When in tough times

Many organizations feel like they have been put through the mill this last few years since the sub-prime mortgage market went south, and the global economic disruption started. The tendency can be to try and solve financial challenges with financial management or cost cutting. And while cutting the fat is often long overdue and a critical first step to temporarily keep you afloat, it will not go beyond that to solve your capacity problems. Look to your value discipline (and align your organization), look to your market positioning strategy.

Organizations that successfully implement focus building, and data generating programs like net promoter score (NPS) are reaping the rewards. Studies have shown that a successful implementation of NPS can generate up to 23% stronger bottom line. Surprising? Not at all. Is it a result of a tool of the month club membership? Nope. It’s the commitment to continuous improvement, a strengthened focus on doing things that are likely to generate stronger customer loyalty and motivate stronger purchase intent. You change your cash-flow on the customer side of the equation, not on your accounting side.

Focus on what matters… the things that generate competitive advantage, and motivate customers to repurchase and to choose you over someone else is the only way to change the amount of money you have to count. Being willing to stop doing things that don’t drive your economics, is the other.

Free resources

We’ve all heard the statements about “working hard or working smart”. Even by the end of that sentence, you were probably thinking “blah blah blah” in your head. Yes, an old adage but stay with me for a minute. Organizations that win in their market are the ones with leaders that have a truly keen sense of what is truly important AND leverage that keen sense with the discipline to stop doing anything that doesn’t support ONLY the critical things. This is called strategic alignment.

It’s time to accept the fact that a percentage of activities that go on in your organization aren’t totally relevant to your success. It’s more a question of what that percentage is rather than whether it’s true. This is why strategy maps are developed; so that over time, you can hypothesize and then clarify what drivers are truly critical. In a time when everyone is clamoring for resources they can’t afford to add, what if even 2 or 5% of processes, projects and activities couldn’t be connected to your strategy map? If it doesn’t align, it doesn’t matter.

There are so many advantages to realigning existing resources to your strategy:
– You don’t have to hire them
– You don’t need to get approval for a larger budget
– You don’t have to get them up to speed
– You don’t have to find them office space

It’s the biggest easy win, provided that you have the courage to go around and shoot “sacred cows”.

Understanding client loyalty

I just read a great paper on client loyalty, and I will summarize the concepts for you below. Thanks to Li-Wei Wu, Tunghai University for the great work.

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Client loyalty is another one of those terms like strategy. More people talk about it than understand it to a great degree. Let’s explore…

Client loyalty is a product of several things, and it goes beyond satisfaction. The difference between satisfaction and loyalty isn’t that well understood by many, and yet such an incredibly important topic given the implications that the type and degree of loyalty has on client behavior and purchase intent.

Satisfaction is an emotional state that occurs from ongoing interactions with a client. It is generated from the comparison between expectations held prior to purchase and the actual experience. It has a positive effect on the development of client loyalty, but is not the only thing that affects it.

Inertia is a second factor. Customers driven by this motivation prefer consistency, don’t like new routine, price shopping or making new purchase decisions. They prefer status quo. Now while this doesn’t create loyalty in the short-term, routine and habitual behaviors strengthens customer loyalty as well.

Two other factors interact with this framework to impact loyalty generation. The first which is zone of tolerance (ZOT) and alternative attractiveness.

Zone of tolerance is the degree of tolerance for the gap between what a customer hopes to experience with you, and what they consider adequate. Every customer has a different range. Service below the acceptable range creates dissatisfaction while performance above creates satisfaction or even delight. However performance within the range results in an indifferent sentiment. Hence, small improvements may not have an increase in satisfaction or loyalty if it is perceived to fall within the range of the ZOT. If your current performance is below the ZOT, improvements may have a substantial impact on loyalty, as with if performance is above the ZOT. The strongest impact would be achieved at the higher level because customer delight is experienced at those levels. When customers have a wider ZOT, it weakens the impact that satisfaction has on loyalty, as it is more difficult to exceed expectations. Also, performing within the ZOT may result in extremely low levels of loyalty being generated at all, especially in the short term.

The zone of tolerance also impacts inertial loyalty behavior, but in a positive way. Customers who perceive your performance as being adequate are often likely to repurchase on an inertial basis. Therefore those with a wider ZOT lack the motivation to switch to another provider, and over time their experience with you supports the growth of loyalty. However, the fact that a customer deals with you repeatedly may not necessarily signify loyalty, it may only signify that the customer is passive and you haven’t given them enough reasons to leave. To summarize, the relationship between inertia and loyalty is stronger when a customer has a wider ZOT.

The final modifier is alternative attractiveness. This is the customer’s sense of the level of satisfaction is available to them with your competitor. This has 4 dimensions to it:
1) Number of alternatives
2) Differentiation
3) Ease of understanding the difference
4) Ease of comparison

Perceptions of alternative attractiveness are a major driver in narrowing the ZOT because it helps define and drive expectations. Where alternative attractiveness is high, this tends to narrow the range of the ZOT. It is also interesting to note that increased competition erodes the inertial effect, partially by narrowing the width of the ZOT and also by disrupting repurchase patterns.

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Client loyalty isn’t something to be taken for granted. The factors that drive it are dynamic, and there are complexities in understanding what the implications may be for your organization.

Vision or visionary idea?

Something about the word vision has gotten lost along the way. For most of us, the word has been used in vain for so many years in corporate culture that any magic that used to be associated with usage is pretty much gone. The de facto definition is starting to be resemble something closer to “boring, generic purpose… written because we’re supposed to” as opposed to a truly “visionary idea” which spells an epic journey for how you could have great impact on the world around you.

A visionary idea is something different from the statement you hired those consultants to write for you. And it’s worth considering to what extent what you have written is truly compelling. As Chris Warner and Don Shmincke wrote in their book “High Altitude Leadership,” people love epic sagas. And the fear to make bold steps forward is only overcome when it is overshadowed by a truly compelling vision of the way your world could be if you are bold and persistent enough to act on it.

In the strictest sense, big or small vision, neither is right or wrong. Many organizations with limited vision persist safely in low competition environments for long periods of time. If you want to start a successful barber shop, it doesn’t mean you need to take over the entire industry, you may be happy just doing what you love. For these people, leaving their 9-5 in order to start their own shop may be the fulfillment of a life-long vision.

What’s important is to understand is that vision regulates potential. So when you set the vision for your organization, acknowledge that the opportunity to set it bigger or smaller is simply a choice. And before you cast it in bronze, consider whether you have written a “vision statement” or whether you have spawned a visionary idea that could change your world and all those that work with you.

See the difference?

More than just platitudes

Take a look at your corporate vision. Is it a statement of fact or is it something more powerful? What other overarching directional statements exist within your organization or system if that applies. Take a look at your corporate statement of values. Where did it come from? Does the organization align to it to a very great degree? Does anyone know what they are?

Every great organization was born from very powerful thinking. Usually the kind of thinking that scares people to hear, in that it’s big enough that it’s both exciting and you’re not sure if it’s even possible. That’s what a “vision” is supposed to be.

Vision statements don’t always raise eyebrows 20 or 50 years later, but looking back before they changed the world, you may have laughed when you first heard them. That’s the point, they are one of the most powerful things in the world… an idea. I’m getting to the place where I don’t like the term “vision statement.” It’s become a homogenized term that doesn’t carry the intended weight any more. Perhaps we should start calling them “visionary ideas”.

Some truths about vision:

No one changes the world or defines an industry without articulating a world-altering idea first
No one makes a visionary idea happen without total and relentless commitment
Vision statements that don’t incite both excitement and fear are self-limited by fear of failure or apathy
We live in a world defined by those with this level of both vision and commitment

Short-term / Long-term

Some of the effort we invest goes into paving the way for future profitability. Some of it is invested in handling the immediate types of issues. And others still are some combination of both.

If you’ve been paying attention in the last 15 years, you’ll have come to see that balance is what is required for organizations to be successful. Visionaries that don’t pay attention to the details and can’t translate strategy into operational terms go belly up. Operationally focused leaders that don’t grasp concepts of the need for investment today to create new potential for tomorrow are stuck in a downward spiral.

Every business plan needs to reflect balance in both the risk profile of the strategy, and in the degree of attention paid to the operational details. The future focus governs the degree of potential your organization will have, and the management of today’s operations ensures that you get to tomorrow. Either one without the other spells disaster.