Preservers, Transformers & Vanguards: Measuring the Profitability of Customer Experience Strategies

Transcription

1 By Phil Klaus Customer experience (CX) may be the next competitive battleground, but we re still struggling to define it. More to the point, we have to figure out a way to measure CX. Otherwise, how can we become better at managing it? Preservers, Transformers & Vanguards: Measuring the Profitability of Customer Experience Strategies 24 DMI Winter 2013

2 Feature Preservers, Transformers & VAnguards CUSTOMER EXPERIENCE (CX) is OMNIPRESENT, and I am confident the DMI Review readership agrees. After all, the term experience was mentioned 308 times in the last issue of the Review. A quick Google search will deliver 539,000,000 hits and make it clear that there are more than 1,200,000 professionals associated with the term. CX blogs, consultants, programs, workshops, conferences, indexes, frameworks, awards, summits, metrics CX is everywhere and widely considered the next competitive battleground. Managers, consultants, scholars, and even politicians seem to agree that the age of the customer has finally arrived and we had better be ready for it. The new customer needs new solutions, and blue-chip companies like Siemens, IBM, Adobe, and Google are standing by, ready to deliver. Customer relationship management (CRM) is proclaimed dead, and CX management in an area where the customer calls the shots is the new silver bullet for companies worldwide. Managers read the great CX stories of Apple, Amazon, and Starbucks and are left wondering how this new paradigm DMI Winter

3 Notes 1. Klaus, Ph., Edvardsson, B. and Maklan, S. (2012), Developing a Typology of Customer Experience Management Practice from Preservers to Vanguards. 12th International Research Conference in Service Management, La Londe les Maures, France, May/June applies to their businesses. Moreover, while we still struggle to coherently define what constitutes CX, we are already discussing the next step in its management the role of social media and cloud networks in advancing the revolution. CX and profitability go hand-in-hand It really doesn t matter whether we talk about a B2B or B2C context. Customers will always have an experience good or bad and it will influence their purchasing behavior significantly. (And not only their own behavior, but also the behavior of others, courtesy of the blessing or the curse, depending on your viewpoint of the Internet and social media.) My longitudinal research clearly indicates that delivering superior experiences is a, if not the, source of a sustainable competitive advantage. However, even though acknowledging CX s strategic importance is a step in the right direction, the main challenges go beyond acknowledgement. Companies are struggling with converting CX s strategic importance into actionable processes leading to increases in performance and, ultimately, in profits. CEOs worldwide agree that the options aren t abundant. Either you engage with the big unknown and learn how to successfully manage CXs, or you will lose your customers and your competitiveness. Moreover, CX cannot be designed, measured, and managed the way businesses designed, measured, and managed their product and service offerings in the past. Boardrooms around the globe concur that CX management and design is complex. The question on everyone s mind, though, is exactly how complex? How do we manage and design processes to deliver superior CX? As an academic, I have developed a rather critical stance toward scholarly research s apparent lack of relevance to managers and to practice. However, I can t help but notice that practice doesn t seem to offer much insight either. I studied the latest issue of the DMI Figure 1. Companies implementation of CX strategies can be grouped into three types, exemplified by the categories Preserver, Transformer and Vanguard. Figure 1: Typology 1 Preservers Transformers Vanguard Definition, scope, and objectives Governance Management (operational) Extension of service Functional level, initiatives, focus within the firm Service quality, channel integration Acknowledge the broad nature of CE and its strategic importance. Link CE to organizational goals and strategy. Channel integration, loyalty, brand perception, recommendation Policy development Lack of over-arching vision Strategic intent, varies as to sponsorship. Challenges Not a strategic initiative; cannot make the business case for change. Looking for senior sponsorship, more appropriate metrics, business and process models. Broad and strategic. No other priority tops it. Policy and operational levels aligned. Continual assessment and improvement. Integration of business processes through the supply chain and across channels. Commensurate HR and organizational development policies. Committed top level sponsorship, cross functional ownership Reinvention, maintaining competitive edge: business partners sometimes a limiting factor. Source: Klaus, Edvardsson and Maklan (2012) 26 DMI Winter 2013

4 Review in detail and it seemed to me that even in practice, there is no clear consensus about how to define, design, and manage the service/ customer/design experience. Moreover, the role of design in this discussion varies from moderator to tool, enhancer, antecedent, central focus, and outcome of the experience. This mirrors marketing scholars holistic CX definitions and conceptualizations, in which CX includes all direct and indirect encounters with the company or the brand. I refer to these concepts as the theory of everything, in which every single encounter seems to be of relevance and importance. A colleague of mine discusses this tendency as the bigger box phenomenon, in which we just expand existing management and consumer behavior theories in order to explain every possible direct and indirect encounter a consumer has with the company/brand. My colleague implies that by simply extending and expanding the current thinking, including even more possible reasons and triggers, we create an even bigger box, and a bigger mystery about what is going on inside this box. If we try to translate the theory of everything into actionable steps, however, it metamorphoses into the theory of nothing. If everything is important, how can a company possibly design a successful CX strategy around this insight? Practice doesn t offer many truly strategic tools either. The frameworks, models, and concepts put forward range from looking at one particular (design) aspect all the way to high abstract concepts with, forgive me, very little applicable strategic use. This absence of clear guidance on how to design profitable CX strategies triggered many of my research projects. In the process of finding solutions to these challenges, my colleagues and I interviewed managers from more than 500 companies with explicit CX strategies and management programs and more than 12,000 customers worldwide to gain insight on how the design of successful (that is, profitable) CX strategies could be achieved. In one project, we investigated the history of the main challenges of CX programs worldwide from a company s viewpoint. Our findings revealed a compelling story. At the beginning, managers were struggling to convince top management of what CX is (that is, how to define it) and why it is strategically important. After negotiating this hurdle, managers faced a new challenge: how to raise funding for CX initiatives, especially in turbulent times. Then the tide turned CX became one of the hottest topics in the business press and with new programs and the funds to match, managers faced a new struggle: connecting CX strategies and programs to the business bottom line in a quantifiable way. I concluded that this lack of accountability leads back to the original challenge. Companies still cannot precisely define CX; therefore, they fail to connect their CX activities to profitability. I was eager to find out more about the link between profitability and CX strategies and practices, so I extended our existing research and developed a typology of these practices. The typology scores companies on five CX design and management practice dimensions: (1) how they define CX; (2) its scope and objectives; (3) its governance; (4) how CX policy is developed; and (5) how implementation challenges are addressed. In a subsequent stage, I explored the relationship between these CX design practices and profitability. In the end, I identified three main types of CX strategies and management practices, and categorized the companies that practiced them as preservers, transformers, and vanguards. Preservers Preservers define CX management as an extension or development of existing service delivery practices, and assess effectiveness using traditional customer outcome measures of service quality or satisfaction. While acknowledging its importance, Preservers are incapable of making a strong business case for CX to top management. Preservers programs are characterized by a series of limited initiatives rather than a comprehensive program led by a well-articulated long-term vision. They lack central control, corresponding processes, or an overarching vision. Inabilities to connect CX management DMI Winter

5 Notes 2. P. Klaus, M. Gorgoglione, U. Pannelio, D. Buonamassa, and B. Nguyen, Are You Providing the Right Experiences? The Case of Banca Popolare di Bari, International Journal of Bank Marketing, vol. 31, no. 7 (2013), pp P. Klaus and S. Maklan, Towards a Better Measure of Customer Experience, International Journal of Market Research, vol. 55, no. 2 (2013), pp P. Klaus and S. Maklan, EXQ: A Multiple-Item Scale for Assessing Service Experience, Journal of Service Management, vol. 23, no. 1 (2012), pp DMI Winter 2013 practice to identifiable goals and outcomes inhibit development of a compelling business case and elevation of CX to a strategic level. Preservers provide few examples of positive and negative CX, and haven t given much thought to the origins of their programs. Although they do acknowledge the importance of accountability for their actions and the decisions they make around budget allocations, they struggle to develop appropriate measures of effectiveness. Their focus is on organizational results; outcomes for employees, customers, and corresponding core business processes (that is, integration of customer touchpoints, front- and back-office function alignment) are not considered. Preservers provide limited training for customer-facing employees responsible for delivering good experiences. They do not discuss the role of business partners in delivering experiences. Although they acknowledge the importance of CX management, they do not develop commensurate practices. Transformers Transformers differ from Preservers in all five dimensions of CX practice. They believe CX is linked positively to financial performance, but they acknowledge its holistic nature and the resulting challenges in scoping and defining its management. This indicates clear internal discourse concerning CX strategy and its management practice. Unlike Preservers, Transformers see customer-facing personnel as a key component for shaping their programs. They are convinced that CX influences customer satisfaction, loyalty, recommendation, and brand perception. In contrast to Preservers, who manage it as an extension of existing practices, Transformers believe CX is strategically important. They highlight the necessity to design and execute a corresponding strategy based on the organization s definition of CX. Transformers connect CX practice to organizational goals and link practice to existing measurements of customer outcomes. However, they acknowledge the shortcomings of these measurements and search for more-sophisticated approaches to assess CX and its performance impact. They articulate a detailed history of their programs, most often initiated by a top executive. All Transformer organizations have individuals clearly designated for CX. However, these individuals do not necessarily constitute a central and cross-departmental team. Transformers acknowledge the impact of customer-facing personnel on delivering CX and influencing customer behavior, and develop appropriate training programs. In comparison to Preservers focus on incremental improvements, Transformers strive to become a CX-focused organization, acknowledging both the broad nature of CX and the implications for managing CX throughout the organization. They accept a long-term commitment to transformation. Nonetheless, they struggle to develop a CX business model and corresponding business processes. Transformers often concentrate on improving these processes, but in the process they fail to develop an overall picture of their CX strategy. Transformers struggle to link CX to financial outcomes; they are convinced of the positive influence of CX on customer behavior and organizational goals. Vanguards Vanguards have a clear strategic model of CX management that has impact across all areas of the organization, and they develop commensurate business processes and practices to ensure its effective implementation. Whereas Transformers merely acknowledge the broad-based challenges of CX management, Vanguards integrate functions and customer touchpoints to ensure consistency of desired customer experiences across their own businesses and those of their partners. Vanguards use existing measurements to track the impact of their programs based on customer-centric outcomes and evaluations, while constantly developing new tools and practices to support the overall strategy. For example, Vanguards recognize the crucial role of accountability and are constantly developing new

6 Dr. Philipp Phil Klaus is professor of customer experience and marketing strategy and a visiting fellow at Cranfield University School of Management in the UK. He holds multiple visiting professorships around the globe. His areas of expertise include customer experience strategy and management, customer experience quality, marketing strategy, the influence of marketing activities and customer experience on consumer behavior, and the financial performance of organizations. His award-winning research has appeared in a wide range of journals, including the Journal of Service Management, Journal of Strategic Marketing, Journal of Services Marketing, Journal of Marketing Management, International Journal of Market Research, Journal of Retailing, and Consumer Services. Klaus is a frequent keynote speaker at public and in-company seminars and conferences around the world. He is also an experienced senior marketing manager and management consultant with an active international portfolio of blue-chip clients from the financial services, retail, luxury goods, and energy sectors, whom he advises on customer experience strategy, profit enhancement, customer behavior, best practices, and business development. and better ways to measure the effectiveness and efficiency of CX practice. Vanguards manage the design and measurement of experiences through a central group that integrates multiple organizational functions. Their CX practice is founded on the conviction that satisfying expected outcomes for customers is the driver of organization performance. Training, recruitment, and human resources development are guided by the CX strategy. Thus, employees are rewarded for delivering experiences that customers value. In Vanguard organizations, management receives clear and visible support from top executives. Practice continually develops the experience business model. This model is based on and implemented by internal research and functions throughout the organization. Vanguards develop evidence to monitor and assess the effectiveness of the experience strategy based on measurements of loyalty and customer satisfaction. But how do we? The results of our study were eye-opening: Preservers displayed the lowest profitability score, with Vanguards outperforming them by almost 100 percent (Figure 1, page 26). Transformers are, just as their practices indicate, right in the middle. Naturally, managers first question, after being exposed to our research findings, is How can I become a Vanguard? A good question indeed and clearly, the answer isn t as simple as it appears, since Vanguards are, by far, the smallest of the three groups. We do not yet have enough conclusive evidence to determine if all companies have the ability to become Vanguards. I want to emphasize, however, that the Vanguard profile of successful CX strategy design applies across all sectors, industries, company sizes, customer emphases, and locations. That means that there must be a way for companies to learn how to become a Vanguard (for more details, see It is clear from our research that Vanguards have both a clear definition of their CX strategy and ideally a measure allowing them to track their CX programs impact on profitability. 2 As a matter of fact, the CX measurement often drives the CX definition and the CX strategy design. As the old managerial saying goes, you can only manage what you can measure. Measuring CX and its impact on performance is seen as the final frontier of successful CX management, and even Vanguards acknowledge that measuring CX remains their main challenge. Although Vanguards are still looking for the perfect measurement, they are outspoken about which measures do not qualify (for example, netpromoter-score [NPS], service quality [Rater], and customer satisfaction). Vanguards highlight that NPS only measures a possible outcome, giving them no insight into why one customer prefers their offerings to others. Service quality only measures a few encounters and doesn t give them the insights they are looking for. Customer satisfaction is generally acknowledged as a snapshot about how one customer feels at a particular time, failing to explore what led to that level of satisfaction. 3 Most of the Vanguards employ a CX intelligence squad to qualitatively find out why their customers do or do not have great experiences and then disseminate the findings on discussion platforms inside the company to stimulate best practices and improvements. However, the complexity of CX makes it hard to comprehensively measure CX attributes and their impact on behavior. Nonetheless, as companies such as BPB 4 demonstrate, there is a way it is just like everything CX-related, more complex, but as one Vanguard CEO states, more than worth it. I consider myself lucky to live in a period in which customers are beginning to realize that the shift in power toward them is gaining momentum. CX strategy design and CX management are clear signs of these changes. Their implementation will ultimately lead companies to superior performance and profitability based on designing and delivering the experiences their customers desire. This is what I consider a true win-win situation. Prof. Dr. Phil Klaus & Associates Consulting, London, United Kingdom DMI Winter