From Resource, July 2004 
Copyright by LOMA

Creating a Customer-Centric Culture

Sure, everyone wants loyal customers. However, when it comes to how to go about getting them, no one seems to agree on where to start. But based on their extensive research of ‘loyalty leader’ companies and their peers, Dr. Jodi Simco and Dr. Mark Royal of Hay Group have identified the fundamentals you need to take your place among the companies customers admire most.

By Stephen Hall

"Nowadays, having satisfied customers isn’t enough. You need loyal customers."

As declarations of customer service philosophy go, the above statement doesn’t exactly qualify as going out on a limb. The importance and benefits of having customers who are so enamored of your company and its products that they wouldn’t think of doing business elsewhere is a concept that just about everyone agrees with on principle. But when it comes to how to make it a reality, enthusiasm tends to give way to confusion: Just how do you take your customers from satisfaction to loyalty? And how do you go about convincing everyone else in your organization that it will pay big dividends in the long run?

Those were the questions Dr. Jodi Simco and Dr. Mark Royal of Hay Group, an integrated human resources consulting firm, sought to answer for attendees of LOMA’s recent Customer Service Conference. Simco, a consultant with Hay Group, and Royal, a senior consultant, both specialize in employee and customer survey research, and their firm is probably best known for the work they do annually with Fortune magazine to help identify its "Most Admired Companies" and rank them, both overall and by industry. In their presentation, titled "Creating a Customer-Focused Culture," Simco and Royal talked about the work they’ve done with various organizations to help them build a loyal customer base, as well as the link they’ve found between business culture, employee loyalty, customer loyalty, and revenue growth.

"First of all, it’s important to ask ourselves just what our definition of customer loyalty is," Simco said. "And based on our research, we’ve determined that it’s when your customers have a strong bond to you and come back to you time and time again. They view you as the provider of choice. So they’re not just looking for the lowest-cost vendor, and if there’s a bump in the road or any issues that arise, they’re going to come back to your company and not only use your current products and services, but maybe start using some new ones and recommending them to others."

Simco identified two factors that determine whether satisfied customers will become loyal ones: the outcome that customers experience, whether it’s a product or service, and the process by which they receive it. "We’ve all gone and bought cars, and the car we bought might be the most wonderful car, so the outcome was positive," Simco said. "But we might decide not to go back to the car dealership we bought it from because they were a pain to work with. In this case, the process was negative." People, in the form of employees, are part of that process, she explained, and "one of our key messages today is that people are your key competitive advantage. Your people are who developed those relationships with your customers, and you really need to focus on them."

Furthermore, when it comes to convincing people in your organization of the impact that customer loyalty can have on your bottom line, the business case for building loyalty is quite simple, according to Simco. "None of us are surprised that loyal customers are going to repurchase at two to four times the rate of just purely satisfied customers," she said. "And they’re going to enthusiastically recommend your company to others. So they can serve as your best marketer—and in a business such as insurance, where referrals are so important, I think loyalty can really help. Loyal customers are also willing to pay more for your services because they’ve developed a relationship with you."

"You have to know where you are before you can know where you’re going," goes the old business proverb. That wisdom certainly holds true for building customer loyalty, according to Simco, who explained that the first step toward knowing how far you have to go to create loyal customers is to determine how well you’re doing at creating them today.

"We found that about 85 percent of customer loyalty leaders use surveys, many of which are online," she said. "And doing it on an ongoing basis is important. A lot of the customer loyalty leaders don’t just measure it once a year; they measure it regularly, some of them as many as two or three times a year at critical junctures in their relationship with customers, so they can act quickly on issues that arise."

It’s also critical to measure the kinds of things that matter to customers, Simco added. "As part of the process of developing and implementing a leading-edge customer loyalty program, many of these loyalty leaders sit down with their customers prior to beginning the engagement to find out what the customer expects from them and how they define success." These measurements also need to take employee feedback into consideration, she continued, to "determine what the facilitators and barriers of customer loyalty are, from an employee standpoint. Employees are the key contributors to customer loyalty."

Based on the feedback that resulted from "loyalty leader" companies who built these practices into their customer measurement programs, Hay Group has identified a few primary factors about a company and its products and services that can make the difference between customer satisfaction and customer loyalty. "The top factor is value, as in ‘Is this company’s product or service having a positive impact on my business? Do I have a strong return on investment?’" Simco explained. In addition, the quality of a company’s products and services is another leading indicator of customer loyalty. "Ease of doing business is a big thing, too," she continued. "Are you easy to do business with, or are you a pain? Do people really not want to work with you anymore? Finally, your people are important, in terms of whether they embody responsiveness, integrity, trust and professionalism."

From there, Dr. Mark Royal (who took over for this portion of the presentation) made the case that when it comes to customer loyalty as a competitive differentiator, people play a much larger role than do products and services. "In today’s marketplace, where most organizations are facing global competitors and a rapid flow of information, competitive differentiation is hard to maintain because best practices translate across an industry very rapidly," he said. "But it’s much harder for your peers to duplicate a successful organization that consists of a lot of highly motivated, highly engaged people who are focused on the customer. It’s also harder to implement, even if you’re the first to do it, which is why very few organizations have succeeded. But it’s precisely because it’s hard to do for the first time—and therefore harder to replicate—that it provides real opportunities for competitive advantage."

But before employees can deliver the kind of customer service that inspires loyalty, Royal said, the organization must establish a foundation that consists of three key ingredients. "First, there needs to be a strong focus on teamwork," he said. "We find that in organizations where employees perceive strong levels of teamwork, both within and across business units, there tends to be a much higher level of customer satisfaction. The second ingredient is training: If we want people to drive high levels of customer satisfaction, we have to make sure they have the skills, the knowledge, the expertise and the resources to deliver them. And the third ingredient is empowerment, which means that organizations need to do three things: empower employees and push decisions down to the lowest level; enable people to make decisions and take risks; and make sure that people enjoy freedom, autonomy and discretion in carrying out their job roles."

To help clarify what separates a "loyalty leader" company from its peers, Royal discussed a type of research that Hay Group conducts on a regular basis called "targeted cultural modeling." In it, teams of executives and employees at an organization are given a list of 54 cultural attributes and are asked to sort them on a bell curve, ranking them according to which attributes are most emphasized in their company.

"We did this exercise with a number of ‘Most Admired’ companies, as well as a matched set of peer companies," Royal said. "And at one point, we asked executives and employees to tell us two things: what the current culture of their organization looks like, and what their ideal culture would look like."

Not surprisingly, the survey revealed a sharp contrast between the culture of "Most Admired" companies and their peers. "One of the things you see right away is that ‘Most Admired’ companies are emphasizing some of the things that we feel should be emphasized on the employee side to drive high levels of customer satisfaction," Royal said. "They’re telling us that they emphasize teamwork at all levels of the organization, as well as taking initiative—pushing decisions down to the lowest level possible, encouraging people to take risks and make decisions, all of which supports high levels of customer service." Meanwhile, the peer companies tended to be more inward-looking, the studies found, with cultures that emphasized procedures, achieving budget objectives, supporting management decisions, and respecting the chain of command.

In addition to the fact that there is very little difference between the current culture of a "Most Admired" company and the one it aspires to, the studies also found that both peer companies and "Most Admired" companies were striving for basically the same ideal culture. "For ‘Most Admired’ companies, customer focus, teamwork, innovation, taking initiative, fair treatment of employees —all of those elements are there in both the current and ideal cultures," Royal explained. "So these companies have managed to make the ideal real, to a large extent. As for the peer companies, you see a yawning gap between where they are and where they want to be. And this gets to why culture is a differentiator. The best practices are out there; we know what the right answer is. But the real differentiator for "Most Admired" companies is that they’ve managed to conquer the difficult task of actually making it happen, of getting employees focused on these things that all companies acknowledge they ought to be focused on."

In closing, Simco emphasized several components that need to be in place for a customer loyalty initiative to have staying power in your organization instead of fading away in a year or two. "First, you need to incorporate customer loyalty into your strategy and your mission statement," she said. "Next, you need to involve employees, customers and managers in the process. At Hay Group, when we design a customer loyalty survey, we always connect the focus group discussions with customers. I could say, ‘Well, I think my customer cares about these five things, and that’s what I’m going to measure them on.’ But maybe they care about two other things, and you’re not even measuring those."

In addition, getting employees and customers involved in the action planning is critical, Simco said. "You need to understand your customers and recognize that they have different needs, which require different surveys and processes for different segments," she said. "Ensure that your customers see action in response to their issues and concerns. Too many times they don’t, and that program will die right away. They’ll never participate again, and they’ll probably be less satisfied than they were beforehand. Use that action-planning meeting with your customers to continue to build relationships. Hold employees accountable, set customer loyalty targets, and finally, focus on your people. Don’t forget that when it comes to having loyal customers, they’re your most critical asset." 

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