Why Customer Experience Needs a Seat in the C-Suite
The title of Chief Experience Officer (CXO) first arrived on the business scene in the early 2000’s and promptly earned its fair share of blowback. Stuart Elliott of the New York Times considered it yet another example of “title-mania.” Companies such as Zappos and Google gave high profile executives titles like “Chief Happiness Officer” and “Jolly Good Fellow” to the collective eye rolling of Wall Street. Both Google and Amazon (which acquired Zappos in 2009) have recently surpassed the $1000 per share mark, suggesting there may be more going on than just some new executive titles.
With or without a business card, customer experience has always held an important role in business. From Sears & Roebuck’s creation of the catalog, a convenient way for ordinary people to shop in their store, to Steve Jobs’ insistence that all Apple computers come standard with a variety of font choices, history has proven over and over that companies who make customer experience a priority tend to enjoy booming bottom-line results.
These days, that truth forms the foundation of wide swaths of the consumer economy. In their insightful 1998 Harvard Business Review article, B. Joseph Pine and James H. Gilmore predicted the rise of what is today’s experience economy. Anyone over the age of forty has literally watched their predicted progression of consumer experiences take place, as birthday celebrations evolved from homemade cakes to mix made, to bakery made, to the outsourcing of the entire birthday experience at increasingly steep price tags. Their prediction of the experience economy’s trajectory correctly captured the power and importance of the wave of experience innovation “which threatens to render irrelevant those who relegate themselves to the diminishing world of goods and services.”
If that sounds overly drastic consider this—not very long ago, there were more than 100 car companies in Detroit. Now there are three, all holding on to their government bailouts for dear life while Tesla’s Elon Musk makes breezy public comments like, “I do believe [our] market cap is higher than we have any right to deserve.” While Tesla doesn’t have a CXO, Musk himself acts as one, even recently taking a negative tweet about lines at charging stations back to the drawing board and announcing a solution in less than a week. This kind of thinking represents a fundamental change in business culture and philosophy—unlike its counterparts in Detroit, Tesla isn’t selling cars, it’s selling a unique combination of product, relationship, service, and even a way of life. Which, one might argue, is the ultimate customer experience.
The automotive industry represents just one of many examples of how rapidly the scope of competitive advantage for businesses continues to shrink. Across all industries, offerings that used to serve as distinctions—features, functions, styles, locations, etc.—are no longer sources of real competitive advantage or, perhaps more importantly, profit margin. Thanks to advancements such as just-in-time manufacturing, offshore technology development, globally distributed supply chains, crowdsourcing and more, there exist precious few elements of most product or service offerings that are impossible to recreate. Apart from owned intellectual property, which itself grows more difficult to secure and protect, customer experience is arguably the final frontier of competitive distinction, and it’s echoing with opportunity.
Despite this, and despite a recent Forrester study citing that 72% of businesses name improving customer experience their top priority, there simply aren’t that many companies that are willing to put their money where their C-suite is. Why?
Well, for one thing, great customer experience is HARD. It requires alignment of culture, business processes, philosophy, executive vision, and that’s all before the effort of actually delivering it for the customer. Just ask Uber or United Airlines—two extremely successful companies that have recently found themselves at the barrel end of bad press over poorly executed customer experience. One might ask how differently each might have fared had a CXO been the first to respond to each scenario. (Not to mention whether or not any of it would have happened under their watch.) Instead, both Uber and United seemed more eager to appease investors by having their CEOs respond, which only served to underscore the bigger customer experience problem.
Having a CXO in place is a strong indicator that a company is committed to their customers at the highest levels, and will put in the time, money and work it takes to keep them happy. That said, the proof is in the pudding. Believe it or not, United Airlines actually has a Chief Customer Officer, Katie Gebo, yet she was conspicuously absent during the recent brouhaha.
Customer Experience doesn’t live in a title. In fact, it might be more truthful to suggest that what companies need is not CXO, but merely a culture that is properly aligned around delivering an amazing experience for the customer. Katie Gebo may for all intents and purposes hold the role at United, but unless the whole c-suite lives and breathes customer experience, her position won’t translate into real sales and margin performance. At the end of the day, you need to hire a CXO and then you need to empower them do their job.
But that’s all a lot of theory, and business doesn’t run on theory, or at least it doesn’t until that theory gets translated into practice, and more importantly, into profit. I wanted to see if real numbers and results would bear out this theory. So I went to the mat—also known as the internet—to look across major industries for businesses with CXOs and those without, and to see if there is a demonstrable difference between the two.
The number of major companies with CXOs or CCOs is surprisingly low. In fact, there were entire industries in which I couldn’t find a single company with a CXO, CCO or even SVP of Customer Experience. This, despite a recent study that estimates that US companies lose $41 billion each year due to poor customer experience. Is that not enough of a message to sink in? Furthermore, many CXO and CCOs experience an extremely short tenure before they get snapped up and often promoted by another company or industry. The tendency to grab CXOs and turn them into CEOs and heads of larger corporate divisions certainly seems to validate the growing interest and necessity of the position.
A few key industries possess enough of a focus on customer experience to have a sufficient number of CXO’s and CCO’s that will allow a side-by-side comparison of how companies with CXOs fare financially relative to those without. The short story?: companies with a CXO or equivalent consistently outperformed those who did not from the standpoint of stock price over the past 5 years.
Looking closer at individual industries provides a more nuanced and complex picture, of course. In the retail pharmacy business, Walgreens has been focused on customer experience since 2009, when it announced its commitment to Customer Centric Retailing (CCR). In 2011, Walgreens hired its first CXO. Competitor CVS, in comparison, has just arrived at the customer experience table with its April unveiling of a new store design intended to enhance customer service. While historically CVS has not had any CX leadership, snooping around their job postings reveals that they are currently looking for a Vice President of Customer Experience and Analytics. Both of these companies will be interesting to watch as they continue make customer experience a priority. Anyone who has shopped in either store recently can appreciate that there’s work to be done.
Next let’s take a look at two major airlines—United and American. United promoted Katie Gebo to SVP of Customer Service Delivery in fall 2016. While the company’s performance can’t be attributed to this recent appointment, the willingness to create this role suggests cultural priorities that have been shifting for some time, no doubt in response to the experience centric offerings from competitors such as Virgin America and JetBlue. American has no such SVP or c-level role, although they did have a VP of Customer Experience who retired in April and has not been replaced.
Both United and American have been faced with recent public backlash having to do with customer experience, however. On April 27th, United announced ten major customer service changes that were being made in response to the incident and declined to promote (LAL: Promote or remove as chairman? I thought it was remove) CEO Oscar Munoz, who flubbed the response, to Chairman. I wonder how things would have turned out had Katie Gebo, the senior person in charge of customer service, had the budgets, priorities, and time to create a real customer centric organization? Perhaps she would have been the first official person at United to respond publicly to the PR crisis, with significantly different results.
The healthcare industry has embraced the CXO role for some time—there are hundreds of such roles at hospitals and other healthcare-related organizations, often under the banner of “patient experience.” This area has been a hotbed of innovation in recent years with entire new businesses such as One Medical and Forward emerging to specifically address the patient experience. People holding a CXO-like position proved tough to find, however, when it came to big health insurance companies. One company that does have such a role is Cigna Healthcare, where Lisa Bacus has served as Global Chief Marketing and Customer Officer since 2013. In comparison, Anthem Healthcare has a VP of Customer Experience, Natalie Scheider. Both companies have some CX leadership, yet only Cigna has promoted the role to the C-suite. While Cigna stock generally outperforms Anthem’s, it’s interesting to note that, under Scheider’s leadership, Anthem enjoyed a double-digit increase in their Net Promoter Score (NPS) over a twelve-month period. These will be interesting companies to monitor moving forward.
Like pharmacies, the banking industry remains ripe for customer experience transformation. That said, it was slim pickings finding people with the CXO title amongst established players. Citibank’s Alice Milligan, Chief Customer and Experience Officer, has been in the role since 2014. Since she took her post, Citi has seen a 31 percent increase in its payment-specific Net Promoter Score (NPS). Bank of America, who has had more complaints filed with the Consumer Financial Protection Bureau than any other American financial institution, has Carlos Nino, SVP of Customer Experience Analytics—a title that indicates some focus on customer experience but seems relegated to a side role – not a driver of fundamental culture and value. Citibank outperforms BofA in quite a few financial metrics, despite having a considerably smaller slice of the market. With its clear sense of CX leadership, my money is on Citibank winning more and more customers away from the bigger fish such as BofA. They’ll just need to work hard to stay ahead of emerging companies such as SoFi and others who are building customer-centric organizations from day one.
Like Forrester, Watermark Consulting has been following the growth of Customer Experience for some time. Their 2015 Customer Experience ROI Study, tracked cumulative total stock returns for two model portfolios—one comprised of the Top 10 (“Leaders”) and one of the Bottom 10 (“Laggards”) among publicly traded companies in Forrester Research’s annual Customer Experience Index rankings. Over nearly a decade of performance results, the “Leaders” outperformed the broader market, with a total return that was 35 points higher than the S&P 500 Index. Conversely, the “Laggards” posting a total return that was 45 points lower than that of the broader market.
An executive focus on customer and brand experience continues to gain traction and attention across industries. According to Gartner research, “89% of companies expect to compete mostly on the basis of customer experience” (emphasis mine). As another measure of the demand for such thinking at the C-suite you might simply look at the fact that McKinsey, arguably the most prestigious management consulting company in the world, has created a CX Design division, and global behemoth Accenture continues to snap up design groups left and right to bring customer experience to their interactive division. These companies are the thought leaders for Fortune 500 companies, and they’re putting plenty of money into CX.
In short, the experience economy that was predicted 30 years ago has not just arrived, it’s in full swing. Companies with CX leaders and a culture of customer experience leadership are beating the competition, and this trend will continue to escalate, perhaps even accelerate. If you have a CXO, pat yourself on the back and then turn around and empower them with yet more capability. The question is not whether you need a CXO, it’s whether you’ll get one in time for them to keep your competitors from eating your lunch.