When it comes to the importance of customer experience (CX), few companies need convincing.
In one recent survey by Harvard Business Review and Salesforce, businesses named it their number one near-term priority, above even boosting revenue and lowering costs.
But it’s one thing to recognize that CX has value; quite another to definitively establish whether CX is ‘worth it.’ Organizations are wrestling with the need not just to provide experiences to customers that are ever more seamless, efficient and easy; they also need to ensure whatever they’re doing in service of the customer actually generates returns for the business.
Ranking businesses’ top priorities for the year ahead: CX on top
More than half of respondents put CX in their top-five business priorities
CX investment has been shown to produce returns in aggregate. Forrester for example has estimated that for mass-market auto manufacturers, a one-point uptick in CX can translate into an additional US$1 billion in revenue. Identifying the ROI of individual CX projects or initiatives can be tougher, but is important because CX is expensive – especially when it involves emerging technologies like AI or the metaverse. As organizations like KPMG have warned, left unchecked, the costs of delighting the customer can quickly exceed any potential value generated, and damage the bottom line.
“C-level people know CX is something they can’t ignore,” says Edward Hutchins, Product Lead at Thoughtworks. “But CX is a huge space, and can be anything from a hundreds of thousands, to a billion-dollar project. So at what point do you know how much you actually need to invest in CX? What is the right level of CX for the business, and how do you justify it? Figuring this out is where the challenges come into play.”
Dianne Inniss, Principal Customer Experience and Innovation Strategist, Thoughtworks, notes some of the difficulty comes from CX requiring a different mindset than other types of tech spending.
“Often when companies approached technology investments in the past, they were part of a cost cutting measure, so it was easy to say: ‘well, we gain these efficiencies and reduce this number of costs. But with customer experience you’re looking at the other side of the balance sheet, for growth opportunities.”
Principal Customer Experience and Innovation Strategist, Thoughtworks
“Often when companies approached technology investments in the past, they were part of a cost cutting measure, so it was easy to say: ‘well, we gain these efficiencies and reduce this number of costs,’” she explains. “But with customer experience you’re looking at the other side of the balance sheet, for growth opportunities.”
With CX, the questions become “How do we get more customers? How do we build more repeat business? How do we increase the basket size of a customer each time that they buy something with us? Answering these can require more speculation,” she adds. “Companies are looking for ways to quantify the bets they’re placing on their customer investments, and to measure results on an ongoing basis, so that they are able to tie the investment to the benefits. And that’s tricky.”
According to Joe Murray, Thoughtworks’ Chief Digital Officer, North America, few things contribute more to a business’s shareholder value than increasing brand equity. And investing in a customer experience that drives higher levels of engagement with your brand versus competitors is a powerful way to build that.
However measuring, and achieving, ROI on CX is often muddled by the view that tech is the answer to all the organization’s problems. This view is especially prevalent in CX, with many commonly adopted solutions and technologies in peak phases of the technology 'hype cycle.’
“Merely buying technology, thinking the best practice is baked in, never provides much differentiation, and often just amplifies an underlying, broken customer engagement model. And modernizing technology without a clear intention for a more differentiated customer experience is often very expensive, with disappointing business results.”
Thoughtworks’ Chief Digital Officer, North America
“Technology is clearly a powerful enabler, but business results are realized only when it’s deployed in service of a well-designed customer experience,” Murray says. “Merely buying technology, thinking the best practice is baked in, never provides much differentiation, and often just amplifies an underlying, broken customer engagement model. And modernizing technology without a clear intention for a more differentiated customer experience is often very expensive, with disappointing business results.”
Avoiding these kinds of disappointments requires aligning the organization around CX goals; choosing and championing the right CX projects; and carefully assessing their performance. In this issue of Perspectives Thoughtworks experts explore how to approach these processes, and ensure that investments in customer delight deliver enduring returns for the business.
Business-wide alignment sets the stage for CX performance
Keeping the organization’s CX efforts focused and effective first and foremost requires seeing CX as an ‘all hands on deck’ effort.
“Customer-centricity has to come from the top, but we think of customer experience as an all-company initiative,” says Inniss. “Good experiences rely on most elements of the business, because even the folks that you don’t see in the back influence what happens in the front.”
A supermarket, for example, may have the cash register or online platforms as the primary customer touchpoints, but the supply chains have to function seamlessly on the back end as well to ensure products are available and delivered in the way customers expect.
Inniss notes the main CX decision-makers tend to be in marketing, as the first function to face the customer. Chief digital officers (CDOs) and chief technical officers (CTO) also have an important part to play as those responsible for increasingly digital customer touchpoints. And many organizations underestimate the impact operational leaders can have on CX projects.
“Customer experience platforms involve not only technology, but the processes and people who are serving the customers,” Inniss explains. “Operations needs to have a hand in, and understanding of, how those processes need to change, and in helping technologists understand what business constraints need to be accommodated for. Then, of course, finance will ultimately have to sign off on all these things.”
Having a senior role that works across all these functions to represent the customer point of view – a chief customer officer or “wrangler,” as Inniss puts it, is one way to introduce consistency and focus to the organization’s CX approach.
“More and more we’re seeing businesses that have a chief experience officer who reports to a CEO, or more of the technology budget being owned by the CMO, because they’re tasked with customer experience,” says Murray. “But a lot of businesses are still functionally siloed, and lack a shared vision designed around customer value.”
Silos almost inevitably lead to breaks in what Murray calls the customer “empathy chain.” For example, the marketing team may have built a deep understanding of customer archetypes and challenges through extensive research and interviews. But if this perspective isn’t passed on as a matter of course to teams building customer-facing applications, they won’t develop empathy for customer requirements and difficulties, and that lack of connection will be evident in the end-product.
“Empathy for the customer is central to the human design methods used to unlock the design for a differentiated customer experience,” Murray says. “Functional silos tend to create unnecessary handoffs between teams that degrade the level of empathy incorporated into the experience, losing much of the design intent.“
Similar breakdowns occur when companies are organized around product lines, rather than the customer’s goals or journey. Murray cites telecom firms, which frequently have separate units selling mobile phone plans, cable services, home internet and perhaps even home security, when what most customers are really after is a one-stop solution to all these things.
“Consumers want a simplified, affordable digital lifestyle, but are constantly frustrated because there’s a proliferation of devices and services that are not configured for the way they want to live,” he says. “Companies claim they value customer experience but don’t understand that it must be intentionally designed from the outside in, as a choreography of people, technology and physical space.”
Another critical piece of the CX picture that organizations tend to overlook is frontline employees. In one recent survey by research firm IDC, 85% of organizations responding agreed improved employee experience and engagement translated directly into better CX and higher customer satisfaction – and eventually into more revenue.
Businesses worldwide see a CX/EX connection
What impact on customer experience (CX) have you observed by improving your employee experience (EX) metrics?
“It’s a mutually reinforcing circle,” says Inniss. “Happier employees perform work in ways that are better for happier customers, who are nicer to employees, which makes employees feel more valued and engaged themselves. So when we look at the experience, we’re looking at the technological impact or the touch points for the customer, but also what’s supporting that underneath; this is the critical layer of employees who serve customer needs. The organization needs to provide them with the technology, resources, education and support to be better advocates for the customer.”
Measuring ROI also pays dividends here as it elevates awareness of the value of CX among employees as well as leadership, notes Hutchins. And ensuring employees along with others in the organization are involved, supported and invested in CX initiatives in turn contributes to that ROI being positive.
“If you’re working in a way that you’re able to validate and quantify the value that great experiences have, it can trickle down to an employee level as well. Employees are able to see the impact of their work on their customers, and also the financial impact on their employer. That can create a powerful sense of purpose and satisfaction internally.”
Product Lead, Thoughtworks
“If you’re working in a way that you’re able to validate and quantify the value that great experiences have, it can trickle down to an employee level as well,” he says. “Employees are able to see the impact of their work on their customers, and also the financial impact on their employer. That can create a powerful sense of purpose and satisfaction internally.”
“Great employee experience is a significant driver of a differentiated customer experience,” agrees Murray. “In the wake of the pandemic, human interaction has become even more valuable. When customer-facing employees enjoy technology, designed well around how they work, they become more engaged and invested in the CX mission.”
Prioritizing: The portfolio approach and ‘small bets’
With organizations keenly aware of the necessity to invest in CX, often the challenge is not just getting funding for CX initiatives, but making the most of the funding that they do get, according to Inniss. This is especially true when it involves decisions to invest in innovative projects where there’s limited certainty on financial returns.
“We can certainly speak to very specific metrics around revenue generation, such as increased basket size or reduced attrition, for some initiatives,” Inniss says. “But ultimately there’s an art and a science around defining the desired outcomes – particularly when making speculative bets, where the information you have is purely based on initial research trends and historical analysis.”
However, that shouldn’t deter organizations from trying. As Inniss notes, there’s more value in testing and learning, rather than limiting yourself to sure wins that simply limit you to following the herd. The key is striking a balance.
”There are some things that are table stakes for delivering effective customer experience; others that are more technologically sophisticated that build elegance and ease,” says Inniss. “And then there are those that are truly innovative, boundary-pushing and therefore risky, such as CX in the metaverse.”
Depending on the company's risk appetite, the portfolio might comprise 40 percent table stakes initiatives, with another 40 percent dedicated to perfecting experiences, and the remaining 20 percent set aside to explore the cutting edge. “Companies that prefer a more conservative portfolio might consider a 40-50-10 ratio,” Innis says. The main thing is that with a portfolio approach, organizations can better manage their investment risks and ensure the broader CX strategy isn’t crippled if any one initiative doesn’t work out.
A well-balanced CX portfolio
Hutchins notes drawing the distinction between projects that are likely to immediately boost revenues or reduce costs, and those tied to long-term opportunities, is key to realistically identifying the potential ROI of a CX investment and knowing when to take the plunge. The metaverse is a case in point.
“If a company wants to invest in a CX initiative that’s highly likely to generate immediate revenue, the metaverse may not be the best option right now,” he says. “If, on the other hand, the goal is to showcase the company’s innovation or technological prowess, or gain a first mover advantage, it might be just the thing to pursue. Many companies however are in a wait-and-see position, meaning they’re keeping some investments on hold, just in case the metaverse crashes into the mainstream, and they need to quickly take advantage.”
“When you make bets, consider testing with a small part of the population, which can begin to show you the behavioral patterns that will help you make smart hypotheses about what happens next. Building small allows you to try something to see if it works. If it does, scale it. If it doesn’t, figure out what’s not working or kill it early.”
Principal Customer Experience and Innovation Strategist, Thoughtworks
“We’re big advocates of pilots and small experiments,” Inniss says. “When you make bets, consider testing with a small part of the population, which can begin to show you the behavioral patterns that will help you make smart hypotheses about what happens next. Building small allows you to try something to see if it works. If it does, scale it. If it doesn’t, figure out what’s not working or kill it early.”
Deciding on what and when to invest is just the beginning of the journey; determining how much budget to allocate to a new project is the next puzzle organizations have to solve.
According to Hutchins, “there are two key elements you can focus on to determine how much you should invest in a CX project. One is understanding the customer’s perspective as a scale: at what points will they feel like improved CX is providing them additional value and at what point will it no longer delight them? The other is the financial perspective: what is the business return that you predict you will get along that scale? Finding the optimum spot along both customer value and business value can ensure you maximize your ROI.”
“There are two key elements you can focus on to determine how much you should invest in a CX project. One is understanding the customer's perspective as a scale: at what points will they feel like improved CX is providing them additional value and at what point will it no longer delight them? The other is the financial perspective: what is the business return that you predict you will get along that scale?”
Product Lead, Thoughtworks
It can help to adopt user research frameworks such as the Kano Model, which can be tweaked to gauge customer expectations, and what’s likely to provide surprise, delight or additional value above these. “It’s important you perform this type of research regularly, because customer perception and expectations change regularly over time, and it’s important to not fall behind,” Hutchins adds.
Another worthwhile exercise is building a ’value canvas‘ to assess potential opportunities through two lenses, says Murray.
“First you consider the customer context and identify signature moments where you can deliver customer value like reduced anxiety, increased delight, or time savings,” he explains. “When a business serves their customer’s agenda better than the competition, brand equity increases. Finally, focusing on key moments of customer value creates opportunities to generate business value such as building loyalty, reducing churn or increasing revenue per customer.”
This can also help the organization create service design models which consider the various customer touchpoints, “back of house” employee activities and the enabling technologies needed to support and enhance them. For instance, when an auto insurer reduces customer anxiety around encountering an accident by applying technology to handle claims quickly and painlessly, they ensure higher policy renewal rates and less price sensitivity to premiums.
Designing the ’north star’ customer experience informed by signature moments for delivering customer value and capturing business value, is a vital first step. However, it’s also critical to create an effective process for prioritizing and executing the grand vision in thin slices, then carefully and continuously monitoring and adjusting based on real-time customer insights.
The three lenses of innovation
By having product, design and technology represented in vertically integrated teams, specific opportunities can be prioritized according to three vectors – viability, which determines if the investment is financially sound; feasibility, which considers the ease of implementation and potential challenges; and lastly desirability, how appealing or relevant the result might be to the customer.
“The opportunities that rank highly on all three are typically the ones to prioritize, as those are most likely to produce quick wins,” Murray notes.
Data and the different paths to defining CX success
As initiatives move from ideas to implementation, assessing their commercial value over time is essential to justify a project’s continued existence, as well as the organization’s next CX move. “Unless you’re able to measure the impact, it becomes really hard to justify the work that you've done, and also sell the next initiative,” Hutchins points out.
However, initiatives shouldn’t be judged solely on monetary gains from the start. “You need to think in terms of first, second and third-order impacts,” says Inniss. “Eventually everything should roll up to the financial statements, but not everything will get there immediately.”
“The tangible relationship between customer happiness or improved customer experience and revenue is not always immediately obvious, but you can start to find the pieces that tell the story of CX results by looking into product data, product analytics, and behavioral data,” notes Hutchins.
Compared to popular CX metrics like net promoter score (NPS), customer satisfaction score (CSAT) and customer effort score (CES), real-world data on how customers are actually using products or new features provides a better sense of their impact on the organization’s balance sheet.
“For a long time, NPS scores were all the rage, but in recent years, academic and business circles have begun to question how accurately they represent true customer behavior.” says Murray. “Ultimately it’s most effective to specifically instrument the customer experience in a manner that provides actionable insights that drive shareholder value. Sometimes specific aspects of your CX are a few steps away from delivering shareholder value, but you should at least understand how they’re laying the foundation.”
However Murray notes the definition of and key indicators around shareholder value will differ. For a cruise operator, it could be net yield per passenger day, and for a telecom company, average revenue per user (ARPU) and net subscribers added.
Some companies may not even have revenue tied to specific individual customers, and depending on the stage in a product’s lifecycle, revenue may not be the most important consideration. An organization entering a new market or launching a new product might want to focus more on validation rather than revenue generation, Hutchins notes, which makes engagement and retention rates key to proving that the idea can work.
“In growth stages of product development, you may be looking at things like the viral coefficient to find out whether your customers are proactively helping you market your product,” he says. “Viral coefficient is a great indicator of whether your product is resonating with customers. NPS is one metric to understand customer intent, but viral coefficient is at the other end of the spectrum as it shows actual customer behavior and how that is contributing to growth.”
Metrics of success along the product lifecycle
With innovative CX products in particular, “measurement should start with the small, for example, rates of engagement or dwell time,” Inniss says. “Over time, you can measure for revenue impact by looking at links to places where transactions are happening and measure pass-through to gauge revenue generated either from purchases or referrals. That ties experience to financial metrics, to overall value.”
Whatever metrics organizations choose, in CX speed of delivery should not be the only emphasis. “Focusing on time to market alone will often do nothing but get you into trouble faster,” Murray says. “We’re still seeing a lot of organizations struggle with the ‘feature factory’ concept where the job of the tech team is to crank features out at a certain velocity. These projects are funded based on some anticipated business outcome but because the features are not choreographed around an experience customers care about, you end up with uncoordinated features that then fail to deliver.”
“The most effective programs design for customer engagement or adoption rate in lockstep with agile delivery methods to capture the most rapid time to value,” Murray notes. “Time to value is best measured as the time from initial idea generation to the point where acceptable ROI is realized. Many companies underestimate the opportunity cost of an inefficient process to evaluate, fund and execute on ideas. And short customer attention spans combined with continuous technology innovation impose a quick expiration date on any new idea in today’s world.”
While data is the basis of measuring CX performance, sometimes the quest to gather or analyze data itself slows the enterprise down and leads to decision paralysis. “We really encourage clients not to overwhelm themselves with overly onerous data collection processes,” says Inniss. “Be very thoughtful about choosing just one or two measures per initiative that best define its success; these are the north star metrics that will be tracked on an ongoing basis. Then find ways to automate their collection.”
“It’s just as important to design your data output as it is to design the customer experience,” agrees Murray. “There’s a whole new genre of software that will allow you to design the data you track to align with your customer experience more explicitly. We typically express customer experience as a journey map, with signature moments that drive value. Aligning the data you track with the customer experience journey tells you how products affect the best execution of those moments.”
Each experience may not move the ROI needle in and of itself, but can drive revenue further along the journey. “Essentially, you're trying to develop a causal relationship between an upstream activity that leads to downstream business results,” Murray explains.
Ultimately, while initiatives may have individual measures of success, CX needs to be viewed holistically, says Inniss. “It’s the whole experience that drives broader measures like brand equity, revenue gains and social proof. As company performance is based on multiple factors, you sometimes won't be able to make an immediate and direct correlation between a specific CX investment and percentage growth in market share. But looking at the CX investment portfolio as a whole can give you a sense of its impact on the company’s growth, or the cost savings that result from serving customers more efficiently.”
Ensuring CX contributes to long-term competitive advantage
A demonstrated track record of CX achievement doesn’t just equate to happier customers and financial health. By creating a runway for further innovation and opportunity to enter adjacent markets, it can also help the organization secure an enduring lead over the competition.
“Companies that achieve impressive results with their holistic portfolio of customer initiatives are in a stronger position,” explains Inniss. “They can show evidence that some of the table stakes and mid-market gains are generating revenue, and that allows the organization to be willing and able to take further risks.”
Even so, like any business risk, and regardless of how successful it’s proven to date, any CX plan or project has to be evaluated in terms of its contribution to the business’s health over the long term. Hutchins stresses the importance of maintaining “guardrails” around CX projects to ensure their performance doesn’t eat into other important metrics, whether employee satisfaction, or something as fundamental as profit margins.
“Launching an initiative is one thing; you have to do it in a way that’s sustainable and scalable over time,” he says. “Any company can invest in creating an amazing user experience, but not every company needs to invest the same amount into that experience. Think of it this way – a lot of people aim to improve fitness by going for a run, but we don’t all need to be Olympic sprinters to be successful. CX is the same. You need to know what level of investment makes sense for your business, what is possible to maintain, and keep those guardrails in place so you set yourself up to be sustainable long term.”
“A lot of companies don’t think of customer experience strategy as a continuous exercise, that needs to be constantly gardened. They’ll hire an agency to put together a big, beautiful customer journey map that’s put on their wall – and as soon as you do that, you’re cooked, because it’s stale in about a month.”
Chief Digital Officer, North America, Thoughtworks
Murray also cautions against viewing any CX plan or initiative as ‘finished.’ “A lot of companies don’t think of customer experience strategy as a continuous exercise, that needs to be constantly gardened,” he says. “They’ll hire an agency to put together a big, beautiful customer journey map that’s put on their wall – and as soon as you do that, you’re cooked, because it’s stale in about a month.”
Any kind of stasis leaves a CX strategy vulnerable to technological or competitive shifts that can completely reset customer expectations. “What we preach is the idea that CX strategy is a continuous exercise that constantly feeds your product backlog,” Murray explains.
Connecting CX and product workstreams ensures the customer view is embedded in product building, testing and iterations. And if customer strategy is supported by a platform strategy, teams are able to focus on features and enhancements that further engage the customer, rather than the core technology itself. In essence, instead of regularly building products or new features from scratch, “you’re building a better box of Legos over time that you can constantly reuse and extend,” says Murray.
Thoughtworks’ partnership with UK energy major, BP, illustrates how this approach works in practice. BP was faced with a stagnating loyalty program and a growing backlog of innovation ideas. They used a future customer experience vision as a north star and quickly identified an opportunity to incorporate a new type of subscription program for loyal customers. Price Match allows customers who value the premium quality of BP gas to ensure what they pay matches the prices offered by major competitors. While this drove significant business results, it was built as a platform that could support a much broader range of subscriptions, promotions and commercial capabilities, and paid significant dividends for years to come.
The highest levels of customer experience, and the CX investments that tend to reward the organization the most over time, are predictive rather than reactive. True customer-centricity is anticipating the customer’s needs, pain points or changing demands even before they arrive, and considering how new technologies can be applied for CX ahead of their widespread adoption.
Murray notes the advent of IoT devices and machine learning makes it possible for many organizations to measure how customers are interacting with their products, and how products are performing, in the field, creating new data points that can be used to refine experience further. “By leveraging machine learning algorithms for insights on things like when customers will need maintenance, you can actually predict important customer events, and based on those predictions, manage the process more proactively and effectively,” he says.
“Customer experience leaders are always thinking about what happens next,” says Inniss. “When new technology emerges, they’re thinking about how to use it in service of customer needs, not just for the sake of it. Whether it’s the metaverse, opportunities around gesture or voice recognition, improved analytics or cloud infrastructure, they’re looking at what the customer wants and how to apply technologies to allow customers to make better decisions.”
“We are clearly in the age of business as a platform, and the most valuable companies in the world have built their business as a true customer engagement platform,” adds Murray. “Companies who embrace this concept truly put their customers at the center of their business to the extent that the north star customer experience provides context for every department. They combine ’product thinking’ with ’platform thinking’ in terms of how they build and deploy technology in service to the customer experience that sets their brand apart.”
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