Using the customer and benchmarking to drive change - The leader's challengeby
The Leader’s dilemma
Who’d be a leader of a long established public company today? With so much pressure to be transparent, deliver short term results, transform the business, make and absorb targeted acquisitions, reassure the stock market – to me, smacks of the labours of Hercules. Of his many tasks perhaps the one business leaders can most identify with is killing the multi-headed Hydra of Lerna. It could grow two new heads for each one it lost – not dissimilar to managing hundreds of different customer initiatives across an organisation or trying to solve customer problems.
So how do you manage all this complexity and balance fire fighting activities with the long view? Who should get the ear of the Captain – shareholders, customers, employees, partners, suppliers or the wider community?
Balancing the short and long term
Fred Reichheld talks about 'good profits' and 'bad profits' in his recent book The Ultimate Question. Bad profits are those derived normally at the expense of the customer, such as through punitive contracts or by cutting costs to the detriment of service. Good profits on the other hand demonstrate the explicit link between a superior customer experience and value delivery, which creates organic growth and as a result increases shareholder value.
A good leader therefore gets the balance right between short term needs of the business its long term health. For many firms this means nothing short of a complete transformation.
The old product centric focus on efficiencies needs to make way for a far more customer orientated business driven by doing the right thing for the customer but at the same time making money. A shift from a transactional view to a relationship one. This will impact so many constituents of the business:
- Vision and goals
- Culture, Values and differentiation – what the business ultimately stands for
- Customer Strategies
- The shape of the organisation
- Information and knowledge sharing – creating the sense and respond capabilities and enabling wise and informed choices
- Performance measures – ‘behaviourally anchored measurements’ to drive and encourage the right behaviour and discourage the bad
So how might this be done?
Turning base metal into gold
Good leaders need to be alchemists, it seems to me. The antithesis of Sven-Goran Eriksson. Optimising the vast array of resources and making them greater than the sum of their parts.
To achieve this they need to spark a deeper more permanent change within everyone employed. Inspiring them to achieve what might be considered impossible. The Big Idea.
There are at least two paths the leader can go down. One is to copy best practice the other is to invent. There are strengths and weaknesses in both strategies. The advantage of copying is that it saves reinvention. However its big weakness is that it can create a ‘me-too’ business where there is no escape from commoditisation. On the other hand, if the business is culturally very conservative, than benchmarking can be a good place to start, until confidence in change is developed. This is not an approach that Richard Branson believes in, but then he has always broken the mould. Quoting Lyell Strambi COO Virgin Atlantic, "It’s a crime of the first order, in Richard’s eyes, to be ‘me too’. That’s why we created drive thru check-ins, challenging the convention that said you had to queue to check in hand luggage. It was based on the realization that our Upper Class passengers were time poor." This raises the question then, is there any real value in benchmarking?
To benchmark or not to benchmark?
I’ve always been suspicious of benchmarks. By definition if you go down this route you are in danger of copying others who have gone before you. So I decided to cast my prejudices aside and spoke to Laura Brooks VP of Research at Satmetrix, the firm which with Fred Reichheld developed the Net Promoter Score (NPS).
The idea behind Net Promoter Score is remarkably simple. The basic idea is that if you want your business to grow fast, turn your customers into promoters of your firm rather than passive or worst of all, detractors. A positive NPS means that more of your customers are promoters than either passives or detractors. Bain & Co has proven the strong correlation between a high NPS and organic growth.
Laura told me that over the last 6 years, Satmetrix has carried out NPS benchmarking into a number of industries across the globe, most notably: financial services, telecoms, computer hardware and software firms, media, brokerages and retail. Satmetrix has now identified some of the key drivers of a positive NPS within each industry. These are the things which if you get right, customers will respond positively. Satmetrix has developed a net promoter database showing how firms have progressed over time in these different industries.
We discussed the weakness of benchmarking one’s own organisation against direct competitors. The only advantage to be gained by doing this is if it exposes some major weakness. It is less useful for developing competitive differentiation. What is potentially more useful is to benchmark against the best irrespective of industry. This is an approach taken by Peter Simpson former marketing director at First Direct. He felt that there was no point in benchmarking customer satisfaction levels with other banks, as the overall satisfaction levels in the industry were far too low. There is no point aiming at slightly better than mediocre.
Laura also went on to explain that the NPS per se is of no value unless the underlying drivers of the score are acted upon. She quoted Fred Reichheld who said in a recent interview, that the idea of Net Promoter Score is simple, but to gain from it takes real effort and leadership from the top. The NPS must also be used to confirm performance is moving in the desired direction, but like other benchmarks such measurements can be abused if there is a lack of integrity in the measurement process.
Over the years there have been lots of benchmarking activity in a variety of forms, so if a leader is to go down this route, which ones are worthy of consideration?
In the field of the customer, and in addition to the Net Promoter Score, I have been impressed by two other approaches which have practical outputs. I came across the first of these; CMAT developed by QCi when I was at KPMG Consulting, though no one seemed to know what to do with it. Over the years and several hundred benchmarks later, CMAT can help leaders understand the relative strengths and weaknesses of their firms in terms of their abilities to develop their customer portfolio profitably. As the diagram implies, critical capabilities are examined to identify current performance and the future desired state. This is done by interviews and a simple health-check can be carried out within a couple of weeks.
Another technique which is gaining currency amongst some of the largest and most dynamic firms such as Dell for example, is the Customer Centricity Director developed by David Rance of Round UK and the accumulated benchmarking data from several hundred self-assessments. What I find particularly compelling about this approach, is that it provides real practical value and helps leaders control and manage disparate activities very easily.
In David Rance’s model, the emphasis is on managing capabilities. These fall in to 5 key categories:
- Leadership – vision, mission, goals, brand values, market differentiation and planning
- Customer strategy - how they support the customer experience and create value
- Organisation design – structure and people capabilities to support the desired customer experience
- Information Architecture – the technology that underpins the customer experience
- Performance Management – the measures and controls to ensure delivery
These 5 categories provide the management reins to drive the transformation of the firm from where it currently finds itself e.g. product centric, to where it wants to be. Each category can be further atomised down to some 76 capabilities. The trick is to make sure these are moving in synch across the organisation. The marketing director of one firm was going to spend £10M on a major re-branding exercise. When David pointed out that the capabilities to deliver the promise were missing, the marketing director wisely decided to hold back on the spending, until the firm could deliver on its promise. This could have been a very expensive embarrassment.
I’ve spoken to several managing directors and chief operating officers who have said how hard they find it to manage many customer driven initiatives all at the same time. The biggest challenge is often a lack of transparency, but as Lou Gerstner famously said ‘you get what you inspect’. David’s CCD tool and framework creates the desired transparency to help leaders manage multiple initiatives, as well as spot those which are out of synch or irrelevant.
A better way to benchmark – putting the customer at the centre of change
The biggest risk with benchmarking is that it can foster a 'me-too' mentality or even complacency if your industry is particularly backward.
So if you are going to benchmark, then best practice is to make sure that the customer’s voice is somehow central to your efforts. This is one of the most important roles of the marketing director or CMO (read also The role of marketing and the CMO in the 21st century). The advantage to the Net Promoter Score to my mind, is that it both provides a simple metric to confirm a firm is on the right track (or not), and if used wisely, ensures that those things which impact the customer are given the highest priority. A tool like CCD will then help you manage the many activities and projects that this might spawn.
If like me you are suspicious of benchmarks, then having the customer as the arbiter is much more likely to lead to innovation, than by measuring oneself against peers. As Laura Brooks said, ‘the greatest potential value from benchmarking is likely to be realised when looking across industries.’ If used wisely, benchmarking can help you develop a composite picture of best practices from across industries. This could lead to innovation in your own industry. If you are really determined to drive innovation in service or value, and shun the practices of others, then the customer’s perspective must be central.
By Jeremy Cox CMC Editor Business & Strategy
If you would like to contact me and share your own experience or opinion please contact me at [email protected]
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We have been working in CRM in Australia for several years now, and there is a keen interest in benchmarking here, perhaps moreso than in other geographies. We would observe that this is partly driven by the relative isolation of organisations, when compared to those in Europe or America. Often the interest is in understanding how an organisation rates to others around the world. This is also fuelled by the recent propensity to hire CEOs from overseas, in part to achieve a similar outcome - global competitiveness vs local (perhaps shorter term) success.
Hi John that is an interesting perspective. Are you telling me that the same applies in sport?
I think it makes perfect sense in the context you describe. My only issue with benchmarking is the lack of vision in merely copying, or benchmarking the wrong thing such as competitor product comparisons without the customer's perspective.
If you have any examples of where this is working in Australia, I'm sure our members would be interested. If you like yoiu can contact me on: jeremy.[***]@mycustomer.com
Thanks for the interesting comment