Author: Joshua Seedman
Table of Contents
Many companies forget that the real CEO of a company is not an individual leader, a board of directors, or even shareholders, but rather the customer. Thanks to digital, traditional customers have transitioned from being a connected consumer, to an empowered consumer, and finally to Consumer-in-Chief. Simply, customers are now a more integral part of the enterprise than ever before. Compounded by this transition of power, volatility is the new normal with customer needs constantly evolving and expectations continually rising. Consequently, the days of being successful on merely a differentiated product are over. Without creating a world-class customer experience the product alone will fail. This resonates more deeply than ever because digital disruptors such as Amazon, have forever changed customer’s shopping expectations across all industries and in both the B2C and B2B spaces. Simply, customers make no differentiation between buying, as a world-class customer experience is industry agnostic. To the customer, shopping is shopping – plain and simple. This has left a large “customer experience gap™” between what customers expect and what they actually receive, equating to a poor customer experience and significant value erosion across industries (See Exhibits 1, 2, and 3).
This customer experience gap combined with the transition in power to the Consumer-in-Chief (i.e., customer), has created a new landscape where a distinctive customer experience is no longer a competitive advantage but rather table stakes. However, many companies overlook the key drivers that can transform a bottom quartile into a world-class customer experience. Accordingly, this articles introduces the customer experience quadrant™ that highlights the five key drivers for ensuring an enterprise's customer experience is distinctive and sustainable. Specifically, the customer experience quadrant ensures tracking across: (1) employee turnover, (2) employee productivity, (3) employee engagement, (4) customer engagement, and (5) customer loyalty and advocacy. These five drivers are all related to either employee or customer because customer loyalty and employee advocacy are highly correlated. While this correlation is well known a majority of enterprises overlook this critical interdependency. As a consequence, many companies spend endless capital on improving customer elements such as digital platforms, branding, marketing, and/or product R&D with the hope that this alone will close the "customer experience gap" (See Exhibits 1, 2, and 3). However, such efforts often fail those because that spend the most time with the customer (e.g., employees ) are generally an afterthought, equating to significant pain points in the customer journey.
Accordingly, organizations must create employees that will be inspired and engaged to create those “wow” moments for customers because the company first created those "wow" moments for its employees. Simply, if a company wants loyal, engaged customers it first needs loyal, engaged employees. Thus, any customer experience capital investment that doesn’t include both an employee and customer first mindset will fail. This requires companies to look internally at organizational health, culture, and employee transformations as the gateway to customer success and growth. While daunting, the end-result will be worth the investment. The proposed customer experience quadrant™ dives into the five key areas necessary for customer success as well as explore the accompanying financial levers that separate bottom performers from customer experience winners (See Exhibits 1 and 2).
- Overview -
The Customer Experience Quadrant™
In its simplest form, the “customer experience quadrant™” illustrates the key revenue and cost drivers associated with either top or bottom-quartile customer experience (See Exhibit 4). While Net Promoter Scores (NPS) are a convenient and generally powerful way to measure customer loyalty, alone these scores do not tell an enterprise how or why its customer experience is either good or bad. Consequently, the customer experience quadrant highlights five key drivers that impact customer success and ultimately profit. Additionally, this quadrant ensures transformation tracking and enterprise alignment on the key underlying levers for creating a world-class customer experience. Specifically, the customer experience quadrant covers: (1) employee turnover, (2) employee productivity, (3) employee engagement, (4) customer engagement, and (5) customer loyalty and advocacy. Winners and losers are divided into four categories, including:
- Short-Term Benefit | Long-Term Loser (Quadrant I)
- Bottom Quartile Performer (Quadrant II)
- Status Quo Performer | Long-Term Loser (Quadrant III)
- World-Class Customer Experience Winner (Quadrant IV)
- Short-Term Benefit | Long-Term Loser -
In Quadrant I, there is an intense customer growth mindset that leads to quick decision-making but long-term results are overshadowed by short-term prioritization. For example, short-term only gains may stem from quick platform and product fixes instead of internal, organizational changes that bring lasting customer change. This leads to piecemeal and siloed investments in an effort to embed quick fixes. Typical examples include: (1) customer experience transformations that lack an enterprise customer centric mindset, cross-functional collaboration, and an employee first mindset, (2) eCommerce and mCommerce creation that lack omnichannel synchronization, (3) customer loyalty programs that lack personalization due to enterprise silos, and (4) sales capability investments that promote a transactional versus “solution provider” mentality in an effort to simply reach a quarterly quota. Once any quick fix benefit wears off, companies in this quadrant notice that high employee turnover, poor productivity, and low employee engagement continue to hold back sustainable customer engagement and advocacy across the implemented initiatives. This in turn simply creates nagging, unattended customer pain points. Thus, in Quadrant I, costs outpace revenues because continuous investments on immediate enterprise needs trump a medium and long-term customer experience mindset (See Exhibit 4).
- Bottom Quartile Performer -
In Quadrant II, a misguided focus on improving the customer experience is now also compounded by poor organizational health and slow decision-making. Similar to Quadrant I, costs are high stemming from piecemeal and siloed investments in an effort to embed quick fixes. Such a siloed approach leads to customer pain points. However, and unlike Quadrant I that experienced short-term revenue benefit from quick decision-making, companies in Quadrant II instead experience stagnant or declining short-term and long-term revenue. This transpires because the enterprise lacks the agility to quickly act meaning any piecemeal investment is implemented too slowly to drive any short-term benefit. Ultimately those in this quadrant have a near complete neglect of employee engagement, culture, and organizational health - all key drivers of customer experience winners. This leads to a toxic culture, poor employee productivity and engagement, high employee turnover, high customer acquisition costs, and low customer loyalty and engagement (See Exhibit 4).
- Status Quo Performer | Long-Term Loser -
In Quadrant III, both the customer and employee take a back seat to a company’s product and brand. Simply, companies in this quadrant take a “status-quo” approach to customer experience, feeling a differentiated product and prestigious brand are enough to drive customer loyalty. Unfortunately, this “status quo” mindset ultimately stifles the ever-changing needs of customers. Volatility is the new normal, especially when it comes to customer's needs and expectations, and Quadrant III's status quo mentality is the enemy of these ever-quickening innovation cycles across customer success. Thus, when it comes to maintaining loyal customers, organizations must disrupt themselves before others do. Consequently, those in Quadrant III experience internal employee engagement complacency that fails to meet let alone exceed customer expectations. As a result, customer loyalty and advocacy declines equating to stagnant or declining revenues (See Exhibit 4). To summarize, while a differentiated product may have in the past been enough to drive success, those days are over. Without creating a world-class customer experience companies in this quadrant see eventual product and brand failure.
- World-Class Customer Service Winner -
Quadrant IV are top quartile performers that create distinctive customer experiences from an “inside-out | bottoms-up” focus (See Exhibits 5 and 6). Regarding the “inside-out” element, the company looks internally at creating a culture that creates raving employee advocates before it expects to create raving customer advocates and pain point free customer journeys. In addition, the “bottoms-up” element indicates that an organization in this quadrant takes a renewed focus on the frontline on up as the heart, soul, and pulse keepers of the customer takes place at this stage. In this quadrant, there is enterprise wide adoption and sustainability for the long-term. This equates to internal health, high customer loyalty, and improved advocacy, resulting in lower costs to serve, higher customer lifetime value, and profitable growth.
Within this "inside-out | bottoms-up" winning mindset of Quadrant IV, a key emphasis is placed on employee engagement because an employee first mindset is key to customer success. Simply, low customer engagement is highly correlated to employee engagement and is therefore an indicator of customer loyalty and sustainable revenue growth. For example, we've seen that for each dollar invested in improving employee engagement an up to a 4X ROI can be witnessed in improvements across customer engagement (See Exhibit 7). In addition, and according to Gallup, only 30% of employees are engaged in their work (See Exhibit 8). With an up to 4x ROI the investment decision is simple. Those in Quadrant IV understand this critical interdependency.
While many companies invest significant capital into improving customer experience they generally do so with initiatives that neglect one or several of the five key underlying drivers of CX winners, namely, (1) employee turnover, (2) employee productivity, (3) employee engagement, (4) customer engagement, and (5) customer loyalty and advocacy. Without focusing on the first three elements (i.e., an employee first mindset), employee turnover costs significantly grow, empowerment decreases, inspiration is replaced by disgruntlement, and engagement is swallowed by complacency. This leads to destined failure on the customer front. Most companies in both the F500 and private space fall within Quadrants 1, 2, and 3 of the "customer experience quadrant," leaving a small remnant that achieve Quadrant 4 status (i.e., those that offer a consistent world-class customer experience). In its simplest form, this “customer experience quadrant” illustrates that there are key revenue and cost implications associated with either top or bottom-quartile CX performance. Finally, it specifically distills success into employee and customer engagement levers as these two must co-exist together in order to create sustainable, "wow" customer experiences.
Breaking It Down
- Understanding the Why & How of Each KPI -
Measuring customer experience transformations should not be overly complex but instead should be simple enough to be dynamically tracked in an enterprise dashboard, allowing for real-time insights. While the proposed customer experience quadrant can shed light on overlooked customer success driver it is also a holistic KPI roadmap for ensuring focus on the key levers of customer experience success. In turn, this allows for near real-time tracking throughout the transformation journey. It should be noted that while many organizations may rely on Net Promoter Score (NPS) alone for measuring customer experience, such a methodology will likely lead to an incomplete view of the enterprise’s customer capabilities. For example, while NPS is indeed a solid and generally efficient marker for measuring “customer loyalty” there are many other factors that contribute to a world-class customer experience. Simply, while loyalty and thus a top quartile NPS is perhaps the end game, this metric alone does not tell an organization how to arrive at this aspirational goal. For example, during a personal diet, weighing oneself every morning is a nice indicator of one’s progress yet it does not tell you “how” to lose the weight. Similarly, NPS is a good pulse check and indicator of current loyalty levels yet is insufficient at telling an enterprise how to offer and build a winning customer experience. Consequently, the customer experience quadrant incorporates NPS but also leverages four additional key components that don’t just inform an enterprise of its current state but also exposes the core underlying issues that accompany customer experience winners and losers (See Exhibit 9).
1. Employee Turnover
- Why It’s Important: High employee turnover is oftentimes a sign of a larger, macro level enterprise problem that generally links back to cultural issues. For example, how an employee feels about their work environment is equally as important as the actions that follow. An empowered, “employee first” environment stemming from an inspired, purpose driven culture ensures: (1) increased revenue stemming from greater productivity, inspiration, and innovation and (2) lower costs stemming from decreased turnover and training/onboarding expenses. On the other hand, high employee turnover can significantly decrease the company’s bottom line. This stems from high onboarding costs and poor productivity, which equates to more full time employees than necessary. In addition, high turnover also drains an organization of its talent. By improving turnover, internal expertise and thus productivity improves because additional time with a company generally leads to greater fluency and expertise in the employee’s designated area. In addition, lower turnover drives higher employee morale and engagement, which is highly correlated to customer engagement. Simply, employee turnover is not only a pulse check on a company's culture but also dramatically impacts the customer experience as well as the top and bottom line.
- How to Measure: Tracking turnover should be segmented into four areas, specifically: (1) non-voluntary separation, (2) voluntary departure, (3) retirement, and (4) new hire turnover. Retirement should generally be excluded, as the greatest insights come from tracking involuntary and voluntary separations. Both historical and competitive/industry benchmarks should be examined as turnover varies by industry. Finally, new hire turnover rate (i.e., new employees who leave within a year), should also be tracked, as this is an excellent indicator of internal culture gaps and organizational health. Remember, employee turnover is highly correlated to culture; culture is highly correlated to employee engagement; and employee engagement is ultimately highly correlated to customer experience winners.
2. Employee Productivity
- Why It’s Important: Employees can either have an “employee” or “owner” mindset. An "employee" mindset produces a begrudging mentality that drains financial performance while an “owner” mentality produces engaged advocates for the organization - advocates that not only meet but also exceed enterprise and customer expectations. Simply, an ownership mindset organically improves employee productivity, drives innovation, and ushers in a mentality that looks to create “wow” customer experiences, leading to greater customer lifetime value.
- How to Measure: Employee productivity can be measured via: (1) revenue per full-time employee (FTE), (2) margin per FTE, and/or (3) NPS per FTE. Again, this should be benchmarked internally against historical data as well as externally against competitive/industry data.
3. Employee Engagement
- Why It’s Important: Employee engagement is highly correlated to customer engagement, which in turn is highly correlated to revenue and profits. Simply, employee engagement can predict whether customers become detractors or advocates. Thus, the mentality “I bring my best to work every day” is a must for engagement, productivity, enterprise effectiveness, innovation, and customer loyalty. This requires an internal investment but will be rewarded with employee loyalty and an improved customer experience. For example, our research and client engagements illustrate that each dollar invested in improving employee engagement can reap up to an ~4X ROI with customers (See Exhibit 7). In addition, and according to Gallup, highly engaged organizations have double the rate of success of lower engaged organizations while also enjoying significant improvements in profitable growth. On the other hand, and according to another Gallup study, almost 70% of employees are either destroying or not creating any value day in and day out, leaving only 30% of employees truly engaged in their work (See Exhibit 8). With an up to 4X ROI the decision to invest in raising employee engagement is simple. To summarize, customer engagement begins with employee engagement.
- How to Measure: Employee engagement can be measured via Employee Net Promoter Score (eNPS). As noted, winners in today's ever-quickening innovation cycles are not those with size but rather those with speed. This is true in both drawing out real-time insights as well as quickly acting on those insights. eNPS, unlike an OHI which may be done annually with the aggregated results not coming in for another several months, provides near real-time input. This ensures constant enterprise pulse tracking, near real-time course corrections, and timely employee feedback. Ultimately such a methodology ensures employees are creating customer advocates rather than detractors.
4. Customer Engagement
- Why It’s Important: Customer engagement is highly correlated to profitable growth. Ultimately, distinctive customer engagement is where the following four elements collide, specifically: (1) world-class employee engagement stemming from an ownership mindset, (2) enterprise customer-centric mindset, (3) a purpose driven culture, and a (4) pain point free customer journey. Without high customer engagement, customer lifetime value declines, acquisition costs increase, and growth stagnates.
- How to Measure: Customer engagement can be measured in multiple different manners and will likely vary by industry and product(s) or service(s) offered. In general, customer engagement can be measured via: (1) average order value (AOV), (2) number of items per order, (3) visit frequency, (4) frequency of purchases, (5) length of stay/activity time, (6) customer lifetime value, and (7) customer satisfaction (e.g., CSat). Note that NPS is not included in this section but rather reserved for measuring customer loyalty and advocacy (see below). As noted, while NPS can be a strong indicator of loyalty there are many other factors that contribute to customer engagement and a winning customer experience. For example, perhaps customers are temporarily engaged with a brand due to lower pricing options. However, low pricing can lead to a race to the bottom as well as to fickle customers (i.e., customers that look loyal via a temporarily high NPS yet quickly shop elsewhere upon seeing lower pricing). Thus, enterprises that only base their customer experience around NPS may be getting a false sense of security and an incomplete picture of where they truly stand in offering a holistic and sustainable customer experience.
5. Customer Loyalty & Advocacy
- Why It’s Important: Top quartile customer loyalty and advocacy improves NPS and creates organic brand builders and influencers. This equates to (1) decreased customer acquisition costs (i.e., lower marketing expenses stemming from organic brand influencers), (2) improved recommendations (i.e., greater customer advocacy), and (3) enhanced brand perception, all of which lead to increased top and bottom line performance. In today's social media heavy landscape where customers have the ability to sway public opinion, customer loyalty and advocacy has never been a more critical lever in creating winners.
- How to Measure: Customer loyalty and advocacy can be measured via: (1) Net Promoter Score (NPS) and (2) customer acquisition costs. If the previous four KPI’s are healthy than NPS should accurately reflect this. On the other hand, poor NPS illustrates problems across employee turnover, employee productivity, employee engagement, and customer engagement. Finally, as NPS improves customer acquisition costs should decrease because greater advocacy drives both improved organic brand influencers and increased number of new customers from friend/colleague referrals.
As noted, in today’s ever-quickening innovation cycles, winners are those with speed rather than those with size. Accordingly, the customer experience quadrant brings focus to five core underlying components of customer success - all of which are easy to track in real time, ensuring agility, speed, and real-time insights. Ultimately, any enterprise must keep a constant pulse on both its employees and customers because there is a strong correlation between employee advocacy and customer advocacy. Simply, employee engagement can predict whether customers become detractors or advocates. Thus, if an enterprise wants raving customers it first needs to create raving employees. Accordingly, the five KPI’s of the customer experience quadrant are either related to employees or customers because these are two of the most highly correlated data points for driving a distinctive customer experience, service excellence and profitable revenue growth.
In today's consumer centric landscape, customers hold more power and play a larger role in the enterprise than ever before. Simply, volatility is the new normal with customers acting as the CEO of the Fourth Industrial Revolution. Thus, a distinctive customer experience is no longer just a competitive advantage but rather table stakes. Accordingly, companies must make customer experience a top priority. In addition, the days of being successful on merely a differentiated product are over. Without creating a world-class customer experience the product alone will fail. To stay ahead of customer's ever-evolving needs, companies must disrupt themselves before others do. Otherwise, a status quo mentality sets in, leading to internal engagement complacency that fails to meet let alone exceed customer expectations.
The customer experience quadrant illustrates that customer loyalty and employee advocacy are highly correlated yet this critical interdependency is often overlooked. If a company wants loyal, engaged customers it must first create loyal, engaged employees. Specifically, customer loyalty begins internally with employee loyalty, not with products, branding, digital, or marketing. The proposed customer experience quadrant highlights five core underlying components necessary for a distinctive customer experience. By closely following these five KPIs, an enterprise can nicely position itself to transition from the bottom to top quartile in customer experience. Simply, by leveraging this roadmap, enterprises can improve organizational health, drive employee engagement, and create engaged customers that spend more, become brand advocates, and have a higher lifetime value - all necessities for staying viable in both the present and the future.
About the Author
Joshua Seedman is the founder and chairman of PNI Consulting, a management consulting firm that specializes in global transformations. He has over 20 years of operating and general management experience with expertise in organizational transformations, customer experience, employee engagement, digital transformations, sales & marketing, operational turnarounds, culture/change management, and high-stakes negotiations. His experience includes executive roles within F500 companies, top-tier consulting leadership (McKinsey & Company), over 10 years of global P&L responsibility, and corporate lawyer (Davis Polk & Wardwell). He received his MBA from Kellogg School of Management and his Juris Doctor (cum laude) from Northwestern University School of Law.