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What Effective Leaders Do in Tough Times

Each year on the Wednesday before Thanksgiving, where could you find Southwest Airlines’ legendary co-founder and CEO Herb Kelleher? On the tarmac, of course, helping the ground crew load and unload baggage onto planes, during what was the busiest travel day of the year.

Kelleher appreciated the importance of leaders showing solidarity with their employees, particularly during challenging times. That spirit was echoed recently, when current Southwest CEO Gary Kelly announced he was taking a 10% pay cut in light of the business challenges created by the spread of COVID-19. Other airline executives followed Kelly’s lead, but he was the first to step forward with such a gesture.

Chipping in to help staff during difficult times is a hallmark of effective leadership. It helps to humanize executives in the eyes of employees but also sends an important message that, however bad a crisis is, however big a challenge we face — we’ll overcome it by working as a team.

At Vanguard Investments, that executive “roll up your sleeves” approach is actually institutionalized via the company’s Swiss Army – a customer service “reserve team” that’s called into duty to help maintain service levels during periods of high investor call volume. The people staffing the Swiss Army aren’t regular call center representatives; they’re specially trained Vanguard executives and managers.

In September 2008, for example, as investment bank Lehman Brothers collapsed and the U.S. financial industry began to implode, Vanguard CEO Bill McNabb was in the company’s Valley Forge, PA service center, fielding calls from anxious investors. Just imagine how that must have made his front-line call center representatives feel.

Working in the trenches with employees is a smart move for organizational leaders at any time, but even more so during challenging times.

Indeed, whether it’s working alongside stressed employees, or volunteering to take an executive pay cut during a financially challenging period – these types of actions send an unmistakable signal to the workforce: We’re all in this together.

In this sense, how a particular business crisis originates is almost immaterial. It could be an isolated, company-specific event, such as a product recall, or it could be a worldwide disruption caused by a global pandemic. The important thing is how leaders respond in those situations, and the signals they send to their organizations via their own personal behaviors.

See also: Coronavirus: What Should Insurers Do?  

Most businesspeople are problem solvers at heart. During crises, our natural inclination is to fix the problem, to stop the hemorrhaging, to focus on the mechanics and logistics of business recovery. While those are all very important activities, it’s critical to complement them with smaller, tone-setting tactics that, on their face, might seem less strategic and “unworthy” of an executive’s time.

Depending on what industry you’re in, that could mean helping customer service reps field incoming inquiries, or assisting warehouse personnel in boxing up orders, or chipping in to help a staff member complete an urgent task. These are all small gestures that can leave an indelible impression, especially on employees who are stressed and anxious about what the future holds.

All too often in the business world, there is a chasm between the corner office and the cubicle, between the top brass and the front line. Particularly during difficult times, it’s essential for organizational leaders to bridge that chasm, and to show the workforce what it really means to be a team player.

A version of this article originally appeared on Forbes.com and can also be found here.

ROI Study on Customer Experience

What’s a great, differentiated customer experience (CX) really worth to a company?

It’s a question that seems to vex lots of business executives, many of whom publicly tout their commitment to the customer but are actually unsure about the ROI of customer experience — leaving them reluctant to invest in customer experience improvements.

As a result, companies continue to subject their customers to complicated sales processes, cluttered websites, dizzying 800-line menus, long wait times, incompetent service, unintelligible correspondence and products that are just plain difficult to use.

To help business leaders understand the overarching influence of a great customer experience (as well as a poor one), my firm sought to elevate the dialogue.

That meant getting executives to focus, at least for a moment, not on the cost/benefit of specific customer experience initiatives but, rather, on the macro impact of an effective customer experience strategy.

We accomplished this by studying the cumulative total stock returns for two model portfolios – composed of the Top 10 (“Leaders”) and Bottom 10 (“Laggards”) publicly traded companies in customer experience.

As the graphic in the next section vividly illustrates, the results of our study were quite compelling.

The Results

Eleven years of customer experience rankings were available for our analysis. The graph below shows the cumulative total return across that period for the Leaders and Laggards.

  • Customer Experience Leaders outperformed the broader market, generating a total return that was 45 points higher than the S&P 500 Index.
  • Customer Experience Laggards trailed far behind, posting a total return that was 76 points lower than that of the broader market.
  • Customer Experience Leaders generated a total cumulative return that was nearly three times greater than that of the Customer Experience Laggards.


This analysis reflects over a decade of performance results, spanning an entire economic cycle, from the pre-recession market peak in 2007 to the post-recession recovery that continues today.

While there are obviously many factors that influence a company’s stock price, the results of this study indicate that, over the long term, a great customer experience helps build business value, while a poor customer experience erodes it.  That’s an important takeaway, for public and private entities alike.

What creates that enhanced value?

Revenue growth. When most people think about the economic benefit from a great customer experience, this is where their heads go.  That’s entirely appropriate, because revenue growth is indeed one clear advantage of customer experience excellence. Why? Happy, loyal customers have better retention, they’re less price-sensitive and they’re more willing to entertain offers for other products and services – all helping to raise revenue. Plus, because they love you so much, they spread positive word-of-mouth and refer new customers to you – lifting revenue even higher.

Expense control. This is the part of customer experience economic equation that most businesses fail to appreciate. (It’s also why using revenue growth, alone, to demonstrate customer experience ROI is misguided.) When you have happy, loyal customers, it helps to better control – if not reduce – your expenses. For example, due to all the customer referrals you’re getting, you can spend less on business acquisition – which reduces expenses. In addition, happy customers tend to complain less, putting reduced stress on your operating infrastructure (e.g., lower call volumes), thereby also helping to keep expenses in check.

Of course, these economic dynamics cut both ways. Customer Experience Laggards struggle to raise revenue (e.g., poor retention, high price-sensitivity, limited cross-purchasing, negative word-of-mouth), and they’re burdened with higher expenses (e.g., to acquire new customers, and to deal with the existing unhappy ones). This weighs on their long-term profitability and makes them less valuable in the eyes of the market.

To learn more about the study’s methodology, and what Customer Experience Leading firms do to achieve their outperformance, view Watermark’s complete Cross-Industry Customer Experience ROI Study.

The Insurance Industry Perspective

The insurance industry often views itself as being different than other sectors, given, for example, its highly regulated nature and the fact that its products are something of a “grudge purchase” for consumers.

Well, we’ve crunched the Customer Experience ROI numbers for the Auto and Home insurance industries – and it turns out the customer experience story is even more compelling in those sectors:

Insurance Customer Experience Leaders outperformed the Laggards by over a three-to-one ratio. It’s a striking result that suggests, at least in this regard, the insurance industry isn’t different from most other sectors, and the compelling economics of a customer experience excellence still apply.

To learn more about Watermark’s insurance industry analysis, including the implications for insurance providers seeking to improve their own customer experience, view the complete Insurance Customer Experience ROI Study.

Pursuing Purpose? Or Just Propaganda?

U.S. pharmacy chain CVS recently announced that it would no longer use “materially altered” imagery to market beauty products in its stores.

That means no more perfect, digitally modified wrinkle- and blemish-free photographs to sell everything from moisturizer to lipstick. Instead, consumers will see more realistic pictures of models, complete with crow’s feet and birthmarks.

Why did CVS make this change? It all has to do with the company’s brand purpose, the “reason for being.”

In a statement announcing the change, CVS noted the connection between the propagation of unrealistic body images and negative health effects, particularly for girls and young women. Given that the company’s stated corporate purpose is to “help people on their path to better health,” the use of airbrushed images in promotional materials seemed contradictory and ill-advised.

This isn’t the first time CVS has made a bold move inspired by its brand purpose. A few years ago, the firm stopped selling cigarette and tobacco products, forgoing an estimated $2 billion in revenue. That decision, too, was triggered by the inconsistency between the company’s purpose and the well-documented health effects of those products.

What CVS is giving us here is a master class in the difference between corporate purpose and corporate propaganda.

Most firms practice the latter – articulating a business purpose that makes for good annual report copy but doesn’t translate into tangible action. It’s nothing more that corporate window dressing.

See also: How to Apply ‘Lean’ to Insurance  

Far less common, but much more notable, are firms like CVS that don’t just define a brand purpose but actually live by it (even when it requires really tough decisions, like walking away from a $2 billion business).

Such actions help pave the way for a better and more distinctive customer experience because, in the eyes of consumers, it makes the company more appealing, more genuine and more authentic.

Kudos to CVS for taking yet another bold stand that helps make their brand purpose more than just a piece of corporate propaganda. Those kinds of decisions can spruce up a company’s brand image far more effectively than even the best airbrush.

This article was originally published on WaterRemarks.

Why Your Customer Research Is Flawed

U.S. pollsters got quite a surprise in the early morning hours of Nov. 9, 2016.

That’s when it became apparent that their sophisticated voter research had completely failed to predict the outcome of the U.S. presidential election.  Longtime Republican political strategist Mike Murphy went so far as to assert that “data died” that night.

Yes, the 2016 U.S. presidential election was a highly visible casualty for data-driven research, but far from the only one.

In 1985, Coca-Cola announced the rollout of “New Coke,” an updated formulation of the venerable soft drink, designed to appeal to changing consumer tastes.

In launching the new formula, the company cited research indicating that taste was the primary driver behind the brand’s market share slide. The firm also pointed to blind taste tests that indicated that a majority of consumers favored New Coke over its predecessor (and over Pepsi).

As it turns out, the research pointed Coca-Cola in the wrong direction. Three months after rolling the revised formulation out, the company acknowledged widespread public discontent and returned the original Coke to store shelves. New Coke was killed in 2002.

See also: 5 Key Customer Experience Trends  

What went wrong? One thing that Coca-Cola failed to account for was the emotional dimension of consumer buying behavior. Even if people said they preferred New Coke in taste tests, many had an emotional attachment to the original formula that – outside of the research bubble – superseded their rational judgment on taste.

This is why an overreliance on traditional research methods (i.e., asking customers what they want or like) can lead a company astray. Surveys and questionnaires do a poor job of accounting for the emotional considerations that drive customer behavior.

As behavioral science has clearly demonstrated, it’s those emotional considerations that often exert the strongest influence on individual decision-making. (As renowned psychologist Daniel Kahneman has described it, “the emotional tail wags the rational dog.”)

Post-mortems on the 2016 election polling have also referred to the emotional “blind spot” of traditional research methods. Evans Witt, president of the National Council on Public Polls, highlighted this issue to NPR, noting that “polls do a poor job with emotion/enthusiasm/commitment”; that may have been an important behavioral influence on what was a very polarized electorate.

There’s another reason, though, why traditional question-based customer research can mislead, and it comes down to this simple truth: There’s a big difference between what customers say and what customers do.

Wal-Mart found this out the hard way in 2009 when it launched a store redesign effort dubbed Project Impact.

The company had conducted customer surveys, which indicated that shoppers didn’t like Wal-Mart’s cluttered, dimly lit stores. They wanted cleaner, more streamlined layouts.

Project Impact sought to deliver on this apparent customer preference by de-cluttering the store – removing endcaps, widening aisles and improving navigability.

Even the store’s famed “Action Alley,” the main corridor separating departments, wasn’t immune to the changes. Traditionally dotted with palettes piled high with fast-selling items, Action Alley was cleared out by Project Impact, opening up sight lines across the entire store.

It all sounded like a good idea… until same-store sales started to plummet. The reason? To streamline the store layout, Wal-Mart had to eliminate, by some estimates, 15% of its store inventory. When customers could no longer find their favorite brand at Wal-Mart, they went elsewhere to pick it up – and shifted their shopping to competing stores that offered a wider product selection.

In addition, it turns out that Action Alley – while perhaps contributing to store clutter – also triggered a lot of impulse buys among Wal-Mart shoppers. When Action Alley disappeared, so did a lot of sales.

Since its founding by Sam Walton in the 1960s, Wal-Mart’s strategy had always centered on offering low prices and a wide selection (“Stack ‘em high, watch ‘em fly,” as Sam liked to say).

Sam apparently knew his customers better than the company’s modern researchers, because it turns out people shop at Wal-Mart for – you guessed it – value and selection. Shoppers might have said they wanted a clutter-free store – but in reality, the clutter was part of the appeal for them, feeding into their hunt for great deals and impulse purchases.

What could Wal-Mart have done differently? Instead of just asking customers what they wanted, they should have observed them in action, navigating the store and making purchases. They should have spoken to shoppers one-on-one, to better understand what shaped their purchase behavior once they stepped foot into a Wal-Mart.

It’s precisely this type of context and nuance that traditional customer research methods miss – because what customers say they want is sometimes quite different from what they actually value.

Indeed, that which the customer values the most may also be the thing that’s hardest for them to articulate. Hence the mismatch between what people say and what people do.

See also: Are You Ready for the New Customer?  

Traditional customer research has merit, but its precision is often oversold. To steer your business in the right direction, don’t just look at the data, look at your customers.

Immerse yourself in their experience and observe them in their natural habitat – because that’s where you’ll find the priceless insights about how to better serve them.

This article first ran on WaterRemarks, the official blog of Watermark Consulting.

How to Keep Goals From Blowing Up

The goals you set for your organization might be sabotaging the very success that you’re trying to cultivate.

That’s the message from Professors Maurice E. Schweitzer, Lisa D. Ordonez, Adam Galinsky and Max Bazerman – all of whom should surely win an award for the most creative titling of an academic research paper (“Goals Gone Wild” in the Academy of Management Perspectives journal).

In a recent New York Times article, the professors’ research was highlighted along with intriguing examples of the unintended consequences of goal setting.

Like this gem: An NFL team, in an effort to improve the performance of an interception-prone quarterback, added a clause to his contract penalizing him for every pass thrown to the opposing team. The result? The QB threw fewer interception — but only because he stopped throwing the ball altogether, which wasn’t the desired outcome.

See also: Your Data Strategies: #Same or #Goals?  

This goal-setting phenomenon is routinely on display in business circles, when companies focus so relentlessly on a metric that their people over-rotate on it. That ultimately drives undesirable, sometimes even awkward behavior. Perhaps you’ll recognize some of these examples from your own experience, as a businessperson or as a consumer:

  • Auto dealerships where franchise recognition is so closely tied to “top box” scores on a satisfaction survey that staff practically beg customers for an “Excellent” rating.
  • Call centers that set targets for call length, leading service representatives to be more interested in getting customers off the phone than in actually helping them.
  • B2B firms that use Net Promoter Score (NPS) as their primary gauge of performance, leading company representatives to hand-deliver the NPS survey at the most auspicious occasions (like on a golf outing with a client).
  • Companies with such laser-focus on market share targets that they acquire new business at all costs, even at the expense of profitability.
  • Human resource recruiters who are held accountable for qualified candidate “yields” from their sourcing methods, leading them to pass less-than-ideal applicants through the recruiting pipeline.

To avoid making your organization’s goals its own worst enemy, keep these four tips in mind:

1. Consider unintended consequences. In the fervor to address a business issue and rally the troops around an effort, organizations leap to embrace a metric without carefully considering all of the downstream impacts. Contemplating a new measure, or a renewed focus on an existing one? Put on your contrarian hat for a moment. Think of all the bad things that could happen if your staff focused, to a fault, on the line you’ve drawn in the sand. Based on how detrimental and probable those unintended consequences are, tweak your approach accordingly.

2. Strive for balance. Guard against over rotation on any single metric by creating a balanced system of measures. For example, if you want to encourage a sales-oriented culture, but wish to avoid staff making sales at any cost, then only reward those top salespeople who also meet some performance threshold for profitability or customer satisfaction.

3. Set Goldilocks goals. Setting goals is one management task where it’s dangerous to be cavalier. Set the bar too high, and you create unrealistic performance expectations that can disengage your staff or, worse, lead them to game the system. Set the bar too low, and you miss an opportunity to get people to stretch toward a higher level of performance. If you want to set a goal, first track the metric for a time to get a sense of its variability as well as the current performance level. That’ll help you set an informed goal that’s more likely to motivate rather than frustrate.

4. Beware the tie to compensation. Pay for performance – yes, I’m all for it. But organizations can get into trouble when they move too swiftly to tie particular metrics (especially new, unproven ones) to individual compensation. First, get some experience under your belt tracking the metric and providing individual feedback based on it. Then structure the compensation linkage in a way that reinforces a balanced approach to measurement.

See also: Integrating Strategy, Risk and Performance  

When it comes to performance measurement and goal setting, simple “carrot and stick” thinking won’t suffice. Business leaders must invest some real time engineering this piece of their workplace puzzle. It’s the best way to ensure that your organization’s goals are working for you, and not against you.