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The Impact of the Chief Customer Officer, Part II

Tuesday, June 24, 2014

Last week, I described recent research conducted by the CCO Council into the impact of the chief customer officer on company financials. This week, I discuss the findings in detail and provide recommendations for managing them.

1. Customer Centricity is a two-year investment

Developing and improving customer strategy is a profitable but longer-term investment. It takes at least two years for the CCO's activities to flow through the company and make a significant impact on top- and bottom-line results. Once these results materialize, however, they appear to continue to grow commensurate with the investment. B2C industries tend to see results more rapidly than B2B. Industries with intense competition show heightened impact from the CCO.  

Recommendation: CEOs and Boards must commit from the outset to support and invest in the CCO and his/her initiatives for a minimum of two years to ensure the highest ROI. In turn, CCOs must manage the expectations of the CEO and Board to allow for this two-year probationary period. 

2. The CCO must show contribution to long-term revenue and profitability improvements 

Companies have demonstrated measurable improvements in revenues and profits while employing a CCO. In some cases, overall revenue drops after the CCO's departure. This research shows that the CCO can and should be accountable for improving top-and bottom-line results, although the impact may not be measurable on a quarterly basis.

Recommendation: CEOs should expect the CCO to provide, in addition to intermediate metrics, quantifiable impact on revenue and profits, and ensure the systems are in place to properly track the CCO's contribution. The CCO should begin by providing a clear line of sight from his or her actions to revenue and profitability. In some cases, the CEO and CCO may need to begin by agreeing upon an intermediate goal of driving loyalty and accept academic research proving that loyalty drives revenue and profit. However, this can only be temporary. 

3. In absence of growth, the CCO may help prevent a slide 

In some industries that experienced negative growth, the presence of the CCO helped stem the decline suffered through competitors and maintain revenues/profits through stronger customer relationships and trust.

Recommendation: The CCO must "bank" customer trust and loyalty to protect customers against hard times. CEOs need to take a less transactional view of activities that may pay dividends at a later date. 

4. Everyone says they are customer centric... 

Every company claims to be customer centric, but fewer actually are. Many publicly-stated company policies remain company centric rather than customer centric, and in the end, those whose actions are aligned with their customer needs are more successful.

Recommendation: The CCO should, with the support of the CEO, examine the policies, actions, and restrictions to ensure that customer needs are met on balance with business needs.

This study clearly shows one thing: CCO's are adding value to the bottom line. While growing steadily from fewer than 30 in 2003, CCOs are the newest, and by far the smallest, component of the C-suite. Many companies look at the CCO position and question if they can afford to add it to their C-Suite team, but the numbers turn that question on its head and ask how they can afford NOT to do so.  

Whether you are a company looking to create a CCO position or currently a CCO looking for resources, we invite to you to explore the CCO Council (www.ccocouncil.org) to give you and your company a true competitive advantage.

*This article is the second in a two-part series excerpted from The Impact of the CCO, available for free download from the CCO Council website here.

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Categories: Chief Customer Officer | Customer Centricity | Customer Engagement | Customer Loyalty | Customer Retention

The Impact of the Chief Customer Officer, Part I

Tuesday, June 17, 2014
Today's customers require access to a company's offerings through many forms of media in order to meet their preferences and lifestyles. Furthermore, they also require a consistent customer experience across these channels since they can easily choose to change vendors if they do not receive support that meets their expectations. So multi-channel accessibility and consistency of experience across those channels have become essential components to winning the competition for customers. More and more, companies are recognizing the financial benefits of customer satisfaction and its proportionate relationships with loyalty and profitability.

With accessibility and the consistency of customer experience in mind, many companies have turned to creating a chief customer officer (CCO) position in the C-Suite. This still-emerging and evolving role can be defined as: the executive responsible for the total relationship with an organization's customers. The challenge has been to tie this position to financial gains and losses to clearly justify the investment. A recent study conducted by the Chief Customer Officer Council has shed some light on the effectiveness of CCO's over a two year period and the numbers are compelling.

This research shows that 67% of evaluated companies saw positive fiscal effects during the tenure of the CCO, with an average growth excess of industry of 5.98%. Given the minimum threshold of $1B annual revenue, this represents a difference of hundreds of millions of dollars. On the flip side, 33% of companies experienced an average of 5.2% decrease in growth excess of industry. Clearly, not all positive or negative results can be attributed to the CCO. It is equally clear however that the influence of the CCO is positively correlated with improved company fiscal performance.

In an effort to identify the impact a chief customer officer has on company financials, the Chief Customer Officer Council researchers narrowed a population of more than 300 companies to a sample of 51 CCOs at 46 separate companies with a CCO in place for at least two years and with nominal revenues of one billion dollars (US) in 2010. For each of these companies, sales revenue, operating margin, and industry sales data were gathered. Where possible, data were gathered from five years prior to the CCO's appointment up to the current time or end of the CCO's employment, whichever was shorter. To eliminate overall industry effects from altering the analysis of the companies' effectiveness over a period of time, company growth excess of industry was computed by subtracting industry from company growth for each year evaluated. 

Here are four key findings from this research:
1. Customer Centricity is a two-year investment
2. The CCO must show contribution to long-term revenue and profitability improvements
3. In absence of growth, the CCO may help prevent a slide
4. Every company says it is customer centric but few truly are

Stay tuned for part two of this two-part series, wherein I'll elaborate on the findings above and offer recommendations for managing them.

*This article is the first in a two-part series excerpted from The Impact of the CCO, available for free download from the CCO Council website here.

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Categories: Chief Customer Officer | Customer Centricity

WHEN Do You Need a Chief Customer Officer?

Wednesday, June 11, 2014

I am often approached by senior level executives and asked whether their company really needs a chief customer officer. Their idea seems to be that some companies need a CCO and some don't. My answer is often in the form of a correction. Hiring a chief customer officer is not an issue of if, but of when. Every company needs a CCO. However, timing is essential if the role is to be successful. Here are six key criteria to help answer the question, "When?"

Does top leadership have an appetite for developing customer centricity?
I have seen CCOs hired for all kinds of good reasons. Yet most of them failed miserably. Why? Because they were out of alignment with company strategy and didn't have explicit support from the CEO. This criterion trumps all the rest.

Is there a recognized strategic business imperative for the CCO?
Customer centricity is often viewed as a "nice to have" rather than a strategic business imperative. What is your burning platform that will galvanize people to action? The CCO is going to be tasked with making huge changes in the organization, and entrenched cultures resist such change unless faced by a greater threat of upset.

Can strategy be driven across the highest levels to systematize change?
An army of one does not win the war, nor does it bring about customer centricity. Executives and employees cannot abdicate their shared responsibility for customers to the CCO. The successful CCO will cultivate strategic allies across every function, driving process change across the company that enhances the profitability of the broadest customer segments.

Is there a willingness to create, capture, and act upon customer data?
Companies need hard customer data to move from the realm of "touchy feely" to solid business decisions with quantifiable results. The organization needs to be willing to initiate customer data collection activities (surveys, transactions, behavior), turn these data into actionable insights, and ensure people are held accountable for taking action.

Can metrics be created that tie customer activities to revenue?
Revenue, profitability, ROI-these are all hard metrics by which priority decisions are made within the C-suite. Without the ability to correlate customer-centric activities to tangible business results, the CCO will be hamstrung.

Does the individual culture desire to serve customers?
Implementing change is challenging for most organizations and resistance to change is human nature. CCOs find this resistance to be their greatest challenge, requiring a significant amount of time and effort. Do your front line employees truly desire to serve customers? Can they be convinced to do so?

Buzzwords like Customer Centricity and Customer Experience can be entrancing and many companies are starting to jump on the chief customer officer bandwagon. The problem is that too many just as easily fall off the bandwagon if they hire a CCO at the wrong time. To ensure success, you need to make sure your company is prepared to make the CCO a core strategic imperative rather than a figurehead. Do your homework, decide on the right time to hire your CCO, and put him or her in the optimal position for success. Your customers will quickly reward you for your due diligence instead of punishing you for a knee jerk reaction.

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Categories: Chief Customer Officer | Customer Centricity | Customer Engagement

The Six Components to Customer Engagement Strategy

Tuesday, June 03, 2014

Customer engagement needs to be a disciplined strategy with ownership, accountability, broad reach, goals, accountability, measures, and a marketing plan of its own to communicate with employees, customers, and other stakeholders. Here are six essential components to a successful customer engagement strategy:

In order to devise an effective strategy, you must first identify what you want engaged customers to do for you. Do you want them to help resolve problems, inspire innovation, co-develop new products or services, generate market insights, improve operational efficiency, enable greater sales velocity, or something else? You need a purpose to give your strategy focus.

Engagement Opportunities
What are the most important collaboration activities that support the engagement strategy? What are the most important advocacy activities that support the engagement strategy? How do you determine each activity’s importance and priority? Once identified, what resources do you have to support these activities?

Customer selection and enticement
How do you identify the ideal customers to participate in an activity that achieves your business goals? What opportunities are best suited to the customers and the pursuit of your goals? How do you entice customers to participate? For some, it’s simply a matter of asking. But others may need incentives or a clearly articulated mutual benefit that makes participation worth their discretionary time.

Measurement and impact on business metrics
You need to find a correlation between the measure of engagement by activity and its impact on the business. How do you measure engagement and how do you demonstrate that correlation? Without it, investment in your strategy is not defensible or sustainable.

Organizational alignment to customer direction
While it’s great if you have customers collaborating and advocating, if the organization is not aligned around delivering improvements or outcomes from these activities, engagement will be short lived. Customers will realize, “Oh, they’re asking me for help but they’re not really doing anything about it, therefore, it’s not worth the investment of my time and energy.” 

Employee engagement
Similar to the process of selecting customers, how do you identify the ideal employees to participate in an activity that achieves your business goals? What opportunities are best suited to the employees and the pursuit of your goals? How do you entice employees to participate? Rewards and incentives, both intrinsic and extrinsic, may be appropriate and necessary to successfully engage employees in the business of engaging customers.

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Categories: Chief Customer Officer | Customer Engagement | Customer Insight | Customer Loyalty | Customer Retention

Three Steps to Manage Customer Crises

Wednesday, May 28, 2014

Customer crises strike without warning, and the chief customer officer must act swiftly and decisively to address root causes and begin rebuilding damaged customer relationships. Over my years of experience working with scores of chief customer officers, I've found three steps that are crucial in successfully managing any crisis:

Build Strong Customer Insight Before Crisis Strikes
As owner of the customer you know the value of thorough customer research, but having detailed data is particularly vital when crisis strikes: your unique customer insight must form the basis of a successful response strategy. Relying on that insight you will be able to specifically target touch points that will resonate with your customers, identify areas of the organization's plan that may exacerbate negative opinion, and determine the best strategies for mitigating that negativity. Have a comprehensive customer research program in place before you're faced with crisis to ensure that the information is there when you need it most.

Focus the Organization on Customer Impact
It's all too common for the wider organization to focus on damage control-acting in self-defense, laying blame, or stonewalling. But this will only worsen already injured customer relationships. Instead, it's imperative for you to lead the organization to focus on customer impact at every step along the road to recovery. This is not to say that every action must have a positive impression; we know there are times the organization must act despite negative impact. Your job is to ensure that at every step someone is asking the question: how will this affect customers? If it's positive, highlight it in a way that strengthens customer relationships, and if it's negative, use your customer insight to mitigate the damage.

Rebuild Damaged Trust
Incorporating high customer touch into routine operations allows you to rebuild trust while creating sustainable customer centric change. Seek opportunities for reassuring customers not only within the recovery, but throughout the organization. Look for functions that can be updated or repackaged to highlight positive customer impacts. Share information with customers by updating call center scripts, or devise high touch outreach programs to provide understanding about particular actions or operations of the organization. Customer trust will return only when customers feel they are receiving honest and forthcoming communication about the problems affecting them and the steps you are taking toward resolution. 

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Categories: Chief Customer Officer | Customer Insight | Customer Loyalty | Customer Retention

Measuring ROI of Customer Centricity-Changes in Customer Value

Tuesday, May 13, 2014

Customer executives are regularly challenged to prove the value of their initiatives. To demonstrate value, executives must speak the language of business so as to allow business leaders to make comparisons and tradeoffs. Executives are primarily interested in increasing revenue, decreasing costs, and mitigating risk. To effectively demonstrate value, customer executives need to show how their customer initiatives impact one or more of these key factors. In my previous post I described the historical retrospective approach whereby incremental per-customer or per–segment revenue gains are correlated with increasing loyalty and engagement. Expected change in customer value is another valuable means of demonstrating ROI.

Many companies use lifetime customer value to justify marketing and customer acquisition efforts. Similarly, positive changes in lifetime value are a result of increased preference, decreased price sensitivity, increased consumption, and greater advocacy. Conversely, lifetime value plummets in response to negative experiences as consumption drops and referrals cease.

A number of years ago, JetBlue analyzed NPS results correlated with passenger behavior and found that each detractor converted to promoter is worth $40 additional profit and each 1-point overall NPS gain yields a $5-8M increase in annual revenue. Highly satisfied customers increase their use of ancillary services such as seat upgrades, box food purchases, etc. Converting a detractor to a promoter yields an additional $100-140 per customer annually, or the equivalent of another flight traveled each year plus ancillary service purchases. Conversely, negative word of mouth costs the company $104 per detractor per year in missed revenue: $72 in lost referrals and $32 in unpurchased ancillary services. 

Put another way, every 25 customers actively promoting JetBlue to friends, family, associates, and on social media equates to one new customer flying JetBlue, whereas only 16 detractors would dissuade an existing customer from flying.  By the same math, it might take 36,000 promoters to increase revenue by $1M, but only 14,000 detractors to realize a revenue loss of $1M.  Every customer value quantification effort must begin with a tangible understanding for each key segment of the length of average customer relationships, costs of new customer acquisition, average customer value, and retention rates. 

Enrich these data by examining how your most loyal and engaged customers within critical segments behave differently than your least engaged. Examine factors such as overall profitability, repeat purchase frequency and volume, longevity, share of wallet, breadth of product portfolio purchased (i.e. the ancillary services mentioned above), the number and value of new customers acquired through references and referrals provided each year. For many companies the annual value of these computations are significant and become even more so when extrapolated over the average lifetime of a customer. 

Similarly, the cost of dissatisfied customers can be computed to measure the cost of status quo.  What is the cost of each call into the call center? How many callbacks are required to address the same issue as a result of an inappropriate focus on average call handle time? What are the most common customer dissatisfiers and what does it cost to address them?  How many credits are being offered to correct billing mistakes?

Armed with tangible proof of the ROI of investments in customer centricity, customer executives can have meaningful conversations with top leadership, enabling them to compare such investments against other priorities and make the best decisions for the company. Without these measures, “doing the right thing” will only happen in the best of times and most certainly not in the worst of times when it is most needed.

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Categories: Chief Customer Officer | Consumer Spending | Customer Centricity | Customer Engagement | Customer Loyalty | Customer Retention