Future Customer Experience Differentiation Will Require New Operating Models

At some point after their companies find and fix the low-hanging fruit that creates problems for customers, customer experience leaders hit a wall. That wall is the outdated operational models upon which most companies were built. These models were conceived decades ago, based on the existing capabilities and constraints of the day, when the primary vehicle for value was tied up in the product/service itself. Within these operating models, firms have worked to optimize processes like marketing, sales, and distribution focused on getting to the transaction. Support has been a cost center so limited as much as possible. But this kind of operating model has critical problems. Here are a few that just scratch the surface:

  • Product lines obstruct customer needs that cross the company. Companies organized by product lines force customers to navigate different marketing messages, sales teams, billing systems, and websites and support organizations to get what they need, while internal staff waste effort and fail to create synergies that could deliver a bigger value proposition.
  • Channel strategies don’t account for information transparency. Like product lines, firms regularly treat channels as separate P&Ls. This artifact results in disjointed pricing, confusing return policies, botched hand-offs, and assorted other mishaps that undermine the customer experience. Moreover, it leaves little incentive for the fiefdoms to cooperate on behalf of the customer.
  • Marketing drowns in the roar of the trustworthier crowd. Customers trust peer recommendations at 73% and product ratings and reviews at 63%, while direct mail comes in at a paltry 19%. To be heard, firms spend increasing energy doing this activity that customers don’t care about. An executive at a big-box retailer recently boasted that his team was sending hundreds of personalized campaigns weekly based on analysis of customer behavior. It’s not surprising that operational efficiency around doing things that don’t matter to customers isn’t fixing his company’s problem of declining store sales and margins.
  • Pricing focuses on internal objectives, not customer reality. Netflix, Bank of America, and Verizon all had massive blow-ups when internal pressures led to pricing changes without sufficient understanding of customer perceptions of value. Gimmicks such as airline mileage programs, time-based subscription requirements (e.g., two-year subscriptions that telecommunication companies require) and bait-and-switch first-year introductory pricing offers trap customers rather than creating goodwill and a value proposition that leads to true loyalty.
  • Support contradicts engagement. Firms regularly consider customer service organizations as a cost center, throwing up barriers to customers who actually want to engage with the company about issues important to them. Meanwhile, on the marketing side of the house, staff struggle to engage customers around things they care much less about, namely looking at product pitches. Again, the operational structure not only fails to deliver value to customers when needed but also wastes resources on activities that customers largely ignore.

Firms Need A New Operating Model

Companies that will succeed in differentiating based on customer experience in the future will have to move beyond simply finding and fixing problems within their existing structure and instead create a new operating model. To do this, customer experience leaders should partner with company strategists and business architects to:

  • Use customer outcomes as a guide, rather than products and transactions. Forget about existing product/service silos, functions, and capabilities for a moment. Instead, wear a customer lens to articulate the high-level goals customers seek. Use tools like customer journey mapping (e.g., moments of truth), ethnographic research that uncovers customer jobs or goals, or Business Model Foundry’s Value Proposition Canvas to ground the conversation in customer needs. Then begin to design ecosystems of capabilities, including products, services, processes, interactions, communications, and technologies (including those from partners) that help customers achieve goals.
  • Build a new model based on capabilities to deliver customer outcomes. Use customer journeys or outcomes to rethink roles, responsibilities, and P&Ls that make more sense and account for the emergent capabilities. Be prepared to elevate new capabilities like design, content strategy, customer engagement, data strategy and visualization, and application development over existing roles, as they help deliver outcomes that matter to customers. Firms like USAA and Barclaycard have started to establish ownership and governance structures around key customer journeys (e.g., for USAA, these include car buying or soldier deployment) as part of an emergent new operating model.
  • Use customer perceptions as arbiter of success. Rather than internal perceptions of value (e.g., feature checklists), operational effectiveness (e.g., on-time delivery), or measures of success (e.g., wallet share), turn attention to customer perceptions of these things. Do customers perceive that they’re getting good value from the company? Do customers think you’re easy to do business with? Do customers trust/enjoy/love to do business with your firm (e.g., do customers feel an emotional component beyond the interactions/transactions)? Treat these perceptions as signals that tell you that you’re company is on track — and identify adjustments or changes in expectations.

I'll be speaking more about how companies transform around customer experience, including rethinking their business architecture, at Forrester's Customer Experience Forum East, June 25th to 26th, in New York. I’ve invited my colleague, Derek Miers, to join me. Derek’s research focuses on business architecture and change methods. I’m excited to team up with him in helping firms drive an outside-in mindset more deeply into the way companies operate. I hope to see you there.

Comments

Connecting journey and ecosystem maps to operational models

Graham Hill's comments in this posting (http://tinyurl.com/k2grmnz) articulate this idea nicely. I hadn't heard of Eric Yu's "i* framework" (http://tinyurl.com/khsqnsz), but it also looks interesting.

New models for customer experience

Really interesting article to see these various strands pulled together. As different opportunities to differentiate such as product, channel and technology become commoditised, so the ability to find opportunities to deliver a better and meaningful experience becomes compromised. The great news for those of us who have always positioned 'customer first' is that the 'commercialist' and 'technologists' are finally accepting that profit follows good customer experience and technology is a delivery tool not a message.

That said a new frame of reference still needs to be established. Whilst customer may become more 'front and centre', we still need to ensure the criteria by which we judge a successful outcome is 'betterment to a customers life' which means 'fulfilling an enduring emotional need'. Otherwise we will see a few more dances with 'price', 'access' and 'ease' as acceptable points of difference for customer experience.

In a recent white paper I've been pulling together on 'the role of product in the new world of customer experience' one of the key points from contributors has been the need to break down silo planning and corporate belief systems - as you highlighted.

Much work to do still (especially in educating operations on emotional drivers), but if the consumerists lead we may arrive at the right outcomes. I've recently witnessed a new alternative to call handling which integrates channels, reduces cost to serve, reinforces brand positioning and values through experience (still often omitted) and provides a truly superior experience for customers (evidenced in CSAT/NPS scores), so a better set of outcomes is on its way.

Good reading

Here are some good articles that add insights into evolving operating models. Think of customer experience as a way of innovating, and the articles make sense.

“USAA: Capturing Value from Complexity”, MIT Sloan School of Management, 2013; http://cisr.mit.edu/blog/documents/2013/03/22/mit_cisr_wp389_usaa_mocker...

“Organizing for Advantage”, Booz Allan - http://m.strategy-business.com/article/00194?gko=69783

“The Other Side of Innovation: Solving the Execution Challenge,” Govindarajan, Harvard Business Review; http://www.amazon.com/The-Other-Side-Innovation-Execution/dp/1422166961

“Accelerate!” John Kotter, Harvard Business Review
http://hbr.org/2012/11/accelerate

“How to Change an Organization Without Blowing It Up,” Golden-Biddle, MIT Sloan Management Review; http://sloanreview.mit.edu/article/how-to-change-an-organization-without...