Monthly Archives: October 2011
The Customer Value Equation
My approach to the Customer is fundamentally one of creating superior value for the Customer. In an earlier post I spelled out my formula for creating superior value:
Value = Benefit – Effort – Risk – Price +/- Treatment
If you want to create more value for the Customer then you can focus on any of these five levers. In this post I want to focus upon the last one “Treatment”. Fundamentally “Treatment” is how you leave your Customer feeling.
The Values Proposition:Do Small Things With Love
In Why Is It So Hard to Be Kind? William C Taylor shares the story about how his father was treated as an economic object (“I-It” in Buber’s terms) by his Cadillac dealer even though he had been a loyal Cadillac customer. Then William contrasts this to the way that he was treated (“I-Thou”) by a Buick Dealer. To cut a long story short the Buick dealer: honoured an expired loyalty certificate that the Cadillac dealer would not honour; allowed William’s father to take the car for the weekend – without being asked; and then built an amazing bond with William’s father. How? In William’s words:
“Monday rolled around and my father found himself being rushed not to the dealer but to the hospital, with what turned out to be a medical problem that required surgery (He’s doing great now, thanks.) As he was lying in his hospital bed, thinking about whatever it is we think about in these moments, he realized that the Buick Lacrosse was sitting in his garage! So he called the dealer from the hospital and asked how he could get the car back. “Don’t worry about the car,” he said. “Just get better.” And the next morning, what should arrive at the hospital but a lovely bouquet of flowers and a nice note from the Buick dealer!“
In a follow up post William shares his visit to a retinal specialist and this is what he says about his experience:
“This doctor did an utterly competent exam, explained my situation, and offered a sound course of action. So I’m fine. Yet I keep thinking back to the experience, not because of the quality of the medical care I received, which was superb, but because of how uncaring the experience felt. As I sat in the waiting room, it seemed more like the offices of a payday lender or a bail bondsman than that of a highly credentialed surgeon. “If you arrive late, your appointment may be rescheduled,” one sign warned. “Copay is due upon arrival,” another signed explained. My fellow patients and I were nervous, anxious, worried about our eyesight. Yet it felt like the doctor thought of us as a collection of truants, tightwads, and general layabouts.”
William goes on to write:
“There is a temptation, amidst the turmoil, for pundits to conclude that the only sensible response is to make bold bets — new business models that challenge the logic of an industry, products that aim to be “category killers” and obsolete the competition. But I’ve come to believe that a better way to respond to uncertainty is with small gestures that send big signals about what you care about and stand for. In a world defined by crisis, acts of generosity and reassurance take on outsized importance.”
“Nobody is opposed to a good bottom-line deal,” I concluded at the time. “But what we remember and what we prize are small gestures of connection and compassion that introduce a touch of humanity into the dollars-and-cents world in which we spend most of our time.“
“As the value proposition gets rewritten in industry after industry, it’s organizations with an authentic VALUES PROPOSITION that rise above the chaos and connect with customers. Few of us will ever do “great things” that remake companies and reshape industries. But all of us can do small things with great feeling and an authentic sense of emotion.”
James G. Barnes said something very similar when he published his book Secrets of Customer Relationship Management. What was the subtitle? “Its All About How You Make Them Feel“
What does Frederick Richheld have to say?
In Profiting From the Golden Rule Frederick Richheld stresses the importance of the “I-Thou” orientation. In his words:
“Our system of financial accounting rewards quarterly profits, but struggles mightily to place a value on ethical behavior“
“Reputation is earned through the simple, age-old concept of the Golden Rule: treat others as you yourself would want to be treated. Each time you live up to the Golden Rule, your reputation is enhanced; each time you fail, it is diminished. And the mathematics of long-term financial success — revenues, profits, cash flow — square perfectly with this scorecard.”
“We all want to be treated with honor and respect in ways, large and small, that enrich our lives. Such experiences not only make us happy, we want to share them with people we care about. By recommending an experience, we’re signaling our trust that our friends will be treated similarly. Recommendations also signal to businesses how customers view their relationship with the company. When customers feel so well treated that they enthusiastically recommend a company to friends, they are promoters. When treated so badly they recommend avoiding the company, they are detractors. Both have direct and measurable economic consequences.”
What is in unlimited demand yet is in limited supply in the modern world?
“We strive to deliver something for which there is unlimited demand–being treated with honor and respect. There seems to be a very limited supply of that in today’s world.” CEO Dan Cathy, Chick-fil-A (an award winning US company)
The C-level doesn’t get it
In a recent post Jeannie Walters she highlighted the 4 challenges facing customer experience practitioners. Which challenge is first in the list? “The C-Level Doesn’t Get It”. She goes on to write:
- “In fact, an overarching (and repeating) lament was “How do I get them to GET IT?””
- “No matter how you say it, it seems to be an ongoing, uphill battle right now.”
The difference between philosophy, strategy and tactics makes all the difference
Now that may not make sense until you get that there is world of difference between philosophy and strategy and tactics. Philosophy is the ground zero of existence – it is your raison d’etre of being. Strategy is simply a course of action that you have selected in order to achieve what matters to you – your higher order objectives. Tactics are simply the how of strategy; tactics do not have to connect up to constitute a strategy and often they do not in many organisations when functions develop their own silo ‘strategies’ that optimise the parts and end up suboptimising the whole.
Now here is the issue: almost all companies have approached customer-centricity/customer experience/customer focus as a strategy (at best) and/or simply tactics to grow revenues and profits. Very few companies have embraced creating superior value for customers as their business philosophy – the reason for existence. And that makes all the difference. The acid test for differentiating between philosophy and strategy is to look for the “in order to”. Think of the early Christians who accepted being eaten by lions rather than renounce their faith: these Christians could have renounced their religion in order to live – the pragmatic business person would say that the sound strategy was to renounce the religion. Starbucks ended up doing that for a while and then Shultz resumed the mantle of CEO to help Starbucks to rediscover its founding philosophy: the customer experience.
What we can learn from Steve Jobs and Apple on this distinction
The points that I want to make are excellently spelled out in a post by James Allworth. Here are the aspects of his post that really speak to me and to the central point that I am making in this post (anything in bold is my work):
Everything — the business, the people — are subservient to the mission: building great products. And rather than listening to, or asking their customers what they wanted; Apple would solve problems customers didn’t know they had with products they didn’t even realize they wanted
When describing his period of exile from Apple — when John Sculley took over — Steve Jobs described one fundamental root cause of Apple’s problems. That was to let profitability outweigh passion: “My passion has been to build an enduring company where people were motivated to make great products. The products, not the profits, were the motivation. Sculley flipped these priorities to where the goal was to make money. It’s a subtle difference, but it ends up meaning everything.”
When he returned, Jobs completely upended the company. There were thousands of layoffs. Scores of products were killed stone dead. He knew the company had to make money to stay alive, but he transitioned the focus of Apple away from profits. Profit was viewed as necessary, but not sufficient, to justify everything Apple did.
An executive who worked at both Apple and Microsoft described the differences this way: “Microsoft tries to find pockets of unrealized revenue and then figures out what to make. Apple is just the opposite: It thinks of great products, then sells them. Prototypes and demos always come before spreadsheets.”
Similarly, Apple talks a lot about its great people. But make no mistake — they are there only in service of the mission. A former Apple product manager described Apple’s attitude like this: “You have the privilege of working for the company that’s making the coolest products in the world. Shut up and do your job, and you might get to stay.”
Apple hasn’t optimized its organization to maximize profit. Instead, it has made the creation of value for customers its priority. When you do this, the fear of cannibalization or disruption of one’s self just melts away. In fact, when your mission is based around creating customer value, around creating great products, cannibalization and disruption aren’t “bad things” to be avoided. They’re things you actually strive for — because they let you improve the outcome for your customer.
A final word
The hardest thing for ‘experts’ and ‘Tops’ to do is to unlearn – to let go of the accepted wisdom and habits that have been forged over many years. Yet that is exactly what is required today for companies in competitive markets to prosper. And it is certainly required if companies want to excel at the Customer game – create superior value for customers through superior value propositions that make customers lives simpler, easier, richer. Are professional managers up to that task? Here is what James Allworth writes in his post:
“Anyone familiar with Professor Christensen’s work will quickly recognize the same causal mechanism at the heart of the Innovator’s Dilemma: the pursuit of profit. The best professional managers — doing all the right things and following all the best advice — lead their companies all the way to the top of their markets in that pursuit… only to fall straight off the edge of a cliff after getting there.”
What do you think?
Are ‘big data’ and ‘analytics’ the latest fads?
In my view there is a little too much hype around ‘big data’ and the power of analytics to drive business growth and profitability. Can ‘big data’ and ‘analytics’ help you improve operations? Yes – they can help you better staff and manage your call centre or improve your supply chain or target your marketing better. Will ‘big data’ and analytics make you the next Apple? Highly unlikely. Why does that matter? Because whilst you are busy optimising operations someone else is inventing a future in which your optimised operations become redundant: think music, think publishing, think mobile phones. Let’s explore this further.
What are the root causes?
Years ago when I worked in the business planning & analysis team of a brand name drinks company I noticed something interesting. Managers could drill down and find out which particular markets had failed to make their numbers. Great – we know which business unit is underperforming. But why is this unit doing better or worse than expected? This is where the fun started. First, there were almost as many opinions as the people we asked. Second, there was no easy to work out whether the answers given by local management held any resemblance to the ‘truth’. When I dug further I found out that local management did not know why they had failed to make their numbers (revenues). When they were asked, the local managers simply came up with the most plausible story. So month end because a ritual where HQ asked questions and the local managers invented plausible stories.
Lesson 1: For any complex event there are a multitude of plausible answers and working out the ‘real reason’ is notoriously difficult.
Lesson 2: Without a sound grasp of the root causes it is difficult to formulate a sensible course of action to address the situation.
What do we do about it?
Lets assume that you have all the data and analysis has been done. You know there is a problem. What do you do about it? Is it easy to get all the actors – who have to play ball – to agree on the course of action to take? In my experience the answer is no: the more ‘strategic’ the issue at hand the more difficult it is to come to an agreement on a sensible course of action. Let’s take a look at the recent banking crisis. Did all the main actors (the western economies) come to a consensus on what course of action to take? No. Just take a look at the Euro crisis: why is it that the leaders of the EU cannot agree on the right course of action? First, because different people have different ideas about what constitutes the right course of action. Second, the right course of action from an objective perspective may simply not be viable from a political perspective.
Lesson 3: The more that is at stake the harder it is to get all the actors to agree to a single course of action and then act to play their part and execute that course of action
Lesson 4: If you are unable to act decisively and as a single unit then all the data, analysis and insight is worthless
Does it really tell you what you need to know to thrive in the future?
Larry Freed has written an article that resonates with me. He points out that you need to be clear on what you know and what you do not know. I’d say that you need to be clear about what data and analytics is telling you and what it is not telling you. Larry, talking about a website, asks do you know:
- “Why visitors come to your site (to research, to buy, to complete a transaction, to get product support, to learn more about your company before interacting with you through another touch point, etc.)?
- What influences visits to your site (a referral, a social media interaction, a failure to resolve an issue with a call centre, an advertisement, a news story, a previous affinity with your brand, etc.) and which customer acquisition sources result in traffic that is the mostly likely to convert?
- What visitors need from your website? How needs differ by population segment or other segmentation that is useful to your business—perhaps first-time vs. repeat visitors, heavy users vs. light users, etc.?
- What visitors expect from your website? Do men and women have the same expectations? Old and young? Do people who arrived as a result of a Google ad have the same expectations as those who arrived because of a TV ad?
- What channel your visitors prefer, and are there ways you can influence that preference so they frequent less costly, more profitable channels?
- How customers view your business, compared to the way non-customers view your business, relative to your competition?
- How your customer profiles and expectations change in response to market and broader economic conditions? And what, if anything, you need to change as a result?”
Colin Shaw in a recent post makes the same point in a different way. Here are some relevent extracts from his post:
“Google and Facebook, as Eli Pariser discusses as a part of TED, are engaged in the process of quantifying preferences from the timing and frequency of online clicks, and using this information to alter web content. The stated goal of this practice is to “personalize” the web experience.
A lesson gleaned from Dell’s 1990s laptop boom illustrates the point that preference and value are two different things. Dell let its customers customize all aspects of their computer’s hardware – from screen size to keyboards to RAM – everything but color. Nobody thought to customize color, because a laptop was supposed to be black or gray. However, when color laptops were introduced, sales skyrocketed and we all learned that color was indeed an important factor.
Imagine if Google and Facebook had monitored “clicks.” They would infer that because customers did not indicate a laptop color preference, it doesn’t drive value and is therefore irrelevant.”
Lesson 5: there is an assumption behind all predictive analytics and that is “all things being equal” – that is to say that predictive analytics assumes that the future will be a replay of the past.
Lesson 6: human behaviour is shaped by the ‘structures’ in which human beings are embedded, change the structure and you are likely to see human beings change their behaviour. Think about how the recession (e.g. job losses) have changed the shopping habits of consumers in the western economies.
Why won’t big data and analytics make you into the next Apple?
Apple was busy creating a new future (a break from the past) rather than exploiting the past. If you take a look at the US automotive industry the big US automakers were busy building and selling gas guzzlers because the analytics showed that these were the cars that Americans were buying. At the same time Toyota was busy living into a very different vision of the future: hybrid cars and electric cars. Who was right? According to the data and the analytics it was the US automakers. What would you say now? Toyota?
If you are not inventing the future you can still prosper by picking up the weak signals that point towards a new trend. I once asked Bob Greenberg (R/GA) the secret of his success and he told me it was his ability to see these trends and act upon them before others. You might imagine that analytics might help you to spot trends. My experience of traditional analytics is that the modelers do all they can to strip out the outliers and create a normal distribution so that the maths works – in doing that they filter out the ‘weak signals’ that point towards these trends.
Perhaps it is best to end by remembering what Colin Shaw points out: how would analytics have disclosed that customers wanted to customise the colour of their laptops and that once this option was made available then Dell’s laptop sales would surge.
What do you think? If I have it wrong then please do educate me.
How do you go about developing a customer-based strategy?
If you are a strategist you will have come across all kinds of frameworks including: 5 Forces(Porter); Core Competencies (Hamel & Prahalad); Ansoff’s Matrix; BCG’s Growth-Share Matrix; 7S McKinsey Model; GE-McKinsey Matrix; 3Cs (Kenichi Ohmae); PEST(LE) model; SWOT analysis; IDIC (Peppers & Rogers)….. Each was developed in a particular era, for a particular problem and represents a particular point of view about what matters in shaping success.
In addition to these frameworks, I’d like to suggest the 3V’s – Vision, Values and the Value Proposition.
Valeria Maltoni at the Conversation Agent has spelled out the value of having a Vision Statement. I am going to take her lead and explore the Virgin Group especially as I had the good fortune to provide digital marketing services to the Virgin brand some years ago and walked away impressed at the culture, the customer orientation and how we (the supplier) were treated. If you take a look at the Virgin website you find the following statements:
- “We have always succeeded in business by offering consumers another way, a better way and being willing to fight their corner.”
- “Our lifestyle is the way that we choose to live our lives – the things we buy, the things we believe – it is who we are. As global citizens we want to provide people with products and services that will help them to embrace a more sustainable lifestyle.”
- “Our vision is to contribute to creating happy and fulfilling lives which are also sustainable – surely a vision worth aspiring to?”
- “We believe that we have a part to play in making this a reality and so our vision for sustainability within the Virgin Group is: “to make a credible contribution towards sustainable lifestyles whilst meeting or exceeding the expectations of our staff, customers and other stakeholders”.”
- “We want our Virgin companies to provide responsibly produced, sustainable, low carbon services and products that are desirable, easy to use and good value above all else so that our customers can enjoy their lifestyles safe in the knowledge that Virgin is acting responsibly on their behalf.”
What is the point of putting forth a Vision Statement? Let me say that is no point in a Vision Statement if it is just a PR exercise or a desperate attempt to revive flagging fortunes. The power of a Vision Statement lies in its ability to enroll a diversity of actors (Tops, Middles, Bottoms, Customers, Suppliers…) in an inspiring point of view on the future such that they co-operate in moving towards and creating that future. This means that first and foremost the Vision Statement has to be authentic for the leader who crafts, speaks and lives it. Notice the last point: the Vision Statement lives to the extent that it is lived. The more people that live it the more likely it is that the vision will become reality.
You and I might craft the same Vision Statement and yet go about it very differently. Why? Because our values (and beliefs) are very different. For example, in the ‘struggle’ for independence from British rule in India several leading figures wanted the same thing – to bring an end to British rule and rule themselves as a people – yet some leaders valued taking up arms, others valued pleasing the British and Gandhi valued non-violent resistance.
Here is what Virgin says about values:
“The Virgin brand values have remained unchanged for 40 years. They aren’t just an image but a reflection of our very essence and the way we do business. Virgin has always stood for value for money, quality, innovation, fun and a sense of competitive challenge. But now our brand values have gone three dimensional; we no longer have a list of brand values but a brand cube to which we have added the Wellbeing & Happiness of People and Sustainability of the Planet. “
Made up values are cooked up to brainwash the intended audience and in that sense are simply the lipstick that hides the pig. They are an either an attempt to hoodwink the gullible, a good sounding slogan or simply a desperate attempt to turn an also ran into a contender (think back to the highly successful Avis campaign “We try harder”). Which makes me ponder about British Airways suddenly finding its core values: “To fly, to serve”. Is it authentic? I don’t know. Will it lift its fortunes? Possibly.
Real – authentic – values act both as guides and as constraints on what you will and will not do and how you will conduct yourself. One of the essential aspects of strategy is choosing what courses of action you will take and what courses of action you will not take. Real values also have another advantage they allow you find / attract value chain partners - it is simply easier to do business with those that hold the same values as yourself and arguably it is more fun as well.
In my way of thinking the Value Proposition is where you spell out your promise to your target customers. It is where you take all of your insights about yourself, your target customers, your competitors and the world at large and spell out what your customers can count on you for. If you get the Value Proposition right then you will attract hordes of customers. If you actually deliver on the Value Proposition – the customer experience delivers the value proposition – then you will keep customers and they will get more customers for you through word of mouth.
Let’s take a look at the Value Propositions for Richer Sounds (award-winning high street electronics retailer); TED (one of my favourite sites); and John Lewis (renowned for customer service):
Richer Sounds: “Biggest Brands, Best Prices, Expert Advice…and take it home today!“;
TED: “Riveting talks by remarkable people, free to the world”; and
John Lewis: “Free Standard UK Delivery on Orders Over £30″; “Click and Collect From Our Shops”; “International Delivery”; and “Never Knowingly Undersold.
It is worth thinking about what you stand for in the world (Vision, Values) and clearly articulating the promise that you are making / the bargain that you are striking with your target customers (Value Proposition). Why? Because these are fundamental strands of a customer-based strategy. What do you think?
Need to improve the customer experience?
Sometimes a real world example of poor customer experience comes along that allows you to explore real world challenges in improving the customer experience. I am thinking of the recent report on the treatment of elderly patients in the UK hospitals which has caused quite a fuss even though relatives of elderly patients have been complaining of poor treatment for many years.
Let’s say that you want to improve the customer (patient) experience. Where do you start? There are all kinds of opinions on the root causes that have ‘driven’ compassion out of the failing hospitals. If you read the papers or have listened to the radio (as I have) you will notice that the finger is being pointed at the following:
- The nurses do not care (they do not have the aptitude) and/or are badly trained;
- The focus of hospital staff is on filling in the forms, ticking the right boxes, processing patients and not getting into trouble with management;
- The Top are not exercising the right kind of leadership;
- Demand exceeds resources and so expensive nurses have been replaced by cheap Care Support Workers to balance the books;
- The focus of the hospital leadership is on hitting targets set by Central Government rather than caring for patients;
- Elderly patients are difficult to care for and many of them should not be in hospital but in care homes…..
So where do you start? Which levers do you use to improve the Customer Experience?
I have developed a simple model (I do not claim that this model is the truth, it is simply a construct) that helps me to answer that question:
If you are like most organisations you take the operational approach. This means that you make changes to the People, Process, Data and Technology dimensions. So in the case of the NHS you work on the nurses (People) – perhaps through training and performance measures; you work on the way that work is done (Process); you might introduce some new technology to improve the process (Technology) etc… This is the default approach and leaves the bigger picture (the context) that lays the grounds for all organisational behaviour untouched. As a result the improvements (no matter how impressive) rarely endure and in some cases the short-term improvements turn out to be the longer term cancer that degrades performance.
The road less travelled is the strategic approach. This is where the Tops exercise leadership and ask themselves the question: what is our contribution to the behaviour, health, performance of the system? And then they set about shaping/nudging the levers that ultimately shape the behaviour of their organisation and its destiny. What are these levers? I can think of four:
- Leadership – everything that the leaders communicate through verbal and non-verbal language. It is worth bearing in mind that it is impossible for leaders (all of us in fact) not to communicate.
- Culture – the taken for granted ways of thinking, feeling, talking, decision making and behaving. What (and who) is and is not considered real, important, worth discussion. Not only what is done (and not done) but also how it is done or not done. I think of this as the ‘operating system’ of the organisation it determines the collective ‘performance’ of all the components of the organisation. The Tops play a huge role in shaping culture – whether by actively shaping it or by simply neglecting it.
- Mission & Strategy – the mission (call it purpose) articulates why you exist and the strategy is the high level approach you will be using to achieve your mission. Let’s be honest the vast majority of missions simply do not inspire anyone in the organisation or anyone dealing with the organisation. Why? Because the mission is simply to fulfil shareholders needs / demands. They are the equivalent of ‘selling sugared water’ rather than putting a ‘dent in the universe’. So the challenge is to come up with an authentic mission that makes people proud to be a part of the organisation.
- Business Model – this is simply the configuration of elements that create value for all the stakeholders and ensure the viability and strength of your organisation. At the heart of the business model lies the value proposition and the people (target market of customers) that this value proposition has been designed for. How well does your business model meet the needs of the various stakeholders? What changes need to be made in order to take into account the change in customer behaviour especially the rise in customer power? Does your business model take into account the multiple roles that customers can play all through the value chain?
What separates the Customer Experience leaders from the rest?
As I have studied the Customer Experience leaders (Starbucks, Amazon, Apple, Zappos, Zane’s Cycles) I have been struck by the thought that all these companies did makes changes to the People, Process, Data and Technology dimensions but only as a subset of the strategic approach: Leadership, Culture, Mission & Strategy, Business Model. That is to say any operational changes (People, Process, Technology, Data) were nested and a part of the bigger organisational context that was shaped by Mission & Strategy, Culture, Business Model and Leadership.
I have this feeling that the people who run the NHS in the UK will go for the operational levers (‘the one bad apple’ defense/approach) rather then the strategic approach. What do you think? What is your experience?