What impact does Customer Management have on Business Performance

Customers Rule! Period!

What impact does customer centricity really have on

business performance?

What Impact does Customer Management really have on Business Performance?

Business people intuitively know that managing

customers well leads to improved business

performance, but when it comes to allocating budgets

they find it hard to determine what budget to allocate

to acquiring, retaining and developing customers.

Even Analysts, Economists and Stockbrokers are

starting to take customer management seriously,

believing it to be a very important “intangible that

determines sustainable long-term company

performance”. But is it? Yes, and less intangible

than it was! Research over the years has generated

important insights into what makes customer

management work, and how to measure that it is

working.

This does not mean that every company should

invest in developing intimate relationships with all of

its customers. It means that companies should work

though a process to understand: their target market;

their proposition to this market; how the proposition

should be delivered in order to acquire and then

manage customers through sales, marketing and

service on a day to day basis; what they should

measure to show that they are doing this cost-

effectively, and what infrastructure – people,

processes, data and IT – is needed. This works for

public institutions and government departments too.

Our studies show that companies that do this will

perform better than those that do not. Our studies

also show that this is not easy to achieve.

Leading analysts and

brokers now believe that

customer management is

a key intangible of

company wealth

© REAP Consulting 2010 2

What is ‘Line of Sight’?

Think about our systemic approach to business

measurement that we call ‘Line of Sight’. This is

underpinned by a fundamental belief that:

Sustainable business performance is achieved

through gaining commitment and sales from

customers who are, or can become, heavy spenders

in a category

Commitment is gained through delivering a distinct

and appropriate customer experience (the right

blend of functional, rational, sensory and emotional

elements) to these customers

This is done most effectively through engaged and

motivated employees or partners

Employees and partners work within the context that

the company sets which encourages the appropriate

customer management approach (e.g. budgets,

policies, products, pricing, clear proposition,

environment, processes, IT infrastructure, measures)

This ‘system’ must work in harmony so that the

organisation is aligned to deliver sustainable business

performance

Our global Customer Management assessments show

that although most companies would agree at least in

principle to this, few see all the elements as part of a

‘system’ that needs to be actively managed. We believe

the evidence contained in this report is compelling and

shows the need for a fresh approach to business

management and measurement.

Only the most mature companies look at customer management in

a systemic way. They are also the best business performers

In this excerpt we describe each element of ‘Line of Sight’

and, for each element, we describe the:

Link to business performance

Knowledge and insight senior managers should have

Link to next level in ‘Line of Sight’

It goes on to remind readers of what a systemic approach

really means, and shows how ‘Line of Sight’ is

philosophically different to current measurement systems.

We have included an appendix with some generic metrics

that a company might use to measure elements of Line of

Sight


Whether a business is performing well or not depends on how you

define performance – it is not just about today’s profit

Superior Business Performance

What is Business Performance?

‘Business performance’ is one of those terms. We all

think we know what it means, but when we try and define

it, we tend to disagree! This is because a business,

including the public and voluntary sectors, involves many

stakeholders. These include customers, employees,

directors, shareholders, lenders, creditors, suppliers,

government, regulators, state agencies, voters, local

communities, taxpayers, and patients. Performance

means different things to each of these groups. While in

theory positive performance for one in the long run

means positive performance for others, in practice their

interests often conflict, especially in the short run. For

instance, the drive for greater efficiency may mean fewer

employees and longer queue times for customers;

satisfying lenders may mean disappointing shareholders

and so on.

How do you handle these conflicts in your company? Are

there similar instances when in order to meet one target

more serious damage is caused elsewhere?

The Problem with a Profit Focus

The driving goal of the enterprise might be to make a

profit, but the problem comes when companies have an

overriding focus on it! This is because:

The need to focus on short-term profit can be

overwhelming. There is often an uncomfortable

relationship between the need for short-term returns,

to appease the demands of shareholders, and the

requirement for long-term investment and

sustainability. We know from many highly visible

scandals that the balance sheet can be misleading.

P&Ls can give a false picture of ‘business

performance’. A company can make excellent profits

this year and look good on the balance sheet if it cuts

customer service standards to increase productivity,

fires 30% of its staff, cuts its marketing budget by half,

fails to invest in product development and cuts all of its

IT development budgets. The focus on short-term

profitability will compromise the company’s long-term

sustainability to say the least!


A balanced approach to short and long-term profitability is

important

For each of the stakeholder groups, there may be

several important measures. For shareholders, profits

are important, but even this has several dimensions,

not least the time dimension (i.e. short and long term

profitability), which is discussed below. Not all those

stakeholder groups are equally important. For example,

there is a legal hierarchy in terms of who gets paid

when a company goes bankrupt. In principle, in a public

company, shareholders interests come first, managers

second, though as we know, poor governance often

reverses this. While there is an argument for

performance improvement policies that observe the

theoretical hierarchy, it may be necessary to recognise

that, in practice, a different ordering is important. We

have to conclude that business performance should be

judged by the hierarchy of balanced measures set by

the board. However, at the top of this hierarchy for most

private sector companies is PROFIT. Sometimes this is

so far up the hierarchy that other measures don’t

receive the consideration they merit!

http://images.google.co.za/imgres?imgurl=http://junomain.files.wordpress.com/2007/11/balance_scale.jpg&imgrefurl=http://junomain.wordpress.com/2007/11/21/principles-of-design-balance-terry-grant/&h=371&w=551&sz=11&hl=en&start=9&tbnid=1S9ppQWMvJYEkM:&tbnh=90&tbnw=133&prev=/images?q=balance&gbv=2&hl=en

Customer Behaviour

The Link between Customer Behaviour and

Business Performance

Trading profit is for most companies the major source of

profit, along with profit from capital efficiency (e.g.

investment, assets) and comes from sales to customers.

As far as profitability from customers is concerned, the

Pareto rule (80:20) holds true for almost all categories of

product and service. 12% of a bank’s customers are

responsible for 119% of the bank’s profit. 18% of

supermarket shoppers are responsible for 65% of margin

and so on. The only exceptions include pure subscription

based services, although cross-sales and up-sales to the

basic subscription service can skew the relative value of

customers towards Pareto levels.

The Decile Analysis graph adjacent shows that losing just

5% of the most valuable customers may account for up to

half of overall profitability, whereas losing 50% of the

least valuable may have an insignificant effect or, in this

case, may even increase overall profitability! If 10% of

the best customers shift half of their spend somewhere

else, then this is likely to result in a 35% fall in profit. It

therefore makes sense for a company to focus on:

Holding on to their most valuable customers, the

heavy spenders, and developing their value where

possible

Attracting the most valuable prospects

If this is done well, the REAP Target Table (see below)

shows that it is possible for a large company to double

profit in 3 years! Yet only 21% of companies understand

customer management well enough to be able to achieve

this. The majority of companies may have different

marketing campaigns for different customer groups (the

activities which are least important to customers), yet

they will treat them all pretty much the same when it

matters, i.e. when the customer has an issue or requires

service.


Only 26% of leading companies measure

customer acquisition, retention and penetration,

by customer value

A company can do this by understanding who their most

valuable customers and prospects are (both now and in

the future), how they behave, their attitude to the category

and their commitment to the brand. If you can then

determine what drives this commitment, you can begin to

design an effective, focused proposition.

Decile Analysis: Manufacturer

5% of customers in your company will make or break your

profitability, 50% will have minimal impact on profitability

Customer Behaviour

Essential Senior Management Insight Required

to Understand Customer Behaviour

In terms of customer behaviour, senior management

need to know:

Their own Pareto in terms of volume and profit?

Who their heavy spending customers are?

The share of spend of this group, versus competitors?

How the company manages this heavy spending

group, tracks their spend levels and takes remedial

action if necessary?

When and why the heavy spenders reduce their spend

with you, or leave you altogether?

The relationship between the dynamics between

retention, penetration, acquisition and cost to serve,

by value group?

A focus on what generates commitment amongst your

highest spending customers will lead to better business

performance


53% of companies apply different outbound campaigns to

different customer segments, yet only 12% have differentiated inbound strategies which can be

consistently applied

Behaviour and the Link to Commitment

A company needs to understand why its best

customers and prospects behave in the way they do.

For instance, in retail markets, a senior manager may

ask; ‘which of my best customers stopped buying, or

reduced their buying, from my store?’ The next logical

question to ask is; ‘Why did they stop buying; was it the

product range, service, store location or some other

factor?’

A review of behavioural metrics will enable senior

managers to ask the questions that will explain

behaviour. If they can do this, they will be getting to the

heart of increasing business performance. This is

where the overlap with the next element in ‘Line of

Sight’ - customer commitment - begins. Why do

customers behave the way they do? How can we

influence this? And then the killer question: How can

we increase the commitment of high spending

customers to our brand, rather than someone else’s?

A focus on profit naturally encourages a focus on the most

obvious components of profit, rather than the underlying

causes of it. Thus the focus is on:

Cost reduction, rather than longer-term investment in

customers, channels, products and people, and

productivity - often at the expense of customer service

and employee motivation

Short-term sales revenue, squeezing another sale out of

customers now that isn’t balanced by nurturing customer

commitment and longer term value

An unerring comparison of activities through an

immediate ‘return on investment’ argument rather than

the overall value generated by that investment

Through focusing on profit in these ways, current

measurement approaches (even so called ‘balanced

scorecards’) inadvertently destroy sustainable profit!

Companies worry about profit too much, and spend too little

time worrying about the systemic drivers of profit such as

customer behaviour, commitment, employee capability and

engagement. Our premise in this article is that, by focusing on

a system of measures of which a key output is profit, rather

than on profit alone, managers will achieve the optimum

balance of short and long term performance. This focus must

start with customers.


Customer Behaviour

Customer Commitment

The Link between Customer Commitment and


Customer satisfaction is a commonly used and important

measure. Applied correctly, customer satisfaction

measures tell how satisfied customers are with a

particular interaction (i.e. touchpoint). However, they are

misleading in that the overall ‘Satisfaction score’ rarely

predicts, or even correlates with, repeat purchase

behaviour and therefore business performance.

Customer commitment is different. Customer

commitment, measured in a variety of different ways,

does have a clear link with business performance and is

a first class barometer of the overall impact of

organisational activities. A number of studies show

conclusively the worth of developing customers who are

committed to the brand. Not all customers will become

committed, but the aim of the organisation must be to get

a large percentage of heavy spenders, and potential

heavy spenders, committed to the brand.

Commitment is likely to be based on a set of:

Functional and rational elements (e.g. price, product

features and process-type success of the transaction

i.e. interaction delivered on time, in full, on

specification)

Emotional and sensory elements (e.g. how do I feel

about what happened; do I like the look and feel of the

product/package/advertisement)

In increasingly global and commoditised markets, the

balance of power is shifting towards the emotional

and sensory side of the equation.

How well does the brand advertising deliver on

commitment (e.g. differentiation, relevance, esteem,

involvement), and how important is this for heavy

spending customers and prospects?

How well do the direct personal experiences impact on

commitment (e.g. price, product, service, relationship),

and how important is this for heavy spending

customers and prospects?

What % of the market is committed to competitive

brands, and what % is available to you?


94% of companies measure satisfaction; only 12% measure

commitment

Essential Senior Management Insight Required to

Understand Customer Commitment

In terms of customer commitment, senior management

need to know:

What % of your heavy spending customers are

committed to your brand (not just ‘very satisfied’)?

How many, and which, of your heavy spending

customers are vulnerable (weakly bonded with you)

or very likely to shift some or all of their spend

elsewhere?

What makes heavy spenders in your category

committed to a brand in your category?

Commitment and the Link to Brand Experience

Customers interact with an organisation at many different

levels, both passively and actively. They will see

advertising and communications in all their shapes and

forms. They may interact when they enquire, purchase or

complain about the product. They will experience the

product or service. They may see, from PR or directly, the

impact a company is having on their community, country,

the world. Many of these interactions will wash over most

of the market. But for some customers a more lasting

impression will be made. The brand and direct personal

experience they receive shapes their commitment to the

brand. A great customer experience is not necessarily an

intimate one. It must support the top customers’ values

and belief systems and deliver against their functional

and emotional needs.

Managing the Brand Experience

The Link between Brand Experience and


Effectively, the link between the brand experience and

business performance will be measured through

customer commitment and sales behaviour. The

challenge facing senior managers is to design both:

Brand approaches to bring valuable prospects into the

brand and

Customer management interactions to keep them

there (see table below)

In most markets, brand awareness is developed initially

through advertising and word of mouth, but then

commitment is developed through the experience the

customer has when they interact with the brand (this is a

little different in fast moving consumer goods markets (e.g.

Coca-Cola), where brand advertising has a higher impact

on commitment). New media can help to build the ‘good

brand feelings’ that lead to brand preference by involving

the consumer in ways that mass media never could. They

make it easier to create meaningful ‘engaging’ brand

experiences to different audience sets.

Any interaction or communication may have an impact on

the customer experience, and therefore customer

commitment and therefore business performance. Some

interactions are more important, in the customers’ minds,

than others. The interactions need to be designed to

develop commitment and sales, rather than just sales.

Without a systemic approach, the short-term profit focus

discussed earlier may provide an overwhelming challenge

to the cost of providing good service. It may also

encourage the achievement of short term revenue at the

expense of a nurtured longer term customer relationship,

which will in turn lead to a poor customer experience, lower

commitment and lower sales.

An understanding of what drives commitment and

behaviour is the starting point for the development of the

appropriate customer experience

An understanding of what drives commitment and

behaviour is the starting point for the development of the

appropriate customer experience. Companies can then

manage their channels against the desired customer

experience. To deliver the appropriate experience, brand,

reseller, customer management, direct marketing and

other communities in your company need to:

Share data and insights on customers and the market

Work together to understand the implications of their

actions and impact not just on sales and behaviour,

but on commitment

Work with other functions such as HR, Finance,

Planning, Manufacturing and IT to understand each

others’ role in delivering business performance, using

the ‘Line of Sight’ framework as the backbone


Relative Impact of Brand Approach vs. Customer Management Interactions; by Customer Lifestage

“We must adopt the mentality of permission marketing and

creative advertising that is so appealing that consumers

welcome it into their lives” Jim Stengel CMO P&G 2004

Managing the Brand Experience

This should be orchestrated by the marketing function.

Few companies work this way, and instead, provide

dysfunctional delivery of the desired customer

experience. Often departmental measures will clash with

the overall goals of the organisation (e.g. measuring call

centre people on call time may degrade the customer

experience of best customers and undermine the

initiative of employees).

Attempting to control the experience provided through

indirect, or third-party channels is much harder and

success is dependent upon the level of influence you

have over the channel, the investment you make in the

channel or the level of additional business you can

provide it.


to Understand the Brand Experience

In terms of the brand experience, senior management

need to know:

Which events, journeys or touchpoints your top

customers perceive as critical or important?

How well you deliver the functional and emotional

experience at each touchpoint?

What organisational barriers exist to delivering the

desired experience?

How aligned are the measurement goals of individual

functions to ensure that they are all pulling towards

your overall business objectives?

The efficiency and effectiveness of your

communications from both the short and long-term

sales perspective, and from the customer experience

perspective?

Customer facing employees, and their immediate back

office support functions, will impact on both the

functional/rational side of the commitment equation (‘they

did the job for me’, ‘they were knowledgeable’, ‘they

processed my application quickly’) and on the sensory/

emotional side (‘the design looks great’, ‘they made me

feel really good’, ‘I enjoyed that’).

Other staff, or suppliers, will be involved in designing or

delivering processes or systems which need to deliver

the ingredients of commitment.

For example:

Designing the advertising and communications that

shape customers and prospects perceptions

Designing web sites used by customers and/or staff

Providing systems which will be used by customers

and/or staff to provide them with the necessary

information, on time and in full

Providing decisions or documentation in the full

understanding of what drives customer commitment

Presenting information (e.g. financial) to the market in

a way that engenders trust and esteem

They too need to understand what drives customer

commitment and what they need to do to achieve it. But

are they capable of doing it, and do they care?


An understanding of what drives commitment and behaviour is the starting

point for the development of the appropriate customer

experience.

Brand Experience and the Link to Employee

Engagement

The brand experience is delivered through interactions

via advertising, personal contact, and the web site. The

large majority of employees will impact on the brand

experience in some way because they either design,

influence, deliver or manage interactions

Employee Commitment, Engagement and Behaviour

The Link between Employees and Business

Performance

An increasing body of research shows that the attitude,

engagement and commitment of staff towards the brand

and, ultimately, to the customer has a large impact on

business performance:

Companies with highly engaged employees generated

200% higher three-year total returns to shareholders

than low-commitment companies between 1999 and

2002

Over the past 5 years, companies which employees

rate as great places to work have shown 25% growth

in share and dividend returns, compared to 6.3% for

the rest of the All-Share index

70% of customer brand perception is determined by

experiences with people

41% of customers are loyal because of good

employee attitude

UK retailer: 1% increase in employee commitment =

9% increase in monthly sales

As basic as it may sound, a warm, helpful, caring and

knowledgeable person on the phone, or in the retail

outlet, makes a big impression. Somebody designing

the website who really understands what customers

need, what makes them committed, what other

choices they have, how they are likely to use the site

– someone who is engaged in the brand – will do a

much better job than someone who doesn’t really

care or understand.

The Vivaldi Brand Leadership study chart below

shows that if customers rate your brand highly you

will outperform the market by a factor of 1.6, but if

customers and employees both value your brand

highly, you will outperform the market by a factor of

3.2 times! Proof indeed of the value of engaged

employees!

All this provides overwhelming evidence of the power

of employees in delivering the brand.


“I worry about employees first, customers second and shareholders third” Richard Branson, in his

autobiography


to Understand Employee Engagement

In terms of the employee commitment, engagement and

behaviour, senior management need to know:

Which employees you want to keep, at all levels, in

the company

How may of these are committed to the company

How many of these are engaged with the proposition

What positive and negative impact employees can

have on the brand experience.

Have employees been instrumental in defining what

good customer experience looks like

Do HR, coaches and the training department know

what the right customer experience looks like

Employee Engagement and the Link to Corporate

Context

Employees can only work within the ‘context’ set by the

company. If the strategy, policies, processes are incorrect or

undefined; if they do not have the appropriate support tools; if

they are working in a scruffy, poorly managed, demotivating

environment, then they will not be able to manage customers

well.

Setting up the appropriate customer management

infrastructure is the foundation (but not necessarily the starting

point) for ‘Line of Sight’ and is perhaps the largest source of

profit for most companies.


Employee Commitment, Engagement and Behaviour

Only a fifth of companies have a clear cascade of

objectives from business performance down to ‘grass

root’ employees.

Link with Business Performance

Customers are normally the largest single source of profit

(alongside capital efficiency and investment performance), and

for smaller companies the only source. Customer

management impacts significantly on business performance

and profit. Research has shown that between 29 - 61% of any

common profit indicators (e.g. ROA, ROCE, OM, NM) may be

described by the way a company is set up to manage

customers! It is critical to get this right. It sets the context for

the whole of customer management. The table alongside

illustrates the areas which need to be considered to set the

right context for customer management. These areas form the

basis of our assessment approach, and doing them well has a

clear link with business performance.

Essential Senior Management Insight Required to

Understand the Corporate Context

In terms of the corporate context for customer management,

senior management need to know:

Whether they are a top quartile performer in their sector, in

terms of how they manage customers against the criteria in

the table ?

Do all functions work together as a cohesive unit and are

they aligned behind sustainable business performance, not

just profit?

Are all business units sharing best practices?

What is the ‘Line of Sight’ for your organisation?


Corporate Context for Customer Management

The Importance of Systems Thinking

A system can be defined as: “Any network of functions or

activities within an organization that work together for the

aim of the organization”. A boundary of a system could be

drawn around a firm, an industry, or a country as in the

US. The diagram below, Production Viewed as a System,

was the spark that ignited the turnaround of Japan from

1950 onwards.

As Deming says, ”This flow diagram directed their

knowledge and efforts into a system of production,

geared to the market - namely prediction of needs of

customers. The whole world knows about the results…

This simple flow diagram was on the blackboard at every

conference with top management in 1950 and onward. It

was on the blackboard in the teaching of engineers.

Action began to take place when top management and

engineers saw how to use their knowledge”

The flow diagram can be adapted to service

organisations where A, B, C etc could be work from

preceding organisations, data sources etc.

Dr Russell Ackoff talks about the difference between

analysis and synthesis in systems thinking. He explains:

“Analysis has been the dominant mode of thought in the

Western world for 400 years because, while

investigating the nature of mankind and the

environment, scientists copied the behaviour of

children. As they take apart unfamiliar objects, children

attempt to understand each part separately and then try

to reassemble the whole. That is analysis, and it

explains how the pieces of a system work. Synthesis is

needed to understand the why of a system and the

interactions between its parts as they work together. It

begins with identification of a larger or containing whole

(system) of which the system to be studied is a part.

Synthesis yields an understanding of how the thing to

be studied serves the purpose of the larger whole. Used

together, analysis and synthesis make possible better

management - or even the redesign - of society's

institutions”.

The government’s obsession with meeting targets can have

some unfortunate consequences as the following example

shows. Dr Richard Harrad, Clinical Director, Bristol Eye

Hospital, when giving evidence to the House of Commons

Public Administration Select Committee told MPs:

“The waiting time targets for new outpatient appointments at

the Bristol Eye Hospital have been achieved at the expense

of cancellation and delay of follow-up appointments. At

present we cancel over 1,000 appointments per month to

meet the target. Some patients have waited 20 months longer

than the planned date for their appointment. We have kept

clinical incident forms for all patients, mostly those with

glaucoma or diabetes, who have lost vision as a result of

delayed follow-up; there have been 25 in the past 2 years.

This figure undoubtedly underestimates the true incidence

and of course there is the large backlog of patients still to be

seen. One particularly sad case was that of an elderly lady

who was completely deaf and relied upon signing and lip-

reading for communication. She lives with her disabled

husband who like her is completely deaf. Her follow-up

appointment for glaucoma was delayed several times and

during this time her glaucoma deteriorated and she became

totally blind.”


Production Viewed as a System

This was the original Deming flip chart model which changed business

thinking in the western world

The Importance of Systems Thinking

Separating the elements of a system into separate

components results in the destruction of the system.

The table below shows the cost of electrical components

used in both the engine and transmission of a vehicle. It

was discovered that by putting different electrical

components in the engine, none would be required in

the transmission. The proposal was rejected by the

people in charge of finance for the engine because it

would have increased the engine component costs. It

was outside their scope to consider that it would have

reduced overall costs by $50 as they were solely

concerned with the cost of the engine rather than the

vehicle as a whole.

The ‘Command and Control versus Systems Thinking’

table below illustrates how systems thinking is diametrically

opposed to command and control thinking. John Seddon

argues that command and control organisations focus on

managing costs, but end up increasing them, provide poor

service and that "top down functional hierarchies damage

the way customers are dealt with“


Functions within a company should not work in isolation or even in

partial isolation. They work best as part of a system tuned to delivering

business objectives

Separating a firm into separate cost centres can do this

too. For example, W Earl Sasser in a Harvard Business

School lecture describes an airline trip (first class) with a

major airline he was doing some work for. The customer

experience at check-in was excellent, as was everything

on the flight. First class passengers were off the aircraft

quickly, but when they arrived at baggage reclaim the

problem started. He had to wait, as did everyone on the

flight, for around an hour. He finally arrived at the airline

conference centre. He told the audience about each of

the customer experiences saving the baggage handling

experience till last. Afterwards, a man came up to him

and said that he was responsible for baggage handling.

He explained that in order to meet budget for the month

he had had to cut staffing levels. The consequences of

managing separate functions as separate cost centres

rather than ‘the system as a whole’ can be hugely

damaging to a company. Top management in this airline

were probably unaware of the damage they were causing

by managing the parts separately rather than the whole.

Isolating elements of a system, and setting non-systemic targets

for them, may destroy the overall performance required

Status Engine Transmission Total

As is $100 $80 $180

Proposed $130 $0 $130

Gain from Proposal $50

Electrical Components

Command and Control versus Systems Thinking

‘Line of Sight’ as a Business Philosophy

A Systemic Approach to Business Organisation

and Measurement

‘Line of Sight’ is a very different business philosophy and

measurement approach in which everyone can understand

and align with the overall purpose and aspirations.

Although each element of ‘Line of Sight’ correlates with

business performance independently, the overall effect is to

focus on optimising the system as a whole – aligning the

organisation behind business performance optimisation

and changing ‘the way we do things around here’. It

reduces or even removes the conflict and confrontation

common between pseudo-independent organisational

functions.

The measurement approach has an emphasis on forward-

looking prediction and insight to help people understand

and improve performance (e.g. to improve customer

commitment) and their role in delivering it. It is not

designed to provide a rear view mirror to what happened in

the past – although it must not ignore the lessons from the

past.

‘Line of Sight’ links in the critical ‘people’ angle, omitted

from most measurement systems. It applies the same

principles to employee measurement as it does customer

measurement; measuring commitment and behaviour, and

trying to keep those that are most valuable now and in the

future.

The process of developing ‘Line of Sight’ builds

engagement and encourages self-motivation, again

contrary to the top-down management ‘command and

control philosophy’ of ‘tell them what to do and make sure

they do it’. Do it with them, not to them! It provides the

opportunity to continuously improve, based on customer

and employee feedback, and creates improved business

performance, rather than simply reacting to

circumstances. Those who have to deliver the changes

become directly involved in shaping them.

‘Line of Sight’, like any measurement system, needs to

be used carefully and it will only work if the measures are

used intelligently by managers. As an example, a call

centre manager will need to look at average call time to

answer questions such as ‘how many people are required

to manage the call centre’. An agent will also need to be

measured on this but in the context of other measures,

such as revenue generated and customer satisfaction. A

good supervisor or coach will recognise the balance of

measures and coach people to improve appropriately. A

focus on any one of these measures to the exclusion of

others will break the system.

‘Line of Sight’ positions profit as an output of the system;

not the sole focus of it. This will be a leap of faith for

many. Our preferred approach is to encourage board

level and general management interest not just in

profitability, but in all of the elements of ‘Line of Sight’.


38% of leading companies use a ‘balanced scorecard’

Senior managers should seriously consider whether their balanced scorecard

really is relevant and drives the right behaviours

‘Line of Sight’ as a Business Philosophy

Does the Balanced Scorecard approach provide

for this?

Kaplan and Norton introduced the concept of the

balanced scorecard back in 1992. The balanced

scorecard was intended to provide a more balanced set

of measures. It recommends developing a framework of

measurement from four perspectives (Financial,

Customer, Internal Business Process, and Learning and

Growth), which are linked to the overall vision and

strategy of the business. About 40% of the companies we

assess have a ‘balanced scorecard’. Only a small

number of these 40% will say that they have a scorecard

which enables them to get close to measuring the ‘Line of

Sight’ we discuss in this excerpt. Some do this, but in our

experience, most do not. We would ask senior managers

to seriously consider whether their balanced scorecard

really is relevant, drives the right behaviours and adopts

a systemic approach (measures the system). They

should ask themselves ‘Does it provide them with the line

of sight they need or is it, in fact, counter-productive?’

This excerpt describes how companies can obtain more

success through a systemic approach - focusing on the

enablers of business performance rather than on the

profit objective in itself. Of course, organisations should

still measure and worry about profit but as an output of

the work of the organisation. They should not focus solely

on its achievement or even maximisation, as this may

destroy the process of achieving it. We do not propose

that companies blindly adopt a systemic approach, but

develop the measurement systems and management

cooperation that this approach implies.

Some companies are applying system thinking in their

approach to customer (and business) management.

Others will struggle to persuade sceptical managers that

a systemic approach is appropriate. Perhaps in these

companies it will be worth while ?? an evangelist, or a

team of customer management professionals, developing

the linkages discussed in this excerpt. Normally, when

this is done, the story for systemic management

becomes pervasive.


Cranfield University’s Centre for Business Performance

commenting on the Balanced Scorecard and the EFQM

model states

“The problem with both of these frameworks, however,

is that they are simply frameworks. They suggest some

areas in which measures of performance might be

useful, but provide little guidance as to how appropriate

measures can be identified, introduced and ultimately

exploited. For these, or any similar performance

measurement frameworks, to be of practical value, the

processes of populating the framework, designing the

measures, implementing them and then exploiting them

have to be understood”.