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?

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.

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?

Starbucks’ Service Commitment, Starbucks Service Moment

Starbucks’ Service Commitment, Starbucks Service Moment:
An excellent quick overview of the commitment some companies are willing to make to improving their customer service and a great story from the frontline of the wider impact Magic Moments can have.

Whilst it is difficult to measure that impact it is certain the moments like this make customers feel more significant and the on the old hierarchy of needs that’s right up there. If I can have a retail experience that also makes me feel significant I’m going to get quite loyal to that brand. How else would Apple have survived the debacle that was the iPhone 3G launch without loyal customers who were looking for more than just a phone and so were willing to put up with the annoyances of getting the ‘phone’ bit right.

What Magic Moments are you creating for your customers now? What would need to happen for you to be able to take a “moment”, as Starbucks have done, to get with your front-line and get everyone motivated to create excellent experiences for your customers?

dancingmango » What is it that makes your product distinctive?

dancingmango » What is it that makes your product distinctive?:

My recently easternised friend and excellent customer experience dude, Marc McNeill, has found a fantastic interview with The Master Brewer for Guinness. In the world of technology and consumer products/services we might equate him to a Product Manager/Developer. He has an on the ground responsibility for producing the end-product.

Our Master brewer shows that his priorities lie with an overall customer experience and how his product features (flavour, colour etc) fit in with that… the actual product features are the last thing he mentions.

Marc challenges us to think about what this means for the way that we organise ourselves around defining the customer experience in the context of developing innovative and irresistible products

There are very few master brewers who go beyond just satisfying their customers with features and functionality, to focus upon delivering “a great all round experience”. To turn the mediocre and mundane into theatre. Like Apple have done with the iPhone. Like Guinness do with their stout. Yet something gets lost as you move away from the strategic owners of the Brand, to those responsible for tactical implementations. And this loss can obviously be costly. If the Guinness Master Brewer was only responsible for a drink that is an acquired taste, would it still be the sixth top ranked global Beer brand?

This is an example from a single product world, but in many companies we are dealing with developing individual products that bundle together to form the consumer proposition. Understanding how we can enable our Master Brewers to be responsible for excellent flavour that complements the rest of the products on our menu is key to being able to offer value at a consumer level and understand the profitability of our component products…

I would look to companies such as Apple, Telcos (where there are often many components to the end-bundle a customer might buy) and premium financial services to see how they organise themselves around understanding customer needs and delivering a selection of products to them that together create an overall experience. There is a lot an organisation needs to do to be able to deliver an end to end experience across a range of products and services. Guiness has the luxury of being fairly single-product minded… for the rest of us we need to make sure our organisation is lined up to deliver not just our product developers…

The bad table

I thought that Seth’s recent musing on restaurant service levels has something for us all to think about with regards our service offerings. He describes being offered the “worst table” in the restaurant, when he asked for an alternative table the one he pointed out was declared “reserved”…

Do you have a “worst table” that some of your customers end up with? Do you have a “best table” and how do you decide who gets that?

The bad table:
marketing dilemma: who should get your best effort? Should it be the new customer who you just might be able to convert into a long-term customer? Or should it be the loyal customer who is already valuable? Sorry, but the answer is this: you can’t have a bad table.

Here in the UK we have a great advert for Nationwide which makes similar points about customer service but from the flip-side:-

The “New Customers Only” mantra of promotions that are only available if you are a valuable (in this instance, new) customer…

Every offering, every level of service, every product you have should offer value at a level that means something to your customers new or established.  It is of course the case that ‘some’ of your offerings will be objectively compared to others and found to be ‘better’.

I think the lesson here is that you shouldn’t hold back on your good stuff just in case a better customer comes along.

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