About Rob Markey
Rob Markey is a partner in Bain & Company’s New York office and a leader in the firm’s Customer Strategy & Marketing practice. He joined Bain in 1990, and has led assignments in the financial services, telecommunications, retailing, media, professional services, health care, building equipment and food processing industries.
Rob is an expert in customer and employee loyalty, new product development and customer service strategies. He is co-author of the ultimate question 2.0 and hosts the Net Promoter System Podcast from Bain and company.
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Read Rob Markey’s article, “Are You Undervaluing Your Customers?” on HBR here: hbr.org/2020/01/the-loyalty-economy
Transcript:
Introduction (00:04): Rob Markey is a partner in Bain & Company’s New York office and a leader in the firm’s customer strategy and marketing practice. He joined Bain in 1990 and has led assignments in the financial services, telecommunications, retail, media, professional services, healthcare, building equipment and food processing industries. Rob is an expert in customer and employee loyalty, new product development and customer service strategies. He is coauthor of The Ultimate Question 2.0 and host the net promoter system podcast from Bain and company.
Mary Drumond (01:16): Hi Rob.
Rob Markey (01:17): Hello, how are you?
MD (01:19): I’m good. Thanks for coming on today.
RM (01:21): Oh, it’s such a pleasure.
MD (01:22): Would you, in a quick minute, kind of give our listeners a feel as to who you are, what you do and how you’re trying to change the world through customer experience?
RM (01:35): Well, I spent the last 30 years of my career as a consultant, a strategy consultant at Bain & Company, and I have been working with big companies to try to improve their customer experience, customer loyalty, employee loyalty, in sustainable ways. And in doing that, in working with really big companies over long periods of time, I’ve learned a few lessons. And so I feel like, you know, I have the scars on my back to help other companies avoid some of the things that some of my clients have run into and some other companies that I’ve observed have suffered from.
MD (02:13): Great. So I know that you have your own podcast. It’s the Net Promoter System podcast, right?
RM (02:22): That is correct.
MD (02:23): And you recently wrote an article for the Harvard Business Review and it was called, are you undervaluing your customer, right? And that article really stuck out to me, especially because the subtitle is “it’s time to start measuring and managing their worth.” And it touched on a subject that’s really important to me. It’s how companies, corporations, publicly traded corporations that have to answer to a board of shareholders, how they lots of times overvalue, shareholder value versus customer value. So that’s kind of what I wanted to talk about today, because you’re an expert at this and you have spent time researching and speaking to people who have dedicated their lives to understanding this dynamic better. So I’m really glad you’re on here today.
RM (03:16): Well thank you. Thank you. And I’ve also spent a lot of time with companies that are trying to maximize the value of their customer base and who sometimes run into challenges when they feel shareholder pressure to deliver short term earnings.
MD (03:29): That’s something that we need to remember as well. We can’t forget to kind of pat companies on the back that are really trying to make a difference. It’s really easy for us to focus on the negatives. It’s like easy targets, right?
RM (03:41): Well, a lot of my perspective comes out of the observation that really well intentioned leaders who are dedicated to providing a great experience for their customers, great products, great experience for employees, still get derailed when they hit a tough quarter. You know, a long time ago, probably 2003 or 2004, Fred Reichheld and I wrote about the concept of bad profits and the extent to which organizations engage in bad profits. They cut costs to serve, they impose nuisance fees and raise prices on people without adding value, is both striking and disappointing. And especially to me personally, when I work with an organization and we spend, you know, maybe a year or two turning around their customer experience, improving their products, developing tools for managing the lifetime value of customers, and then the company hits a bad quarter and boom, they undo like, you know, 50 or 60% of what we did.
MD (04:46): Yeah. Do you think it’s kind of like, well, we gave it our best shot and now it’s time to go back to the old way of doing things. Do you think there’s a little bit of that?
RM (04:53): No, no, no, I don’t actually think that it’s that, I think that it is well intentioned people feeling tremendous pressure and they know, if you’re the CEO, the CFO, in the C suite of a publicly traded company, you know that a vulture investor can come in and kick out the management team and basically, you know, milk the company for profits if you let your valuation drop too much. They know that the board will hold them accountable to quarterly earnings and that they’ll get tons of complaints and problems from shareholders and from analysts if they don’t meet Wall Street’s expectations. It’s not that they don’t have the right intentions and it’s not that they aren’t trying their best to create value. I really believe that most of these folks are quite well intentioned, if a little bit misguided. And in part I believe that because I don’t think that shareholder value and customer value are truly in conflict. I think it’s just hard to see that one feeds the other.
MD (05:55): One maybe a little bit more immediate than the other?
RM (06:00): Yeah, I mean, look, if I take some actions to improve the retention rate of my customer base by, for example, investing in a new technology system or a better CRM system or the ability to execute personalized servicing in my contact centers. If I do any of those things, then what happens on my PnL is that I spend a bunch of money developing the technology, training people, getting them up to speed, and all that happens right now and it shows up in the earning statement. Retention is something that has compounding effects over a long period of time, so I might improve retention by 1%, 2%. That may have tremendous present value, meaning discounted future value of cash flows that come from that, but because the short term impact is simply a reduction in earnings, the only thing that investors see is that I didn’t make my earnings numbers. That’s the problem. It’s just not visible. The impact on retention plays out over time and the impact on earnings plays out today.
MD (07:03): Doesn’t that maybe just strengthen the argument that perhaps quarterly results are not the right way to look at things? And do you think that, let me add to that question before you answer. Do you think that this is why a lot of times when we see companies that are kind of beacons or leaders in customer centricity and in focusing on the experience, customer experience above all, it’s normally CEOs and founders that have this mindset and they don’t feel like their job is on the line. So it would either be the founder or someone who’s the chairman as well as the CEO or something like that where they’ve got a little bit more, they hold the reigns a little bit stronger and they don’t feel as threatened by the board?
RM (07:48): Well, so let me, let me address two things that you’ve brought up here. First is, is it true that the people who are able to maintain a focus on customer centricity are not feeling as much immediate pressure? And to that the answer, empirically, is yes. So at Bain and Company, we looked at the loyalty leaders in a large number of industries over an extended period of time, and we were looking for companies that led their industry for three or more years in a row. And looking for that in terms of NPS, customer satisfaction or JD power scores, but things that are observable from outside and recorded by reputable firms. What we found was that two thirds of the enduring loyalty leaders, were either owned by their customers or controlled by their founders. Only one third were independent, publicly traded companies. That is striking. The second thing that you, you raised is the issue of quarterly reporting. Like is quarterly reporting something that we should be assailing, should we be attacking that? And my answer is no. No, I don’t think so. I think that quarterly reporting keeps the management team accountable and keeps the investors informed about what’s happening with the business. And in some industries that cadence of quarterly reporting is important because the industry is changing quickly. Instead, what I believe is that the quarterly reporting is incomplete. We don’t ask companies to provide reliable, standardized, consistent information on the health of their customer base and so all we’re showing is the PnL and the balance sheet and we’re not showing the longer term impact on customer value and therefore, investors are blind. They’re just unable to get behind a management team that is doing the right things over the long run because they don’t have anything they can rely on in order to make that determination.
MD (10:01): Well, we know that a lot of companies are reporting their NPS scores, for instance, in their shareholder meetings and we have analysts that lots of times put a lot of focus on this even. But we’re not talking about the same thing here. You’re talking about a metric that tracks it a little bit more longterm. We’re talking about something like customer lifetime value or even a metric like customer-based corporate valuation?
RM (10:27): I believed for a really long time, Mary, that what we should be doing is requiring companies to report reliable net promoter scores. But I became convinced over time that unless you have a independent, third party-derived, double-blind research study, which is just not available in every industry, the score that accompany reports is going to be unreliable. Like I can’t tell you how many times I see releases from companies that say, you know, company X has a 75 net promoter score. You know, they’re the same range as Apple. And I look at that and I say, okay, so how did you collect that data? From whom, in what mode, was it your own customers, and did they know that it was you? Did you game it? Did you selectively choose who to survey? I don’t buy it unless I know the source and I know the methodology and that’s just very rare. So that led me down a path of saying, well, net promoter scores are really, they were designed to be predictive of a customer base’s future purchasing behaviors. We actually built the net promoter model on the back of predictions of, you know, retention, repurchase, revenue growth, referrals, all that kind of stuff. And you know, why not go to the source? Why not actually look for evidence of those very things and have the companies report those? So what I’m calling for is for companies to report reliable statistics on the number of customers they have, the number of new customers they acquired during the period, the revenue per customer, the cost of acquiring new customers. You know, the things that are the drivers of lifetime value. And I’m explicitly not asking them to do the calculation for me, because I don’t trust their calculation. As an investor, I want to do it. I want to know what the assumptions are, and I want to do the projections of what’s going to happen in the future.
MD (12:34): Yeah, I can see that.
RM (12:35): And I’m also trying to reduce the burden of reporting on companies because if you were to force companies to calculate the lifetime value of all their customers, all their business units and all that stuff, you would hear a chorus of complaints from CFOs saying, you just increased our cost of doing business. So from a practical perspective, I believe that we should simply ask for the minimum information necessary to do an outside-in valuation of a company using a deeper understanding, more sophisticated understanding of the trajectory, the health of their customers.
MD (13:39): Rob, I could be mistaken, correct me if I’m wrong because it really isn’t my forte, but I remember professor, Dan McCarthy, when he was on this podcast with me a couple of seasons ago, he told me that all this information is already available. Companies have to report this information. It’s just not put together in the right way, or it’s just not reported in the same way in that the numbers aren’t gathered and the calculations aren’t done, but the information already exists. So companies, publicly traded companies, have to report there cost per acquisition and they have to report how long customers have been with them or not. And that’s how he was able to do a lot of his calculations on companies like Blue Apron, Overstock and Wayfair, et cetera, which were some of the basis of his main papers, right. So is that correct? Does this information already exist? Do companies disclose this information already?
RM (14:36): Well, you’re onto something important. In fact, I literally just got off the phone with Dan McCarthy before you and I were speaking. And he and I share a lot of common beliefs and we are actually both advocating for similar kinds of disclosure rules. The answer is that, you know, unless you’re an irresponsible management team, it’s pretty clear that you’re going to have information on how many customers you have, how much they bought, whether they’re a trading or not, how many new customers you acquired. With the exception of certain businesses where customers remain a little bit anonymous like cash businesses, certain types of retailers and so on where they can only identify a small portion of their customers. But by and large, especially like business to business, any kind of subscription model, any kind of financial services, you know your customers, you know how many you’ve got, you know what they’re worth or at least what they’re generating in terms of revenue, and you know how much it costs to acquire new customers. What you’re not required to do is disclose how many customers you have with any accuracy, you’re not required to disclose how many you kept and how many left. You’re not required to disclose how many new ones you got or what it costs you to acquire them. And as a result, some companies disclose and other companies don’t. The ones who tend to disclose are the ones who are losing a ton of money and preparing for an initial public offering, an IPO, and who are trying to convince investors that the earnings losses that they are reporting are all a form of investment in growing the business for future profitability. And so they’re providing the kind of information that Dan needs to run his models because they’re trying to tell a good story to investors.
MD (16:21): Right. This was kind of a bubble, wasn’t it? This whole way of doing business that kind of crashed and burned.
RM (16:30): Well, I mean I think that we’ve seen waves of this. So in the late nineties we saw a ton of companies that were going public while losing a lot of money and they reported, you know, “eyeballs,” you know, just growth in the raw number of users. More recently we’ve seen this wave of companies with subscription businesses or a wave of companies that are otherwise, you know, like online retailers, who are basically trying to make the case that these huge investments they’re making and growing their business are going to pay off in the future because they’re building the value of their customer base. Some of them are giving us a partial picture and some of them are giving us a reasonably complete picture. And because it is at their discretion what they report, the definition of the metrics that they report and because they can stop reporting those things at any moment, investors have a really devilishly hard time making use of that and incorporating into their valuation models.
MD (17:30): But through firms like the firm that Dan leads, I think it’s Theta–
RM (17:36): Theta equity partners.
MD (17:38): I mean, I would imagine that this could be helpful.
RM (17:41): There are a growing number of of firms like Theta that are building valuation models that are enhanced by a deeper understanding of what’s going on with the customer base. And it’s becoming increasingly popular among hedge fund investors, private equity investors and others who are a little more sophisticated about this stuff. To look at the companies through that lens. But it’s still nascent. It’s still rare and it’s only a tiny fraction of all the companies that are publicly traded that are consistently reporting anything at all that would be useful in this kind of valuation. So what you’re trying to do is you’re trying to change the way that companies report?
RM (18:28): Yeah, I mean my vision is that companies that are earning the loyalty of their customers and growing the value of their customer base would be handsomely rewarded by investors because it’s transparent to them that it’s happening and they can incorporate that into their valuation of the company. And the companies that are failing at that are punished a little bit by investors because they can see right through the PnL and earning statements to the fact that they’re undermining the value of their customer base, that they’re engaging in bad profits, that they are basically delivering short term results at the expense of the long term.
MD (19:09): Wouldn’t this require a level of education to investors, like investors educating themselves on the importance of understanding customer value? Of course it would. And one of the great things about the equity markets we have in the developed world is that with transparency comes investment and with investment returns comes copycats. You know, you build a better mouse trap in the equity valuation world and the world will actually beat a path to your doorway. And I think that’s what Dan and Pete Fader and a number of others have done with customer-based corporate valuation. I think that the adoption is, you know, if you think about an S curve of adoption of things, they’re still in the early stages, but we will hit the so-called knee of that curve very soon, I believe. And that will create a chorus of investors who are demanding that companies report in a responsible, consistent and reliable way. The metrics that indicate growth in the value of the customer base.
MD (20:21): You wrote in your article for HBR that you see this coming round in the next 20 years. Is that it?
RM (20:28): Well, what I wrote about with respect to the 20 year time horizon was the penetration of new organizational models that align authority and accountability with customer need. What we call the customer centric or a customer based operating model, the kind of thing that USAA, and other companies are doing where they are creating agile teams dedicated to meeting specific customer needs and basically organizing the management and improvement of customer experience and products and services specifically around end-to-end customer needs. You talk about four different ways to do this, right? You have created a model that’s based on four ways to come about the structural change. But before that, when I was reading your article, one of the things that impacted me the most and really stuck out to me was that, I recently this season had James Dobkins and he’s a CX speaker and you know, not an analyst, not a finance guy, he’s a people person. And his understanding is that in order for companies to succeed in customer experience, you have to have a customer experience team. And he even gives the example of a soccer team where in the soccer team you’ve got, you know, one goalkeeper, two defense, you know, and you have the all the different positions covering all the fronts in order to achieve what would be considered a good result, which is a victory. And you made a similar analysis where you talked about how inside companies you have the silos and everyone is working towards their own personal goals. When I say personal, I mean of of that department, everyone is working to make their own department succeed, but nobody’s looking out to how these separate departments are ultimately affecting the customer and the customer’s perception of the brand. So can you talk a little bit about that?
RM (22:40): Well this is something that has fascinated me for quite a while, and that is that companies are organized around expertise, functional expertise, product expertise, in a way that is hugely, hugely beneficial for developing, for innovating, for developing efficiency and effectiveness and creating accountability. And that model of organization developed really in the 20th century in companies like General Motors in order to, you know, “professionalize” the management of companies and to make them more efficient and effective and give them competitive advantage. That model of functional expertise is still valid, but we now have the ability to look at our business in different ways than we did back then and to take, you know, what I would call a transverse view of it and see how customers flow through the entire organization. So where the old model would have, say, the folks in the center optimizing the costs of serving customers through the contact center. And the guys on the web, optimizing the cost of providing service through the web, and the guys who are dealing with marketing, optimizing the cost per new customer or otherwise trying to make their marketing more efficient. That’s good. But what would be better would be if the guys in marketing were acquiring the customers who have the highest lifetime value as determined by how long they’ll stay, their service intensity, their propensity to buy additional products and services. If the folks in the contact center were not just optimizing cost per call, but thinking about the number of calls and actually coordinating with the folks who are developing the web in order to make sure that the web could fulfill all of the needs that customers wanted to do online and not, you know, dump them into the call center when they fail on the web. And so what we see happening now is essentially taking parts of the functional teams and dedicating them to customer needs alongside of other people from other disciplines, other functions who are also part of that team. And we can now, because we have technology to do this, we can now measure their success in a more holistic way. We can see the total cost of somebody changing their address, not just the cost of the phone call, but we can see that they logged into the web, they tried to do their address change on the web, and then they failed into the contact center. We can see the impact on the customers’ sentiment in the form of NPS or customer satisfaction after the experience. We can see longitudinally the effect that that experience had on their propensity to stay, to buy more and so on. And as a result we can do something fundamentally different and align the needs of customers with the incentives, the goals, and even the identity of individuals in the organization. That’s super powerful.
MD (26:06): Yeah, absolutely.
RM (26:07): In fact, this thing about identity, you know, like how many times do you hear people talk about silo busting? I bet on your podcast you’ve had people–
MD (26:15): All the time.
RM (26:16): Yeah, right. Silo busting is bullshit. Excuse my French, you know, the fact is we are human, and as humans we identify with other people who are like us. Whether that’s members of our functional team, people who went to the same school we went to, people who live in our neighborhood, whatever it is, we have multiple layers of identity. And it is human nature to judge the other people in your group, the in-group so to speak, as intelligent, well-meaning, capable. And people who are in the out-group meaning not identified with you as you know, bad intentioned, not capable. And so, in the old school way of organizing, you would have people in compliance and risk management pointing the finger at marketing saying, those idiots are breaking all the rules and the people in marketing saying, those idiots in compliance keep us from doing things that we need to for customers. And they impose ridiculous disclosure language on us that turns off customers. Neither one is true. Like the people in compliance aren’t idiots and they don’t have bad intentions. The people in marketing aren’t idiots and they aren’t trying to just recklessly do things, but because they are in these tribes within the organization, like all humans, they make these judgments. And so we’re trying to actually harness that natural tendency and change the nature of the silos, so to speak, so that they’re aligned with what customers need and delivering for customers instead of at cross purposes.
MD (27:57): And do you think to do that we’d need a separate team that works on its own, like possibly under a chief experience officer or something like that that works towards not necessarily breaking the silos, but creating a channel of communication throughout those silos?
RM (28:15): Yeah. So I tried to avoid your question the first time, Mary, and now you’re making me answer it. It’s not actually an answer that I think your audience is gonna like. I think in the long run we need to think about blowing up the customer experience organization. I don’t think in the long run we should have separate people who are responsible for customer experience outside of the business. I think in practical terms today and for the foreseeable future, we actually do need customer experience professionals. We need a coordinating group who is setting goals, who is facilitating the capability development and so on. So my long run answer and my short run answer are are different. It’s absolutely crucial today to have a customer experience team, but their goal should be that in five or 10 years that’s not needed anymore.
MD (29:15): Almost a transition? I like that idea. That’s interesting because ultimately the ultimate goal should be that it’s just a mindset within people in the organization, but it doesn’t come naturally. People have to be educated, you know?
RM (29:30): I think it comes more naturally than we give credit. I think that the issue is that we beat it out of people because we train them to manage to a departmental budget. We train them to manage to a product line, you know, revenue growth figure, independent of the impact that that’s having on the longterm value of customers. And we provide them information scorecards and dashboards that reinforce the, I call it the balkanization, the compartmentalization of goals and objectives that aren’t consistent with creating customer value. If we change that though, if we create accountability and we align authority with that accountability in ways that are meant to maximize customer value, not departmental budgets, we get a totally different outcome.
MD (30:52): So this is the perfect moment for me to plug in those strategies, those four strategies that leaders can use to make sure they’re increasing the loyalty of their customers. Let’s hear ’em.
RM (31:05): You want me to do it or you don’t want to do it?
MD (31:09): Oh I want you to do it.
RM (31:09): Well, I think the foundational thing actually, before we even get into those four is that for leaders, for CEOs and CFOs and chief marketing officers, to support the four things I’m about to talk about, we need transparency for investors so that the C level executives are actually getting rewarded for making the long term, short term trade off in the right way. So that’s foundational. Having done that, in order to manage the value of customers, you first have to have a set of customer value management processes and tools that enable you to have visibility into the lifetime value of your customers in different groups. So you have to de-average your customer base. You have to be able to look at the latest cohort, meaning the the latest group of customers who are acquired, and compare their performance to the performance of previous cohorts and see whether it’s improving or declining. We need to be able to look at customer acquisition costs and onboarding costs with accuracy and be able to attribute those appropriately so that we can see our customer acquisition costs climbing or declining and how does that relate to the quality of the customers? How long are we keeping customers? What is the frequency of purchase and how much are they purchasing and how much does it cost to serve them? All of those things need to be looked at through a customer lens in a business, which means changing some of the accounting systems. It means changing the reporting and tracking, and it means for a leader, asking a very different set of questions about the health of the business and the operations than maybe historically they did. It’s not that the things that they’re using today go away, it’s that they look at them differently. So that’s the first one. The second piece is that you need to have the design thinking disciplines within an organization, the human-centered design, the ability to develop deep customer empathy, so that you can actually look at the experience through the customer’s eyes, through direct observation, through sensing, through the ability to interrogate an experience in a way that a customer views it, and then marry that up with the experimentation, the technology and the data and analytics that allow you to deliver personalized experiences to customers, to deliver for them what they need, when they need it, in ways that maximize the likelihood that you’ll get them to stay longer, buy more, tell their friends.
MD (33:57): I’m going to interject here really quick because you talked about design and that it’s really understanding being empathetic with the customer. And that brings up a topic that I’m constantly asking people about when they tell me that they’re designing their customer journey map, etc. Which is how able are you to actually empathize with your customer? How are you making sure that you’re actually empathizing with your true customer? When you do this from the inside out, there are so many biases that you’re carrying into that assumption that it’s really tricky to actually get it right because you may think you know what your customer wants. You may think you know what your customer is looking for and the reasons, the why behind their buy. But do you really?
RM (34:44): I love that, Mary. You’re onto something super important. We all have a tendency to view the world through the lens of our own experience, our own values, our own wants and needs, and a lot of times that guides us very well, but there are many times where it doesn’t and it’s hard to tell the difference. An example would be I had a client in the financial services industry who had a very important small business segment whose needs they were trying to meet. And one of the most important problems they faced was that very few of the people in this large company had ever really spent any time working in a small business. So they didn’t have a deep appreciation for how hard it is to get information. The hassles that you face when you are trying to just send a document from one place to another or get information out of the accounting system or heck, fix the copier. And it wasn’t until we forced them to develop essentially a training program by which key members of the management team would go out and spend time, you know, “living” with the small business customers so that they could actually see what a day in the life of the office looked like and realize that, Oh my God, this doctor’s office, everything is still on paper. These people are dealing with, you know, acres of paper files. We can’t expect them to send us a digital copy of that thing. I think this happens all the time in business that we just, we don’t know what we don’t know about what our customers want and need until we go out and we spend time with them and get out of the boardroom, get out of the office, stop talking to each other and start spending time with customers.
MD (36:45): Yeah. Listening to what customers have to say, right?
RM (36:47): Absolutely. And asking them questions about it, approaching it with the curiosity of an anthropologist. Why did you do that? One of the cool things that we observed was that bookkeepers would actually have their checkbook in their lap and they would be stroking the pages of the checkbook and you’re like, huh, if I’m going to get these guys to pay electronically, I have to overcome the comfort that these folks are getting from the physical manifestation of their job in the form of that checkbook.
MD (37:25): Look at that, that’s amazing.
RM (37:25): You can’t get that over the phone, you can’t get that from a survey.
MD (37:29): Yeah, really. Like you said, like a scientist, observe anthropologically. I love that. Let’s move on to strategy three.
RM (37:37): Yeah it’s the one that we talked about earlier, it’s organizing around customer needs instead of around functional or product expertise.
MD (37:43): Designing, understanding that, right? So designing journeys that are easy for customers and then using technology to enable even easier ways to do things perhaps?
RM (37:54): Right, so that’s the second one that I was talking about, which is the design thinking in the technology. The third one here is this idea of taking a part of the organization, and I don’t want to overstate it, it’s not the entire organization, but reorganizing it around, or better said, reorganizing the decision making and the day to day interactions around the specific needs of customers. The way that USAA has done the way that many of the, you know, kind of new economy players like Warby Parker or Stitch Fix do. It’s meant to, as I said earlier, align the authority and the accountability around customers and their needs and the satisfaction of those needs and the cost of serving those needs as opposed to purely functional.
MD (38:41): And do you think it’s possible for companies that were established a long time ago, like you said, there’s a lot of new players that are doing things this way. Do you think companies that are kind of stuck in a rut of doing things in an old way, do you think there’s still a chance for redemption? There’s a chance that they can up their game and start doing this, change their processes to a degree where they can become like this, organized around their customers’ needs?
RM (39:05): Well, Mary, I’ve seen it in practice, so yes, but it’s really hard. And you have to have the tools in place, the capabilities in place and the, what’s the right word? The conviction, that doing things in a completely new way is going to pay off in the long run.
MD (39:26): And you have to have the long run as well, right?
RM (39:29): Yeah.
MD (39:29): You can’t be afraid that your tenure is only going to last til the end of the quarter if you don’t prove–
RM (39:34): Or intending. Yeah. Yeah. There’s that. Or even intending that you’re going to be here for just another year and a half and then you’re going to move on to the next thing. You kind of have to be in it for the long run, which is another reason why the earliest adopters of these kinds of operating models tend to be companies that are owned by their customers or otherwise, you know, controlled by their founders. I mean, you look at USAA is one of the leading ones here. Vanguard, the mutual fund company owned by its investors.
MD (40:06): Even REI, right?
RM (40:08): REI, Costco. Like it’s interesting to see the companies that are the leaders here.
MD (40:15): And how do you end it? What’s the last strategy?
RM (40:17): The last one is actually about leadership. And I think it may be in some ways the easiest and in some ways the hardest because there’s some vision involved. Like you have to build the case for customer value and the importance of it. But as a leader, you have to start thinking about asking different questions and behaving differently yourself. Like you can’t fall back on what you know. And when things get tough, that’s where the real tests come in. Yeah. We all say, Oh, you know, we exist because of our customers. We’re gonna do all the right things for our customers and our employees and so on. And then when push comes to shove, a lot of people, a lot of organizations revert to managing the income statement so that they can deliver the quarterly earnings. You know, guy like David Thodey at Telstra, when he was doing this, basically built the support of his board of directors and shareholders by very, very consistently laying out what his vision was, explaining how difficult it was going to be, explaining what the financial impact would be, and then building the skills and capabilities inside the organization to deliver. If he had any doubts in the maybe second year of the journey that he took Telstra on, I think they would have failed, because the performance on meeting, earnings expectations, the morale of people inside the company, the evidence of improvement, was a long time coming. Once it hit, it was really powerful, but you have to actually make it through the hard times and stay the course when there’s pressure to squeeze out another few dollars of earnings.
MD (42:16): Yeah. Well you know, I think that we could talk about this for ages, but I pulled a quote out of your article in HBR and I wanted to read it because it’s a really good reminder as well, because we can talk about all these things. It’s very easy to shift the blame. There is a lot of accountability that rests on our shoulders as well. When you’re wrapping up your article, you said that it’s easy to blame companies’ short-termism on shareholder pressure and a bias towards quarterly financial reporting. But managers share the blame when they fail to educate investors about the customer value their company creates, or when they resort to quick profits instead of investing in longterm customer loyalty. So for me, that’s a a great wake up call that sure, there are issues in the way that quarterly reportings are. Sure. Shareholders share a part of the blame. But we do also have to look within and understand how we’re failing to be able to fix the problem.
RM (43:15): You know, I go on to say something even stronger, Mary, which is, it would be irresponsible for any leader to ignore such a proven source of profitable growth. And I think that you’re pointing out the right thing, which is it’s our responsibility as leaders to take this on, even in spite of the fact that it’s new and it’s hard and it’s not the way we’ve always done things. On my podcast, I interviewed a whole bunch of people who are on this path, folks from USAA, folks from Vanguard, folks from even, you know, Stanley McChrystal who did this, you know, some of the same kind of stuff in a totally different setting in the military. And in every case, what you hear is, it’s a difficult journey. It’s a long journey, but it is a very, very valuable result. That’s the challenge we face, is short term longterm. We have to be the ones who lead the way.
MD (44:09): Awesome. Well, I invite all our listeners to catch Rob’s article in the HBR January, February, 2020 edition. And Rob, before we sign off, can you give our listeners a way to contact you, to follow you, to learn more about what you have to offer with your insight and your expertise?
MD (44:26): Sure. I’m easy to find, I’m @rgmarkey on Twitter. At bain.com/loyalty we’ve got a whole bunch of resources for people who are interested in this and who are looking to learn more about customer-based corporate valuation, who are looking to learn more about the net promoter system, who are looking to learn more about organizing a company around customers.
MD (44:49): Awesome. Thank you so much for coming on.
RM (44:51): Thank you Mary. I really enjoyed it.
