Shareholder Return and the Customer Experience: A Case for Investment in the Customer Experience
I recently came across a very intriguing bit of research that suggests the benefits of investments in the customer experience in terms of shareholder return.
Great customer service processes and people are not built overnight. They take years of investment to cultivate. Unfortunately, for some publically traded companies, the short-term demands of Wall Street make such investment difficult. The demands of investors to meet earnings estimates for the next quarter can make it difficult for managers to invest in the customer experience – the payback is too slow and uncertain.
Stockholders have little patience nowadays with investments that do not show a clear and quick return. To ensure that managers are acting in the owners’ interests, management incentives are more frequently tied to quarterly financial performance than to difficult-to-measure variables like customer loyalty.
Given great customer experiences are not built overnight, they are constantly at risk of budget cuts by managers who would boost short term earning at their expense. Service initiatives have a tendency to come and go in large companies before they have a chance to prove their worth, resulting in customer frustration, employee cynicism and widespread service mediocrity.
Service gurus talk about the need for “investor loyalty” as a counterbalance to customer loyalty, but that requires a visionary, motivated and stable management team who can convince investors to look farther ahead.
Easier said than done, right? How does one make the case for investments in the customer experience in an environment that demands making the next quarters numbers?
Jim Picoult, founder of Watermark Consulting, has an answer. Jim has created a stock index based on Forester’s annual Customer Experience Index (CXI). Jim calculated the returns of two hypothetical portfolios consisting of the top and bottom 10 publicly traded companies in Forester’s CXI for a six year period ending in 2012. Each year he rebalanced the two portfolios based on Forester’s new rankings. The portfolio comprised of companies ranked in Forester’s top 10 yielded a cumulative return of 43%, compared to 14.5% for the S&P 500. The portfolio containing the bottom 10, yielded a cumulative return of negative 33.9% – it lost a third of its value.
Now, correlation is not causation, and there are a lot of factors at play here. But clearly the managers of firms in the portfolio of Forester’s top 10 were able to both deliver shareholder value and invest in the customer experience.
It all comes down to thinking of the customer as an asset in which to invest and realize a return.
3 responses to “Shareholder Return and the Customer Experience: A Case for Investment in the Customer Experience”
Trackbacks / Pingbacks
- - April 22, 2014
- - April 23, 2014
Kinesis CEM 
The findings of what you call the ‘intriguing bit of research’ by Watermark Consulting, strongly re-confirm that the long-held fixation with the idea of ‘enhancing shareholders value’ as the primary purpose of a firm is making way for the strongly emerging ‘customer driven capitalism.’ Eric, you hit the nail right on its head when you say only “visionary, motivated and stable management team(s) can convince investors to look farther ahead”.
Some companies may be switching over to ‘customer first’ policy for mere public posturing but many, indeed, have been moved to do so out of genuine belief that customer satisfaction has to be handled as a matter of topmost priority. Accordingly, they have equipped themselves with the right kind of resources—people, knowledge, skills, systems, processes and organisational structure—to deliver customer service meeting promised quality standards. And yet, it is not uncommon to find wide gaps between promise and performance; between policy and practice. Why does it happen in companies which claim to be customer-centric as a matter of organizational culture? Where does the disconnect occur? Why does schizophrenia begin to characterize people’s behavior? Why mission statements turn into mere posters?
It took targeted empirical research spanning 200 professionals as respondents, 12 companies and a period of over three years to uncover two fundamental issues at the root of customers’ unmet expectations—policy paradox and lack of a culture of discipline. Working through a number of operational areas, these two defaults create cogent reasons for schizophrenia to hit a company with attendant negative impact on its performance.
LikeLike