When is it appropriate to favour the customer experience over profits?

Harley Manning: You should never put the customer experience ahead of profits

According to Harley Manning of Forrester, the answer to the question “When should you favor customer experience over profits?” is “Never!  In his post Harley recounts the following:

After some preamble about the pressures his company was under to increase revenue and profits, he asked, “Given that, when should we put aside the need for profits and fund customer experience projects instead?”

His question surprised me. And I clearly surprised him when I responded, “Never.” I let that hang in the air for a moment so it could sink in. Then I added, “You should never put aside the need for profits when you fund customer experience projects.”

I could see that people were a little confused so I went on. “You should only fund customer experience projects that will produce profits. That’s why you do those projects in the first place. And if you have other kinds of projects that will produce better business results, do them instead. But if you take the time to create the business models for your CX projects you’ll probably find that they’ll produce better ROI than most of the initiatives they’re competing against.”

Does Jeff Bezos agree with Harley Manning’s take on customer experience and profits?

As soon as I read this post by Harley Manning the following thought came to mind: what about Jeff Bezos and Amazon?  It occurred to me that Jeff Bezos has consistently sacrificed short-term profits in order to attain the long term leadership.  And how has he gone about attaining that leadership? By focussing on creating compelling value for the customer.  And what is a key ingredient of this compelling value?  The customer experience.

If you doubt my words then read the following post: 6 Things Jeff Bezos Knew Back in 1997 That Made Amazon a Gorilla.  Here is one particularly relevant part of this post:

Bezos: It does fit into my view. Our first shareholder letter, in 1997, was entitled, “It’s all about the long term.” If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that. Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue. At Amazon we like things to work in five to seven years. We’re willing to plant seeds, let them grow—and we’re very stubborn. We say we’re stubborn on vision and flexible on details.

In some cases, things are inevitable. The hard part is that you don’t know how long it might take, but you know it will happen if you’re patient enough. Ebooks had to happen. Infrastructure web services had to happen. So you can do these things with conviction if you are long-term-oriented and patient.

When is it appropriate to favour the customer experience over profits? 

There is no simple answer to this question. Why?  First, one has to be clear that there are all kinds of profits.  There are this years profits. There are the profits that will be made in the next three years. And if you are Jeff Bezos you are thinking about the profits that will be made over the next seven years. If you are Toyota you might just be looking out 20+years.

Second, there is the matter of what falls under the umbrella term of ‘Customer Experience’.  Some, possibly like Harley Manning, see it simply as customer interaction management – how the customer is treated at various touchpoints along the customer journey.  Others, like me, include the brand (as in reputation not marketing messaging) and the core product under the Customer Experience umbrella.

Where do I stand on this?  My answer is “It depends!” What does it depend upon?  It depends on you and your circumstances. Do you have the leeway to play the long-term game?  Then I say make the short-term sacrifice and go for long-term market leadership.  If you do not have that leeway then you have to follow Harley Manning’s advice.  And in doing so you will leave open the door to the likes of Jeff Bezos – the disruptors. Which is great because progress relies on disruptors to shaky up things up and create ‘new value’ for customers.

Good Strategy and Bad Strategy: What is the kernel of a strategy? (Part I)

Vision and/or “fluff” masquerading as strategy?

I have been getting ready for my next strategy assignment thus grappling with strategy.  And I also happened to be reading Outside In by Harley Manning and Kerry Bodine.  All was well until I got to Table 4-1 which spells out the 6 disciplines that ‘mature customer experience organisations’ excel at: strategy practices; customer understanding practices; design practices; measurement practices; governance practices; and culture practices.

I don’t have an issue with these practices, they occur to me as valuable.  Yet, I stopped in my tracks.  What stopped me in my tracks?  Take a look at what the authors write regarding strategy practices:

“STRATEGY PRACTICES

  • Define a customer experience strategy that describes the intended customer experience.
  • Align the strategy with the overall company strategy.
  • Align the strategy with the organisation’s brand attributes.
  • Share the strategy with all employees (e.g., distribute documentation, conduct training sessions).”

Do you see the issue?   No.  Ok, let me rewrite what Harley/Kerry have written by substituting ‘vision’ for ‘strategy’:

“STRATEGY PRACTICES

  • Define a customer experience vision that describes the intended customer experience.
  • Align the vision with the overall company strategy.
  • Align the vision with the organisation’s brand attributes.
  • Share the vision with all employees (e.g., distribute documentation, conduct training sessions).”

So what is it that the authors are pointing at?  It could be ‘vision’, it could be ‘strategy’.  Does it matter?  Yes.  Why?  As I have written before vision, objectives, strategy are distinct according to Richard Rumelt, I agree with him.

Now lets go a step further and just strip out the terms ‘customer experience strategy’ and ‘strategy’ (shorthand for customer experience strategy) and replace them with ‘intended customer experience’.  If I do this then we end up with:

“STRATEGY PRACTICES

  • Define the intended customer experience.
  • Align the intended customer experience with the company strategy.
  • Align the intended customer experience with the organisation’s brand attributes.
  • Share the intended customer experience with all the employees (e.g., distribute documentation, conduct training sessions”

Do you notice that by rewriting it this way nothing has been lost?  If anything there is greater clarity.  If that is actually the case, and I say it is, then ‘customer experience strategy’, as used by the authors, is fluff.  If you are wondering what I am talking about, when I talk “fluff”, then you will benefit from reading this post.

Yet a customer experience strategy is necessary

Does that mean your organisation does not need to craft a customer experience strategy?  No.  Your organisation does need a customer experience strategy.  Why?  Because crafting and communicating your intended customer experience is not enough.  You have to bring about a ‘state of affairs within your organisation’ such that this state of affairs generates/delivers the intended customer experience as a natural expression of your organisation.    Bringing about this ‘state of affairs’ may involve bringing in changes in the leadership team, hiring more staff, refitting your stores, redesigning your website, develop a smartphone app, changing performance measures…….

So what should your customer experience strategy contain?  What should be the contents?  For that matter, what should be the contents of any strategy for it to count as a strategy?

The kernel of a strategy, any strategy, is made up of three parts

If we strip away all the difference (frameworks, methods, processes) from strategy are we left with a meaningful/useful core that can help you and I develop a strategy, any strategy?  Richard Rumelt says we are and he calls this ‘the kernel of a strategy’: the core content that constitutes the hard nut inside the concept of strategy.   What is this core content?  This is what Rumelt says in his book Good Strategy Bad Strategy:

“The core content of a strategy is a diagnosis of the situation at hand, the creation or identification of a guiding policy for dealing with the critical difficulties, and a set of coherent actions.”

I will dive into, explore, each of these three components in follow up posts.  Whilst you may think that the most difficult part is the formulation of the guiding policy, my experience suggests that it is the diagnosis that matters the most and is the most painful.  So the next post will deal with diagnosis.