The Central Role of Customer Experience in Digital
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The business benefits of focusing on customer experience have been known ever since 1954 when Peter Drucker wrote that “there is only one purpose of a business: to create a customer.” However, it wasn’t until 1989, when Jan Carlson, the chief executive officer of Scandinavian Airlines (SAS), published Moments of Truth advocating a focus on customer experience (CX) and providing practical guidance. He famously coined insights such as:
An individual without information can't take responsibility. An individual with information can't help but take responsibility.
If you're not serving the customer, your job is to be serving someone who is.
Forty years later, the benefits of managing CX remain compelling according to the Watermark Group. Their survey found that:
Customer Experience (CX) Leaders outperformed the broader market as depicted below (by 108 points).
Customer Experience Laggards trailed behind the S&P 500 Index (by 110 points).
Customer Experience Leaders experienced a total cumulative return that was 3.4 times greater than that of Laggards.
Similar impressive statistics were documented in the Qualtrics-commissioned study The Total Economic Impact™ of Qualtrics CustomerXM, conducted by Forrester Consulting, where a composite organization achieved a 633% return on investment over three years. Similarly, a BCG study found that companies with the highest customer satisfaction scores returned double the shareholder value over a ten year period.
Yet, companies still appear to need proof that an investment in CX is worthwhile. Forrester estimated that 80% of companies have not made an investment in CX and they forecast that as many as one in five CX programs may soon disappear.
In fact, if a company can’t readily calculate a solid return on investment (ROI) in customer experience (CX) management, there’s a chance they may eliminate CX teams. Staggering!
This gloomy forecast on the state of CX is supported by research on the American Customer Satisfaction Index which found that customer satisfaction had plummeted by mid-2022, to levels not seen in 17 years.
On one hand, the business benefits of investing in CX are clear. On the other, there are disturbing signs of flattening or even declining investment in CX. This is somewhat perplexing – especially considering the ever-increasing number and capability of digital tools and the realization that successful digital programs start with customers. Indeed, there may be two forces at work. First, due to the influence of companies such as Amazon, Uber, and Netflix, customers expectations are increasing at a faster rate than the average organization’s abilities to meet them. Next, as the number, complexity and capabilities of digital tools proliferates, George Westerman’s rule that, “technology changes quickly, but organizations change much more slowly is having increasing impact.
The traditional approach of many leaders hinders making headway with CX. Many executives continue to view their company in the context of their organization chart. Consequently, they view the business from the inside-out and find it difficult to see it from the customers point of view (the outside-in). Next, they don’t appreciate the role of the cross-functional business processes in value creation, and they fail to design and implement a measurement system according to what truly maters to customers. Then, they place undue emphasis on surveys to assess customer experience and fail to measure performance at key moments of truth such as perfect order delivery and responsiveness to inquiries and complaints.
Addressing these three factors are central to making progress with digital. Seeing the business from the customer’s point of view, understanding that processes – not departments – create value, and crafting a measurement system in line with what matters to customers. Why is this easier said than done? It’s partly due to decades of conditioning on the traditional view of business. Then, business schools are partly to blame as they continue to emphasize the traditional functional disciplines and if they offer courses on process at the enterprise level and customer experience at all – then these are only electives (although there are a few exceptions).
Ever since Meyer and Schwager’s HBR article in 2007 on understanding customer experience it’s been known that systematically monitoring CX can improve it—as well as the bottom line. Yet, many companies struggle. They do the same thing they’ve done for decades – they appoint an executive to oversee customer experience. This is typically an executive staff position – and the role is to influence department heads to do business differently – but still in the context of the organization chart. That’s a tall order! A shift in management attention is needed as improving customer experience is not just one person’s job – it’s everyone’s job – so it should start at the top and have broad based cross functional engagement at the senior leadership team level.
The entire leadership team needs to have a shared understanding of both the current state of customer experience and the desired future state. That typically involves first building a customer journey map because while touchpoints and moments of truth do matter – it’s the entire end to end journey that’s truly important. This should be easy – first talk with customers, then identify critical touch points (moments of truth) and create a story around each touch point, map the business process(es) that creates value at each touch point and tie it all together. But there are pitfalls. First, some companies only talk to their own people in sales and customer service – and don’t talk with customers. While it’s important and necessary to speak with the front line – it’s not sufficient. Direct input by customers is needed to build a meaningful customer journey map. Next, when some companies identify touchpoints – they sometimes fail to create a story around each moment of truth. This is a big, missed opportunity as people remember stories much better than simple facts. Then, the important step of mapping the business process(es) that create value at each touch point is often omitted – thereby missing the opportunity to directly link process improvement to enhancing customer experience.
Of equal importance, data is needed on customer experience. The typical approach is to use surveys and net promoter scope (NPS) has emerged as the preferred survey tool. However, consumers are tired of surveys. There’s widespread survey fatigue and there are frequently issues with surveys. Surveys have 4 major shortcomings according to McKinsey. They are often limited, reactive, unclear, and unfocused.
Limited: The typical CX survey samples only a small percent of a company’s customers.
Reactive: Surveys are a backward-looking tool and are less relevant in a world where customers expect their concerns to be resolved increasingly quickly.
Ambiguous: Surveys often fail to reveal the root causes of customer dissatisfaction.
Unfocused: The linkage between survey-based scores and business outcomes is not well understood.
In a nutshell, surveys are annoying, and they often do not pinpoint the root cause of dissatisfaction – for example, late delivery, lack of responsiveness, faulty after sales service, etc.
Forward thinking companies are relying less on surveys and taking advantage of advances in analytics. While most companies already use descriptive analytics to describe what happened, they may not gather data on the factors of timeliness and quality that matter to customers (e.g., on time and complete delivery). Only around a quarter of companies surveyed describe themselves as data driven and over 90 percent of respondents believe that organizational culture is the main obstacle. The good news is that an increasing number of companies have advanced to use predictive and even prescriptive analytics. Examples of predictive analytics include using data of when products are purchased or used (Amazon, Netflix, and Spotify) or using a in-car sensors as some insurance companies do, to gauge how well customers drive. Predictive analytics can help companies anticipate high or low call volumes based on data from Website browsing. Some banks use real-time data analytics to track complaints to understand the big issues and predict what questions or complaints customers may have. These activities have the potential to provide valuable insight on the customer journey. Some businesses go as far as to harness the power of prescriptive analytics. For example, prescriptive analytics allows healthcare decision-makers to recommend the best course of action for patients or providers.
Business to consumer (B2C) companies have led the way in improving CX. In part, that’s because the customer journey is more straightforward in B2C consisting typically of a half dozen moments of truth. While the characteristics or personas of the consumer need to be considered, the B2C customer journey typically involves one or a few consumers in any one transaction. So, driven by studies showing that acquiring a new customer can cost as much as five to seven times more than retaining an old one, B2C companies have had some success in improving CX one department at a time.
On the other hand, the business to business (B2B) customer experience is far more complex. It involves over a dozen moments of truth and multiple actors in multiple departments as depicted below. Improving CX in a B2B context requires an end to end business process perspective and close collaboration across key departments such as sales, marketing, customer service and finance. Cross-functional teams and cross-functional governance are both needed for CX success in B2B.
To create a digital program that is deep and sustainable, it’s necessary to foster a customer-first culture. This means viewing the business from the outside-in, making the delivery of outstanding CX the responsibility of everyone in the organization, and rewarding/recognizing behaviors that drive good customer outcomes. It also means focusing on cross functional processes – not departments – in improving CX. Avoiding the funding of individual departmental activities is part of the solution. One example of what to avoid was documented by BCG where 30 different departments in a bank were allowed to launch over 220 different, uncoordinated initiatives to improve the CX. As there was little sharing of information across departments, the improvements were suboptimal for both the customer and the business.
The importance of achieving a “common view” of customers’ experience, cultivating a customer-focused culture across the organization, linking customer experience investments to business outcomes, and breaking down silos is difficult to over emphasize. Making this shift in management attention and mindset is particularly challenging for big, old companies that have been focusing on activities in a departmental context for years. In stark contrast, leading companies in CX have found that the following is needed for success in improving customer experience:
They nail the basics and strive to deliver pleasant surprises.
They use cognitive science to shapes experiences that people will remember.
They understand the importance of emotions as well as facts.
In addition to an enduring focus on CX, they focus on employee experience and appreciate that happy employees make for even happier customers.
In addition to an enabling organizational culture and cross functional collaboration, technology will play an increasing role. It’s expected that technological change will encompass augmented reality, artificial intelligence, human/computer interface, autonomous vehicles, advanced robotics, flying cars, quantum computing, and connected smart cities. Is your organization ready?
Andrew Spanyi is President of Spanyi International. He is a member of the Board of Advisors at the Association of Business Process Professionals and has been an instructor at the BPM Institute. He is also a member of the Cognitive World Think Tank on enterprise AI.