4

Understand What's Most Important to Customers

Dave Carroll is a musician from Halifax, Nova Scotia. In the summer of 2008, Dave and his band were traveling on United Airlines to Omaha, Nebraska, where they were scheduled to perform. While they were sitting at the gate for their connecting flight at Chicago's O'Hare Airport, Dave heard someone behind him exclaim, “They're throwing guitars out there!” Dave's eyes widened in horror as he looked out the window just in time to see his $3,500 Taylor guitar sail through the air and crash to the ground. When he arrived at the baggage claim in Omaha, he confirmed his worse fears: The neck on his beloved six-string was split in two.

Fortunately for Dave and the band, none of their other instruments were damaged and they were able to fulfill their concert obligations. Once things settled down after the hectic activity of the setups, rehearsals, and performances, Dave placed a call to United to register his claim with the airline for the expensive repair of his guitar. He was stunned when the customer service representative told him that there was nothing that the airline could do to help him and that the repair was his responsibility. According to United's policy, all claims for damages must be filed within twenty-four hours, and Dave had missed the deadline. Dave protested that he had actually witnessed the irresponsible handling of his precious cargo and it was wrong for United to shirk its responsibility to its paying passengers by hiding behind a rigid policy. Despite his continued attempts over the next nine months, nobody up the chain of command would budge. The policy was quite clear, and policy compliance is what's most important to the bosses in large organizations.

In addition to being a talented musician, Dave also happens to be a fairly decent songwriter. Realizing that he was at the end of the line with United's brass, he literally took matters into his own hands by posting a YouTube video of him and his band playing an original song entitled “United Breaks Guitars.” On its first day, the video received 150,000 hits. By day three, it had gone viral with more than 500,000 hits and caught the attention of United's executives. The airline had a change of heart and called Dave to let him know that it might be willing to make an exception to its policy. United also asked if Dave might consider taking down the video. Dave responded that there was no way he was removing what had suddenly become his best marketing tool. In addition to an increase in his musical bookings, Dave was receiving invitations to speak at corporate events on the importance of customer service. Dave's meteoric rise at the expense of what was once known as the “Friendly Skies” continues today with the original video approaching an astonishing thirteen million hits and the 2012 publication of his book on the power of one voice in the new world of social media.

If you're wondering if Dave ever received compensation for his damaged guitar, he did, but it came from an unexpected place. Bob Taylor, the owner of Taylor Guitars, was so pleased with all the free positive publicity his company was receiving from the video that he gave Dave two replacement guitars to express his gratitude.

The important lesson from this story is one that today's best businesses take very seriously. When one voice in a hyper-connected world can undo every dollar a company spends on brand imaging, you better appreciate that we no longer work for the bosses. In today's wiki world, we work for the customers. Perhaps no company understands this changing reality better than Zappos.

WORKING FOR THE CUSTOMER

Zaz Lamarr wanted to do something special for her mother, who was stricken with cancer. Zaz thought that a new pair of shoes might brighten her mother's spirits. However, given the weight loss that can happen with cancer patients, Zaz wasn't sure what size would fit her mom. So, she placed an online order with Zappos for several pairs of shoes in a variety of sizes, hoping at least one of them would work. Fortunately, two of the pairs fit, and Zaz made arrangements to return the remaining pairs of shoes to Zappos.¹ However, before Zaz was able to get to the UPS store, her mother took a sudden turn for the worse and passed away. When Zappos contacted Zaz after the shoes were not returned as expected, she explained that with all the arrangements she had to handle following her mother's death, she had been unable to comply with Zappos's return policy.

At Zappos, policies are guidelines, not rigid rules. When the customer service representatives became aware of Zaz's circumstances, rather than insisting that she needed to make time to go to the UPS store, they sent UPS to her.² While this gesture was very touching, what happened next is what caused this story to go viral on Facebook and Twitter, but for very different reasons than Dave Carroll's video went viral. Zappos customer service representatives got together and sent Zaz a beautiful bouquet of flowers to let her know that they were thinking of her in her time of need. At Zappos, policies are not restricted to protecting the company's interests. The popular online retailer also has policies for extending kindnesses to customers. That's because at Zappos, all employees know that they work for the customers and that their primary focus is to always understand what's most important to customers.

CUSTOMERS OVER BOSSES

Traditional large businesses, despite their rhetoric about how much they value their customers, have long histories of giving priority to what's most important to the bosses. Unfortunately, Dave Carroll's frustration is more common than the touching experience of Zaz Lamarr, especially in dealings with large organizations.

Innovative managers who practice the disciplines of Wiki Management know that the first responsibility of management is to understand what's most important to customers. The work of business no longer begins with planning around what the bosses think. In the wiki world, the starting point for business is always focused on what the customers value, and what's important to customers is oftentimes very different from what the company values.

Customer values are rarely found inside executive suites. In fast-changing times, only the most arrogant managers would forgo asking the question and presume they already know the answer to what's most important to customers. Customer values are discovered only outside the organization, and because they evolve and change, managers need to continually inquire and step outside their companies to be in step with fast-paced markets. Effective decision making requires organizations to have processes for actively listening to their customers and understanding what they value most. Michael Hammer makes the point, “When companies know only about themselves and not about their customers…they make all kinds of decisions with inadequate information.”³

When you step outside your company, the first thing you have to do is to walk in your customers’ shoes. You need to learn to see your organization and your products from their perspective. It is especially important for managers to get out of their offices and to go into the marketplace to meet their customers face-to-face. In the heyday of traditional management, many managers could go their entire careers without ever meeting an end user of their products. Their only contact with customers was usually through well-organized data in neatly prepared analytical reports.

While customer data is important, it is not enough. If you really want to know whom you're working for, you need to talk to customers, hear their voices, look them in the eye, and know how it feels for them to do business with you. Even if you spend only a couple of hours each month listening to service center calls, you need to take the time to directly connect with your customers’ experience. As you listen to them, find out why they buy your products, and don't be surprised if they use them for different reasons than you had in mind. This kind of knowledge, which you can get only by engaging with your customers, is emotional intelligence, and you're not likely to find it in data charts and reports. Only when you walk in their shoes will you truly know the strength of your emotional bond with your customers and the power of your brand.

Zappos has built a powerful brand because all its workers know that emotional bonds are built by putting more importance on delighting customers than pleasing bosses. At Zappos, they don't just sell shoes; they also design their processes to make sure that everyone in the company takes the time to walk in the customers’ shoes. Emotional bonds are human bonds. The touching humanity of sending flowers to Zaz Lamarr rather than insisting on policy is what caused the Zappos story to go viral. Perhaps the United Airlines story might have played out very differently if United workers were trained and encouraged to take a little time to walk in their customers’ shoes before applying their policies.

SERENDIPITY OVER PLANNING

One of the core pillars of traditional management is planning. Planning provides comfort in the face of complexity because, by defining and sequencing a set of action steps, managers have a sense that a reliable path to a certain outcome has been put in place. Planning assumes that the world is stable and predictable.

For the most part, planning has proved to be a highly effective management tool because, until recently, the future was something managers could reasonably forecast. Planning can serve as the foundation of strategy when the future is clear or at least clear enough. In stable circumstances, planning and analysis generally do cultivate sound business decisions.

However, what happens when markets are not so stable and predictable and the pace of change continually accelerates? What happens when a steady stream of new technologies continually reshapes the business landscape? What happens when your business environment is no longer local or domestic and you find yourself competing in global and multicultural markets? What happens when the rules of the game change and you need to transform your organization from an Industrial Age establishment to a Digital Age innovator? In the exponential wiki world, where innovation, flexibility, and adaptability are necessities for business survival, linear planning methodologies that assume a known and stable business environment can no longer serve as the foundation for building strategies.

In a post-digital world, planning is no longer a strategic activity; it is now only a tactical exercise. Today's continually changing and uncertain markets make it impossible to predict the future much beyond the immediate horizon. Consequently, traditional long-term planning is likely to be counterproductive by locking businesses into what may become obsolete strategies or by blinding them from discerning the opportunities in newly emerging technologies or markets. If companies want to be ready for the future in fast-changing times, they need to learn how to leverage serendipity as a useful management tool.

Serendipity means finding things that we are not looking for that turn out to be very valuable. The word was first coined in the eighteenth century by the British writer Horace Walpole after he became familiar with the old Persian tale “The Travels and Adventures of Three Princes of Serendip.” The tale relates the story of how the princes set out on a specific journey and accidently discover a whole series of clues that would later establish their innocence when they are falsely accused of a crime.⁴ Serendipitous discoveries are not usually random events but rather connections or insights that occur when we are searching for one thing only to find something else. In moments of serendipity, we discover what we didn't know we didn't know.

When a company is focused on what's most important to the bosses, strategy is about enhancing the bosses’ intelligence and then leveraging that intelligence through the construction of elaborate business plans. This was the practice at Microsoft during Bill Gates's tenure as CEO, when he would gather reports and analyses prepared by his staff and go off to a cabin in the woods, where he would spend a week by himself to craft the company's strategy. As long as the CEO and the company are changing as fast as the world around them—which was possible at the time of Gates's tenure—this approach to strategy can work. However, when the world is changing faster than the company, leveraging the intelligence of a single individual becomes a very risky proposition. In fast-changing times, the essence of strategic work is having the capacity to continually discover what we don't know that we don't know. Going off by oneself into the woods is not the most effective process for getting in touch with this important knowledge.

When a company is focused on what's most important to customers, the fundamental work of strategy is focused more on learning than planning. That's why Google doesn't engage in detailed long-term planning and its strategic horizon is about ninety days. Google understands that the world is changing fast and that a lot can happen to render fixed plans obsolete. By reassessing work in ninety-day increments, the managers and workers at Google are continually learning, providing opportunities to collectively discover what they don't know that they don't know, and using that knowledge to make adjustments to their evolving plans. Similarly, Agile software developers organize their work into short two- or three-week sprints that are designed to deliver a specific internal or external customer deliverable. At the end of each sprint, the developers and the business staff examine and evaluate the deliverable to make sure that the work is meeting customer expectations, discuss anything they may have learned since the last time they met, and make any needed adjustments to the deliverable for the next sprint. By working in smaller planning horizons, both Google and the Agile software developers are providing opportunities to leverage the power of serendipity to discover early on what they don't know that they don't know, and to use these learning moments to better adapt and respond to a fast-changing world.

PRACTICES

The following are actual practices used by companies to understand what's most important to customers. Given your role within your organization and the current state of your corporate culture, some practices may work better than others. Focus on the two or three practices that would best work in your particular business circumstances.

Resetting the Managers

PRACTICE #1: THINK OUTSIDE-IN. When innovative managers put the customer at the center of everything they do, they think differently than their traditional counterparts. Traditional managers often assume that everything that is needed to be successful out in the marketplace is contained inside the organization. As a consequence, these managers tend to think inside-out and view the outside world more as a conceptual market than as a collection of human customers.

Inside-out thinking reinforces the notion that bosses are more important than customers. This explains why traditional corporate cultures seem to be more interested in pleasing bosses than delighting customers. In the inside-out organization, the focus of business is on the transaction. As a result, we sometimes find that traditional managers don't attach any real value to their customers because consumers are viewed merely as market mechanisms for the transaction of products into profits.

Innovative managers, on the other hand, think outside-in. They understand that when they are working for the customers, they will never have everything they need to succeed within their walls. Outside-in organizations understand that managing at the new pace of change means that managers cannot rely solely on the knowledge of their inside experts. They assume that market reality is subject to accelerating change and that management's first job is to continually align its strategies and its products with what's most important to customers. In the outside-in organization, the focus of business is on the customer experience. Thus, if customer values are at odds with management policy, the first step of managers who think outside-in is usually to reconsider the value of the policy.

LEGO is a company that is thriving today because more than a decade ago, its people learned the value of thinking outside-in when they responded in an unusual way to a security breach. In the late 1990s, four weeks after the release of the first version of LEGO's Mindstorms kits, a student hacker cracked the software code for the new product and created a better version.⁵ Rather than defensively protecting its copyright and beefing up its security, LEGO realized that the hacker meant no harm. In fact, the student was a loyal LEGO enthusiast who was only interested in making the product better. So, LEGO's managers decided to think differently by choosing to embrace rather than to fight the hacker and reaching out to all LEGO enthusiasts to invite them to cocreate the next generation of Mindstorms kits.

Today, LEGO supplements its 120 paid designers with 100,000 loyal enthusiasts.⁶ Thinking outside-in has literally brought the company free resources. There's no better way to understand what's most important to customers than by inviting them to become voluntary cocreators, especially when they care about your products.

PRACTICE #2: MEET THE CUSTOMER. Every new hire at Zappos, whether it's the chief financial officer or a customer service representative, is required to begin employment by participating in the company's four-week customer training program. There are no exceptions.⁷ While most companies state that listening to the voice of the customer is very important, Zappos actually backs up the commitment with an uncommon action—they actually answer the phone.

The call center is a special place at Zappos because it's where the employees get to meet the company's most important VIPs—their customers. There are no time limits on the calls, and the performance of customer service representatives is never measured by the number of calls per hour. What counts at Zappos is making sure that the telephone call is a positive experience for the customer, and if that takes several hours, that's all right as long as the customer's needs are being met.

Customers are not abstractions at Zappos. They are real people with real needs. That's why even the top executives are required to fully participate in the four-week customer service training. By understanding the value that Zappos places on creating a powerful customer experience and meeting customers on actual customer service calls, the executives learn firsthand what's most important to customers and come to appreciate that the fastest path to profits has more to do with creating value than cutting costs.

Any business that has a customer service area can implement this simple but powerful practice. Whether customer service is provided on the phone or through face-to-face interactions in retail outlets, there is ample opportunity for everyone in a company to have direct experience in understanding what matters most to the customers. When corporate cultures put a high value on making sure that everyone has an opportunity to meet the customers, that value pays rich dividends in designing affordable processes that continually delight customers. And delighted customers rarely move to the competition.

PRACTICE #3: ASK THE AUDIENCE. On the popular game show Who Wants to Be a Millionaire, one of the options available to contestants when they're having trouble coming up with the correct answer is to ask the audience members for their opinion. This onetime option is very valuable and safer than just making a guess on your own because the audience rarely gets the answer wrong. What if this option were available to retail businesses? Retail business owners have to make many guesses that have a direct effect on profitability. In the clothing business, for example, retail managers have to decide what items to stock and what quantities of each item to hold in their inventories. If they guess the fashion trends incorrectly and can't move particular items or if they underestimate the popularity of other items, their profits may be significantly diminished. Wouldn't it be nice if retailers could ask the audience for their opinion and stock only the exact number of items that will actually be sold?

In 2000, art students Jake Nickell and Jacob DeHart found a way to eliminate inventory risk when they invested $1,000 and started Threadless. Threadless is an online T-shirt company that found an innovative way to produce T-shirt designs that are guaranteed to sell. The founders’ breakthrough idea was to sponsor weekly contests where customers are invited to submit T-shirt designs, which are then presented to the entire community of customers for a vote. Only the ten designs receiving the most votes are produced. To entice continued participation, fees are paid to the winning designers. Nickell and DeHart solved the inventory risk problem by forgoing top-down decision making and designing their company as a living network.

Threadless is an example of a company where understanding what's most important to the customer is the organizing principle of the business. The leaders of this business are not bosses who rely on their individual expertise to make key decisions. Instead, Threadless's leaders are facilitators who have the capacity to leverage the collective intelligence of their customers, take the guesswork out of key decisions, and deliver exactly what the customer wants. Because Threadless has mastered the practice of asking the audience, it has become one of the world's most responsive companies.

PRACTICE #4: ONE AND DONE. When customers have a problem or need answers to important questions, there are few things that frustrate them more than the customer service gauntlet. We've all had the experience of calling a customer service number, only to be greeted by an automated system taking us through a series of prompts—none of which really describes our issue—before the recorded voice tells us to hold for an operator. Then, instead of a real person, we are greeted by another recorded voice informing us that there is an unusual volume of calls, apologizing for the delay, and telling us how important we are. After several minutes, we finally get to talk to a live human being who greets us with a pitch about the company's customer guarantee before asking us to describe our issue. Then, instead of reaching the resolution we are hoping for, the customer service representative explains that he does not have the authority to solve our issue, and he passes our call to another representative, who, in turn, passes us to another person until we eventually are passed back to the first representative, who empathizes with our plight and tells us he wishes there was something he could do. When we remind him of his opening pitch about the company's customer guarantee, we receive a firm lecture about how our particular problem is not covered by the guarantee. Despite a significant investment of our time, we end the call no happier than when we started.

At Zappos, customers never have to deal with the customer service gauntlet because the online retailer is committed to the practice of One and Done. The reason Zappos's customer service training lasts four weeks is to make sure that the company's frontline employees are the best informed individuals in the company and are fully trained to respond to any issue a customer may present. Zappos believes that customers should get their problems handled in one call by the person who answers the call. To back up this belief, every one of Zappos's customer service representatives has the authority to resolve customer issues without having to go through a supervisor or a manager.⁸ At Zappos, the manager's job is not to be the sole authority on when to deviate from company policies, but rather to be a coach or a resource to guide the customer service representatives in exercising their own independent judgments in handling customer calls.

Zappos views calls into the customer service center as opportunities to create a customer experience rather than as costly transactions to be efficiently managed. That's why, in measuring the performance of the effectiveness of the call center—unlike most companies that focus on keeping the calls short by measuring what's known as the “average handle time”—the key metric at Zappos is the “average speed to answer.” Zappos's goal is to answer 80 percent of calls within twenty seconds.⁹

One and Done is an opportunity to develop strong personal connections with customers and to provide the lasting memories that become the substance of a company's brand. Do you think that Zaz Lamarr will ever forget the random act of kindness she received from a fully empowered customer service representative the day Zaz told Zappos she couldn't return her recently deceased mother's shoes on time?

Resetting the Meetings

PRACTICE #5: JOIN THE CHAT. Some of the most important meetings about companies are happening outside their four walls. In these meetings, people that company personnel don't even know are making decisions that could catapult their enterprises to extraordinary success or sink them into oblivion. And what's most interesting is that many of these companies are not just absent from the meetings—they don't even know they're happening. We live in a new world with new rules, and one of the new rules of the wiki world is that social media has opened up a host of options for people to get together.

Neither United Airlines nor Taylor Guitars realized that Dave Carroll was convening millions of people on YouTube to highlight their services and products. While these social media proceedings were a serendipitous blessing for Taylor Guitars, United Airlines was blindsided by the unwelcome attention of this large impromptu business gathering.

When we worked for the bosses, the most important gatherings happened in staff and board meetings inside companies. However, now that we work for the customers, we know that managers cannot afford to absent themselves from the virtual meetings where customers are either building or harming the company brand. If we want to participate in these meetings, we need to Join the Chat.

While managers increasingly recognize the importance of becoming a part of the social network, becoming an effective voice in cyberspace requires much more than setting up a Twitter or LinkedIn account or building a Facebook page. If businesses want to have their voices heard in the virtual world, they have to abandon their traditional practices of trying to control conversations through broadcast and spin, and they must humbly embrace the dynamics of listen and learn. In meetings on the social network, the company voices that are heard belong to those that listen first. Traditional broadcast communications do not work well in social media.

The most successful managers on the social network are those who listen, observe, and are accepting of the thoughts and perspectives of their customers. This means that in implementing this practice, you need to assume a nondefensive stance. Joining the chat works best when you are more focused on understanding your customers than in making sure that the customers understand your company's position or policies. To effectively Join the Chat, in addition to setting up your own social media accounts, you also need to join and participate in the accounts others have created to talk about your company because it is in those spaces that you are most likely to build trust with your customers.

Zappos reinforces its bond with its customers by assigning staff members to be available to respond to Twitter activity twenty-four hours a day.¹⁰ Countless numbers of people witness these staff members genuinely and nondefensively handle hundreds of customers’ questions every day. In the social network, your “walk” counts much more than your “talk,” which may explain why Zappos doesn't do broadcast advertising but invests heavily in all forms of customer service, including joining the chat.

PRACTICE #6: INNOVATION JAMS. Another way to discover what's most important to your customers is to engage them in a meeting with your staff to provide input for the development of your business. This is what IBM does using a practice the company invented known as Innovation Jams. IBM is using the Internet to bring fresh ideas into its walls by inviting more than 100,000 customers, outside consultants, and employee family members to join in shaping the future direction of the business. Periodically, Big Blue hosts these online forums where the participants are encouraged to offer their ideas and brainstorm on important business issues that affect the lives of its customers. IBM populates the Innovation Jam website with an array of background information on various industry topics to seed the online gathering. Innovation Jams have given IBM access to valuable collective intelligence by providing a vehicle for the company to aggregate the diverse, independent, and localized reflections of key customers. By employing this learning process as a foundation for navigating the business, IBM managers have real-time access to a range of ideas and knowledge far beyond the limits of the company's organizational walls, as well as a valuable pathway to staying in touch with what matters most to their customers.

PRACTICE #7: CUSTOMER PROXIES. Customer Proxies is a practice we used when we were designing new products or developing new systems in the Blue Cross Blue Shield Federal Employee Program. At the start of these special projects, we would bring together a cross section of people from various disciplines for an all-day facilitated session to build a solid shared understanding around the work to be performed.

In designing these sessions, we always invited people from our sales and customer service areas to participate as customer proxies because it wasn't practical or possible for us to invite actual customers into our sessions. This practice was especially important when we designed systems because there is often a natural tendency for software engineers to construct applications around capabilities that may be more meaningful to them than they are to the customers. Inviting customer proxies to our sessions was how we made sure we never lost sight of the fact that everything we did ultimately touched a customer.

PRACTICE #8: CLARIFYING QUESTIONS. Clarifying Questions is a practice that can be easily used in almost any meeting session. Clarifying questions are those that help meeting participants clearly understand a speaker's point of view and help make sure that everyone in the room has correctly heard what the speaker intended. This practice is especially useful in an initial discussion of controversial, emotional, or innovative ideas because it prevents the discussion from being hijacked by advocates of opposing viewpoints, who may become locked in a polarized debate.

Hijacked meetings easily disintegrate into a competition of ideas where the focus is on being right and where the ineffective acting out of passions divides the room into winners and losers. The losers do not just retreat quietly. Instead, once the meeting is over, they find ways to thwart whatever hollow victories were won. When the world is changing faster than your organization, the last thing you need as a manager is to find yourself in a hijacked meeting. Clarifying Questions is a simple practice that can effectively thwart the hijack.

In opening the meeting, the leader advises the group that each speaker presenting an idea will do so without interruption and that the opening presentation is neither the time nor the place for the expression of the participants’ opinions, observations, and concerns—that will come later in the meeting. For the moment, the focus is on making sure that all participants understand the presenter's thoughts and ideas, not whether they agree, disagree, or have a different point of view.

After the speaker completes the presentation, the leader invites the group to ask clarifying questions and reminds the group once again that the time for agreements, disagreements, and other opinions will come later in the meeting. The purpose of the clarifying questions is solely to make sure that everyone has heard what the speaker intended.

Beginning meetings with uninterrupted presentations and clarifying questions radically changes the group dynamics of the gathering because it structures listening into the start of the meeting. The simple reason so many corporate meetings get hijacked is because most people don't begin meetings by listening to each other. They are usually focused on looking for openings to express their own opinions or to work their agenda or—worse yet—they are mentally absent as two or three individuals dominate the meeting and won't let anyone else speak. Having a period of clarifying questions after speakers have introduced their ideas means the participants have no choice but to listen and to understand what was presented. It puts in place the simple provision that before we agree or disagree or express another opinion, let's be sure that we've heard what's being said first.

When organizations embrace habits that emphasize the importance of listening, understanding, and collaboration, they create climates where colleagues view each other as mutual customers rather than as competitive advocates. If managers want to build a customer-focused company, facilitating an environment of mutual customers is a good place to start because the way workers respond to the company's customers is often a reflection of the way they treat each other.

Resetting the Measures

PRACTICE #9: BALANCED SCORECARDS. One of the most important contributions to the practice of business measurement is the recent development of the Balanced Scorecard by Robert Kaplan and David Norton.¹¹ The Balanced Scorecard is a one-page integrated picture of a business, project, or initiative that enables all involved to align their individual activities with a common set of simple measures. The scorecard contains twelve to twenty carefully selected measures that track organizational performance across four balanced perspectives: financial, customer, internal business processes, and learning and growth.¹² These selected key indicators provide a meaningful template for interpreting and understanding the interrelationships among the key components of business success.

A powerful attribute of the Balanced Scorecard is its inclusion of both outcome and driver measures. Outcome measures are lagging indicators that describe final results. Driver measures, on the other hand, are leading indicators that quantify the levels of performance of the key activities that strongly influence the ultimate outcomes. An effective Balanced Scorecard is a mixture of related lagging and leading indicators that reflect the fundamental strategy of the business, project, or initiative. When properly constructed, the driver measures provide reliable and actionable information about how and if the expected outcomes are being achieved, while the outcome measures provide the data necessary to continually validate whether or not the observed relationships between driver and outcome measures continue to hold true.

In the absence of such a tool, many traditional managers rely on their financial statements as their basic management measurement tool. This can be a dangerous practice because, for the most part, financial statements are collections of outcome measures that are not actionable. Financial statements are like final scores in a sporting event: Once the contest is over, there's nothing that any of the players can do to change the outcome. Financial statements are poor management tools because by the time you get the measures, there's nothing managers can do to impact the numbers. And more important, financial statements rarely reflect what's most important to customers.

The Balanced Scorecard is a powerful management tool because the focal point of the tool is the set of customer measures. The implicit logic in the scorecard recognizes that successful companies begin by understanding what's most important to their customers, then they build operations to deliver what their customers value most and set up learning processes to keep pace with market developments so they can continually grow the business. Positive financial results are the reward that companies receive when they are learning as fast as the world is changing and maintaining business processes that continually meet or exceed customer expectations. If there's a problem with the financial results, there's likely a problem in how the company is meeting what's most important to customers. (You can learn more about the Balanced Scorecard from Kaplan and Norton's book of the same name.)

PRACTICE #10: NET PROMOTER SCORE. Walk into any Apple Store and you immediately know that you have entered a special place. Apple Stores aren't just retail outlets; they are community centers where aficionados of Apple products gather to see what's new, learn more about their cherished gadgets, visit a Genius Bar to get a question answered, or just take in the experience of being around other Apple lovers. When Apple opened its first retail stores in 2001, market analysts feared that the company's foray into the retail space would be a drain on its profitability. Based on the standard retail industry metric of sales per square foot and the historical data of similar companies, the financial analysts were near unanimous in predicting the failure of the Apple Stores. The analysts couldn't have been more wrong. Today, with more than 395 stores worldwide, Apple has become one of the world's leading retailers.

How is it that Apple succeeded in an unfamiliar place and so many of the experts were wrong? The reason is a motto the technology company takes very seriously: Think different. The analysts predicted failure because they viewed business through the lens of the transaction and didn't appreciate the important distinction between good profits and bad profits. To the analysts, all profits were the same, and existing profitability data didn't support this strategic move. The managers at Apple, on the other hand, viewed their business through the lens of the experience, and they understood that when companies create a great experience that delights customers beyond their wildest expectations, the customers keep coming back and they bring their friends with them. What the analysts couldn't see—because it wasn't an item on the balance sheet—is that, by focusing on the experience over the transaction, Apple was able to leverage its customers into a free army of sales representatives to realize an extraordinary level of good profits. Apple understands that the key to being profitable has more to do with delivering customer value than it does with making money.

Fred Reichheld is a consultant at Bain & Company who noticed that companies that focus on good profits behave differently and are more successful than those that tolerate making bad profits. Reichheld defines good profits as net revenues realized by so delighting customers that they are willing to come back for more and bring their friends and colleagues with them.¹³ Bad profits, according to Reichheld, are dollars made at the expense—and sometimes even at the abuse—of the customer.¹⁴ Not surprisingly, Reichheld's research shows that companies that are more interested in earning good profits rather than just making money enjoy both strong profits and sustainable growth.¹⁵

Understanding the wisdom of “you get what you measure,” Reichheld developed a simple but powerful measure that ensures that managers are primarily focused on delivering customer value and making good profits. The Net Promoter Score is a primary driver of success in many innovative companies including Apple, Zappos, LEGO, American Express, Intuit, GE, eBay, Facebook, Southwest Airlines, and JetBlue Airways.¹⁶ All of these companies use the Net Promoter Score as a guide to making sure they always understand what's most important to customers.

The Net Promoter Score is based on the aggregation of the responses to a single question, using a scale of 0 to 10: “How likely is it that you will recommend this company or product or service to a friend or colleague?” Those who respond with a 9 or 10 are classified as Promoters. These are loyal customers who will make repeat purchases and enthusiastically make referrals to everyone they know. People who rate the company a 7 or 8 are designated as Passives. While basically satisfied, they are less likely to make unsolicited referrals. Detractors are customers who give a rating of 6 or below and are either dissatisfied or even angry with the company. The score is computed by calculating the percentage of customers who are Promoters and then subtracting the percentage that are Detractors. The highest possible score is a 100, which would occur if every customer rated the company a 9 or 10. On the other hand, if every customer were to rate the business a 6 or below, the score would be a negative 100.

According to Scott Cook, the founder of Intuit, there are two requirements for growth: happy customers and profitable customers. The Net Promoter Score helps Intuit keep its customers happy by always staying in touch with what matters most to the users of the company's products. In addition, it helps the company to sustain profitability year after year by making sure that its money is made from good profits.

PRACTICE #11: RESULTS-BASED/VALUES-BASED GOALS. In most companies, the fundamental unit of work is the performance of individual tasks. This task orientation is reinforced by traditional organization charts and their functional departments. In task-oriented companies, workers work for the boss, focus on tasks, and contribute to the completion of activities. Accordingly, traditional performance metrics have emphasized the measurement of tasks and activities.

However, from a customer's perspective, the performance of individual tasks does not necessarily result in delivering value. All of us can think of an example when we as customers encountered an individual in a company who wanted us to appreciate that he did his job right—that is, completed his tasks correctly—even though others’ failures to complete their tasks meant that we did not get the result we expected. When it comes to delivering customer value, the fundamental unit needs to be the business process because customers receive value only when the entire process works. Companies that understand that business is about creating experiences rather than managing transactions focus on processes, not tasks. That's why their individual performance metrics are built around results-based and values-based goals rather than activity-based metrics.

Activity-based metrics measure the timely completion of discrete tasks that are usually within the relative control of the workers. An example is the requirement to handle a customer service call within a set number of minutes. The problem with activity-based goals is they don't necessarily correlate with good performance because it's possible to receive positive scores (quick calls) regardless of how satisfied or dissatisfied the caller may be with the interaction.

Results-based or value-based measures, on the other hand, are geared to make sure that customers receive the value they are expecting by the end of the call. Using a metric such as the Net Promoter Score is a better indicator of the effectiveness of a call center because it measures customers’ satisfaction or dissatisfaction.

CHAPTER SUMMARY: KEY POINTS

• The starting point for business is always focused on what the customers value, and what's important to customers is oftentimes very different from what the bosses value.
• In a post-digital world, planning is no longer a strategic activity; it is now only a tactical exercise. Today's continually changing and uncertain markets make it impossible to predict the future much beyond the immediate horizon.
• In fast-changing times, the essence of strategic work is having the capacity to continually discover what we don't know that we don't know.
• When a company is focused on what's most important to customers, the fundamental work of strategy is focused more on learning than planning.
• Positive financial results are the reward companies receive when they are learning as fast as the world is changing and maintaining business processes that continually meet or exceed customer expectations. If there's a problem with the financial results, there's likely a problem in how the company is meeting what's most important to customers.