What's the Right Equation for Customer Focus? Use Your Leading Indicators of Customer Health

The challenge in large organizations is that through an ever increasing division of work, less and less employees actually interact with customers. In small companies with only few employees, chances are high that every employee has to deal with customer every now and then. Think about an organization with tens of thousands of employees and the share of employees that actually interacts with customers significantly decreases.

As a consequence large organizations lose their customer-focus and struggle to improve their understanding of customer needs and requirements. The “silver bullet” is to get closer to the customer by spending time on the “front-line” and interact with customers. But how much time should employees spend on the front-line? And even more important, how much time should the CEO of an organization spend with customers?

John A. Quelch, professor of business administration at Harvard Business School, recently asked this question and he states that it is important for CEOs to find a balance between time spent on the outside versus time spent on the inside, but there are situations when time is spent better on the inside than on the outside.

In a service business like Tesco's, the health of the brand depends heavily on the quality of the millions of daily transactions between shoppers and staff. Motivating the front-line personnel is critical. But in the pharmaceutical business, the key to success is not customer intimacy but product innovation; the CEO will need to spend time with his chief scientists, medical opinion leaders, government regulators, and CEOs of the companies distributing pharmaceuticals, but not so much time with end consumers. And, if cost minimization is the focus of the business strategy, it's not necessary for the CEO to spend time learning how different clients would prefer customized solutions.

If you still need to get closer to customers but need to limit the time spent with customers, Prof. Quelch identified three strategies that can help to overcome this problem. I am not happy with two of these since they reflect the solution to all customer and marketing oriented problems – growing the right (customer oriented) talent and investing in uncovering customer insights. Nevertheless one strategy was something unconventional: the definition of customer health lead indicators.

First, the CEO should spearhead the identification of three or four customer health metrics that are leading indicators of sales or profit performance. These metrics should not be off-the-shelf standbys such as customer satisfaction (which, in any case, is a lagging indicator): they must be specific to the strategy of the business. Company scores on these metrics may be benchmarked against direct competitors and/or outstanding companies in other industries.

The question what could be a useful leading indicator of customer health is difficult and cannot be answered in general for all industries. Lead Generation and associated costs is a high-potential area but too many factors affect this to give a one-for-all answer. Deloitte published an article about Leading Indicators and they have identified a set of indicators for different sizes of organizations.

The research has uncovered that [the 56 high-growth companies in this study] overwhelmingly use “leading indicators”, or metrics that act as predictors of future success. They use them to monitor their progress towards goals. They use them to shape short-term strategy and adjust longer-term objectives. They use them to achieve balance between productivity and growth. The research has extracted some notable insights. For example, the vast majority of leading indicators are industry specific. Additionally, customer-specific leading indicators are important for all companies, across all industries, and across all size segments. As confirmed in most discussions, these indicators are often the toughest to create and maintain.

This study gives an overview about a set of leading indicators, a few of them might be transferable to your company or department. One should remember that simply spending “more“ time with customers and measuring “lagging indicators” of customer health is not enough for a successful customer-oriented organization.

Read more about “How Much Time Should CEOs Devote to Customers?” from Prof. Quelch.

Read more about “Leading Indicators - Gain the foresight you need about tomorrow to better run your business today” from Deloitte.