Is being customer centric bad for business?


As part of my research for Connected!, I came across an interesting research study (1). The study shows that being customer centric can decrease financial performance by almost 23%. Wow! This research definitely got my attention. Especially in an age where everyone is singing how wonderful customer centricity is.

As I dug deeper, I found that the study brought out 3 key aspects:

  1. First, customer satisfaction increased with better and more focused attention
  2. Financial performance gains were 8% in cases where competitive activity was weak, and where competitors were not already customer centric
  3. Financial performance degraded by 23% where competitors were already customer centric

Apparently, there were 2 core drivers of the above results. First, organizational overhead or coordination increased significantly in a customer centric organization. Second, high levels of competitive activity showed that very little was to be gained by way of uncovering innovative approaches and meeting unaddressed needs.

There is no arguing with data. Ready to abandon being customer centric?

Not quite because I do have good news for you! Here goes.

  1. First, how customer centric you are cannot be determined solely by top level organizational structures and business divisions. Empirical data is always collected “after” such studies bring out these dramatic revelations. The catch-22 is that existing data does not always tell the whole story.
  2. Second, what may go on in an organization structured by customer segments is a lots of coordination and alignment of incentives against a largely standard product portfolio that doesn’t actually change much by customer segment. Most organizations hence are never really customer centric to begin with. They are just organized by customer segments.
  3. Finally, several organizations do have specific product offerings aligned by segments. And the claims of being ineffective in a strong competitive field are true only if we factor in the dominance of uniform and similar offerings from one organization to the next (banks, insurance, electronics, services, etc.). Such products compete on price, brand, and inertia.

Clearly brand plays a role in being distinctive and preferred. But the right kind of innovation and how we meet customer needs is an even more important factor. The innovation to evolve our ecosystems is often overlooked in customer centric story lines due to the catch-22 of data availability. A central premise of my upcoming book “Connected!” is that the world is getting connected (of course) across industry boundaries. Hence our traditional go to market by product lines is slowly being rendered inadequate. Instead, we need to define our go to market by cross-industry customer experiences. These  experiences in turn must be defined by the overall purpose of our customers. Consequently, that purpose extends beyond our products alone. Everywhere we look, the market is evolving slowly towards that new model. But many of us are still looking inside-out, not outside-in.

Hence our customer centricity doesn’t yield results. Think of the following industry examples which show how the world is getting connected: Google Home, banks connecting with fitness centers,  tech companies like Adobe & Salesforce expanding their portfolio, the evolution of chatbots, Apple Siri connecting with Uber, student education programs like uPromise, wells Fargo connecting with accounting programs, and the list goes on. These examples are still not 100% there, but serve as good indicators of the overall trend we can also term as the API economy.

So what can we do to meet this challenge of being customer centric? Here are the 3 mechanisms for executing and organizing in a connected world. They are part of the chapter innovatively named as “Execution” in the book. Execution is the fifth and final element of the Connected Company framework I lay out in “Connected!”

Connected Communities

We all know about communities of Practice or Innovation. They have been tried in various forms and shapes in our organizations. Communities are people who have grouped themselves by the areas they are most interested in. They have been provided tools to collaborate, share knowledge and ideate. However, more often than not, the collaboration portals are deserted, and chat forums are listless, with spikes of activity every now and then. Moreover, innovation and research groups are often misaligned or unable to tangibly meet the constant ROI demands made of them. The innovators dilemma is a big factor in their ability to succeed.

Instead I recommend a design to achieve our customer centric efforts. The communities under this design must be created consciously with a focus on customer purpose. They must also be disjointed from a singular focus on our own product portfolio. These communities are not separate business units as also outlined in a discussion of ambidextrous organizations in this HBR article. Separate business  units need a clear charter which is not often available at early stages of a changing market. Instead these new connected communities have a simpler charter – to span connected customer experiences. They operate much like an industry consortium and cut across industry lines. These communities must include partners from multiple industries to bring cross-company customer journeys to life. And then, looking outside in, create and pilot new CX programs within their organizations to stitch various product portfolios together.

Whether these Connected Communities should be new business divisions or informal teams is discussed in more detail in the book.  But the key message is to create and gain momentum on a CX program from the outside in, and then use it to enhance and evolve the core, cash cow operations. Some examples are Google’s famous 20% policy, and a recent one is Citi Ventures. The next big hurdle is to operationalize these CX programs. The pillar on CX Focused Org design explains this. 

CX Focused Org Design

We are all customer centric. Or at least we claim to be. We put the customer at the center of everything we do. But then, we turn around and divide our organization by products, businesses, and geographies. Next, we valiantly strive to realize the power of all our capabilities to serve the customer through layers of integration and coordination. This gives rise to the dismal results revealed by the research I referenced in the beginning. Obviously, this approach is missing an essential ingredient that causes the entire recipe to fall short of realizing its full potential.

Let’s consider the top level org structures to be superfluous (for reporting purposes only). Then there really are 2 basic go-to-market models. 1) brands or products going straight to customers, or 2) through an account or customer group often segmented by customer types. Both these models need to be augmented to compete for the connected future. In a CX focused design, this is done by including an overarching CX program layer. Designing for the future is about thinking very clearly about customer experiences in an ecosystem, not just in an independent corporate context. Hence, our top level products should be a combination of value propositions from the entire ecosystem that supports the customer experience. These value propositions will be an output of the Connected Communities. The Nike+ program, and the new Plenti loyalty program are broad examples of this approach. They signify an overall program, but also allow for individual products. Our challenge is to make this CX focused org design standard, not optional. One of the primary hurdles is explicit measurement and accountability. The next section addresses that.

Connected Scorecard

We all know about the Balanced Scorecard and the associated tool called the Strategy Map, originally made famous by Dr. Robert Kaplan. Regardless of how extensively you use these tools, the concept is important to apply and understand, even at a high level. The strategy map alone gives tremendous food for thought. People and how they are motivated along the desired path are critical for a good org design. No amount of coaxing can accomplish what we don’t or can’t measure.

However, the effectiveness of any methodology depends on what we feed into it. In this case, the primary input is the strategy or the way to play. I’ve introduced a simple, easy-to-use Connected Scorecard as an input to existent management methodologies. This scorecard brings the outside-in perspective to the top of the food chain. It provides a simple way to measure how we are achieving the goals of meeting the needs of our customers in a connected world.  There are only 2 measurement groups  – ecosystem, and customer journeys. The first one measures how well we are including players in a cross industry fashion (coverage, relationship strength, competitive parity) . The second one measures the breadth (how many) and depth (how well, financial contribution) of the customer journeys we are enabling. The Connected Scorecard will hopefully mitigate the problems of isolated innovation, competitive inertia, and the issue of balancing the future with the present. It gives us a practical framework for driving and measuring our effectiveness in a connected world.

In summary, measuring the effectiveness of being customer centric can be viewed through the lens of finding unmet needs to leapfrog the competition. In order to do that, it is critical to actively address customer journeys in a world where industry boundaries are crumbling.

(1) The research study referenced can be found here.

(2) Image credit

Thanks for reading! Please do share your feedback and thoughts. This blog is based on my upcoming book Connected! – How #platforms of today will be apps of tomorrow. The book outlines how the platform story of today will evolve in the near future, and presents a “Connected Company” framework. One of the pillars of the framework is Execution (which we read about today). Read about the book here, and sign up to receive updates and launch discounts. Also visit my first book Dancing The Digital Tune which brings out 5 principles of customer engagement and creating a strategy for the digital world. It was of course, also the foundation for Connected!



Moving towards Ecosystem based CX

One of the primary goals of the “Connected Company” framework is customer engagement. The terms customer engagement and customer experience take on a new meaning in the connected context. In Connected!, I bring out the need to focus on Ecosystem based CX instead of company specific CX.

Ecosystem Based CX

Traditionally, we’ve relied on industry based customer personas and use cases. And we’ve measured our effectiveness through channel maturity and execution. But as we move towards a connected world, those use cases and personas will be woefully inadequate. The value we bring to our clients may look to be exceptional if we look inwardly, but to our customers, we will appear to be stuck in the stone-age.

Consider these examples:

  • The financial technology (FinTech) revolution is emerging in the banking industry. Banks have excellent products and robust risk management procedures. They even have free checking accounts, great cash back programs and even protect us 100% in case of fraud on our cards and accounts. But they are far from being the heroes today. Instead our heroes are those that are able to capture the customer front end, look beyond the core banking products and provide a service which banks fail to do. Our hero is the mobile phone app that takes the change from our retail spend and invests it into a retirement account. Or the app that lives off commissions on payments transactions but provides a seamless experience.
  • Retailers are trying to reach customers by way of coupons, promotions and deals of the week. We’ve reached a point where customers have become so accustomed to price discounts that a deal must always be present, and customers will always double check it too! Efforts to change this has resulted in huge failures (e.g.  J.C. Penney). Moreover, an offer never reaches customers when they need it. To the customers, despite all our attractive stores and technology, we are still stuck with the marketing models of the old. If customers are actively engaged the game can be instantly raised by many levels. Many retailers are now partnering with the mobile apps of our banks to provide us with deals (e.g. card linked offers). This capability helps both retailers and banks create new ecosystems around the customer and raise the level of one-one dialog and wish-lists. The difference this approach brings from bulk campaigns is profound – especially because we combine a sticky relationship (banking) with a fleeting relationship (retail). Such an approach also mitigates the privacy conundrum plaguing the industries. The Customer Interaction Spectrum explains this well and is an integral part of the Ecosystem Based CX framework .

It is clear that Ecosystem based CX is the need of the future. Consider the following additional scenarios where industry boundaries are being transcended:

  • A retailer partnering with a fitness center to better personalize both sides of the customer experience and commerce
  • A travel agency partnering with a bank to manage 3rd party local payments and risk management. Both of these examples will leverage IoT and rely on digital ecosystems to deliver the experience.
  • A bank partnering with retailers and brand organizations to push personalized promotions to their customers.

As is evident, industry based personas and use cases have their place in the planning and execution of business processes such as support and sales. But they are grossly insufficient to drive the customer experience of the future. We need to build real customer personas, which by their very definition cannot be limited to an industry alone. We need to think of our customers as people. In Connected!, I outline practical ways to develop Ecosystem Based CX – identify the ecosystem, balance corporate priorities, and develop the customer journeys that will propel us into the future.


Connected Company

The Connected Company Framework

Preparing for the connected future will have a far reaching and profound impact on our organizations. We cannot not change how we work, and how we think, and still expect to be creating magic with our customers.

Connected CompanyThe framework that I detail in the book “Connected!” provides a simple and immediately actionable blueprint. It consists of defining what a connected company is, and 5 important capabilities to support the vision.

What is a connected company?

The philosophy of being a connected company relates to an expansion of what we consider as boundaries or limits of our products and resulting customer experiences. Physical boundaries between industries are falling. Measuring ourselves on digital capabilities for distribution and access to our products alone is an approach that is strikingly inadequate for the future. We must instead look at the entire customer engagement ecosystem. We must think of our own products portfolio as an extension of the ecosystem.  That is not an easy evolution. But its becoming easier today with technology. Think of  voice activated devices or chatbots that can connect with your bank and book your flights for you. Or cars fitted with advanced technology that can drive themselves too. Or how Apple is bringing the power of loyalty programs right at the point of sale. These are just the beginnings of this exciting trend.

As a result, the entire concept of digital maturity assessment must change. While individual portfolios and channels can still apply the traditional definition of digital maturity, those parameters are no longer very useful in defining overall competitiveness. To summarize, digital strategy is not about our digital capabilities, but instead it’s about defining how to compete in a digital world.

The 5 capabilities necessary to be a “connected company” are:

  1. Block 1: The concept of Ecosystem based CX shows us how we should be building customer journeys that span not only our channels and products, but instead focus on the customer and leverage the power of our ecosystem. This means that an inside-out customer journey that shows customers interactions and touchpoints with our channels and products across the purchase lifecycle are no longer adequate. We must look outside-in.
  2. Block 2: The 3 Tier Connected Loyalty model will outline how the concept of loyalty has to tap into customer aspirations and motivations and how to extend the loyalty and rewards model to span the connected ecosystem. This approach also helps reduce the “cost of loyalty” while adding greater value to our customers.
  3. Block 3: The connected model of Customer Engagement shows us how emotional and physical engagement touchpoints should and can complement each other. It also shows how to reinforce customer confidence in our brand so we can become a reference anchor in our customers’ minds by being an advice engine. And it shows how to do that the ecosystem we define and evolve for ourselves.
  4. Block 4: The connected model of Integration is about how we present ourselves to our customers to build lasting and meaningful customer relationships. It will show us how we need to unify the combined appeal of all our products and services. In addition, this capability will show us how to extend the value of our portfolio by bringing the power of our ecosystem to our customers.
  5. Block 5: The Execution capability will perhaps clarify the biggest challenge facing leaders today – how to execute and thrive in a new connected world. This block combines various techniques and outlines practical methods to get going and build on the momentum, We will explore the concept of creating and leveraging Connected Communities, what a CX focused organizational design looks like, and how the traditional concept of the balanced scorecard model should be adapted to turn our companies into connected powerhouses.

Now that we have a blueprint of what it means to be a connected company, explore these in more detail.  Get your own copy of Connected! here.


Customer engagement lessons from the holiday season

holiday-shopping-1921658_640-1Let’s start with some cool statistics to set the stage for customer engagement. The numbers are hard hitting. Online sales clearly exceeded offline sales as nicely explained here. 25% more people did not stand in early morning lines.  Obviously the availability of blockbuster deals is not an issue anymore. Good in a way but kind of takes some fun and thrill out of Black Friday.

More interestingly, 40% of online sales were dominated by Amazon. Wal-Mart and others are catching up slowly of course. The prediction is that the big retailers will outperform small and smaller retailers which is a bummer. And lastly all of this pales in comparison to what happens in China. The US thanksgiving TOTAL 4 day online sales are only about 10-15% of online sales on Singles Day!!

Here are some lessons I took away for creating deeper customer engagement:

Ecosystem is important

As we are learning from Amazon, eCommerce is not just transactions and volume, Its about stickiness. With Prime, affiliate marketing, and more products by more marketplace vendors, the ecosystem dwarfs that of other retailers. Consider the added advantages such as eBooks, Amazon video and so on. The question every retailer needs to start asking is very simple. What’s our ecosystem game? And how do we get started?

Mobile is beyond transactions

The steep rise in online sales means that more customers are transacting via mobile phones and tablets. Merely optimizing your mobile site or app does not help. Features such as re-targeting to remind shoppers of products they’ve looked at before, searching local inventory, and allowing social validation and interaction are crucial. In addition, the broad catalog sales approach must give way to more personalized shopping. For this, customer engagement on wishlists or social causes are good methods.

Customers need help planning

A few customers know exactly what they want and go for it. But many are impulsive shoppers. While we know that returns are expensive, online returns are even more expensive. Helping customers set goals, analyze their needs, figure out their gifting etc. is commercially smart. On the one hand, such customer engagement efforts will reduce buyer’s remorse. Even better, customers will avoid the feeling that they somehow lost out on the deals party. It will also help tie your efforts to a noble cause.

Digital commerce is truly here and gaining fast. What we need now is to reinvent our channels for true customer engagement.

The dilemma of digital banking is not about tech

scientist-762627_640I recently had the privilege of speaking at the BAI Beacon conference in Chicago. The topic was about the potential for APIs in financial services. The focus was on customer engagement.

Update: A more detailed version of this blog is now on as an article titled: Pieces in Place: The Rubik’s Cube Model of APIs

This session presented a 3-step model for how opening up and become more connected will improve customer engagement. The 3 steps are below. You can read more on BAI under the pretty bubbly title of “Financial Services APIs: Amazing Potential Innovations“.

  1. Opening up access: Adopt APIs so we can make our services and products available when and where they are needed. This can boost top line growth and help retention.
  2. Originating transactions: Get in the middle of customer experiences to help initiate transactions that otherwise would be triggered elsewhere. For example, improve the adoption of features such as card linked offers, develop wish lists, provide better tools for personal financial management etc.
  3. Connecting experiences, creating value: Focus on improving financial well-being. Orchestrate between both banking and non-banking services. Such services include bill pay, PFM, investments, retailer loyalty programs, goal setting etc. Guide customers, advise them, and ultimately help them meet their financial goals.

However, one thought keeps coming up: Is the first step of this journey really the wholesale core technology and delivery transformation? Should that take place before we can do anything else? Indeed, if we go by popular opinion on financial technology (or FinTech), it does seem to be the case.

In my opinion, upgrade of technology is a reality that must be met as soon as possible. Doing so will help us deliver more efficiently. However, the immediate challenges have to do with customer engagement, differentiation, and building of context. This is arguably more so for full service banking. That is because their business purpose is higher (or can be higher) than simply helping us transact and hold balances.

If we look at what’s happening in the sector, its actually this higher purpose of financial money management and financial well-being, rather than the core banking landscape, that is being disrupted. Innovations are cropping up and aiming to meet peripheral customer needs. Such innovations include – personal financial management, saving for retirement and education, peer to peer payment transactions, lifestyle needs, product warranties, lending and mortgages, broad based loyalty management, and so on. As a result, it is evident that simply supplying various (and disjointed) products and services to customers to choose is not proving to be enough. We need to actively help customers with their goals.

Furthermore, two important considerations arise:

  1. As digital innovations drive customer experience based engagement, the underlying core is becoming more and more invisible and undifferentiated.  Given this trend, step 2 of the model to build context assumes higher importance. I outlined some approaches in this article on BAI titled Think Simple for Digital Transformation.
  2. Although innovations in Fintech provide better and effortless customer experience, the silo transactions may actually be causing defragmentation of customer engagement. So we should be looking at integrating the customer context where possible to drive immediate impact. Here step 3 of the model to build partnerships takes priority.

Those who have scale can start with Step 1 to build strong momentum in a broader market. But for others, there’s actually an opportunity to solve for customer engagement and context first. The underlying enabler will still be technology but they can first focus on creating models of customer and community engagement. These models will then demand various building blocks. And based on these we can then properly utilize and structure the core, if at all we can call it that in the future.

For those out there who are helping their organizations or clients think through these issues, please feel free to get in touch. I’d love to interview you for an upcoming series on best practices. As usual, most of the thought process in this post is based on the 5 principles from my book Dancing The Digital Tune, which are now being extended in my upcoming book – Connected! – How #platforms of today will become apps of tomorrow.

Referenced links:

Appreciate your comments!