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Is Your CX Strategic? | Customers, Etc

Is Your CX Strategic? | Customers, Etc
By Ben McCormack • Issue #18 • View online
Before we jump into this week’s topic, I wanted to let you know that I’m starting a book club on Chief Customer Officer 2.0.
Update: We filled up! I’ll definitely post if I do this again. Leaving the original message below.
It’s going to run 5 weeks, meeting Thursdays at 7:30 PM EDT. The first introductory session—no advanced reading required—will be next Thursday, 8/27 at 7:30 PM EDT. Please email me (ben@benmccormack.com, or reply tot his email) if you’re interested. The group will be limited to 8 participants.
Now on to this week’s topic: Is your CX strategic?

It’s your first day in the customer experience department at your new job. Your charter: build the customer onboarding department. “Customer creation” is all the rage and the head of CX is bullish. Better onboarding means greater customer success. Greater customer success means increased retention. Increased retention means higher annual recurring revenue. Huzzah! Go ye therefore and onboard new customers.
Over the course of the next year, you build out a team of enthusiastic onboarders—all of them product experts in their own right—and they patiently and thoroughly educate each of the customers entrusted to their care. Your customer satisfaction ratings are consistently 4.9/5, onboarding projects finish on time, and your team is rated one of the more desirable teams to be on at the company. It’s well-known that your team is incredibly operationally effective. 
One day, you’re halfway through a meeting with the head of CX, who shifts the conversation by asking, “Would you say our customer onboarding practice is strategic?” Well, yes, of course, you think to yourself. I mean, take a look at the success metrics. The customers who purchase onboarding are more likely to be successful with the product and are more likely to renew. Sure that makes it strategic, right? 
You share these thoughts out loud, but it sort of comes rambling out, and your boss, smiling, responds, “That’s all good—it’s clear you’re operating well—but how do you know that onboarding is strategic?” You’re caught flat-footed, not sure what to say. On one hand, you’re admittedly a bit defensive. Your head is swimming, focusing on the results you’ve managed to deliver over the past year. Doesn’t that mean your team is strategic? What does “strategic” even mean, anyway?
Photo by Cristina Gottardi on Unsplash
Photo by Cristina Gottardi on Unsplash
What is Strategy?
In the November-December 1996 issue of Harvard Business Review, there’s an article titled “What is Strategy?” by Michael E. Porter. We’re going to revisit our imagined question of whether or not your onboarding practice is strategic, but first we’re going to meditate a bit on the contents of this HBR article. I’m not going to recount the article paragraph by paragraph—you’re welcome to buy a copy yourself for $8.95—but we will explore the high level themes of strategy and how it might connect to the day-to-day life of someone working in customer experience. To start, we have to talk about operational effectiveness.
The very first words of the article feel like a gauntlet thrown: “Operational effectiveness is not strategy.” I bristled the first time I read that. Especially at a start-up or growth-stage company, where there’s so much variability as the company grows, a failure to be operationally effective early on only multiplies and can greatly hamper a company’s long term success. As a quick example, think of sales. If your sales team is not operationally effective—that is, you’re doing a bad job at sales—pretty soon you’re going to discover you don’t have the revenue to support a path toward profitability, dooming your startup to an inglorious end. If you’re not operationally effective, you won’t survive, but perhaps it’s not enough to just survive.
The other reason I bristled is because I take personal pride in being operationally effective! And working at a place like FullStory, we place a lot of value in building systems where we can do our best work. If nothing else, trying to be operationally effective can be fun, if not also a means to eliminate inefficiencies and reduce costs.
But as Porter puts it in his article, operational effectiveness is “necessary but not sufficient.” His argument, which he makes from first principles, is that if competitors all strive to be operationally effective in the same way, solving the same problems for the same set of customers, businesses will start to look the same, in a process he calls “competitive convergence.” To illustrate this point, let’s continue our example with sales, assuming that all things are equal between you and a direct competitor. You both have a product that solves similar problems for the same set of customers at a similar price. The only thing different is how well you execute at selling. If you do the work to improve operational effectiveness on your sales team, bringing you on par with your competitor, if everything else is equal, the only remaining place you have to compete is price. If everything looks the same to the customer, you have to lower your price to win their business, cutting into your profitability.
Competitive convergence necessarily leads to lower profitability for each competitor. For each competitor, having maxed out operational effectiveness independently, the only remaining way to become more operationally effective is to merge with a competitor or be acquired, but even this doesn’t guarantee profitability, only the hope of lower cost as redundancies are eliminated (that’s a euphemism for firing a bunch of people, but who knows, maybe you’ll eliminate some technology overhead as well). What this means is that even if you’re maxing out operational effectiveness in every area—you have a finely tuned sales machine, a great customer success team, the best-run engineering organization in the business, etc.—all of this could still lead to reduced profitability in the long term if your competitors are all doing the same thing. The piece that is missing, if you’re only focusing on operational effectiveness, is strategy
So what is strategy? Here’s one of the ways that Porter describes it:
“Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.” (emphasis added)
With this seed of a definition, let’s circle back and and look at one way we might consider CX to be strategic.
CX as Strategic Differentiator
When would customer experience become strategic? Using the definition above, this would mean that in order for your CX to be strategic, it has to be different and offer a unique mix of value. If customers are choosing to do business with you in part or in whole because of the experience, that could be a good indicator that CX is strategic.
For example, say it’s dinner time and you forgot to cook. You’ve decided you’re going to get chicken sandwiches to keep your household fed this evening. You have two choices of restaurants in your area offering products at similar prices. One restaurant has a really slow drive-through, always seems to get your order wrong, but has the superior sandwich. The other restaurant’s drive-through moves fast and gets the order right every time, even if the sandwich itself isn’t quite as good (though still quite delicious). If you find yourself steering toward feeding your family at the second restaurant based on its speed and reliability, this is an indicator that customer experience has become a strategic differentiator for you. (I’d also point out that if CX becomes important in this way, it has itself become part of the product that the company delivers).
When we circle back to our original question, asking whether the imaginative onboarding practice is strategic, one way we can ask the question is whether or not our onboarding practice is a strategic differentiator. Are people choosing to do business with us specifically because of our onboarding practice? For illustration, take this quote from a FullStory customer after their business went through customer onboarding:
“This fills the gaps we have as we’re trying to drive customer centricity across the organization. Thank you to everyone involved - I wish every project ran like this.”
That’s exceptionally high praise for the onboarding practice. But does that make onboarding a strategic differentiator? Put another way, are people choosing to do business with FullStory over other companies specifically because of the onboarding practice? E.g. if this customer meets up with industry colleagues at a conference (remember those?), and one of those colleagues is choosing between FullStory and a competitor, is FullStory’s customer going to rave about their experience with customer onboarding? And will the prospective customer weigh the value of onboarding as a deciding factor to purchase, right alongside the value of the product itself? Maybe, but I’m going to guess that in most cases, customer onboarding—and other customer experience practices, for that matter—aren’t strategic in this particular way. And that’s okay.
There are other ways that customer experience can be considered strategic without necessarily being a strategic differentiator all by itself.
To be continued
Next week, we’ll continue exploring the intersection of customer experience and strategy, specifically how the different activities of a business join together in a combined strategy. We’ll also look at what all this means from the perspective of the customer, not just the perspective of the business.
Etc.
Things I’ve read:
Did you enjoy this issue?
Ben McCormack

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