Facing the Customer “Alignment Problem”

Whenever companies try to improve their customer service and become more customer-centric, one of the first and most important problems they confront almost always has to do with how well their internal metrics and responsibilities are aligned with the goal of being customer-centric. In most cases they aren't, and this misalignment represents an existential threat to whatever customer-oriented activities are being planned.

In just the last few weeks I met individually with senior executives at several large and successful companies in a number of different countries. Each of them has a brand name that is virtually a household word in its market, and each had already publicly declared its strong commitment toward better customer service.

The commitment went by different names at these firms – “Customer Advocacy,” “Service Revolution,” “Customer Transformation,” or “Customer Excellence” -- but the bottom line was that each of these firms was sincerely focused on improving its own customers’ experiences with its brand. This is an admirable goal, and it is something that an increasing number of companies are committing to, because customer service can in fact be a very powerful competitive differentiator.

The companies I met with were in a variety of industries, including financial services, telecommunications, media, and technology, and they had made different amounts of progress toward their goal. But what struck me was what they all had in common. They each faced almost the exact same roadblock to further progress, and it was a self-inflicted obstacle.

The roadblock confronting each of these firms was that being more customer-centric conflicted with the fundamental alignment of the organization. It interfered with how success was actually measured and rewarded, and with how responsibilities were allocated among various executives and departments.

At one large financial services firm, I had an hour-long conversation with a very senior executive who appealed to me over and over again to please tell her how they could do better. Toward the end of our discussion, however, I only had to point out that each and every problem she had identified was self-inflicted. For instance, although she desperately wanted her firm to treat customers better, at the end of every quarter she said her people had to hustle just to achieve their financial goals, which undermined customer service. To make the top-line numbers they resorted to selling whatever they could to whatever customers they could sell to, despite their carefully laid plans to treat each customer more appropriately and individually, based on individual customer interests. And to make their bottom-line numbers they resorted to clamping down on many of the more costly customer service initiatives, which led to a stop-and-go kind of unpredictability in their policies.

At another firm, a telecom company whose CEO and senior staff have committed heavily and publicly to raising their firm’s level of customer service, it turned out that because the numbers were not being achieved in one recent quarter, the finance department severely restricted customer refunds, refusing to grant them much at all, even when prior policy would have called for them – which, of course, completely undermined the customer service initiative.

No matter what you call your own company’s customer-oriented initiative, you won’t make much progress until you firmly commit to aligning your company’s financial-centric and customer-centric metrics of success. The most straightforward way to do this, in my view, is to spend time and effort documenting the fact that the customer base itself is a valuable corporate asset, and that good service will increase its value, while bad service will diminish it.

Customers create two kinds of value at a firm. Short-term value is created when a customer buys something, which is offset by the short-term cost of serving the customer. But long-term value is created when a customer has a good experience, and as a result he or she becomes more likely to buy in the future, or to recommend the company to friends or colleagues. Whether or not your firm actually employs sophisticated analytics to model the lifetime values of different kinds of customers, it can’t be denied that these lifetime values do, in fact, exist. Nor can it be denied that a customer’s lifetime value will go up or down as the customer’s attitude toward a brand improves or declines. And the asset value of your customer base – often called “customer equity” – is simply the sum total of lifetime values of all your current and future customers.

Ideally, if you want to deal with the alignment problem at your own firm, you should commit to a customer analytics effort sufficient to begin gauging which service improvements tend to generate what kinds of lifetime value increases, and which service problems tend to generate what kinds of lifetime value decreases.

But even if you find this analytics task too complicated or difficult, if you want your firm to be more customer-oriented, then at a bare minimum you have to persuade your investors, your board, and your senior executives that any financial metrics that ignore the asset value of the customer base entirely (as almost all current financial metrics do) are fundamentally flawed. They simply don’t paint an accurate picture of your company’s true financial prospects.

If you’re a senior executive wrestling with the difficulty of gaining traction for your own company’s customer initiative, my advice is to focus carefully on fixing the alignment problem, before it completely undermines even your most enlightened customer service policies.

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