarter, or a great quarter. Your company might get acquired. Your government department may have a spending cut, or a spending increase, or the balance of power may change in some way. I take this further in my work: you need to be able to deliver something every three months that is worth the funding and the effort for those three months. Otherwise you will gradually lose sponsorship. If you can shorten the time between major deliverables even further, so much the better.

For years I communicated these three rules, using something like the diagram above. Then something happened that showed a dimension was missing…

Rule #4 ­ Can you communicate it all effectively

I worked with Léo Apotheker’s head of strategy on the definition of our corporate strategic initiatives in a way that would make them easy for us to implement in Europe, the Middle East and Africa. I found both Léo and his strategy head, Martin Risau, to be brilliant thought leaders, with all of the practical sense you would naturally expect from senior German executives. Indeed, when first discussing rule #3 with Martin, he said “Three months is too long. We need to deliver something significant on each of these initiatives every two months.” We had the perfect sponsorship situation: senior leaders were talking about the initiatives. They all had names that correctly represented the work. They would each deliver something significant every two months…

Yet we still failed. Why? I believe it was because we, and our CEO in particular, were not able to communicate the work and the results so far in a simple and consistent way. The story line evolved constantly. People became confused. Teams leading the work felt the work definitions were changing, even though they were not. I believe Léo was adjusting the story he told depending on his audience, normally an admirable quality, particularly if each audience can’t easily compare the messaging with another audience. Industry analysts followed Léo’s strategy closely. That meant the messages were compared, people got confused, and the work did not advance as quickly as it should have. Meg Whitman’s experience in politics means that she has been able to avoid this pitfall. Her messaging was incredibly consistent, no matter what the audience, particularly during her first years at HP.

Conclusion

Sponsorship for your work matters. These four rules guarantee it. If all four are not in place, you need to get them in place or change your project, work area or employer. I urge you to consider the list as complete. Feel free to disagree. I would love to learn about rule #5. In the meantime, sign up for our newsletter if you would like to be informed when this blog is updated, normally weekly.

Customer Strategy (.net): the customer first

Hello world – You need a strategy

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Welcome to the customerstrategy.net blog. You can look forward to weekly updates on subjects that have to do with business strategy, customer experience, and that great zone where the two subjects meet. While it would be lovely to believe that all companies are growing and have unlimited investment funds, that is not the case in the real world. In this universe, businesses have to make choices about where to invest for growth, and how to cut costs without making customers want to leave. To set the tone, let me talk about the nature of strategy.

Why bother with strategy?

The reason you need a strategy is simple: you do not have unlimited resources and never will. The word comes from the Greek Strategos and means “Generalship”. Its origin is in how to deploy your scarce troops, equipment and diplomatic resources to win battles and wars. It is all about defeating the enemy. No general ever won a battle by saying, “I don’t care where the enemy is, or what they are doing. I am going to line up my army three deep all across this open battlefield. I don’t care what weapons my army has nor how they compare to those of the enemy. I don’t care about the weather today or tomorrow. I don’t care what my allies are doing. I have given my troops their top 20 priorities. We will just walk slowly forwards and I am sure we will win.” Sounds ridiculous? It should. Unfortunately, this is what most companies’ customer experience strategies look like.

Your enemies are outside your company

In business, your enemies are your competitors. The purpose of any business strategy should be to do things differently or better than your competitors so you can win. The strategy should be articulated in terms of three to five priorities or initiatives that are easy to remember and make the biggest difference. The number of priorities is important. Despite ancient psychological research that suggests the number is seven, I find that teams in modern businesses cannot spontaneously remember more than five priorities. Think about this in terms of being able to list your priorities on the fingers of one hand.

Typical corporate challenge: timing

Like marketing, customer experience improvements have their effect in the mid-term. Major changes in strategy tend to take 18 to 24 months to have a demonstrable effect. This is a long time for companies that measure their progress primarily based on their quarterly financial results. Bridging this gap and maintaining sponsorship for the work will be a major blog focus. Maintaining sponsorship is largely about communication, and I will often suggest how behavioral economics theory can help.

I intend to provoke

I tend to express even subtle concepts in a black-and-white way, which can seem provocative. So let me start to provoke you a little. When you see lists like “The 15 keys to customer experience” or “The 30 things you need to do to keep customers loyal,” the authors don’t know what they are talking about. Perhaps I should tone that down and simply say that the authors have not yet put enough thought into what they are writing. If they had, the blog posts or articles would have titles like “The three keys to customer experience” or “The five things you need to do to keep customers loyal.” No person or organization can work on 15 things at the same time. Some must be more important than the others.

Always based on science

Opinions I express will always be fact-based. Well, almost always. As you will see in forthcoming blog posts, there is no scientific evidence to support many of the things that are generally believed in customer experience communities. There is no evidence that you must “delight the customer at every interaction” and I will offer evidence that suggests or even proves that you should not. There is little evidence that employee happiness makes any difference to customers, as will be conclusively proven in a blog post I will have ready in late January.

All this does not make me right

While I may have opinions and the science to back most of them up, that does not necessarily make me right. Your feedback is welcome on all posts, and I have no plans to moderate or censor any of it, within legal, ethical and moral limits.

Enjoy

I hope the blog and resulting discussions will be fun and educational. My brother will help with his own brand of illustrations and humor. Sign up for our newsletter if you want to know when we post something new. Happy New Blog and Happy New Year!

Maurice

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