Use customer experience learning to press on to success.

By Lawrence A. Crosby and Brian S. Lunde

While few would debate the economic rationale of customer loyalty, many companies struggle with moving the needle in an appreciable and sustained manner. This can lead to a serious loss of confidence in a customer-centric strategy among executives. Consider the results of The Conference Board's CEO Challenge 2007 survey, where "customer loyalty / retention" ranked sixth (of 76 challenges)—with 26% mentions. Yet in the first four waves of this annual survey (2000-2003), the topic ranked No. 1—with about 40% mentions. Are CEOs losing interest because it is just too hard to drive measurable change?

It is no coincidence that two of the more highly ranked challenges in the 2007 survey included the word "execution": At the top was "excellence in execution," and "consistent execution of strategy by top management" was third. Perhaps CEOs are reflecting that having a loyalty strategy is not sufficient; the firm must be able to execute it effectively too, and consistent execution is proving difficult.

The reason can be summed up in two words: alignment and fleeting. A customer-centric strategy has many moving parts, requires a high level of cross-functional integration to be successful and cannot be accomplished without a comprehensive architecture. And loyalty gains tend to be temporary, because they are quickly neutralized by customers' rising expectations and competitors' responses.

We therefore argue that sustained success requires the development of organizational capability in customer experience management (CEM). This capability supports alignment and a constant stream of customer experience innovations. The four key building blocks of this capability are competencies with respect to leadership, innovation, embedment and learning. Of these, learning has historically received the least attention—not only in this column, but by most experts in the field.

We are referring here to organizational learning. What does a company do when the CEO pronounces customer loyalty as "Job No. 1," but nothing has changed a year or two later? There are really only two options: Abandon the customer-centric strategy and move on to another strategy-du-jour (e.g., off-shoring), or learn from the company's efforts— what worked, didn't work, and why—and press forward with the strategy.

Organizational learning is not a novel topic. What seems to be missing, however, is the application of these concepts to customer loyalty and CEM. To get things started, we propose the following definition of customer experience learning: Capturing, transferring, and mobilizing knowledge that leads to more effective CEM execution in a constantly changing business environment.

Here, we will describe some of the key activities that foster organizational learning in the context of CEM.

Promote a common language

Given the importance of cross-functional integration to the success of a customer-centric strategy, all functions need to share a common frame of reference and language around loyalty and CEM. This implies a disciplined approach to defining the lexicon, providing education around the use of terms and assuring consistent communication.

The loyalty champions in a particular firm implicitly assumed that the term loyalty implied the dual objectives of customer attraction and retention. In contrast, for many members of the sales organization, loyalty only implied retention—so they felt the loyalty strategy undermined their new sales efforts. When the champions clearly spelled out that Loyalty = Attraction + Retention, they were able to obtain the buy-in of most of the salesforce.

Engage in single- and double-loop learning

When a customer-centric strategy fails to produce expected results, single-loop learning would focus only on what went wrong with the execution of the chosen actions. Under double-loop learning, the organization would take a larger step backward and examine the assumptions that caused it to take those actions in the first place.

Relying on evidence that corporate citizenship was a strong driver of loyalty, a company moved forward with a costly campaign to support a worthy charity. A year later, there was much hand wringing when research revealed no gains in loyalty. This caused the company to reexamine its assumptions, including one in which customers equated corporate citizenship with "check writing." Further investigation revealed that customers were thinking more in terms of corporate ethics and governance.

Identify and share best practices

The concept of best practices came to the forefront with the advent and spread of total quality management. Major barriers to the successful sharing of best practices include the "not invented here" and the "we're different" syndromes. A culture that accepts these excuses will struggle to sustain progress in customer-centricity.

One global firm found that management in its most developed markets tended to adopt the company's loyalty strategy in piecemeal fashion, with predictably limited results. However, the firm's India division made great strides through total strategy immersion. Management in the developed markets initially marginalized this success. By shifting focus away from the specific market tactics and concentrating more on the lessons for organizational change, this case gained greater internal currency.

Codify tacit knowledge

Tacit knowledge refers to personal and subjective knowledge in the heads of key personnel. Tacit knowledge around the management of customer relationships is particularly valuable in the context of loyalty. For example, veteran customer contact staff may possess this knowledge gleaned from years of direct customer interaction. Companies can often accelerate their customer journey by taking steps to capture and codify this knowledge in the form of online portals, training programs, service standards and so on.

A leading telephone company deployed a customer relationship management system to assist its inside salesforce in managing and expanding customer relationships. Initially, the system received limited usage. When greater efforts were made to incorporate the proven interaction patterns and dialogue of expert (and respected) salespeople, system adoption increased and brought greater sales effectiveness.

Facilitate transfer through knowledge management systems

Knowledge management is a broad and evolving field that makes heavy use of information technology to transfer know-how within the organization. Firms that are struggling to improve customer loyalty might find that their knowledge management systems are devoid of customer experience content, and / or are suffering from low levels of knowledge flow.

Despite having a well-developed knowledge base around CEM, a financial services company found that many of its 50,000-plus employees had limited exposure to that content. Of particular concern were younger, entry-level employees who can be difficult to reach with conventional training. To increase knowledge flow to this group, the company developed a video game around customer management.

Refine measures and models

Customer research and modeling can play a key role in setting priorities, but there can be significant downside risk if the priorities are wrong due to faulty research. Potential sources of misleading information include weak measures, measurement gaps, misspecified models, inappropriate analyses, outdated results and mistaken interpretation.

The management of a large financial organization became enamored with a highly simplified customer loyalty measurement system that relied on a single measure of customer behavior, combined with vast quantities of open-ended comments from customers. Unfortunately, this system focused the organization almost entirely on "fixing problems"—and it began to lose the market leadership position it once held when it had emphasized innovation to create new customer value.

In summary, firms that are loyalty-challenged might do well to consider Albert Einstein's much quoted definition of insanity: Doing the same things over and over and expecting different results. By attending to organizational learning, the company can break free of paradigms and processes that are retarding progress toward customer-centricity. Such adaptability is one of the hallmarks of a loyal-capable organization.

About the Authors

Lawrence A. Crosby is the chief loyalty architect of Synovate Customer Experience, and he may be reached at larry.crosby@synovate.com. Brian S. Lunde is the company's former senior vice president of business development and marketing.

© Reprinted with permission, American Marketing Association's Marketing Management, September / October 2008 Issue. All rights reserved.