NPS - the best excuse to forget the customer
Shareholder value, fresh commercial success, is not created in a vacuum. At the other two corners of the value triangle are customer perceived value and organisational value, a combination of culture and employee experience. Momentarily, each of these corners can shine in the spotlight on its own, but the balance is easily upset and the whole triangle experiences a stomach-churning experience. The sustainable development of owner value therefore requires a systematic increase in customer and organisational value.
The world around business is changing rapidly. The discourse on the shift from a production economy to an experience economy and the insistence on embedding the customer experience in agendas has made organisations wake up to the need to measure the customer experience. The aim has been to find a straightforward and easily understandable measure of customer centricity. The Net Promoter Score (NPS) has become a classic that is followed by many management teams and is used by up to 2/3 of Fortune 1000 companies and 48% of Finnish organisations.
However, there is a flip side to this simple metric. In unaccustomed hands, for example, customer service staff are rewarded directly from NPS results, which leads to easily distorted figures. Customers are begged for ratings for fear of a reaction from front-of-house staff, bribed with shop tops in the hope of better ratings, or simply asked for testimonials only from customers who are known to be satisfied.
Other weaknesses of the testimonial meter have been widely debated. But its main challenge is not the measurement or the object of measurement, but the person using it. The NPS gives management a backdoor to turn a blind eye to real customer focus. "We already measure referrals," is too often the contentedly muttered response to a question about an organization's customer-centricity efforts.
As long as customer centricity is not translated into euros, its weight on agendas is lighter. Management teams focus on day-to-day dilemmas and in boardroom discussions the topic is printed as a lightweight statement in the strategy paper.
Fortunately, customer metrics are on the side of the ambassadors of customer centricity. In the US, for example, shares in companies with a net revenue retention (NNR) of more than 130% are valued at 2.5 times that of companies with a NNR of less than 110%. Nor are those with stellar NPS results dollar-losers. The best performing large companies on NPS have returned more than five times the national average to their shareholders over the past decade.
Creating shareholder value will require a greater effort to be in the skin of the customer and the employee, and to make the organization's customer-centricity work. However, there is still some way to go compared to its American cousins. For example, only 2% of companies in Finland are able to identify the root causes of variation in NPS. The understanding of the tools and how to use them to drive growth is lacking. It is easy to hide behind a single number.