Fred Reichheld at Rotman
Posted by Ryan Dunphey
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The New Bottom Line
In this new world, the bottom of line of business isn’t profits but rather customer delight, i.e. the provision of a continuous stream of additional value to customers and delivering it sooner. As a result of epochal shift of power in the marketplace from seller to buyer, the customer is now in charge. We now live in the age of customer capitalism. Making money and corporate survival now depend not merely on pushing products at customers but rather on delighting them so that they want to keep on buying. To prosper, firms must have knowledge workers who are continuously innovating and delivering a steady supply of new value to customers and delivering it sooner.
Focusing everyone in the organization on delivering additional value to customers is what gives a firm resilience. As a result, as Ranjay Gulati explains in his book, Reorganize for Resilience (HBP, 2010), the firm’s goal has to become one of serving customers: i.e. a shift from inside-out perspective (“You take what we make”) to an outside-in perspective (“We seek to understand your problems and will surprise you by solving them”). The purpose of a firm is to serve its clients and its bottom line become: are the customers delighted?
Source: Clayton Christensen: How Pursuit of Profits Kills Innovation and the U.S. Economy
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Fred Reichheld on Profiting from the Golden Rule
We all want to be treated with honor and respect in ways, large and small, that enrich our lives. Such experiences not only make us happy, we want to share them with people we care about. By recommending an experience, we're signaling our trust that our friends will be treated similarly. Recommendations also signal to businesses how customers view their relationship with the company. When customers feel so well treated that they enthusiastically recommend a company to friends, they are promoters. When treated so badly they recommend avoiding the company, they are detractors. Both have direct and measurable economic consequences.
Source: Profiting from the Golden Rule
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What's Behind Your Numbers?
Implementing NPS is not easy to get right, because there is a tendency in the organization to take it as a number, and then the number becomes the object of all things. And of course, it's not about a number. It's about what's behind the number. It's what customers are telling you and how that number stacks up vis-à-vis competition in any particular geography or any particular product area and taking those learnings, that feedback, back into the organization and translating it into effective action.
For me, NPS is successful when I can go anywhere in the organization, not just on the marketing or sales side, but in product development, in supply management, in IT, and I get an answer to the question, "What NPS feedback are you taking into account in your improvement plans?" And if people look at me as if I come from a different planet, then I know we are not there.
Source: Gerard Kleisterlee, President and CEO, Philips (in The Ultimate Question 2.0)
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Fred Reichheld and Rob Markey: The Ultimate Question 2.0 (HBR Podcast)
The greatest gift you can give as a leader to your employees is the ability to earn 10s from your customers. I think it leads to a meaningful existence, it leads to a profitable career, and it leads to someone that's proud and energized.
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The ROI of Engaging Detractors
At Apple, store managers call every detractor within 24 hours. Initially, they found there were some detractors they couldn’t reach. Subsequent studies showed that detractors that they did reach purchased substantially more Apple products and services than the others. Further studies showed that every hour spent calling detractors was generating more than $1,000 in revenue or additional sales of $25 million in the first year, which was a good return on the investment.
In traditional management, where customers are secondary, the expense of following up with customers would seem like the first kind of expense to cut in a crunch. With these numbers in hand, Apple’s managers realize that this is one of the last things that should be cut.
Source: Forbes
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