How can board members keep up to date with understanding and interpreting customer needs?
Research by Bain & Co shows that while 80% of executives think they deliver a good customer experience at their organisation, only around 8% of their customers agree, so why the discrepancy? Let’s enter the customer boardroom.
The customer voice is ever more important to the success and evolution of businesses. However, between the skillsets, structure, willingness, pressures and mechanisms under which Boards and CEOs operate, the customer voice is not always being heard.
At our March Navigator Forum, we discussed the ‘Customer Boardroom’, led by keynote speaker, Stephen Bamfylde from Saxton Bampfylde. Discussions looked at how boards can engage more proactively with consumer needs, as well as thinking about the existing barriers to making that happen.
The gap between board values and consumer values
You don’t have to look far to see evidence of a disconnect between boards and consumers. The focus on cost and profit objectives rather than long-term consumer engagement results in friction between what shareholders are pushing for and what’s needed to continue engaging with customers.
That challenge is reflected in the numbers. Huge conglomerates have had to wipe billions from their profits in recent years because their products are increasingly out of step with their customer base. For example, Kraft Heinz experienced a $15.4 billion write-down and a dividend cut of 36% in 2019. At the same time, CEO turnover points to this short-term, two-dimensional approach to success – PwC’s Strategy and Global study reported: “turnover among CEOs at the world’s 2,500 largest companies soared to a record high of 17.5% in 2018.” Meanwhile, brands like Kylie Jenner’s beauty business, Kylie Cosmetics, have overtaken the market as they recognise what customers want, as well as where and how they want to communicate.
It’s not just in the commercial sector that this model of listening and communicating is proving successful either. Stephen raised the subject of universities that have had to align their thinking to see students as customers.
Loughborough University has been a shining example of this. Following the appointment of Vice Chancellor Robert Allison in 2012, the university sought to improve its university rankings in the league tables, which are in part based on student satisfaction. Through a careful and proactive policy of student engagement, it has steadily risen to retain its fifth place ranking in the Times Higher Education (THE) ‘Table of Tables’, as well as being ranked first in the Midlands.
At the heart of the success has been Leadership’s focus on understanding and empathising with student expectations. A primary example was the Vice Chancellor’s approach to handling the pandemic last year. During lockdown he cycled to every student residence to speak to students over a three-week period. The result was enormous student advocacy, epitomised in the trending hashtag #VCBob on social media, and the build-up of enormous good will and trust in the student community towards the University.
Is there a conflict of interest?
As Stephen discussed in his opening presentation, the “customer” of the Board can largely be said to be the shareholders rather than the actual customers of the business. The interests of shareholders are not always aligned to doing the right thing by consumers – at least not on the face of things. As the focus is principally on protecting established board practices (remuneration, audit, risk) boards are often not attuned to the rapidly changing market environment. In particular, that includes the changing nature of customer engagement and its impact on value. Perhaps more problematically, they often don’t have the combined skills or experience to recognise this, even when they want to.
While satisfying customer needs may not equate to immediate financial return, over time, failing to address those needs could have a much more detrimental effect to those all-important established Board priorities. The feeling from the group was that the need to balance short- and long-term goals is vital. It’s a matter that also came up in our February Navigator Forum around the role of technology in the customer journey and how best to balance human fundamentals with digital transformation.
For this reason, Boards must become dynamically connected to customers and ensure processes are in place to protect future customer value. Organisations need a Board with a customer mandate, or risk undermining the value of the companies that it is there to protect.
Recruiting the right people
Part of the challenge for businesses is having the right people in the right roles to advocate for the customer. In recent years we have seen the decline of the marketing director title in favour of other positions that purport to be more customer focused (Chief Customer Director, Chief Customer Success Officer, for example). However, the question remains as to how effective and meaningful these roles are or whether they are a superficial nod to change. Equally, what these roles really entail varies enormously from one company to another. Typically, candidates for CEO are also rarely customer-centric in their experience and focus, and they rarely get to actually walk in the customer’s shoes.
Boards need to be able to see things from the customer perspective to gain a true insight into how their experiences translate to company actions. Some brands have been extremely creative in how they make this happen. For example, a large water company undertook a ‘No Water’ challenge, denying its executive volunteers any water for a weekend to make water deprivation real. That included not being able to wash their hands. It made a significant impact on the executive and senior management teams, in particular on understanding the emotions of customers and the behaviours they displayed.
Similarly, UBS Switzerland put their executive teams into wheelchairs and age suits to understand access and disability issues. Such was the emotional impact that a multi-million-dollar project was immediately actioned to respond to widespread, but previously unrecognised, customer need.
Company culture and championing customer representation
Even with “Customer” titles or roles in place, there’s a risk of placing all the responsibility for consumer representation on one individual and thus absolving everyone else. The feeling amongst the group was that the real need is for the consumer voice to be an organisation wide focus.
There is a very strong argument for everyone being accountable for customer outcomes. This culture needs to come from the top and should be championed by the CEO by focusing on the relevant KPIs (e.g., the customer experience matrix and customer loyalty).
There is often a lethargy in Board behaviour that gravitates to the conservative rather than embracing the dynamic nature and implications of the customer and digital world. However, with so many tools available, the opportunity is there to be taken.
Using the right metrics
Metrics are a go-to for almost all businesses when it comes to looking for data to support and inform decision making. However, metrics are only helpful if you’re looking at the right things in the right way. If information is incomplete, biased or irrelevant, it will not help you to make decisions effectively.
Typically, there is a tendency to focus on just one customer metric at Board level, and it’s clouding the picture. The Net Promoter Score has been pushed very effectively but setting incentive-influencing targets around it has created unhelpful behaviours. The point was made very clearly in the forum, that a single NPS or CSat number drives the wrong focus, and that we should be measuring the end-to-end experience instead of one overriding metric.
The conclusion was that metrics need to be focused on desired customer outcomes and not just the measures themselves. The challenge for the board is to put the customer at the heart of the business and to have access to the right insights to understand both logical and emotional needs.
Authenticity and the transformation challenge
It was clear from conversations that there is a real difference between acknowledging the need for a change towards the customer perspective at Board level and making a proactive difference to executive level approaches. Being seen to be doing the right thing can be considered important, but without taking meaningful actions to incorporate it, a lack of consistency and authenticity will not lead to positive change and can be detrimental to the way an organisation is perceived.
Crucial to supporting this change will also be aligning leadership reward and recognition to customer success and performance measures. Highlighting customer performance in board reports and shareholder annual meeting will focus the mindset, as will board remuneration based on both shareholder and Customer value!
The conclusions from this fascinating session really underline the opening observation; CEO’s may be living in blissful ignorance about the reality of the gap between their perception versus the reality of how their customers are feeling. And that gap can result in dramatic myopia to the reality of a rapidly changing customer world!
What should be the board priority – shareholders or customers? The instinct from this discussion was that executive teams should follow the money!!