Clayton gets it right

Clayton_Christensen_World_Economic_Forum_2013In this interview, Clayton Christensen spells out some ideas which are so right that they almost have the force of Laws for Business.

Clayton Christensen is the godfather of innovation. His books define how people think about innovation, education and disruption (and more recently, values).  Strategy + Business, the management journal from Booz and Co., published a great interview with him here.

In it, he says two things that ring so true that I think they deserve to become laws of business, especially when looked at through a customer lens.

The first concerns decision-making:

“When you make a decision based on expediency—because you think you can get away with paying only a smaller, marginal cost—you always pay the full cost in the end.”

He’s talking here about our personal lives, but it applies in spades in the customer world.  The contact centre which drives agents to keep calls as short as possible for cost purposes almost always pays a higher eventual cost in terms of customers calling again, customer dissatisfaction, agent retention and customer churn.  The website which skimps on early customer testing during the design phase will almost certainly have to spend a fortune in redesign once it goes live and customers don’t like it.

So, if I may, Christensen’s First Law:

If you skimp on things early, you pay much more later. Every time.

The second quote is more substantial, but even more fundamental:

“You might also ask, “What is the job to be done?” Every company needs a robust theory of the job that it’s facing. At the fundamental level, most jobs don’t change very much, even though the technology does. When he was the emperor of Rome, Julius Caesar had to exchange messages rapidly with his far-flung governors. He used horsemen with chariots. Today, we have FedEx, but the job hasn’t changed. If you’re focused on the job that has to be done, you’ll be more likely to catch the next technology that does it better. If you frame your business by product or technology, you won’t see the next disruptor when it comes along.”

Who is doing “the job?” The customer.

And so to Christensen’s Second Law:

Focus on the job to be done or you’ll be beaten by someone who does. 

It’s a short interview, but full of good things.  Read and enjoy.

(Tip of hat to Petrina Alexander, who first drew my attention to the article).

(Image credit: Remy Steinegger, World Economic Forum under Creative Commons License)

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The customer revolution begins…at start-up

Customer rockLean Start-Up methods offer an overwhelming case for working with customers as early in the product cycle as possible. This lesson applies to all of us, not just start-ups.

Eric Ries, the author of Lean Start-Up, worked with Steve Blank while he was forming his ideas.  Steve has just posted on the HBR blog a phenomenal summary of the lean start-up approach and why it, as he says, “…changes everything.”

Lean start-up relies on a number of tools – experimental design, minimum viable product and so forth – but if I read him right, one of the central concepts which makes it work is this: the only authority is the customer.

This idea runs through the process like a name through a stick of rock.  Involving the customer in the design process, getting to customers early, behavioural (A/B) testing – the whole lean start-up gamut begins with the customer and how propositions can only succeed if they are designed with and for the customer from the get-go. At all stages, the primary decision driver is what the customer tells us (or better, shows us).

Build it like this, and the customer experience is not an overlay to be applied afterwards, nor is it something ‘fluffy’ or intangible or unimportant – instead, the proposition and the customer experience become the same thing.

Even more interesting is the lean start-up promise that doing things this way will get our propositions to market MUCH more quickly and (probably) more cheaply than the alternatives.

Thinking this way changes everything.

Does it apply only to start-ups?

I don’t see why. Are there really any barriers stopping the rest of us from applying these ideas in our organisations right now?

I didn’t think so.

The Case of the Cashless Customer

ImageAs some of you may know, I have spent a little time in the arcane world of mobile payments.  Dave Birch is one of the good guys in this space (an excellent mix of enthusiasm and scepticism in equal parts).  In this piece, he shows (with tongue firmly in cheek) what happens when new technologies hit the market but the preferred customer experience is still being worked out.

All you need to know is that he doesn’t want to pay with cash. If you like this kind of thing, read on…

 

How do you know your strategy is working? You say no.

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The Separation of the Sheep and Goats,
Basilica of Sant’Apollinare Nuovo, Ravenna, c540AD

A good strategy sets out our priorities. Priorities, however, are only valid when we know what we won’t do.

In my experience, organisations are full of managers willing to claim that “…X is our top priority.”

It is much harder to find managers willing to say  “…X is our top priority, so we won’t do Y.”  Which is funny, because this is what top priority means: other things won’t get done. And this is OK, because we are putting our resources and attention into the things that matter most instead..

What tells us what matters most?  Our strategy. If our strategy is clear, we know which markets, customer, products, services and capabilities are most important to us. By implication, we also know which are not.

For those of us interested in customers (and I assume that is pretty much all of us), then if our strategy is any good, we have to make some tough calls.

For example: Are all our customers equally important?

For most organisations, the answer is probably no.   So the next question follows. What are we doing to make sure that our most important customers get the service they need and expect?  And what are doing to make sure that lower priority customers do not get service or resources at the expense of our top priorities?

This is often a tough call. But organisations which genuinely answer these questions can be very successful. Apple, as one example, do not seem interested in mobile phone customers on tight budgets, and they are doing all right. Low cost airline Ryanair, as another, are interested only in the budget customer – and they are one of the most profitable airlines in Europe.

Setting strategy is easy. Doing it is hard. And our willingness (or otherwise) to use strategy to set high and low priorities is one of the one of the reasons why.

What’s the difference between sales and service? Nothing.

Call centreWhen a customer expresses a need, then a failure to sell to that need is a failure of service. Thinking about sales as a service opens the door to genuine alignment of customer experience.

A long time ago, I spoke to someone who helped set up the contact centre for a new retail bank.  He explained that the philosophy of this bank was different from any other than in operation in the UK. Its aim was to help customers and give them a good experience.

I was intrigued when he explained that for the contact centre this meant not distinguishing between sales and service. The same agents handled all customer queries, including selling new products to the customer .

“Surely,” I said, “this has to compromise the customer experience?  When I, as a customer, need help, if agents try to sell me stuff when I call I will get annoyed very quickly.”

“Not at all,” he said. “Our agents are bonused on customer retention and advocacy, not sales.”

I said, “So won’t that mean, instead, that your agents won’t sell to customers for fear of hacking them off? Won’t that damage your revenues?”

He smiled. “Just the opposite. We train our agents to understand that their role is to help customers with their needs as much as they can. Each customer who calls us needs help – or else they wouldn’t pick up the phone. Most of these needs we can help directly: make a payment, check a transaction and so forth. But sometimes a customer’s need can only be helped with a new product.

“For example,” he continued, “a customer might want a better return on the surplus money sitting in their zero-interest current account. The best way we can help them is to explain the kinds of additional services we can offer such as savings accounts, bonds or ISAs. We then give them a chance to buy.

“If we don’t have this sales conversation, we will have had a customer with a need and we have not helped. That failure to sell is a failure of service.”

This philosophy seems to have worked. From its founding, this bank has balanced solid customer and revenue growth with a reputation as the UK bank with the most satisfied customers.

This principle seems to me to lie at the heart of the term ‘customer-centric’.  It connects sales and service with the same goal: helping the customer.

It means that agents have to believe that what they are selling is of genuine value to the customer: as they have to service the customer afterwards, there is no incentive to sell them a pup. And it properly positions sales as part of a positive customer experience – which is as it should be.

For those of us who are striving in our organisations to make things better for customers, this story poses two challenges.

First, how is the way we sell genuinely part of a joined-up philosophy of customer service – or are sales ‘pushed’ on customers regardless of value?

As for the second challenge? Customers now have many more channels for service. These include email, chat, forums, web sites, mobile or social media.

This challenge, it seems to me, is not the technology. Nor is it the need to design for the interactions we might have with customers (and which customers might have with us) (and with each other).

It is instead to do with how well, when trying to give customers a consistent, seamless, multi-channel experience, we apply a key principle:

How do we make sure that every customer touch point adds value to the customer, helps them with their needs and, yes, sells to them as part of the service?

As my friend with his contact centre showed, if we can meet this challenge and begin with this principle, the results, for our customers, and for our business, can be phenomenal.

Seth nails it

Sinclair C5Only when we build for our customers will they come.

Seth Godin’s blog offers profound, sparse and almost haiku-like wisdom about the new marketing.  If you don’t follow him yet, you should.

In this post, Choose Your Customers, he explains, in very few words, what in my experience is the most common problem leading to product and market failure: when we begin with the product, not the customer.

When we begin with our great product and try to sell it, we are doomed to fail.  If we want people to buy what we do, we have to begin instead with what they need and want, and build (and sell) (and service) from there.

Simple, really – but so easy to forget in the daily muck and bullets of business.

 

Stop complexity from killing the customer experience

Complexity mazeComplexity kills good customer service. We can use the rule of 50/5  to cut through this complexity and  transform the customer experience.

I once worked for a multi-national technology company with a turnover of tens of billion of pounds. The organisation’s processes and systems were so complicated and intertwined that any improvement efforts were doomed, if not to failure, then to mediocrity.

Any new customer fix – a system, a process, a metric or a behaviour change – was just another complication in an already complicated environment. Sooner or later, those in the customer front line would make mistakes because complexity introduced by the new fix made errors more likely. Their normal tasks might often take longer, as the new fix might need new skills or new thinking. It might increase complaints, perhaps through teething problems, or because expectations for improved performance were too high.

In short, because corporate sclerosis was gumming up the customer experience veins, ‘improvements’ were likely to make things more error-prone, slower, less easy, and, almost certainly, substantially more expensive.

This is because of one of the infallible laws of business, something I was fortunate to learn early in my career, courtesy of George Elliott: complexity ALWAYS increases costs, and by much more than we think.

Paradoxically, however,  how complexity drives costs offers a powerful way to enable customer transformation. This is because (again as George explained in my youth) these costs always appear in the same way: they follow the rule of 50/5.

50% of your costs are associated with 5% of your activity, and vice versa.

In the almost one hundred companies with which I have worked, while some the precise numbers have varied a little, I have never seen this rule to be wrong. It is a cast iron law of business.

What’s brilliant about this principle is that it applies in so many ways. Here are some I have found useful:

  • 5% of customers account for 50% of service costs
  • 5% of customers account for 50% of revenues
  • 5% of our customer enquiries yield 50% of our sales
  • 50% of our people’s time is spent working on issues raised by 5% of our customers
  • 50% of escalations come from 5% of customers

For each one of these, the complementary statement is also true: as well as 5% of customers causing 50% of service costs, so 50% of customers cause only 5% of service costs.

Why is this important? Because it means we have a practical way to focus our improvement efforts to deliver effective transformation, reduce complexity and make things genuinely better.

So for one tech company for which I worked, we found that 3% of escalations were consuming 38% of engineer time. We identified and eliminated the causes of almost all these escalations. This enabled the organisation to free up a quarter of their engineers to work on proactive services,  adding value to their customers. At the same time they kept some engineer capacity in reserve to handle the many fewer new escalations which inevitably would still arise.

For another company, recognising that 4.5% of their customers yielded 53% of their revenues drove them to offer premium services to these customers – increasing revenues and retention.

At the same time, they reduced services to the 48% of customers who contributed only 4.9% of revenues, but offered them the chance to upgrade. Result? Some of these unprofitable customers left, some stayed, but cost less to serve – but enough upgraded to make this customer segment twice as profitable.

This thinking works.

But beware. Standard accounting cost models don’t give you a true picture of these costs (because they assign overhead costs uniformly across the board as opposed to how the costs are actually being consumed) .

So let’s begin using the rule of 50/5, but not by looking at budgets and costs on a spreadsheet. Let’s get out from behind our desks to see what is really happening. Let’s look, not at the cost numbers, but where our people are putting in the work with our customers. We’ll soon see where the rule of 50/5 works in our business, and how we can use it to cut through complexity to make things better for our customers.

 

Fresh thinking about the customer