2024 planning (part 3 of 3): Beware of cost benchmarking!

This will probably be the last of the major pieces of advice I have to offer to Customer Experience and Customer Success leaders as we all move from 2023 to 2024. Please remember the context in which I am writing these three articles: your company's 2024 financial budget is almost certainly complete and fully approved. If the corporate strategy for 2024 has been prepared competently at the top level, it will involve significant investments in areas where your leadership believes it can secure a competitive advantage. These investments are then funded by cost reductions in other areas, possibly including you and the team you manage.

These reductions are being written into detailed 2024 plans right now, often by people who do not understand what you do. I want to help you to get ahead of these discussions, so that you escape any cuts. So, how do people who don't understand the work each and every team does at a detailed level? One solution that is sometimes used is called cost benchmarking.

What is cost benchmarking?

Deloitte and other consulting companies sell benchmarking services. It is also possible to consult your competitors’ annual reports and construct your own high-level benchmark comparisons. Benchmark data should be considered as interesting, but probably useless. I realize this is not what the major consulting companies on the planet believe and want to sell. Let’s discuss.

A perfectly fair cost comparison with another company would require it to be pursuing the same business strategy as you are. Exactly the same. I have never heard of a case where two competing companies described themselves as having exactly the same strategies. Understanding where your strategies are different takes time. Meanwhile, your CEO is waiting for your plan to implement the same cost structure as Deloitte (or whoever) has proposed. The proposals are normally composites, taking the lowest sales cost, the lowest marketing costs, the lowest Days Sales Outstanding and so on, across multiple competitors, each of whom has a different strategy.

Benchmarking gives you great hindsight

Perhaps most seriously, benchmarking is about the past, and you are trying to have an appropriate cost structure for the future. Even if you find a company with an identical strategy and a lower cost structure, it will be of limited help. First, the data is necessarily about where the competitor has been in the past. Second, by the time you achieve the cost structure the competitor used to have, they will be doing something else, with a different cost structure.

At the risk of some repetition . . .

As you know, I have discussed how to address this in the two articles I posted last week. Let me modify my past suggestions, simply by starting with how you protect your own team, and then then going on to how that will protect your customers. As a CX or Customer Success leader, your best strategy for avoiding being cuts to your own team in the detailed 2024 plans is to position yourself as the main person defending customers' interests during the planning cycle. If you are reasonably good at your job, you have the information you need to do this well, and in a way that no other team can offer. You have two main possibilities:

1. Use data from customer surveys and/or equivalent processes your CSM team may be using. These will tell you which things customers are happy about, and which they want you to improve. You need to ensure that no cuts are made in these areas, and that relevant teams get the funding they need for improvements. What you also need to understand and present in some detail are areas in the customer journey that customers never mention as either sources of happiness or the opposite. I mean the things that they simply seem not to care about. These are the areas that are the safest cost reduction targets. As mentioned previously, one example would be the precise location of one of your buildings that they never visit.
2. Those of you who are true leaders in CX and CSM will of course be using machine learning solutions (such as our own Customer AI) to get detailed information about each and every customer, rather than just those covered by surveys or your Customer Success Managers. You should be able to build a training model using the data points and trends that are already in your various IT systems and that correspond to positive and negative CX, CSM, and customer retention outcomes. You then use machine learning to apply that same model to the data you already have for the rest of your customers. The result is of course far more reliable data about what must be preserved and improved, and the areas where you can outource and implement other cuts.

Conclusion

Please don't assume nobody is doing some form of benchmarking as they do their 2024 planning. The worst case is where an external consulting firm is providing the numbers. Senior leaders can then easily blame the consultants (rather than themselves) when inappropriate cost cutting causes customer losses and other disasters. Customer Experience and Customer Success leaders have to assume that some form of benchmarking is being used to establish the detailed 2024 plans for each department. Please, please be proactive, so you can protect both your customers and yourselves.

Upcoming webinar - Customer AI for CX and CS leaders

Our CEO, Richard Owen, is leading a great series of four webinars on the benefits of Customer AI for various teams in your company. At 8:30 a.m. Pacific Time on November 14th, Richard will consider it from the perspective of CX and Customer Success teams. Once core concept that will be covered in detail is the improvement in account coverage from the average we see of 6% with surveys to an almost-incredible and absolutely realistic 100%, all through fast implementation of Customer AI. It should be really interesting. Click on the image below to register.

Notes

OCX Cognition predicts customer futures. Our breakthrough Customer AI solution lets enterprises transform what’s possible in customer experience. Reduce your customer risk, break down silos, and drive speedy action – when you can see what’s coming, you can change the outcome. Building on more than 100 years of CX-focused expertise in our small team and thousands in teams we have led, we’ve harnessed today’s advances in AI, elastic computing, and data science to deliver on the promise of customer-driven financial results. Learn more at www.ocxcognition.com.

Maurice FitzGerald is Editor-in-Chief, Content at OCX Cognition. He retired from HP where he was VP of Customer Experience for their $4 billion software business and was previously VP of Strategy and Customer Experience as well as Chief of Staff for HP in EMEA. He and his brother Peter, an Oxford D.Phil in Cognitive Psychology, have written three books on customer experience strategy and NPS, all available from Amazon.