A well-known consulting firm in urban and rural planning was losing momentum as many of its consultants were approaching retirement. Based on a tailored customer survey, ValueMetrix provided the analyses that enabled the firm to resume its 75 years of success and become a favorite employer for young professionals.
ValueMetrix AB is a small R&D firm in the management field. It is located in Stockholm, Sweden, but draws on many years of experience from consulting work and management positions in various industries and companies across Europe and the US.
ValueMetrix has the cause-and-effect methodology, software and experience for reliably quantifying the linkages between actual financial performance and the responses given by customers, employees and other stakeholders in surveys. The quantitative part of the methodology uses factor analysis and structural equations. The methodology is a combination of competencies from survey analytics, controllership, management consulting, and pure business management. It is described in further detail in the “Capturing Trends, Managing Attitudes…” document, also published on the MIX site.
A ValueMetrix analysis typically reveals that the linkages between financial performance and survey responses greatly differ from conventional wisdom: Efforts to improve survey scores are often a profitability trap.
Instead companies need to address the attitudes of their stakeholders in an innovative, holistic manner where the driving forces of several stakeholder categories are combined into coordinated actions with long-term financial success as the goal.
This story illustrates this. It comes from our work for a well-known consulting firm in urban and rural planning, below referred to as “the Firm”.
The Firm with its 1,000 employees had difficulties attracting and retaining young professionals, a serious threat to the Firm’s 75 years of sustained success in the industry. With many consultants approaching retirement, the Firm was facing both a capacity issue as well as it feared losing valuable momentum. Consultants in late middle ages rarely show that extra enthusiasm and make that extra effort that so often are the difference between success and failure for a consulting firm.
The vital introduction and implementation of new technologies – both internally and in the Firm’s client engagements – was also hampered by the age structure of the Firm.
Thus, the Firm needed to be invigorated, and ValueMetrix provided the analyses that laid the foundation for the successful change program that the Firm introduced.
Success breeds success.
When applying the cause-and-effect methodology to employee research, we had previously seen that an attractive employer is a successful, growing company that can afford to invest in its employees, giving them the training, the tasks, and the trust they need for their own success.
We had also seen that the financial compensation is important but not critical. It is one of several determinants when selecting employer, but not the only one and generally not the most important one.
And we had seen that there are no easy wins. Improving the physical work environment or implementing new tools and systems makes little impression on present and future employees. Such actions are positive only if they are easily visible signs of the company’s financial success.
Finally and most remarkably, we had seen that the enthusiastic, passionate, and highly motivated employees who go to work with joy Monday morning are at least twice as prone to recommend the employer to friends as the satisfied employees who primarily want lower work load, higher compensation, and to go home early on Friday afternoon.
Such an example is illustrated in the attached document called 'Observations from Employee Analytics for a Forest Company' with examples illustarting employee score-behavior linkages.
This puts pressure on the leadership skills of company management. It must have the ability both to identify and win business in profitable, growing market segments as well as to spread enthusiasm among the employees.
For the Firm this meant that what started as an employee issue and a need for invigorating the Firm by attracting young professionals soon became a strategy development and execution program.
This could be interpreted as criticism of the employees for being complacent and not sufficiently supportive of the Firm’s strategy, thereby creating tension and irritation among the employees and possibly short-term also among the Firm's customers.
However, Firm management did not consider this risk to be a show-stopper. It decided to closely link its efforts in the recruiting, training, and marketing arena to the preferences of its customers – hardly an innovation in itself had it not been for the analysis of the linkages between customer segment profitability and attitudes that overthrew previous “truths” and changed the course of actions.
To get a solid and reliable basis for invigorating the Firm, ValueMetrix was asked to apply its cause-and-effect methodology to the linkages between the Firm’s actual financial performance per client and the same client’s responses to a tailored customer survey.
The ensuing analyses revealed three unexpected, main findings:
- There were no significant linkages between actual margin per client and any of the ratings in the customer survey, including the conventional satisfaction questions
- There were significant differences in margins and scores between customer segments where some segments consistently showed higher scores and margins and other segments consistently showed lower scores and margins
- Within these segments, there were no significant linkages between actual margins per client and any of the ratings
The attached document called 'Observations from Customer Analytics for a Consulting Firm' holds graphs that show these score-margin linkages.
We had seen similar differences between customer segments before when analyzing other customer surveys, but never as clearly as in this case.
Based on such findings it is obvious that satisfaction – or rather the propensity to give high or low scores in surveys – largely is inherent in people’s personality, formed and gradually modified during upbringing, education, and work. Women and elderly people generally give higher scores than men and younger people, people in the countryside generally give higher scores than those in the main cities, people with little formal training generally give higher scores than well-educated people and so on.
This is further illustrated in the attached document called 'Observations of Demographics-Driven Response Patterns'.
The consequence is intriguing and may at first be difficult to accept: A company’s overall Customer Satisfaction score is largely the result of the customer mix attracted by the company’s offering at the embedded pricing level, not by some kind of absolute delivery quality. Buyers who are less appealed by a company’s offering are by definition not included in customer surveys.
From a leadership point of view, this means that rewarding managers and employees based on Customer Satisfaction is relevant only if it is achieved at low cost by removing glitches in present customer segment-specific performance; otherwise it may well lead to a profitability trap, fostering expensive switches in customer mix to less demanding segments where the financial prospects are less favorable.
But we also found major differences between the preferences of the various customer segments.
For example we examined the differences between privately owned customers and state-owned customers. We found that the privately owned customers not only gave higher scores and margins but also had other preferences than the state-owned customers:
- The privately owned customers particularly appreciated the skills and abilities of the consultants
- The state-owned customers particularly valued the image of the Firm
To further strengthen the analysis, we reviewed the open answers, the competitor scores included in the survey, and the preferences of the “non-customers”, i.e. those customers who only buy little or declining shares of their consulting needs from the Firm.
Based on the sum of these findings, it was obvious that recruiting, training, and sales arguments needed to be refined and directed towards the preferences of those customer segments that specific consultants were going to serve.
A conventional change program was designed accordingly. When executed, the program should make the Firm stronger by offering selected customer segments improved services. At the same time the Firm should become more attractive as an employer, particularly for new recruits.
The timeline for this effort was characterized by a few weeks for designing, executing, and analyzing the customer survey and several months for getting the results accepted by Firm management and the conclusions drawn and conveyed to the organization.
The main and by far most difficult challenge facing this effort was to first convince management and later the employees to accept the conclusions of the analysis.
This was not surprising. The linkages did not look the expected way, and in addition some of the segments – such as the distinction between private and state customers – were not familiar within the organization but a result of an active search during the analysis for novel and strategically relevant segmentation possibilities.
But facts presented with the help of clear graphs and numerous quality measures are convincing in an engineering environment.
By being very open about the details in the analysis and allowing time and opportunity for discussions, the conclusions were slowly accepted and the change program could be implemented without disruption.
The analysis of customer segment preferences set the stage for the next step in the Firm’s development. The voice of the customer can never be neglected, and the analysis indicated where the Firm had gone astray and what to do about it.
All consulting firms need to invest in their only production resource, the volatile consultants who any day may leave the firm with all their knowledge, skills, and contacts. Taking good care of its consultants is the only straight-forward and sound way for a consulting firm to retain them.
And as many buyers of consulting services select the competent, individual consultants who they like to work with, it is certainly not a bad strategy for consulting firms to invest in their consultants. Good consultants generate their own business, and at good margins.
However, the investment in consultants must be controlled and directed towards those services and market segments where the firm really wants to succeed. That is what the customer analysis helped Firm management select and agree upon and give as a framework for the personal development of the employees.
Trust has to be gained, and the only way for a person to gain trust is to perform well when given the chance. This is achieved by first agreeing with management about what to achieve and when to achieve it, then delivering the agreed results with little supervision.
The customer analysis made it possible to set realistic targets and to measure the success by tracking sales and margins per customer segment.
Survey measures and metrics can help management and consultants ensure they are on the right track. Surveys have a predictive power as changes in perceptions typically precede changes in behavior by some three months.
You can read more about how to work with metrics based on surveys analyzed for cause-and-effect relationships in my “Empower, Relax, and Perform…” document on the Management Innovation site.
Particularly note that the metrics used to determine performance need to be holistic and strongly linked to the desired behavior of the stakeholder in question. Most survey responses correlate strongly within the survey. Neither customers nor employees nor any other stakeholder category change their behavior based on fragments of their experience of a company.
Things take time.
By being open about the results of the customer analysis including the profitability aspect, Firm management was put under pressure.
It became impossible to repeatedly accept weak performance in one of the departments. The customer analysis showed that there were no realistic ways to make that business profitable. The underperforming department had to be closed as otherwise it jeopardized the willingness of other parts of the organization to accept the change program.
Also the most profitable department became a headache. Here the senior consultants saw that their customers greatly appreciated their work and paid well for their services, and the consultants were not relying on any tools or solutions proprietary to the Firm. A whole group – including the consultants who had helped form the change program – resigned and started their own, independent consulting firm.
In the midst of the introduction of the change program, there were also changes in top management including a new CEO.
In retrospect it is impossible to determine exactly how important the customer analysis was when invigorating the Firm. I believe it was a key component, that it put the Firm on a good track, and that it was well utilized by Firm management.
Facts are that today the Firm is growing steadily, margins are healthy, and it is being rated in external surveys as one of the best employers in the country for young professionals.
The methodology described above builds on the methodology developed by Prof. Claes Fornell at the University of Michigan for the American Customer Satisfaction Index (ACSI) and similar national satisfaction indices.
I am also thankful for the input of Dr. Marc Orlitzky, Ass. Prof. at Penn State and a prominent researcher in the field of linkages between CSR and financial performance.