Establishing Competitive Advantage

VOLUME III • ARTICLE I

WhItEpapEr

Recent research into buying behavior would predict that a random sample of your customers would say they are very satisfied with the products or services eight out of ten times. And that would probably suggest that your organization is doing a good job of maintaining customer-focus. We have found that these results would make most executives feel pretty good. That is, until second level customer loy-alty questions are asked. When customers are asked questions about their intent to endorse or repurchase products or services, the research predicts that these executives would not like what they’ve learned.

Most executives intellectually understand that customer loyalty drives growth, yet the way that some organizations treat their customers, they have under-mined their ability to earn customers’ loyalty. All too often customers who appear to be very satisfied with a product or service are only as loyal as the next best return offered made by your competitionWhich raises the question:

Why are highly satisfied members not necessarily loyal members?

The Root Cause of Declining Service Quality Why many organizations do not maximize customer retention is, at its core, the lack of focusing on the right metrics. Most measurement and management systems are not based on managing long-term cus-tomer loyalty.

Financial metrics are lagging indicators—they tell you nothing in terms of how successful your organization will be in acquiring and retaining customers. By focusing on financial metrics geared to pro-ducing short-term gain, organizations simply drive the wrong behav-iors. Until conventional measurement paradigms change, high levels of customer loyalty will continue to be difficult to achieve.

Many organizations use customer satisfaction as the key metric to determine how well the organization is creating value for customers. The assumption is that if customer satisfaction scores are high, we must be doing things right and our customers must be loyal.

Bad assumption.

Organizations primarily measuring customer satisfaction to gauge customer-centric behaviors are operating from a false premise. There is compelling research that indicates no correlation between customer satisfaction and significant revenue growth. One example of this phenom-enon is illustrated in a Bain Consulting Group study of hundreds of American companies who received customer satisfaction ratings of 85% to 90%. They found absolutely no correlation between the companies’ high customer satisfac-tion scores and evidence of revenue growth.

Over the past two decades Bain and others have documented examples from empirical find-ings across industries, suggesting that the surest and fastest path to increase revenue growth is to improve customer loyalty and retention.

To be sure, customer-centric organizations will enjoy the highest levels of sustainable growth. However, successful execution of a corporate strategy that transitions your organi-zation from customer-focused “satisfaction” to customer-centric “loyalty” remains elusive to

most organizations.

How Customer-Centric is Your Organization? Now that we have dispelled the notion that customer satisfaction is the right metric to evaluate customer loyalty, let’s sharpen the point a little. Customer satisfaction is a necessary condition of customer loyalty. But, customer satisfaction alone does not guarantee customer loyalty because it is a lagging indicator. The reason is there are three types of customers: dissatisfied customers, rationally satisfied custom-ers and emotionally satisfied customers.–Rationally satisfied custom-ers’ behavior mirrors that of dissatisfied customers. That is why 8 to 9 out of 10 customers will say they are satisfied but only 4 or 5 buy again. The gap is explained by your rationally satisfied customers who behave just like dissatisfied customers and, as such, have no sense of loyalty to your organization.

The key leading indicators to measure loyalty are; (1) the percentage of your customers that intend to repurchase, and (2) the percentage of your customers willing to endorse your product or service to others.

Are you wondering why many organizations don’t focus on these metrics? Further, are you wondering why they don’t execute strategies to increase the percentage of customers who intend to repurchase and/or endorse their products or services to others?

To achieve high percentage rates of customers who intend to repurchase and/or are willing to endorse your product/service to others requires creating exceptional value for customers and delivering superior service.

Is Your Organization Customer-Centric?

Is being customer-focused good enough to establish your competitive advantage?

Do you believe you have developed a customer-centric organization?

By WaLt ZEgLInskI & BILL kOWaLskI

© 2009 Integrity Solutions Holdings LLC. May not be reproduced in part or entirety without written permission from Integrity Solutions.

Establishing Competitive Advantage

VOLUME III • ARTICLE I

WhItEpapEr

And that often means foregoing short term gain in exchange for creating value that builds long term customer relationships that fuel growth and profitability.

The Key Factors of Customer LoyaltyEstablishing the right metrics sets the foundation for organizational and individual behavior that increases customer loyalty. The other two mission-critical factors to create a customer-centric organization are people and culture.

The organizational asset most important to determining the level of customer loyalty is employees that are dedicated to creating superior value for customers. In days past product and service quality was considered the main contributor to competitive advantage. That is no longer the case. Today it’s a given that you must have product and service quality to survive, but it’s not enough to thrive. Banks today must create value beyond their product or service offerings to build customer loyalty.

Dedicated employees are not the only factor that creates a customer-centric organization. You must place customers at the center of your strategic planning. But the body of evidence is growing that indicates that a high level of employee engagement enables the long-term, sus-tainable profitability derived from customer loyalty.

To create superior value and deliver exceptional service an organiza-tion must have employees committed to producing intellectual capital and giving discretionary effort. These are the fundamental drivers of competitive advantage today, but neither can be mandated by man-agement. They can only be willingly given by enthusiastic and com-mitted individuals. So how do you increase employee commitment and harness their discretionary effort and intellectual capital?

Banks must place a significantly higher emphasis on the impor-tance of employee engagement. The degree of employee engagement determines the amount of discretionary effort and intellectual capital willingly given.

Equally important to sustaining high levels of employee engagement is the ability to create a culture in which employees believe in your organization’s vision, mission and values. People work best when their activities are clearly aligned with a set of principles that inspire commitment. An organization’s purpose must inspire employees. Your organization’s mission and values must both significantly benefit them and your customers in order for employees to be motivated to give their best effort to create value for customers and deliver excep-tional service.

A Management Road Map to Create a Customer-Centric OrganizationHere’s a bullet proof list of strategies and actions management can take to become a more customer-centric organization that will lead to increased customer value, loyalty and significant revenue growth:

• Createavision,mission,andsetofvalues(orguidingprinciples)that focus on creating value for customers—this is essential to drive the right employee behaviors.

• “Walk the talk” of your organizational values and guidingprinciples.

• Operationally define “customer-centric:” establish metrics thatdefine success and delineate the right behaviors to reinforce.

• Hire the best talent available and pay them better than thecompetition; link some aspect of everyone’s compensation to organizational performance.

• Put your people first—help them fulfill their personal valuesand goals and develop their talents. Involve them in creating the implementation plans needed to drive your customer-focus strategy; invest in them by providing training that’s aligned with organizational strategy and empower them with the authority and responsibility to make decisions that will produce desired results.

• Align all human resource andmanagementpracticesnecessaryto implement your customer-focus strategy and communicate the necessary behaviors and competencies required for successful implementation.

• Emphasizetheimportanceofcommunicationandbuildingtrustbetween employees and managers; share information extensively regarding your organization’s performance and operational strat-egies.

Effective change management strategies are necessary to increase customer-focus and leverage resources to continuously create custom-er value. But even the most brilliant change strategies will fall short of the mark if the majority of employees don’t buy in, because it is execution that generates results, and results are accomplished through the efforts of everyone.

When people are driven by values and an organizational purpose they believe in, given responsibility for the results of their efforts, and recognized and rewarded for what they do, they will deliver excep-tional value and service to your customers. These dynamics create the conditions to establish long-term customer loyalty that results in superior long-term growth._____________________________________________________

For more detailed information on implementing a service-selling pro-cess that reinforces your values, see our other white-papers at:

www.IntegritySolutions.com

- Building a Bridge between Service and Selling- The Drivers That Create Customer Value - Perceptions are Reality: Changing the Value Equation - Are you Hiring the “Right” People to Grow?- Selling the Way Customers Want to Buy- A Top-Down Approach to Breakthrough Results- Winning the Hearts and Minds of Your People

Walt Zeglinski is the CEO & Chief Client Advocate for Integrity Solutions, a performance improvement company that helps its clients to create value for their customers. Walt has over 20 years of successful experience in the corporate performance industry, applying his expertise to successfully diagnose, plan and implement practical solutions for complex business challenges. He has worked with executive teams and frontline sales and service teams across most industries including financial services, healthcare, technology, hospitality and manufacturing. Email: wzeglinski@IntegritySolutions.com

Bill Kowalski is Integrity Solutions’ Senior Vice President of Client Development and Consulting. Bill has fifteen years of executive management experience in sales, marketing and customer service, including seven years as an SVP for a division of Fortune 500 company. He has over ten years of consulting experience in change management and performance improvement, working with private and public sector corporations around the world. Email: bkowalski@IntegritySolutions.com

You may contact Walt or Bill at: Integrity Solutions | www.IntegritySolutions.com | 602-253-5700

© 2009 Integrity Solutions Holdings LLC. May not be reproduced in part or entirety without written permission from Integrity Solutions.