Turn Customer Insights Into Growth
Most leaders recognize the importance of understanding their customers. Why, then, do so many continue to overlook change signals?
DESPITE THEIR BEST INTENTIONS TO FOCUS on customer needs, many companies spend most of their time looking inward. If you are not convinced of this, try this experiment: In your next internal meeting, divide a piece of paper in two. On the left side, record each mention of an internal topic, such as financial or operational performance, plans, metrics, employees or culture; on the right side, record each discussion of an external topic, such as competition, technology, innovation, social media or customer needs and wants. If your ‘introverted’ score is higher than your ‘extroverted’ score — keep reading.
Consumer-facing companies in developed economies have experienced little to no growth since the global recession of 2008. As a result, the smartest of the bunch are now increasingly looking outward, trying to spur growth by turning to new sources of customer information — ‘structured’ batches of Big Data such as online behaviour and ‘unstructured’ data such as social media and call centre conversations.
In addition, these companies are experimenting with predictive methods for anticipating customer behaviour and evolving an internal customer insight (CI) function that can provide relevant recommendations and ongoing execution support.
Unfortunately, our research finds that most companies struggle to make CI more than just a traditional market research operation. In this article we will look at the challenges and benefits of integrating CI into your core processes.
Rewiring Your Customer Insight Function
Rapidly-changing technology is having disruptive effects on consumer behaviour. Shopping is now integrated into consumers’ daily activities, before and after traditional retail hours, and the shopping habits of Millennials, for example, are quite different from those of older generations. Mobile apps are generating large volumes of new data from sources such as online behaviour patterns, social media, user reviews, geolocation data and mobile payments. Consumer demand for information, ‘newness’ and interactions with brands is increasing, as is the ability of brands and retailers to anticipate the needs of individual customers. As a result, sectors that once were predictable and stable — and that
Senior executives agree that customer insight (CI) is critical to accelerating growth.
once could have survived with a more internal focus — have become more volatile and uncertain. In this environment, companies must rewrite — indeed, rewire — their CI capabilities.
In a 2016 Boston Consulting Group survey, 45 CEOS, presidents, business unit leaders and chief operating officers in a variety of sectors said they consider ‘customer and growth objectives’ to be the top priorities for their companies, followed by ‘operational excellence’, ‘shareholder value creation’ and ‘customer experience’. More than 75 per cent of the senior executives overall — and 100 per cent from companies with more than US$5 billion in annual revenue — said CI was critical to accelerating growth. When asked what capabilities their companies needed to develop, respondents cited CI and business development as the top two; advanced analytics was also an important focus, represented in three of the top ten categories.
Surprisingly, many organizations have a long way to go. In fact, they have barely evolved in the years since BCG’S 2009 benchmarking study [“The Consumer’s Voice — Can Your Company Hear It?”, available online]. In late 2015, BCG’S Centre for Customer Insight, in partnership with Cambiar and the Yale School of Management, updated that original study to include 640 respondents from 90 cross-sector enterprises. More than 60 per cent of the participating companies reported annual revenue of at least $5 billion, and about 70 per cent operate globally.
The patterns of maturation that we identified in 2009. were still relevant. We found that CI groups move through four developmental stages.
STAGE 1: TRADITIONAL MARKET RESEARCH PROVIDER. At this stage, CI is mostly tactical and research oriented, focused on uncovering trends of sales of existing products and services, largely in existing channels and geographic locations. The CI group works on a project basis to produce data in response to line managers’ requests. It is limited in budget, head count, and scope of influence within the organization, and it receives limited senior executive support. The CI function’s communications concentrate on studies or project results that target a narrow audience, such as the managers who commissioned the research.
STAGE 2: BUSINESS CONTRIBUTOR. For a CI function at this stage, research tends to have a real-time focus on short-term innovations such as packaging, form and flavour extensions, pricing, and promotions. The group concentrates on translating customer insights into business recommendations. Studies build on one another to start to form bodies of work and broad perspectives.
A function at this stage typically has active support from the most senior marketer in the company, as well as greater access to senior and business-unit (BU) leaders; however, business leaders generally set priorities. Significant parts of the CI budget may exist outside the function’s control, and the group’s representation on the executive team and its exposure to the Board are limited.
STAGE 3: STRATEGIC INSIGHT PARTNER. At this stage, senior executives believe customer insights should guide most commercial business decisions, and the CI function is a strategic partner and trusted advisor to the line. In addition to specialized research skills, CI team members demonstrate critical thinking, a willingness to challenge ideas, economic and strategic understanding, and judgment. An executive team member—who is not the chief marketer—champions strategic research, and the CI team works with line management to translate customer knowledge into key business decisions. Together, the CI team and line managers form the beginning of a learning organization that becomes increasingly capable of anticipating customers’ needs.
STAGE 4: SOURCE OF COMPETITIVE ADVANTAGE. This stage remains elusive for almost all companies. At this level, the CI function is focused on new-to-the-world innovation, foresight and predictive inquiry. CI is used in business decisions and core processes beyond market decisions, including research priorities, new product development, strategic planning, M&A and portfolio strategy, employee engagement and company branding.
At this level, the CI team exerts the greatest control over its budget. As one CI vice president remarked, “We’re aiming for 100 per cent budget control. We want to have visibility of the total spend and the ability to trade off against higher value and higher-impact uses.” A function at this stage provides feedback on relevant trends, offering an independent perspective on high-
priority topics and customer populations and specializing in innovative methodologies. Functional leaders play executive roles, such as head of strategy, analytics, or marketing, and they often report directly to the CEO.
One senior marketer said that for a team to reach stage four, the CI function must be truly embedded with business decision makers, seen as a thought leader rather than only a project executor or data provider, and capable of providing world-class strategy and guidance that is actionable.
How to Reach Stages 3 and 4
In our initial study, only 10 per cent of companies had CI functions at the third and fourth stages. Despite participants’ talk of ‘vision’, ‘transformation’, ‘restructuring’, and long ‘journeys’— and rising expectations—the pace of change has been glacial: Our latest study found that only 20 per cent of companies are now at stages 3 and 4.
Even when companies adopt new functions and capabilities that incorporate Stage 3 elements — such as advanced analytics, digital or social media monitoring — these groups seem to be analogous to traditional market research groups: They lack execu- tive support, report low in the company hierarchy, have limited interaction with the line, are constrained by small budgets and little budgetary control, are unmeasured in terms of return on investment, and offer narrow career paths to team members.
Companies with CI functions that do manage to reach Stage 3 or 4 often do well on externally-verifiable outcomes, such as customer loyalty and growth rates. Generally, companies with such functions are more likely to recognize CI’S effectiveness in business decisions and to measure the return on these investments.
Specifically, executives we surveyed in companies with Stage 3 functions were significantly more likely (by 15 percentage points) than executives in companies with less-mature CI functions to think that these groups materially contribute to financial performance, that they put their companies and BUS on faster growth trajectories (by nine percentage points), and that they enhance their companies’ competitive advantage (by 20 percentage points).
All senior executives we surveyed whose CI functions had achieved Stage 4 agreed that CI puts companies and BUS on faster growth trajectories, while 50 per cent said CI was ‘very critical’ to growth. Furthermore, 50 per cent of Stage 3 and
67 per cent of Stage 4 companies try to measure the ROI of CI investments, and they report significantly higher satisfaction—83 to 88 per cent—with CI’S ROI.
In companies with Stage 3 or 4 functions, CI practitioners and business line partners are much more closely aligned on the impact, value and importance of CI. As companies progress through the stages, practitioners and business line managers become increasingly satisfied with their relationship. By Stage 4, the satisfaction rate is 89 per cent. About 90 per cent of the executives in our study agreed that by Stage 3, line leaders pull CI into business decisions more than CI pushes its way in. As the line invites CI in, business partners’ satisfaction with CI’S contributions to business decisions increases, jumping to 90 per cent overall in Stage 4.
Given these results, we would advise executive teams to explicitly re-evaluate the ROI for CI functions that are mostly backward looking, descriptive, tactical or confined to marketing.
How to Get Started
Executive teams can take three steps to begin the process of reaching higher levels of CI maturity:
1. CONDUCT A DIAGNOSTIC. Interview stakeholders, quantitatively benchmark against peers, and observe the ‘life’ of an insight through the parts of the organization and the processes in which it is identified, amplified, gains influence, and has impact — or is dampened and dies out.
2. ATTEND ONE OR TWO FACILITATED CREATIVE WORKSHOPS WITH THE EXECUTIVE TEAM.
Apply practical creativity techniques to achieve shared self-awareness; identify ‘magic points’, in which the CI function delivers on executives’ aspirations, and ‘tragic points’, in which CI falls short of its potential.
3. CRAFT AN ACTION PLAN. Develop a strategy for changing executives’ individual and collective action.
Companies serious about attaining the highest stages of CI maturity should set a target of no more than 24 months. Longer initiatives do not signal a sufficient commitment to change and may get bogged down, leading to distraction and change fatigue.
Firms whose CEOS and executives are not committed to a fundamentally different CI operating model should not undertake the hard work of CI transformation. In companies with CEOS who do support the transition, however, senior executives should be updated with regular reports from a steering or strategy committee. They should create an ‘activist’ project management structure that ensures functional transformation through transparency, a ‘single source of the truth’, a focus on results instead of the completion of activities, accountability, accelerated decision making, and interventions when change initiatives are off track.
Based on our experience, companies should prioritize three types of cross-functional initiatives and identify executive sponsors and day-to-day leaders for each.
Funding the Journey. Initiatives in this category fund the transformation and the external support it requires by closing performance gaps. Examples include consolidating market research suppliers; reviewing supplier pricing and terms; cutting or reallocating tactical, backward-looking, descriptive, low-roi project spending; and attacking duplicative expenses and teams.
Winning in the Medium Term. These initiatives, which require more lead time, are the building blocks of the functional strategy. Examples include building knowledge management systems; measuring the return on CI spending; developing learning agendas for executive teams and boards; experimenting with data sources and methodologies; and enabling CI to use strategic planning and budget tools.
Organizing for Growth. Initiatives of this type enable the function to execute and sustain the transformation. Examples include expanding roles for the most talented employees; reworking job specifications, forming executive recruiting partnerships, and targeting new talent pools; developing career paths; developing rotation programs for future leaders; establishing functional training and development programs and tying functional compensation to performance.
Developing a truly external orientation is a struggle for many companies. Taking a hard look at the maturity of the CI function may be a good place to start. But a CI function that’s treated simply as a provider of traditional market research can’t become a strategic player on its own. The effort to tap this overlooked source of competitive advantage must begin at the highest levels of the organization, with executives setting the tone for the process. By measuring, interpreting, and applying knowledge from customer experiences — and using this information to fuel decisions — companies can elevate both their CI function and their position in the marketplace.
Fighting Organizational Introversion
How do companies end up so isolated, even from their own customers? We have found that large, established companies tend to rely too much on existing business models and neglect to explore new possibilities. As a result, they generate future growth options at a much lower rate than smaller, younger companies. We found that large, established companies are about 20 percentage points less exploratory than their younger peers, and as a consequence they underperform those peers by nearly six points in sales growth and more than two points in long-term total shareholder returns.
Fortunately, this trend is not inescapable. A minority of large, established firms manages to balance exploration and exploitation. So, how can you avoid or reverse the tendency towards introversion? We offer the following four tips for renewing your external orientation.
TIP 1: CAPTURE EXTERNAL CHANGE SIGNALS. Getting the right information in the door is the crucial first step: Invest in capturing granular, real-time, and implicit data on customer trends
and preferences. Explore new methods, such as biometric, observational, and neural analysis. Look beyond the obvious: Access new and under-exploited data sources such as social media and usage data from smart products. In other words, create not only a signal capture capability but a ‘signal advantage’ by doing it better or earlier than others.
TIP 2: EXTRACT NOVEL INSIGHTS. Learn to extract patterns from change signals. Again, look beyond the obvious to create advantage by leveraging new techniques such as natural language processing to mine unstructured data and machine learning to separate signal from noise. Create easily usable data visualization to facilitate the detection of patterns and the formation of insights that are not obvious. Again, strive to do so not just sufficiently, but better than the competition can.
TIP 3: USE INSIGHTS TO DRIVE KEY VALUE-ADDING PROCESSES SUCH AS INNOVATION AND RESOURCE ALLOCATION. Customer data and insights should be organized so that they are easily accessible to all parts of the company and can be integrated into decision making beyond the sales and marketing function. For example, customer insights can be included as a formal decision factor for strategic planning, portfolio strategy and resource allocation, and they can be integrated into stage-gate requirements for innovation.
TIP 4: COMMIT TO AN EXTERNAL ORIENTATION WITH STRUCTURE, SYS- TEMS, CULTURE AND LEADERSHIP.
Companies need to increase their ‘surface area’ by exposing internal functions to external realities. Highly adaptive companies like Alibaba understand this intuitively and set up flexible organizations to allow for the constant matching of internal and external. As Jack Ma, the company’s founder and chairman, has said: “In the information era, change is the best equilibrium.”
We can also look at Amazon as a best-practice example of an external orientation. Customers are the top priority everywhere in the organization, starting with the CEO. As Jeff Bezos has said: “We see our customers as invited guests to a party, and we are the hosts. It’s our job, every day, to make every important aspect of the customer experience a little bit better.” This customer-centric culture is reinforced through formal performance metrics, nearly 80 per cent of which are related to customer experience. Customer-centricity is further supported by well-integrated information systems, which are able to capture, explore and share insights throughout the firm.
Overcoming introversion is no easy feat, but it is imperative for your organization’s long-term survival. The approach discussed herein can provide a starting point to increase your external orientation — which will enable you to capture the right information and use it more effectively.
Christine Barton is a Senior Partner and Managing Director in The Boston Consulting Group’s Dallas office. Lara
Koslow is Global Leader of BCG’S Centre for Customer Insight and part of the firm’s global Marketing, Sales & Pricing leadership team. Ravi Dhar is the George Rogers Clark Professor of Management and Marketing and Director of the Centre for Customer Insights at the Yale School of Management.
Simon Chadwick is the Founder and Managing Partner of Cambiar. Martin Reeves is a Senior Partner and Managing Director in BCG’S New York office and Director of BCG’S Henderson Institute. Frederik Lang is a Consultant in BCG’S Copenhagen office. For more BCG content, visit bcgperspectives.com.
Large, established companies are about 20 percentage points less exploratory than their younger peers.