Net Promoter is a hot topic—and it’s getting hotter. That at least was clear to me as I watched more than 200 executives and program leaders turn up at the European Net Promoter conference in London last week. They invested their time and money on short notice to focus on a relatively narrow topic. Impressive as that may be for a business event, I find the overall momentum behind Net Promoter to be even more significant.
I’ve been pondering the big picture behind Net Promoter growth, and spoke on the subject at the London conference. Aside from it being a great business idea, what are the unique circumstances and related trends that are driving so much enthusiasm? Four major trends come to mind. These trends are driving changes in our economy and, I would argue, are driving enterprises to adopt Net Promoter as a customer loyalty metric.
The four arguments are as follows, and I will address each of them in my blog for the coming months:
1. The shift of economic value creation in modern industrial nations is encouraging executives to place greater emphasis on customer-centric strategies. Do I mean it’s all about macro economics? Actually, it’s more about gaining strategic advantage in a mature economy.
2. If there is a drier topic than macro-economics, it’s got to be accounting. So if I haven’t lost you after topic one, I’ll proceed to examine the impact of accounting standards on driving Net Promoter, and, by implication, why the CFO should be an executive sponsor of the program. That’s trend two and I’ll take it up in my next blog.
3. At this point, any wise author would figure that further disclosure of content would be enough to scare off anyone. You should by now have a perspective from the CEO’s office and the CFO’s calculator, so let’s make the argument that the CIO should be your next friend. That’s easy to do when you consider that CRM (customer relationship management) is a perfect fit for Net Promoter and, that falls under the CIO’s watchful gaze. Perhaps more to the point, CRM needs some help to realize it’s full potential. Yes, the IT guys will be driving Net Promoter into the firm if they can dig themselves out of their existing CRM backlog.
4. Finally, a reward for the persistent reader: my fourth blog in this series concerns the changes affecting marketing departments, which also provide ample drive for Net Promoter. This is the fun part of change—unless you are wedded to traditional marketing techniques. If you can’t keep up with the changes, it’s a sobering thought that job tenure for CMOs is even shorter than for CEOs.
Before I dive into the first topic, let’s consider the evidence for the ubiquity of Net Promoter. Statistics from the Netpromoter.com community continue to set records, with more than 4,700 registered participants – and a lot more just dropping in. Here’s another choice anecdote: The ratio of book sales to site visits for Fred Reichheld’s runaway business title The Ultimate Question and the corresponding Netpromoter.com website was superior to that of Good to Great, the seminal Jim Collins book and his corresponding site. Based on these statistics we could argue that people are keen to implement the ideas they read in Fred’s book.
The Net Promoter conferences bear this out – both have been sell-outs – but I find the most compelling argument comes from the case studies of Net Promoter adoption within major corporations: GE, Siemens, and Philips in the industrial sector; Charles Schwab, HSBC, and Allianz in the financial sector; plus an ever growing list of service firms—and that’s just among large businesses. Companies the world over are casting their votes for Net Promoter as a way to create a customer centric strategy. Understanding the fundamentals of what they are doing, and why, should arm us as we build our programs.
Shall we begin?
It’s the Economy, Stupid
“The only function of economic forecasting is to make astrology look respectable.”
– JK Galbraith
There is significant evidence that the major industrialized nations of the world—principally the U.S., many nations of Western Europe, and Japan—are transitioning to service economies at an increasingly rapid rate. This has been going on for some time. By the end of the 1990s, both the U.K. and the U.S. had migrated their labor markets to the point that, according to the OECD, more than 70 percent of jobs were derived from the service sector. In the last 15 years, manufacturing as a source of output in the U.K. has fallen from 27 percent to 17 percent, according to government data.
The growth of China as a major manufacturer in the last decade has only increased this trend. During 2006, manufactured goods accounted for 64 percent of the total U.S. trade deficit (oil constituted most of the remainder) and China represented a full 42 percent of that number.
This trend is not likely to reverse. If you employ people in one of the major industrialized nations, odds are you are providing a service.
How do businesses create value in these competitive, service driven economies? How will they grow beyond the constraints of a mature economy whose overall growth is unlikely to beat 5 percent over the long term?
In a 1992 article, Michael Treacy answered these questions when he laid out three value disciplines that typify success in the companies he researched: operational excellence, product leadership and customer intimacy. How valid is this assumption 15 years later? Can companies truly compete with a focus on product leadership or operational excellence as their economies shift to production of services as opposed to goods?
I would argue that operational excellence has pretty much run its course. That is not to say that all industries lack an ability to squeeze supply chain or manufacturing efficiencies out of their business. But, in general, most major corporations are already pretty good at this. Furthermore, in industries where these efficiencies provide a competitive advantage, the margin for that advantage has eroded. For example, consider the personal computer industry. I like this industry for two reasons. First, as a high-growth, high-innovation, brutally competitive business, it arguably represents one of the best laboratories for studying competitive behavior. Second, I spent nine years in that industry working with Dell (Blogmaster note: Richard Owen was vice president of Dell Online Worldwide, responsible for all aspects of Dell's Internet strategy and online business revenues on a worldwide basis). Thus I have some personal experience to justify my opinion.
Indeed, it’s fair to say that Dell completely dominated the PC industry in the 1990s. From 1990 to 2000, Dell was the #1 performing public stock listing on the planet (narrowly beating out Cisco). From 1992 to 1997, Dell’s Days Sales of Inventory (it’s principle measure of inventory asset levels) declined from around 90 days to around 10. Today, its Days Sales of Inventory is around 5 and is no longer even a headline. Apple, perhaps more famous for product leadership than operational excellence, has similar performance.
Competitive, superior supply chain execution has simply dropped off the radar as a major winning strategy. I don’t see it as coincidental that the end of one era, and the shift to other forms of competitive advantage, has challenged Dell to develop new competitive strategies or face eroding market momentum. And I couldn’t help but notice that Dell failed to make the BusinessWeek Information Technology 100 ranking this year.
Now, that’s not to say that operational excellence is dead in every industry, simply that it is no longer the differentiator it once was. This leaves us looking at product innovation and customer intimacy as the two big value differentiators. Now I’m not going to claim that there are no longer big opportunities for companies in product innovation. However, in many industries, differentiation is more about service and customer experience than it is about breakthrough technologies. If you can establish a leadership position by creating highly original products on a consistent basis, then go for it. For the rest of us, customer intimacy and customer experience strategies will increasingly be the major source of value creation and, at the very least, an important “shock absorber” for the times when we can’t pull through on the strength of our products alone.
And now for another quotable quote:
“Customer-intimate companies are willing to spend now to build customer loyalty for the long term.” - Treacy
I don’t believe this idea is lost on today’s senior executives. With the S&P 500 trading at more than 17 times forward earnings, clearly shareholders expect their yields to top the 2 to 3 percent that the U.S. economy is growing. After the enormous growth of the 1990s and the recession of the early 2000s, CEOs are looking for new strategies for growth. The transition to a services economy and the opportunity to create value through service creation and customer intimacy all point to Net Promoter as the right strategy at the right time in the boardroom.
So if you wondered why so many CEOs are getting behind this movement – and even bothering to attend highly specialized business conferences in London – now you have some answers.
Now you’ve got the CEO in your camp. The CFO, CIO, and CMO will follow shortly. Stay tuned for more commentary in my upcoming installments.
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