Inspiration concept crumpled paper light bulb metaphor for choosing the best idea

Innovation – What it is, and is NOT

By Don Smith

“You keep using that word, I do not think it means what you think it means.”

Inigo Montoya’s famous line from The Princess Bride instinctively pops into my head (sometimes muttered under my breath) when I read yet another article on the thin, worn topic of “innovation”. In its often misunderstood overuse, the word has become diluted (even polluted) to the point of becoming ineffectual in portraying any clear and distinct meaning; perhaps in similar fashion to the misuse of the word “quality” in the last 50 years. First of all, innovation is not coterminous with invention and should never be used interchangeably. Secondly, innovation is not rooted in technology. And lastly, the pursuit of innovation is not in and of itself innovation. This severe dilution of the term creates confusion and hinders us from actually achieving real and reliable innovation.

In the early 70’s Peter Drucker wrote, “Above all, innovation is not invention.” Apparently the terms were being confused back then as well. Drucker then gives us an important clue about what innovation really is in the very next sentence saying, “Innovation is a term of economics rather than technology.” It’s probably obvious, but what he means is that innovation occurs because of the economic choices made by a society when they adopt some form of invention. This definition is backed up in the book The Medici Effect, where Frans Johansson says, “Innovations must not only be valuable, they must also be put to use by others in society. …It has to be ‘sold’ to others in the world, whether those people are peers who review scientific evidence, customers who buy new products, or readers of articles or books.” This definition also comes from a body of research on creativity and innovation done by Teresa Amabile, the Edsel Bryant Ford Professor of Business Administration at Harvard Business School.

To illustrate the difference, let’s consider one of the most renowned and prolific inventors of all time. Thomas Edison had 1084 patents; only two others in history have received more. Yet only 31 of those patents resulted in products which were widely adopted commercially. In other words, only 31 of his inventions were truly innovative. I’m not saying the other 1053 inventions weren’t clever or cool in some way. It’s simply that the majority of them were never found to be useful enough by society to be innovative. Innovation is proven when social adoption occurs and the invention is significantly adopted or utilized.

Drucker made a secondary point that needs to be understood as well. He said, “Nontechnological innovations – social or economic innovations – are at least as important as the technological ones.” Technology is not the only platform of invention and innovation. There are as many non-technical inventions as there are technological, if not more. We are constantly coming up with new methods about how we can do things and ways of thinking or perceiving the world. For instance, it can be innovative to simply reconfigure the revenue model by offering free or “freescription” products or services, where basic services are free of charge to the bulk of customers and premium services paid for by a few, which actually funds the business model. Many innovative connector platforms such as Lyft, Uber, and Airbnb are disrupting legacy services. Recent examples of social innovation are the Open Source movement, social media, Open University, Fair Trade, Microfinance, and companies forming for the “social good” (i.e. B Corporations). I recently learned of a for-profit company based in the Seattle area that funds projects in third world countries with no intention of making any profit. This is intentional and allows them to circumvent the governmental oversight imposed on contemporary non-profits and NGOs; not to mention the costs of graft and corruption often associated with international aid. While this cannot yet be confirmed as an innovative approach, when other organizations move to adopt, it may become so.

Another source of innovation is repurposing old technology for value creation in a new context. One recent example of an old technology applied in a new way is the flywheel, which was originally used to help maintain the consistency of the rotational speed of a shaft. This technology was ingeniously repurposed to maintain the consistency of electrical flow in the generation of electricity using wind and solar power generators because those sources do not produce consistently (i.e. wind dies, sun fades). As an old mainframe guy, I’m very keen to point out the concept of centralized computing, which came and went in the 20th century, has now returned in what is commonly known as Cloud Computing. Old technologies and concepts may have many new and innovative applications, if we can distance ourselves from the bonds of conventional utilization.

An issue of “The Economist” a couple of years ago focused on the debate about the perceived decline of real innovation in recent years. Whether or not the perceived decline is real, it begs the questions of why and what can be done to mitigate the perception. Could it be the pressure to innovate is itself killing innovation? One possible validation of this notion is the often seen phenomena that according to the measure of our intense desire for something, is the measure to which it eludes us. A more rational aspect points to a temptation to label something as innovative when, indeed, it hasn’t reached the level of adoption required for true innovation. While some invention may be massively clever and endearing to its small circle of fans, the bulk of the world remains indifferent. This shouldn’t, but often is, mislabeled as innovation. We lack innovation because most organizations don’t truly know what it is.

Why is the distinction between invention and innovation so critical? I would like to suggest that innovation is the desired outcome, while invention is one of the elements or prerequisites. On the path to innovation we must invent.  The process of invention begs failure, which increases learning and knowledge and is the investment in potential future innovation. Yet many organizations are failure averse. We need prolific invention from all possible sources, technological as well as non-technological. But invention alone isn’t enough.

While invention is the precursor to innovation, another critical ingredient is required. The value proposed in said invention must also be adopted by customers. I often wonder how many truly useful inventions never materialized because their value proposition was never effectively communicated to potential beneficiaries. The sad truth is, most inventors are really good at developing very useful inventions, but lack the skills to effectively communicate the value proposition. Therefore, an additional precursor to innovation is effectively and successfully marketing inventions. Inventors come up with really interesting and clever ideas. However, it’s the innovators who take a clever invention and effectively communicate the value proposition, which then drives significant adoption (i.e. lots of customers). I would like to suggest that the true measure of innovation is the rate of social adoption of some value proposition (social or technological) and thereby creating significant new demand.

Just like the challenges of the “fire swamp” in The Princess Bride, the journey to innovation is anything but easy. Nevertheless, we make the work possible when we have clarity about what innovation truly is, and is not.

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This article originally appeared on FutureSmith Blog and has been republished with permission.

3D rendering of a compass with a excellence icon

Service Excellence: Creating Customer Experiences that Build Relationships. Interview with Dr. Ruth Bolton

Podcast Transcript

This podcast is brought to you by the Center for Services Leadership, a groundbreaking research center in the W.P Carey School of Business at Arizona State University. The Center for Services Leadership provides leading edge research and education in the science of service.

Darima Fotheringham: Welcome to the CSL podcast, I’m Darima Fotheringham. Today I’m talking to Dr. Ruth Bolton, Professor of Marketing at the W. P. Carey School of Business at Arizona State University. She is the author of the new book “Service Excellence. Creating Customer Experiences that Build Relationships.” Ruth, thank you so much for joining me today, and congratulations on the new book!

Dr. Ruth Bolton: Thank you. It’s my first book, so I’m very excited.

Darima Fotheringham: It is very exciting! And I really enjoyed reading your book. It covers a lot of ground but it’s not a textbook. It is a very engaging and informative read that you can finish quickly. And it is the type of book that you want to hold on to so that you can go back to it again and again. Can you tell our listeners about what led you to write this book?

Dr. Ruth Bolton: Markets have been changing very rapidly, and I hear from the managers that there are many new opportunities and challenges. However, amidst all this change, managers kept emphasizing the importance of the customer experience. And I was intrigued that this term came from business not from academics. So what was it that managers were seeing that was so important? After thinking about it for some time, I realized that service researchers have a really important perspective to offer on the customer experience. So I decided to write a book about it!

Darima Fotheringham: Great! And it’s very timely. So as you said, customer experience is a really hot topic these days, and in your book, you emphasize a service-centered view of the customer experience. Can you talk about that? Why is this distinction important?

Dr. Ruth Bolton: Well, managers and academics who have been studying services really have a head start and understanding the customer experience. The reason is that, for many years, services research started from the premise that customer experiences are co-created by participants in a network. The participants, of course, are the company, its customers and other partners, such as suppliers. The key idea is that from a co-creation perspective, the goal of each participant is to use the resources and capabilities to support other actors in achieving their goals. So that’s how companies create value for customers.

In a service-centered view, co-creating customer experiences builds profitable relationships. But the emphasis is on innovating, designing and producing experiences that create value for both. So customer participation and engagement become key. Now if you stop and think about it, it explains the emergence of some of the innovative new business models in many industries such as the entertainment industry which is going through tremendous disruption.

Darima Fotheringham: Most companies are fairly up to speed on topics of customer satisfaction, value, loyalty, word-of-mouth, and so forth. I can imagine these are still very important when we talk about the customer experience, but what’s new today?

Dr. Ruth Bolton: Many people are fascinated by the new collaborative services such as Airbnb and Uber. These companies are co-creating with their suppliers, the people who rent out their homes or cars, and with customers, the people who travel. I think that many of us start by thinking that the technology platform, which enables the service, is important. However, the real challenge is how these three partners share information, develop group norms, and work together to achieve their goals. Uber recently recognized the Drivers Association in New York City to facilitate discussions on workplace issues. And if you stop and think about this from a service center perspective, it makes really good business sense.

Darima Fotheringham: Speaking of technology, as you note in your book, technology and new media enable customers and companies to engage in these new ways. Other than Uber, what other interesting and innovative examples can you share about how companies have been able to enhance customer experience using technology?

Dr. Ruth Bolton: I’m especially interested in how B2B companies have leveraged data driven insights to innovate and create value with customers. DuPont Pioneer was able to leverage its expertise in biotech to identify new services that help farmers map and plan how best to replace nitrogen in their fields. It lead to a new service channel and a new market that provides insights and solutions for land management. And the latest I read in the news is that folks are using drones to look at very large properties.

In China, Alibaba Group has built rural service centers in hundreds of Chinese villages so that people can search for products online and place orders as well as sell products through its online marketplaces. With an economic slowdown in China in 2015, the rural service centers are an important opportunity for new growth. So I really find the data driven insights fascinating. And an interesting feature about both these examples is that they improve societal wellbeing as well as creating benefits for customers and profits for firms.

Darima Fotheringham: Which is really great! In the chapter “the Building Blocks of the Customer Experience”, you discuss practical and emotional motives of the customers as they engage and develop relationships with companies. I think companies are usually well aware of the practical motives of their customers, but emotional motives are often much harder to identify. Why is it important that service experience is designed around both practical and emotional motives? And does this mostly apply to B2C companies or does it also matter in the B2B world?

Dr. Ruth Bolton: Oh, emotions matter for business customers too.  Businesses are composed of human beings, and human beings experience a variety of emotions such as fun, excitement, boredom, and frustration when they interact with companies. The starting point is that the business customer and its supplier are each pursuing their own goals, which may or may not be aligned. And within the business-customers organization, employees have specific roles and identities and they have their own goals.

There’s some really solid research showing that people interact with the company to achieve their goals, and when they do achieve them, they’re happy and feel in control. When they can’t make progress towards achieving their goals, look out for annoyance or even customer rage. Take a simple example, imagine a courier service is late in delivering an important package. The employee receiving the package can’t carry out his responsibilities and then there are ripple effects throughout the organization. Will we see customer rage? Quite possibly!

The effects of emotions can magnify aspects of the customer experience that might otherwise seem like small details. For example, I’ve been participating in research for the global retailer that’s been studying shopper satisfaction with the customer experience. We’ve discovered that people’s feeling of fun and frustration play a big role, no matter whether they are shopping in the store, online, or using a catalog. It’s crucially important to meet shoppers’ goals, say whether they’re browsing, searching, or buying, so that you can satisfy them. Interestingly, despite the fact that there are so many technology-enabled services, people still feel emotions in computer mediated environments.

Darima Fotheringham: I personally found the chapter “Managing Customer Relationships to Achieve Growth and Profitability” packed with great and useful insights. In that chapter, you give an example of IBM, how it successfully used the portfolio approach to managing their customers. Can you talk about that and share what we can learn from this example and this kind of approach?

Dr. Ruth Bolton: Yes, IBM successfully navigated the dot-com crash through better management of its customer portfolio, whereas Sun Microsystems did not. I’m really proud of our work looking at customer portfolios. This was a joint effort with Crina Tarasi and other colleagues at ASU, and it’s won some important awards.

You may have heard people talk about the customer asset and how customers produce cash flow streams over time. However, our research team identified an important issue that’s often overlooked, namely that customers’ cash flows are variable over time and that exposes the company to risk. Just like a stock portfolio, a customer portfolio should be diversified to minimize risk for a desired rate of return, and we were able to identify a number of strategies to reduce risk while maintaining profits.

One way is to manage the mix of customers, which is what IBM did. The general approach is to balance the market segments that your company serves so that its decreases in cash flows over time from one market segment are offset by increases in cash flows from another market segment, so that the average cash flow of the organization remains stable. This insight gives an entirely new perspective on market segmentation strategies. It’s particularly helpful for B2B companies because often they segment their markets by small, medium and large customers who have very different cash flow patterns.

Another approach is to work to increase customer satisfaction with their experiences. It turns out that satisfaction has a double whammy effect, lower cash flow variability and higher cash flow levels. I know it sounds too good to be true, but it’s backed up by solid research by many academics. And surprisingly loyalty programs may not always be the answer. Some loyalty programs lead to more variable cash flows, but not higher average cash flows. So companies need to think about designing loyalty programs to improve the experience or the intangible benefits, for example, membership recognition for consumers rather than offering economic incentives.

Darima Fotheringham: Very interesting! In conclusion, what one advice can you give companies that strive to achieve service excellence?

Dr. Ruth Bolton: I think you’re right that most companies know all about service quality, customer satisfaction, loyalty, and so forth. So my advice is: look forwards not backwards. What does the customer want for the future? Customers have goals they’re trying to accomplish by partnering with you so it’s crucial that companies understand what customers want next. In other words:

  • Understand and align with customers goals.
  • Generate trust that you can deliver experiences that satisfy these goals.
  • Offer products that are relevant to customers’ future needs not what they wanted yesterday.
  • And match the customer’s future circumstances.

Darima Fotheringham: Very helpful! Thank you so much. We were talking to Dr. Ruth Bolton, the author of “Service Excellence. Creating Customer Experiences that Build Your Relationships.” Ruth, thank you so much for your time!

Dr. Ruth Bolton: You’re welcome.

For more information on the science of service visit the Center for Services Leadership on the web at wpcarey.asu.edu/csl

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Ruth_BoltonRuth N. Bolton is Professor of Marketing at the W.P. Carey School of Business, Arizona State University. She previously served as 2009-11 Executive Director of the Marketing Science Institute. She studies how organizations can improve business performance over time by creating, maintaining and enhancing relationships with customers. Her recent research has focused on high technology, interactive services sold in global business-to-business markets. She has extensive experience with survey research design, as well as the econometric analysis of large-scale, integrative data bases. Her research is typically conducted in partnership with businesses, such as the Marriott Corporation, Hewlett-Packard and Schneider National Inc.

Customer Rage Study: Interview With Scott Broetzmann and Mary Murcott

 

Podcast Transcript

This podcast is brought to you by the Center for Services Leadership, a groundbreaking research center in the W.P Carey School of Business at Arizona State University. The Center for Services Leadership provides leading edge research and education in the science of service.

Darima Fotheringham: Welcome to the CSL Podcast. I am Darima Fotheringham. Today I’m talking to Scott Broetzmann and Mary Murcott. Scott Broetzmann is the Co-Founder, President and CEO of Customer Care Management & Consulting (CCMC) and Mary Murcott is the President of the Customer Experience Institute for Dialog Direct. They will share insights from the latest Customer Rage study that CCMC and Dialog Direct conducted and partnership with W.P Carey Center for Service Leadership. Scott, Mary, thank you both for being here today!

Scott Broetzmann: Thank you.

Mary Murcott: Thanks for having us.

Darima Fotheringham: This is the 7th wave of National Customer Rage study. When and how the Customer Rage study begin?

Scott Broetzmann: The concept of the National Customer Rage study goes all the way back to 2002, but it really wasn’t about customer rage at the time. It was much more narrowly conceived as a replication of a very famous study, a notable White House study from the mid-70s that my colleagues, John Goodman and Mark Grainer, did for the White House. It was that seminal piece of work that connected the words “quality” and “profit”. And the study had not been updated in close to 30 years. When we founded CCMC, one of the things we wanted to do was to provide really good actionable information in the marketplace about the customer experience. So we said, why don’t we redo the “White House study”?

Along the way, when we were first conceiving the study, we thought that we ought to put in some new things as well. One of the things that I read in The Washington Post was an interesting article about how local retailers here in the Washington D.C. area were having trouble holding on to their retail staff because customers were so angry and awful to them, and the pay was so low. It struck a chord with me. I did a literature search, looked around and there were all kinds of anonyms or acronyms for rage that were out there. There was software syndrome rage, road rage, and restaurant rage but there wasn’t really any empirical research, anything meaningful that was even quasi scientific with the exception of one study that, I think, was at the University of Buffalo that talked about angry customers.

It left me feeling that people were saying angry customers and customer rage was really the stuff of lunacy. It was a hyperbole, it was an exception. It was just crazy people that painted the car yellow and stood outside the auto companies, lemon laws, that sort of thing. And that didn’t seem right to me. I knew personally, I’ve gone through my own fits of rage from time to time with products or services. Long story short, we added a question or two on rage. The rest as they say is history because the first Rage Study that came out was published in The Wall Street Journal. It continues to enjoy coverage in the popular press and in a lot of other places.

I would also make these other two side notes. First, I think part of the reason that so many are attracted to the Rage Study, outside of some of our friends in the corporate world that manage customer care, is that everybody has their own personal story of rage. A lot of the times, when we present the Rage Study, everybody comes with their own passionate stories about their worst product and service experiences. Everybody gets really jazzed up before we even start talking about data. A part of the reason why the Rage Study is connected is tied to that.

And I would say as well, it’s the only longitudinal study that offers credible trustworthy data about complaining experience. There’s lots of other studies out there, like American Customer Satisfaction Index, J.D. Power, etc. But this is the only study that, over the course of now in effect of a decade, provides a credible view of what it’s like to deal with a company when you have a problem. That’s really an important part of the Rage Study story.

Darima Fotheringham: Right. And looking at the data collected over the years, what can you say about the most common triggers of customer rage, let’s say ten-fifteen years ago and now? Have they changed?

Mary Murcott: Good question. About 10 or 15 years ago we led simpler lives. The cable companies were not in telephone service, were not in security, were not in wireless service. As we start bundling services in the banks and in telecommunications, we’ve seen the complexities rise. Not only has the complexity risen because we have bundled services, but companies that have actually listened to the customers, added a lot of features and a lot of channels in which they can communicate. That’s causing a lot of customer bouncing from one representative to another representative. So I think the common trigger is complexity.

The features have gotten complicated, so customers have more reasons to call because it’s not intuitive how to use a product or service. Secondly, they don’t know who to call within the company and, lastly, the company isn’t really sure if the representatives have been clearly trained or they lack a common database about customers, a common database about knowledge. That’s become a real problem. So, I think, it’s complexity that is driving the rage at this point.

Darima Fotheringham: Going into the latest customer rage study, did you have any predictions about what you’d find? Were the predictions confirmed? Were there any surprises?

Scott Broetzmann: So what’s interesting of sort, turning a lemon into lemonade, is that the rage data, over the course of these seven times we’ve done it, hasn’t really moved very much. Sometimes, the key indicators are sort of static or now we’re starting to see, now that we have a longer term view – that’s why the longitudinal view is so important – things can move just a little bit, but over the course of seven times over 13 years or so, every little bit adds up to a lot. So there’s a slower decline, maybe, but things are in decline for some of these really important measures. Continue reading

How Can Product-based Companies Enhance B2B Services Success?

In this post, we feature Forming Successful Business-to-Business Services in Goods-Dominant Firms” published in the Journal of Service Research. This highly cited research papers by Wayne Neu, from the Metropolitan State College of Denver, and Stephen Brown, from Arizona State University discusses multi-firm case studies of four Fortune 500 firms, focusing on what factors goods-dominant firms should consider when developing services, and how to enhance the success of their service offerings. Based on the experience of employees at these four firms, the authors distill which factors contribute to successful service development. Below we highlight those factors along with some key questions managers should ask themselves as they expand their product-based offerings into services and solutions in B2B business.

If the shoe fits: the importance of strategic alignment

Neu and Brown’s research found that successful B2B service development in product-dominant firms requires alignment across three sets of variables—market, strategy, and factors of organization. Successful managers formed their B2B services strategy to fit the demands of a highly complex market and molded organizational factors to support the newly formed strategy.

How complex is your market for B2B services? How easy will it be to form a strategy and adapt several factors of organization to meet the demands of a complex market?

Object of affection: a market and customer-centered focus

Successful companies adopted both market and customer-centered orientations as they developed their B2B services. Market orientation meant managers understood the complex needs of the market and directed their organization’s activities toward satisfying those needs. Adopting a customer-centered orientation meant managers collaborated closely with individual customers to understand each one’s needs and tailored a service program to satisfy those needs.

Does your company have what it takes to be both market and customer focused at the same time?

From black & white to color: defining the new value proposition

Shifting from a goods provider to a goods and services provider requires a new value proposition to customers. Managers in this study touted their firm’s ability to create customer value by effectively 1) assuming responsibility for the whole challenging task of developing, supporting, or managing a complex business system, 2) tailoring the service offering to meet each customer’s unique needs, and 3) enabling customers to concentrate on developing the competencies needed to successfully compete in their own line of business.

Can your company delivery on all three components of this value proposition?

Our people, our livelihood: the human resource advantage

Successful companies emphasized the critical role of frontline workers in serving the needs of a highly complex market. As a result, they worked hard to ensure frontline roles were designed to respond to the challenge of the market in the following ways:

  • Serve as a trusted advisor: partner with the customer to formulate and implement unbiased recommendations.
  • Develop a learning relationship with individual customers: learn about customers’ complex business needs and develop an intimate understanding of their business as they, in turn, get to know your business and capabilities.
  • Lead a collaborative support performance: with the service delivery often occurring in a team-based setting, the importance of working well together and networking with peers to resolve problems cannot be overlooked.
  • Deliver a complex service: frontline employees must be able to assume the responsibility of dealing with complex issues that arise during service delivery.
  • Hire for behaviors, expertise, and attitude: successful firms hired for behavioral competencies, technical expertise and customer-focused attitude. Some key things to look for when hiring include selecting for high collaboration, refined listening and communication skills, learning agility, and a strong base of technical expertise.

Pursuing services requires human resources to manage all of these issues—does your organization have what it takes to accumulate and retain employees who can carry out these roles?

Good bone structure: reorganizing to reflect strategy

During their study, Neu and Brown found that the successful firms integrated the responsibilities of multiple value chain activities across multiple business units. In that way, the complex service becomes a single market offer, although it requires integrated effort across the firm to deliver. That means working together laterally across the firm, but also outside the firm by linking with customers in collaboration to develop and implement new services. It also means decentralizing authority to be closer to the customer and retaining flexibility when it comes to frequently changing factors.

How well suited is your company’s culture and structure for these kind of fundamental structural changes?

You get what you pay for: measurement and rewards

Because of the high degree of intra-firm collaboration required to pull-off successful B2B services, companies that did it well made sure their incentives encouraged this kind of working together. Those who didn’t succeed were incented in ways which encouraged intra-firm competition, which is destructive to service creation.

Does your incentive system support the integration of responsibilities and intra-firm collaboration?

The sound of music: sweet improvisation

Much like improvisational jazz musicians, successful managers were able to adapt and change with respect to unanticipated events and conditions during the performance. While implementing strategies for B2B services, successful managers learned about customer needs and changed the service program in real time without skipping a beat.

Do you have the information-sharing capabilities and company culture that allow for real time reactions and adaptations?

Customer Rage: The Bottoming Out Of Complainant Satisfaction & The Unintended Consequences Of Corporate Customer Experience Vices

By Scott Broetzmann

Customer Rage – Many companies don’t really understand it and are impotent to manage it because they are infatuated with insincere customer experience metrics and narrowly focused on optimizing a transaction.

Consider these disquieting facts from the 2015 National Customer Rage survey:

  • Customers are experiencing an ever-increasing level of problems with products and services; 54% of households reported a problem in 2015 – up from 32% in 1976.
  • Two-thirds (66%) of customers reported experiencing customer rage (being extremely or very upset) in association with their most serious problem. On the whole (putting aside a handful of companies that are spectacular and another bushel basket that are just OK), corporate responsiveness to customer complaints is horrid.
    • Nearly one-half (49%) of customers report that the time spent complaining to a company (about their most serious problem) was not worthwhile.
    • About two-thirds of complainants report that they got “nothing” when they complained to a company (about their most serious problem).
    • Only 17% of complainants indicate that they were satisfied with the action taken by a company that they complained to (about their most serious problem). In1976, 23% of complainants were fully satisfied!

What gives? Companies have put an overwhelming emphasis and invested meaningful resources in the customer experience. Yet, today’s customers are experiencing more problems than ever before are less satisfied with corporate responsiveness than ever before. In fact, the results of our study show that the vast majority of complaint handling experiences are extraordinarily bad for an overwhelming majority of customers. You have to ask: ‘Why are so many companies so incompetent at resolving customer problems?’ Our research and experience working with various companies, suggests that this low-level of complainant satisfaction is an unintended consequence of two corporate customer experience vices.

First, and foremost, too many companies are infatuated with insincere customer experience metrics. Second, all too many companies build their customer care foundation on executing their transaction rather than on diagnosing and responding to what customers want.

Infatuation With Insincere Customer Experience Metrics

When we launched the National Customer Rage survey 13 years ago, I think the only people who truly appreciated the freshness of the perspective and the implications of “customer rage” were the business press corps and John Q. Public.

My encounters with many a corporate audience were remarkably different. Some leaders (responsible for contact centers, company-wide customer experience strategies or corporate customer satisfaction programs) would shake their heads in mild disbelief. Others would speculate about the relevance of these data about a few “wacky,” “unreasonable” and complaining customers. It often seemed that companies didn’t “get it” or were somewhat smug about the imperative of customer problem handling.

Why might customers and businesses be so polarized in their views regarding the relevance and complaint handling satisfaction? My own view is that most companies are not knowingly providing mediocre service. Virtually no company would be willing to accept the levels of non-performance that have been uncovered in the National Customer Rage survey. Rather, too many companies today don’t truly know how unexceptional their service is. They are all too often lulled into a sense of self-satisfaction by their use of tepid, ineffectual metrics. As a result, companies are awash in data, but achieve a lower ROI for the significant time and money that they spend collecting data. Why? Because those data do not offer valuable insights needed to operationalize meaningful and customer-driven change in the way that the company does business.

Take, for example, your typical contact center (nearly three-quarters of customers identify the telephone as their primary channel for solving their most serious problems). In most companies, contact centers may possess the richest source of customer data. Yet I would argue that many contact centers lack a reliable, unvarnished point of view about the customer experiences that they are creating.

Instead of measuring customer’s ROI for the contact experience, far too many contact centers are reliant on weak, statistically unreliable and non-actionable voice of the customer (VOC) surrogates, such as:

  • IVR surveys with 3 to 5 questions that only address the representative’s demeanor and yield low response rates,
  • text analytics tools that are useful for data mining purposes but offer no more than anecdotal data about the actual outcomes,
  • call quality monitoring scores that are more telling about compliance with silly standards – think “said customer’s name twice”

What are some alternative metrics that matter when it comes to complainant satisfaction (or any customer contact for that matter)? Here are three metrics with teeth from the National Customer Rage survey:

  • What percentage of the customers contacting your customer care center would rate their experience of seeking help as “worthwhile?”
  • What are the specific types of remedies or outcomes that your customers seek most, when reaching out to your company with a problem? Which of these remedies do they get/not get?
  • What percentage of customers with a problem would say that they got “nothing” in return for getting in touch with your corporate contact center?

In more than one-quarter century of consulting with companies worldwide, I’ve yet to see these sorts of data appear with regularity on a corporate dashboard of contact center performance. Yet, data from these telling questions – focused on the customer’s return on investment (ROI) – are essential to understanding a true level of contact center performance and are indispensable when it comes to achieving a better contact center ROI.

Instead, there’s plenty of call volume, occupancy rate, ASA, mystery shopper, IVR survey, call quality monitoring and assorted myopic, internal and boring data. But tough-love, customer-point-of-view data is a rarity. Moreover, it’s not uncommon for insincere customer experience metrics in contact centers to portray the customer experience as genuinely OK (how typical is it for IVR-type surveys or call quality monitoring results to exhibit scores in the high 90’s?).

In my opinion, establishing and leveraging a more thoughtful and authentic set of customer experience metrics is a lynchpin to improved insights and performance when it comes to customer problem handling specifically, as well as to the customer experience overall.

The Optimized Transaction As A Paper Tiger

A second reason for the levels of complainant satisfaction uncovered in the National Customer Rage Survey is the focus that companies place on the “transaction”. It is frequently done to the exclusion of what customers really want when they reach out for help with a question or problem.

So often, when calling a company for help with a problem, the call can be pure drudgery as one is dragged through a sequence of company-centric transactional requirements, including:

  • The automated telephone sub-transaction complete with a series of disclaimers, warnings and other compliance-related messages
  • The gatekeeper sub-transaction featuring an initial “hello” from a live agent (maybe) followed by a host of more “qualification” and “security” questions (often some of the same ones you endured on the automated telephone path)
  • The “I’ve met all the criteria in my quality monitoring requirements” sub-transaction featuring selected phrases such as “I can help you with that” or “Have I met all of your needs today?” or making sure that your name is uttered a minimum of two or three times during the call.

You get the idea. This transactional-minded focus, coupled with the real pressure for agents to hit a magic talk time target, yields what might be called the optimized transaction strategy. In this model of service, the aim is to complete the transaction in the amount of time permitted; there isn’t time for a more genuine conversation, discovery of what the customer wants and consideration of how to deliver to expectations. And while such a strategy can and often does result in satisfying the company’s budget targets, it can also be at odds with fulfilling customer needs.

What is it that customers really want when they contact a company for help with a problem?

The National Customer Rage Survey results, coupled with our proprietary research with hundreds of companies over the past four decades, has convincingly shown that the number one key driver of contactor satisfaction (i.e., among customers contacting a company with a question or problem) is “getting what you  wanted.” Not surprisingly, most companies don’t measure this attribute and many are dismissive of it because they  assume that they will get low scores (i.e., “we can’t give customers what they want because they’re unreasonable and all they want is free product and money.”). Yet most customers – facing a serious product or service problem – are quite reasonable, motivated to be civil and want to get through the call as quickly as possible. As suggested by the National Customer Rage Survey, most customers desire simple, non-monetary remedies. They want to be treated with dignity, get a thank you for their business, an explanation, reassurance and the like.

Satisfaction with “getting what you wanted” typically accounts for 40% to 50% (or more) of the overall satisfaction with the contact center interaction. Not measuring it is reckless. Data from these telling questions – focused on the customer’s return on investment (ROI) – are essential to understanding a true level of contact center performance and are indispensable when it comes to achieving a better contact center ROI.

Where To From Here?

I keep seeing and hearing advertising campaigns that suggest I should be a happier customer. I should be ecstatic because companies are professing a dedication to customer delight. I should be experiencing only the best service because every company seems to be #1 in some sub-segment of a segment of a sector in the JD Power ratings. I should be feeling extra-special and empowered because so many companies are inviting me to share the bliss by giving them a “10” on a follow-up survey or writing a Yelp review for them to sing their praises.

By all indications, I should be much happier than my grandparents were when contacting a company for help with a problem. Companies have spent billions, value service as a competitive advantage and have so many more customer response tools available to them today than they did a generation ago.

So why so often is it that I dread the experience of asking companies for help with a problem? Maybe the National Customer Rage Survey can serve as a starting point for an enlightened dialogue about overcoming a transactional approach to complaint handling and the use of a more sincere set of metrics. Such metrics can help companies discern what customers really want and focus the company’s efforts to meet those needs.

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Scott Broetzmann is co-founder, President & CEO of Customer Care Measurement & Consulting (CCMC). CCMC helps Fortune 500 companies from every sector achieve a better ROI for improving the customer experience. His creed for creating an extraordinary customer experience is simple: invest in those actions that lie at the intersection of increased customer loyalty and a favorable return on investment. Over the past 30 years, Scott has been empowering marketplace leaders from all industries to deliver a more profitable customer experience. Having collaborated with more than 400 companies, worldwide, in nearly every sector, Scott has a well-rounded, results-focused, and practical perspective on how to make the leap from measuring to managing the customer experience. A pragmatic business analyst, he believes that the secret sauce for realizing customer experience profitability is motivating managers to translate the voice of the customer into a business case. Scott’s work and perspectives are routinely featured in the national and international conversation about the customer experience. You might read about his views in The Wall Street Journal, The New York Times, The Washington Post, USA Today, Business Week, Forbes, or Money. Or perhaps you might see his work referenced on CNN, MSNBC, or CBS News.

Leveraging Big Data Analytics to Create Value

Interview with Professor Peter C. Verhoef, a co-author of the new book Creating Value with Big Data Analytics: Making Smart Marketing Decisions.

Podcast Transcript

This podcast was brought to you by the Center for Services Leadership, a ground-breaking research center in the W. P. Carey School of Business at Arizona State University. The Center for Services Leadership provides leading edge research and education in the science of service.

Darima Fotheringham: Today we are talking with Professor Peter C. Verhoef from University of Groningen, The Netherlands. He is a co-author of a new book Creating Value with Big Data Analytics: Making Smart Marketing Decisions. Hello Peter!

Professor Peter C. Verhoef: Hello!

Darima Fotheringham: First of all, congratulations on your new book Creating Value with Big Data Analytics: Making Smart Marketing Decisions. Can you tell the listeners about you and your co-authors and how the idea of the book came around?

Professor Verhoef: I’m a professor of Marketing at the University of Groningen and I have been an expert in, specifically, customer relationship management and customer analytics. My co-authors have been working in practice and are now the founders of MetrixLab Big Data Analytics. They have extensive experience in customer analytics and marketing intelligence. We wrote this book because, first of all, the three of us wanted to share what we learned over the last two decades of our careers. Secondly, we saw that many firms are nowadays struggling with big data, specifically big data analytics and how to create value from these analytics. So we wanted to offer firms, service professionals and students, for instance MBA students, a book about big data and specifically big data analytics.

Darima Fotheringham: Great. Everyone would agree that value creation is the ultimate goal of big data strategy. At the same time, as you pointed out in the book, value has multiple dimensions. There is value to the firm, and value to the customer, also value to the society as a whole. Can you talk about these different perspectives on value? And what is the optimal way to balance these perspectives when developing your big data strategy and should that be your goal?

Professor Verhoef: Indeed, we make a distinction between these concepts. Specifically, value creation to the customer means that you provide customers with, for instance, brand new products, good customer service that creates good experience. You want to make your customers happy. Second, value creation to the firm means that, as a firm, you also aim to benefit from the things you do for your customers. You want to extract value from your customers. For instance, you want your customers to be more loyal or you want them to buy more products or maybe advertise for you and, in that way, bring in new customers. The last concept we talk about is the value to society. What that means is that you are not only focusing on delivering value to customers but also to the grand society. Consider, for instance, the concept of corporate social responsibility and, beyond that, more sustainable value for the long run, a more sustainable development of your firm in the society in the long run.

How do you balance these perspectives in creating your big data strategy? What you’d like to consider actually is, how your marketing actions or your service improvements can benefit your customer while, maybe not in the short run but maybe in the long run, your company can also benefit from that. So we observe, for instance, many firms in the online industry may have very satisfied customers but find it pretty difficult to earn money from these customers. That might work in that industry for some time but in the long run that might not be a sustainable way of doing business. In the end, what you want is to create value for your customers in such a way that you can also benefit from it as a firm by extracting value.

Darima Fotheringham: As you point out in the new book , data analytics have been around for many years, but the recent growth of big data has taken analytics to the next level. Can you talk about a few most important and maybe unexpected changes that took place and give some examples?

Professor Verhoef: Yes. A major change has been that we see the volume of data growing. While in the past we analyzed, for instance, four hundred customers, maybe a thousand customers, we are now analyzing data of one hundred thousand or even one million customers. That has an important implication. For instance, in terms of analyzing data, many things become significant. That means, actually, we are no longer interested in significance. We should move from significance of our results to focusing on the substantive differences. When we analyze a very large database, a small change of, let’s say, 0.001 % can already be significant but, at the same time, the substantive effect can actually very limited. That’s one major change.

Second change is that we are moving from structured data to unstructured data. We still have structured data, but we have more and more unstructured data, especially online. That means that firms have to learn how to analyze and how to interpret these data and learn new techniques. That means, for instance, that companies are using more text mining techniques. It also results in new metrics, digital sentiment indices, for instance, which can tell you more about how customers feel about your brand, about your service.

And the third point that we see changing, in terms of analytics is that are we moving from traditional methods more to computer science methods. You should think about, for instance, neural networks, Bayesian model averaging techniques. That’s a new area which marketers and traditional market analytics people are not as familiar with. So we also see new people, for instance, from computer science coming into our field.

Darima Fotheringham: Very interesting. When we are talking about this volume of data that companies have access to now, we know that questions of data privacy and security have been in limelight lately. You mentioned the case of Edward Snowden in the book and there was an Apple-FBI encryption dispute going on, which is widely discussed by experts but public reaction seems somewhat indifferent or at least so far. In the chapter discussing customer privacy and data security, you mentioned privacy paradox, which I thought was very interesting. Can you explain what that is and talk a little bit about that?

Professor Verhoef: Sure. Well, the privacy paradox suggests that consumers are worried about their privacy, they think it’s important, they think that firms should take care of it, etc. But when you look at their behavior, consumers frequently don’t behave consistently with their beliefs. So there is a strong discrepancy between how they, for instance, deal with their data, what they post on social media, and what they say about privacy. That’s kind of a strange paradox. So briefly, consumers do not behave as they say or they would like to behave when they talk about privacy. That’s an interesting phenomenon. Still, I think privacy is getting more important, as mentioned in the examples. Also, from a legal perspective or a government perspective, specifically in European Union, you see that firms are restricted in how they can use that data. For instance, we observed that some companies are throwing away data, especially nowadays they keep only one year of data in their database. They don’t want to keep the history of customers for long. One of the rationales behind that is the fear of all kinds of privacy regulations.

Darima Fotheringham: When customer data is the life line of the business, digital trust also becomes very important. Based on research in this area, what policies related to data privacy and security issues companies should consider adopting?

Professor Verhoef: Well, there are multiple recommendations I could give. One of the most important things is that you should give control to the consumers or at least they should perceive that they have control. They have to be able to see or be able to control, to some extent, how the firm uses their data. There is an interesting study by Catherine Tucker from MIT. It actually shows that after Facebook implemented such a strategy, the response rates to their commercial activities or some of their commercial approaches to consumers increased. It’s a very interesting phenomenon that when you give consumers more control, they are more likely to respond to your commercial efforts.

Darima Fotheringham: That’s a very interesting effect. In the chapter ‘Building Successful Big Data Capabilities’ you discuss four main building blocks of analytical competence: processes, people, systems and organization. Can you talk about the competences that are most critical yet most challenging for the companies?

Prof Verhoef: In terms of systems, you see that firms now can choose from a wide variety of systems, where in the past you had only a few suppliers. Now you see many suppliers of all kind of databases, cloud solutions, analytical solutions, dashboards, etc. In one way or the other, you should try to build a comprehensive big data ecosystem. The organization aspect looks at how you organize your big data analytics within the firm. Is it for instance, a very centralized staff department? Or are big data analytic teams available in several business lines, several business units? And how do you incorporate their analytics in your decision making? What for instance we see nowadays is that many companies are adopting a multi-disciplinary approach where the big data analytics play a major role.

The people aspect is very important, that’s also where firms face the most challenges. There are some studies, for instance by McKinsey, which actually show that it’s very difficult to find good data scientists. There is a shortage of data scientists on the market. And firms find it very difficult to find these people. In terms of capabilities, they need to have IT capabilities, they need to have data capabilities, know how to deal with different data sources, how to integrate them. They need to have analytical capabilities to be able to do sophisticated analytics, and finally they also need to have some business sense. An important question is, of course: Are the people that have all these capabilities available? Or should you work in big data teams where each of the team members brings some of these capabilities; and, together, they form a very powerful big data analytics group.

Darima Fotheringham: In your book, you actually have an example of a company that created this special program internally to close that capability gap. Can you share that example with us?

Professor Verhoef: Yes. That was a Dutch Telecom company. At the time they had a problem of not having sufficient number of highly trained analytics people. They set up a program called the Marketing Intelligence (MI) Academy together with a consulting agency to train new people. It was an in-house training program, where a part of the time participants were doing coursework, part of the time they were also working within the company. Most of the people who entered that program just came out of a University. They were trained in doing analytics but another important aspect was that these people also applied these new skills to have an impact within the organization. So it was not only about doing analytics but also, for instance, about things like: how do you visualize what you found? or how do you communicate? how do you tell your story to the management? That was an important aspect of the program. In doing so, this company was, at that point, able to build a successful analytics team.

However, many of these companies face problems about how to retain these employees. So building up a successful analytical capability is one thing, the next step is to figure out how you retain your people and how you keep these people happy and satisfied and ensure that they still find challenges in what they do. Especially, given that the people you trained are very, very attractive for other companies as well.

Darima Fotheringham: And in conclusion, what advice would you give to organizations’ leaders as they are navigating the complexities of big data?

Professor Verhoef: I think maybe the most important advice is that you should not consider big data as some kind of revolution, as “the big new thing”. We actually think it’s more of an evolution and, by acknowledging that, it’s very important that you start with small projects which can immediately create value for your firm. For example, we have an example in our book, where we describe a case of an online retailer that wanted to improve their recommendations systems. They started very small and that proved to be successful. Then, they invested strongly in building up these recommendations systems to a much higher level. So start small, and then scale up.

Darima Fotheringham: Thank you again for your interview today. We talked to Professor Peter C. Verhoef, one of the authors of the book Creating Value with Big Data Analytics: Making Smarter Marketing Decisions. Peter, thank you for talking to us.

Professor Verhoef: Thank you.

We want you to be part of the conversation by engaging with us, on our blog and social media channels. Visit our website for more information and links.

HAT_CSLblog

Hub-of-All-Things: Breaking Data Silos for a Better Service

The advent of the Internet-of-Things (IoT) in today’s world of connected things and connected people has made it possible for firms to harvest lots of real-time customer data – information from people and objects, and indeed everything.

This is compounded by individuals spending much of their time generating data for others about our lives, placing more and more data about ourselves “on the internet” with firms who are providing services to us. Not surprising then, that each of us has a huge digital footprint.

Even as we are becoming increasingly concerned about the privacy, security, and confidentiality of our own data, we also find that we get almost no value from it. Similarly, although firms are able to collect more and more personal data from us, they get relatively little value from it. This data is often of questionable quality and a lot of processing is needed to convert this “big data” into useful insights on customer trends.

So how can we connect our personal data and look at it all together, to give real insight into the way we live our lives, so that we can make better informed decisions as well as enable firms to come up with more relevant and personalised offerings for our lives? And how do we do so in a safe and privacy-preserving manner?

These are some of the key questions addressed by the Hub-of-all-Things (HAT) multi-disciplinary research project, whose researchers, funded by the UK government, have spent the past 2.5 years building a multi-sided platform for personal data. The HAT personal data platform enables individuals to collect our own data through IoT-enabled objects, and to organise, visualise, control, and exchange this data in the context of our lives – managing our digital selves and putting ourselves at ‘the hub of all things’.

By giving individuals the computational ability to organise our digital assets through a secure platform that enables us to retain control of how we share our data with whomever we choose, the HAT allows us to get the best value from our personal data. It helps us to understand our wants and actions in the context of our lives to make better decisions, and by permitting the exchange of this data with firms, to access offerings more suited to how we live our lives.

This data exchange through the HAT allows firms to better understand the context of their customers’ consumption, enabling them to gain greater insights into customer wants. They are then able to offer customers great products or services that support exactly what they want, when they want it; this provides a big market discriminator and opens up new market opportunities. Better still though, by empowering their customers in returning control of their personal data to them, firms are able to build a better relationship of trust with their customers, thus creating goodwill and loyalty.

With the completion of the research project in Nov 2015, the HAT has now been handed over to the HAT Foundation, a social enterprise that will take forward the next phase of the HAT’s technology for its eventual commercialisation and global rollout in 2017. The Foundation’s operational arm, HATDEX, is on track to launch the beta HAT in July 2016, along with the Rumpel hyperdata browser used to view personal data on the HAT, currently being developed through the HARRIET research project.  This has been made possible by HATDEX’s successful Indiegogo crowdfunding campaign, which hit its £50,000 funding target ahead of its end-April deadline. The campaign now goes into In-Demand and will continue to grow the community of HAT users, whose volume is necessary for the development of the HAT Marketplace for the trading of personal data on the HAT.  Meanwhile, ongoing research on the HAT will also continue through the UK government-funded HAT Living Labs (HALL) project, which will focus on Business Model Innovation within the HAT ecosystem.

The HAT enables the forging of an entirely new social and business contract between individuals and firms in the context of the IoT, one that potentially spurs even more innovation because individuals could be private and secure and firms can offer more innovative services around a mix of all sorts of data. The timing can’t be better as industries are beginning to wake up to the Internet ‘jumping out of the box’ into the physical realm through the Internet-of-Everything. Through the HAT, we can see new ways to create new markets and in doing so, help spur greater growth in the digital economy.

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Irene Ng is a Professor of Marketing and Service Systems at WMG, University of Warwick, where she is also director of the International Institute for Product and Service Innovation.  She led the Research Councils UK-funded Hub-of-All-Things (HAT) research project as its Principal Investigator, and continues in this role with the HARRIET and HALL research projects.

Irene Ng will be speaking on “Mastering Service for the Future of Things” at Compete Through Service Symposium, October 26-28, 2016, in Scottsdale, Arizona.

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