Customer-Led: Has the focus on “Delivering Shareholder Value” actually done the opposite?

I recently found this very interesting article from the Washington Post outlining the case for the erosion of Shareholder value since the 1970s because of, ironically,the focus on the ‘Cult of Shareholder Value‘.

The precis is that the management ideal of running companies in a way that ‘maximises shareholder value” has done more harm than good when looking precisely at the very metric it seeks to enhance.  I’m not sure if the variance in return over two different ‘ages’ of capitalism (managerial 7.6% vs shareholder 6.4%) is significant but it warrants a good read of the article and his reference articles.

All of this is not to say that shareholders should not expect to get a return on their investments, just that the focus on shareholders throws the management focus off what actually creates the best return for everyone.  That this focus on shareholder value ignores a fundamental principle immortalised by Peter Drucker:

The purpose of business is to create and keep a customer

The article acknowledges the very complex landscape over the period of comparison, points to globalisation and deregulation as likely forces creating this new norm of Shareholder Value and points out that it is difficult to rapidly change an embedded norm.

He highlights a number of indicators which common sense tells you Shareholder Capitalism is creating a short-term focus at the expense of most stakeholders.

  1. CEO Tenure of Global Companies down from an Average of 10yrs to 3.5 yrs (this stat varies wildly depending timescales, listed exchange but ALL stats are declining)
  2. Executive Compensation :  “the ratio of chief executive compensation to corporate profits increased eight-fold between 1980 and 2000. Almost all of that increase came from stock-based compensation”
  3. Expected Performance Timescales: “80 percent of top executives and directors reported feeling most pressured to demonstrate a strong financial performance over a period of two years or less, with only 7 percent feeling pressure to deliver a strong performance over a period of five years or more.”

and then goes on to suggest some structural changes to our political and market environment that might help establish a better norm.

I intuitively feel that short CEO tenure creates short-term thinking however there are HBR arguments that this is more about right CEO for the right phase of the company.

Executive Compensation could easily be seen as market dynamics in place – you pay for quality – however if shareholder value is actually eroding then it seems the metric isn’t working.  We already know that we need a balance of metrics not just financial ones even at CEO level – so I think this actually goes deeper than actual CEO compensation

Of course there are some companies and CEOs who are just getting on and running their companies in a more long-term sustainable fashion – with an inherent focus on the customer – the article name checks Apple, Johnson&Johnson and Proctor & Gamble as some, there will be many more but the analysis is hard to make ‘from the outside’.

I think this is an interesting read, to be understood thoroughly, and is complementary to the studies that are showing Customer-Led organisations outstripping the returns of S&P500 companies without that culture.  Two more articles to come on precisely that – I will link to them once they’re up.

In the meantime use this article as evidence wisely but use it as a discussion point freely – do you believe a focus on shareholders is actually eroding long-term sustainable value – do you think business should even care about long-term sustainable value?

Taking the Mickey (Mouse) out of Queues

Ron Baker’s article on Earning his Mouse Ears Part I (you can read Part II and Part III here) gives a fascinating insight into his experiences of attending the Disney University. It is an excellent read that casts a light into the Disney mentality and includes a lot of great examples of how they differ (such as giving cast members 5 minutes per day to make random moments of magic, treating guests as “paying consultants” to learn about how to improve satisfaction and maintaining generally positive relationships with over 3 dozen trade unions where Mickey Mouse is actually a Teamster).

 

One question posed by the article was why people were willing to wait 30 minutes to get onto the Pirates of the Caribbean but would generally get irritated if waiting for more than a minute in the post office. Ron’s contention was that it was all about competition. If I experience something great, then my expectations are raised. If I then do the same task in a competing environment and the experience is not as great, I get irritated. One of the best examples is the traditional gripe of American tourists that visit Europe and experience bad restaurant service because the staff do not have the motivation of earning massive tips. Using this argument, experiencing the excitement of the Pirates ride at Disneyland after a 30 minute wait is just not the same as queuing at the post office and then speaking to the counter assistant about sending the package.

 

Although the point is correct, the argument about why people are willing to wait 30 minutes for Pirates is actually a lot more straight-forward. Disney lie!

 

At the very simplest level, Disney essentially over-estimate the queue time. If you hit a point in the queue that states 15 minutes, but then reach the amusement in 10, you feel good. It is brilliantly simple and yet so effective. In truth, there is more to it. Kim Button’s book “The Disney Queue Line Survival Guidebook” describes other Disney tools and techniques, such as the illusion of using characters and videos to suggest that the attraction starts with the queue, or breaking the line into smaller sections and providing partitions to hide the true length.

 

However, this does lead onto the question: what else can be done to improve the customer experience in queues?

 

A great example is Houston airport which faced a massive number of complaints from travellers who were queuing too long at baggage reclaim. Numerous trials such as increasing the number of baggage handlers improved the wait time but did not reduce complaints. Finally, an on-site analysis identified that passengers, on average, took 1 minute to walk from the arrival gate to baggage reclaim, and then 7 minutes to get their luggage. The answer – increase the time taken to get through arrivals. As a result of passengers walking six times longer to the reclaim area, complaints dropped to zero.

 

On a similar not, post World-War II, the boom in high-rises lead to many complaints about the time taken to wait for elevators. The solution – put mirrors outside the lift shafts so that people can occupy time by looking at themselves (or others).

 

Apple, by contrast, work on the basis that the best way to improve the customer experience in queues is by getting rid of them altogether. This is the rationale behind having staff at the entrance asking you how they can help, providing mobile tills with online receipts and even pre-identifying a sales rep prior to entering the store so you already know who to talk to (if you have the app).

 

This is not to say that Ron’s argument about the psychology of the expectation at the end of the queue is not also correct – the excitement of going onto the Pirates ride undoubtedly plays a part. It is just that a little bit of trickery and know-how can help businesses take a massive step towards providing far better customer experience in queues. Since Apple sells more per square foot than almost all other companies worldwide, such tricks may just be worth the effort.

 

Any other examples of taking the mickey out of queues, please let us know.

The Darth Vader Approach to Customer Needs

If you’ve ever felt like a company really ‘took advantage of you, knew what you needed and squeezed you for every penny’ then you might be interested to hear about this story I recently came across.  It highlights a strangely impressive (but totally awful) example of building up a business model based on customer needs insight that comes very much from the dark side.

In 2010, when BitTorrent was at its peak, people using the service started receiving litigation notes from companies that were claiming copyright infringement on content that had been illegally downloaded from the service.

Whilst there had been numerous high-profile cases globally of companies going after end users to sue them for illegally downloading content, this was somewhat different in that the companies filing the lawsuits were from the adult content industry. Essentially, they were identifying IP addresses of those downloading the content, referencing that against ISP subscriber data and then sending letters to those addresses stating that, as a result of illegal behaviour, the defendant was being sued for $150,000. Unless that was, they were willing to settle immediately for just £3,400.

The legal / moral issues associated with copyright of adult content culminated in a court case where one of the defendants successfully counter-argued that copyright law only was only permissible in cases where the content promotes the progress of science and the useful arts. Since adult content is not classified as “useful”, the US Court of Appeal threw out the case. More interestingly, a class action suit was recently raised against one of the adult content providers after a whistle-blower accused the company of proactively uploading content onto BitTorrent in order to set-up a honey-trap.

If proven, this is an amazing, but equally terrible, example of understanding both basic human nature and, more importantly, human needs. In terms of human nature, the song from the stage show “Avenue Q” summed up perfectly that the “Internet is for porn” because humans, by their nature, just love it.

In terms of human needs, I would argue that these companies were very intelligently (in a twisted way) reacting to a key user requirement of their “porn watching” audience – i.e. the need for anonymity. The mere fact of sending letters to a home (never mind the idea of threatening to put a litigation on your record for illegally downloading porn) was an enormous incentive to extort money on a mass market scale. And extortion it was. The pain and embarrassment, as well as family arguments caused cannot be underestimated.

Using the concepts of user needs analysis to build customer experiences is unfortunately equally valid for sinister reasons as they are for good. Let’s just hope that whenever a Death Star is finally designed, it will not be based on CX best practice.

RyanAir: What happens when you just don’t care…

Michael O’Leary announced a couple of weeks back that he wanted to turn around the ‘abruptness of RyanAir’s culture‘.

So those of you who have heard me speak over the last few years will know that I use RyanAir as a great example of Customer Experience Management done well. Whilst this was initially shocking to many (a few years ago) most people have more recently cottoned on to why and audiences are now beginning to quote RyanAir back to me when I’m looking for examples of CX management.

However the vote as to whether people would invest in them has always been split into two camps.

  1. Just look at their results – they are a successful business, they are profitable and you said it yourself Martin – they have managed their CX very well – we know what to expect when we travel with them and there is a market for their product. So yes I’ll invest – I think they will continue to provide a good return
  2. They treat people like [insert your preferred strong words] – of course I wouldn’t give them my money

Personally I believe it really is as simple as Camp Two ultimately being the right answer however the problem is that Camp One were also ‘right’ – at least on the face of it.  From a short term investment point of view it was easy to see why money should be put into RyanAir.  The reason I believe Camp One have some faulty thinking is explained in my blog post earlier this year on where the money really comes from and why that model is not sustainable in the long-run.

RyanAir have issued a profit warning and are receiving a lot of bad press for their poor customer service.   I believe that this is the beginning of the end for RyanAir being a business that makes a profit out of consistently managing their ‘below benchmark’ CX.  Their business model is cracking (rising fuel prices, regulatory challenges to their revenues and competitive pressure on price) and their customers have no reason to stay other than for price.  We’re not going to see them go bankrupt anytime soon but I think that we will enter an era of discussion of RyanAir as a struggling airline in the face of tougher competition on both price AND service.  It is the latter that RyanAir just has no idea how to respond to.

It’s interesting to watch this unfold because it is, for once, shareholder pressure that is forcing Michael O’Leary to address his poor customer experience and also because I believe that despite his declarations he still doesn’t get it.

O’Leary has said that he wants to stop ‘pissing customers off’ and that this also shouldn’t cost any money.  From anyone else I’d take that as a simple statement of good practice.   From him I can’t help but feel that if it HAD cost any money he wouldn’t have bothered.  I simply don’t believe he cares.

Fundamentally he has a company built on his own personal set of values which show no regard for his customers or employees.  Changing that culture and turning around RyanAir, is going to require that he leaves or has some kind of personal revelation.

Now this HAS happened before with smaller companies but typically with the big ones the CEO moves on and a new culture comes in.  If you want to hear about what a big difference culture CAN make I’d encourage you to watch the video testimonial from Roma Mouldings who attended a 3-Day bootcamp with Zappos Insights – who know a thing or two about Culture’s impact on performance!

NetFlix : a bumpy ride to understanding their customers

I’ve always thought NetFlix was an interesting company.   At one point we were lauding them for the transformation they brought to the home-movie-watching market and the amazing insights they could generate about their customers.  They had a DVD and Streaming service that were much loved by their customers.

However roughly two years ago their stock was worth $70-80 having crashed from $300 following a series of poorly judged communications with customers.  A combination of the CEO’s arrogance (his words) and a focus on explaining to shareholders (as opposed to customers) why they were making major changes in their company strategy led to an almighty back-lash from customers.  It has taken them a good 2 years to fully recover.

But recover they have and I can’t help feel that they have learnt something from the debacle.

You will see this awesome Customer Service exchange around over the next couple of days but do pause to ask yourself – is this just a bunch of really great people at the front-line who have been given some latitude to be themselves or has the organisation itself, the management, the CEO fundamentally changed to the extent that this is a natural result of their strategic direction.

It’s hard to tell, we can only guess, however I would argue that long-tenured CEOs have more of a chance to develop, learn and transform an organisation into a truly customer-led business than short-tenured stock-market focussed CEOs – precisely because they get the chance to learn from their mistakes and/or invest in their ideas.  There is so much more strategically to NetFlix’s recovery to a $300 share price but I hope that being more connected to their customers at a human level will help them avoid repeating mistakes of the past in responding to the ever-shifting landscape ahead of them.

Awesome Customer Service from NetFlix

This  exchange between a NetFlix CSR and a customer over web-chat (found on Reddit and gone ballistic on US sites in the last 24 hours) is a great example of plain and simple human interaction – something USAA, SWA and Zappos know all about in terms of maintaining great customer loyalty.

Our CSR – Mike – engages our customer Norm in a bit of geeky banter while they look to solve Norm’s problem – read as our customer fully enters into the spirit of it.  I love how this screenshot ends with one simple question “were you satisfied with your Netflix experience today” – I think it was missing the ‘Hell Yeah’ button!

I’ve included the screenshot of the full exchange below and it has been verified by NetFlix as real. This kind of interaction is a long way from where NetFlix were perceived to be at just two years ago – you can read my thoughts on that here  but enjoy this Geek-out in the meantime and ask yourself what would it be like to let my CSRs truly be themselves?

 

 

Why Service Design, CX and UX are all part of a bigger customer-led world

One of Forrester’s analysts, Kerry Bodine, recently wrote an excellent article on how Service Design relates to CX and UX. The main hypothesis was based around the following diagram that service design (SD), customer experience (CX) and user experience (UX) all overlap in the following way:

CX SD UX 3

The best description of these overlaps is given in Kerry’s article, but in summary:

  • UX primarily focuses on the design and development of digital journeys, whilst CX covers the whole multi-channel journey (both off-line and online); therefore, UX is a sub-set of CX
  • SD encompasses the whole customer journey in the same way that CX does
  • However, there are differences between service designers and customer experience people, most notably:
    • There are elements of CX that fall outside the normal scope of service designers (such as measurement and governance)
    • By contrast, service designers often focus on areas such as social innovation – something outside the common definition of CX
  • Finally, SD does not fully overlap with UX because in today’s business world, we simply do not use service design in digital marketing

Kerry then went on to state that as businesses evolve, there will be a merging of these areas into a more succinct structure as follows

CX SD UX 2

Whilst I agree with Kerry on what she said, I would actually argue that this merging of skills is actually a precursor to a larger, and more fundamental change to business that is being driven by the corporate desire to “put the customer at the heart of their business”. This hypothesis is based on the following argument.

Unfortunately, most corporate clients cannot explain what they mean when they tell the market that they are going to “put the customer at the heart of their business”. To be fair, this is not a new phenomenon – consultancies and agencies have been making money for decades from the fact that their clients are unable to describe their problem.

The fundamental difference today however, is that these traditional advisors no longer have the answers themselves.

The phrase itself highlights the problem: “Putting the customer at the heart” is an emotional connection – something that has always been the hunting ground of the agency because it is about communications, engagement and brand promise. “The heart of the business” however, is where the consultancy has always focused because it is infers changes to operating models, technical architectures and financial plans.

In this brave new world of constant change and consumer power, the future will be driven by those companies that successfully combine emotional relationships with hard-nosed logic.

To take an overused example: The Apple experience is a beautiful thing that people have a strong love for.  However, it would never have reached such emotional bliss had it not been underpinned by a technical architecture, digital supply chain, operating model and financial structure that is second-to-none.

This is where Kerry’s article links in nicely. Service design agencies are one of a new breed of Cogencies (the hybrid offspring of consultancy and agency) that are successfully providing an end-to-end link between customer-led insights and business operations. The reason why companies like them is not just that they are quick, agile, customer focused and relatively inexpensive (when compared against 3 year, $30M major infrastructure programmes). It is because they are also able to cross the divide between emotion and logic that enables them to speak sense to both the CMO / Head of Brand as well as the CFO / COO / Customer Services Director. They are providing a solution that everyone on the Board can buy into (if done well). And an aligned Board – well, that is the cornerstone to a successful implementation.

The issue with service design agencies is that all too often they are given a business problem and make a shiny solution only to find that they have, in fact, just beautifully fixed the wrong problem. They are arriving too far down the corporate chain, often used by companies that are looking for a quick fix. It would be far better if they were involved up-front during the strategy development process.

This is where there is a need for a fundamental change towards the creation of the true Customer-Led business model (CLB). Service Design in of itself are not adequate to create business strategies. However, the underlying principals of emotion + logic + agility are.

In the world of the customer-led business model, we need to combine the emotive elements of brand, purpose and corporate soul with the logical building blocks of market reviews, customer analysis, agile prototyping and financial modelling. Think WPP meets McKinsey meets IDEO – without them killing each other!

CX SD UX 1

As stated, Service Design is not a panacea that will turn companies into customer-led organisations. You do still need market analysis a la McKinsey, along with brand champions, big data geeks, cultural evangelists and all the other skill sets to be successful. The key point is that Service Design is you can mix the logical and the emotional to build a better offer. Take that thinking to a corporate level and you can build a true customer-led organisation.

You never know, you may even give yourself a chance of being able to explain what “putting the customer at the heart of your business” actually means.

 

 

 

Culture Trumps Strategy with Amazing ROI

I’ve been talking a lot recently about Zappos where the corporate culture is a central pillar that drives everything they do.  Their clear sense of purpose, shared values and strong sense of identity are credited with their success – but as a privately held company the tangible ROI is hard for outsiders to prove (could it just be that they are operationally excellent?) – I don’t believe so but a detailed evaluation of Zappos is an entirely different post.

I came across this very interesting article re-acquainting us with research from 1992 which found that a company’s Culture was a linked with a significant difference in overall financial performance.

In particular the type of culture quoted as being so effective was one that

highly values employees, customers, and owners and that those cultures encourage leadership from everyone in the firm.

This type of culture was responsible for an average net income growth of 756% versus 1% for a company without this culture.  

These values were credited with enabling the companies to respond to ever changing customer needs and therefore remain relevant in the marketplace – I suspect though and the article strongly implies that there is a deeper connection that this.

If you’re looking for some stats to justify the ROI of Culture then I highly recommend you dig out their book Corporate Culture and Performance and read the original research.  The authors remain convinced that their study was robust.

So what IS going on?  There are already studies linking CX Leaders with outperforming the S&P 500.  Do we need any more bottom line proof?  What’s holding back the CEOs now?

RyanAir delivers consistent CX but would you invest?

Another cracking post from Comotion Associate Ian Golding – the RyanAir and Customer Experience debate is one I’m all too familiar with and use in many of my conference speeches.  During these talks and the questions that inevitably follow we debate whether RyanAir are any good at Customer Experience, invariably the audience are split 60% saying No and they, like Ian would never fly with them.  40% say yes – because, as Ian says, they do exactly what they promise – they consistently meet expectations (that have been set very low).

ryanair plane

So clearly RyanAir are competing mostly on Price and to some degree destination.  RyanAir would argue that there is a big enough demand for this combination of Service and Price.  So, my final question to the audience (and to you today) is always

 Would I invest in RyanAir?

to which I would have to answer a resounding no. 

Their business model is not sustainable

  1. A great majority of their revenue is dependent on airport/government based subsidies for bringing volumes of passengers through airports.  This is under regulatory review and extremely volatile income.  The plane rides themselves are not proftiable.
  2. It is too easy to replicate and better their service offer

 

RyanAir – Cattle Class

It is so important to understand the business model behind a company because there must be a sustainable strategy in order to continue to exist.  You need permission from customers to make profits and ultimately RyanAir bribes passengers to fly on their buses so they can make money out of the towns they fly to – If RyanAir could fly cattle on their planes instead – they would their business model does not care at all about the passengers except for the revenue they make elsewhere from them.

If another low-cost airline can exceed those same expectations customers will leave in droves. Because this is a business that only knows how to ‘meet’ expectations it will not be able to respond to that competition.  But most importantly – even if it tried – because this is a business that does not appear to care about it’s employees and customers – who would care if they did try?

Mobile Wallets, Identity Security and Banking Digital Maturity

My iPhone is the least valuable thing I carry. I like it that way – William Lovegrove on e-Consultancy

… having been through this recently myself I would concur… my iphone5 had a security flaw in it that meant it could be unlocked, you hardly ever recover a stolen iphone because once the sim is out it’s untrackable and the identity theft risk is very tangible in a society that is ‘risk-innocent’ and not protecting itself appropriately. 

It’s a race between a ‘few’ people who are looking at device security and a tipping point of security issues that wake people up to the risks…  that tipping point will get closer once banks implement mobile wallets – the device will be a much bigger target.
I’ve been involved with or around a few Mobile Banking strategies for UK banks over the last few years.  Banks are very keen to get in on the mobile wallet space and get ahead of Google, PayPal, Apple etc.  However banks are not traditionally innovators, certainly in technology.  They have been slow to wake up to the realisation that MOST companies now are enabled by technology (even in somecase have become primarily technology companies).  No one was really discussing the issues highlighted in this article (some did but were cut down because ‘we have to be in on this’)
My experience is that the Banks, whilst rushing to develop cool mobile strategies that ‘position’ them for innovation and marketshare, are absolutely not going far enough in considering the wider impacts of this technology.  Many have a good intent with making things easier for customers and increasing customer engagement.   However if you are involved in enabling a technology to become so intrinsically more intimate (yes finances are intimate) and thereby also making us a target for crime without considering how to mitigate this then you are not really making it better for us.
Here’s what I need (with this particular subject lense on)
  1. Give me somewhere safe to put my money
  2. Make it easy for me to access (unless I want to lock it away in exchange for some upside)
Very much in that order!
Fraud departments of Banks need to be ahead of the game here (a lot are using old standards for new channels), technology groups need to be on top of the latest thinking/developments (a lot are outsourcing the development of mobile channels to 3rd parties).
If Banks are going to be truly serious about being involved in mobile payments and wallets there needs to be a step change in how they go about being drivers of technology and innovation – across all operations in the bank.
After my phone loss – I’ve locked my new phone down now, changed all my passwords to a very secure system, backed everything up, removed financial information from the phone, set findmyiphone to track (to no avail), downloaded hiddenapp for future protection, reviewed my mobile phone insurance – that’s all easy enough right?
I mean – EVERYONE does that right?