When we show customers and prospects The Walker Index, we generally get two questions:
1) Can I invest in that index? The answer is no – the Index is a “virtual” fund made up of our publicly-traded clients. The purpose of the Index is to provide a tangible proof-point for why adopting a customer-oriented strategy makes good business sense. In this case, the focus creates the kind of financial outcomes that the market at large finds attractive, and therefore, demand for stock in these companies increases (which makes the price of the stock increase).
2) What explains the differential in the long-term value of the Walker Index vs. the broader market indices? Since its inception in 1994, the Walker Index has outperformed the broader market indices by anywhere from a factor of 6:1 to 8:1. What explains this? I believe the answer is that companies that have a true orientation toward their customers are attracted to working with Walker, which increases their likelihood of long-term success.
This answer, however, is not very actionable – so, with the help of my colleagues, we conducted an assessment of the companies in the Walker Index across the six areas of world-class customer listening in an effort to better understand what steps companies can take to emulate the success exhibited by our clients. Over the next several weeks, I will share some data from that assessment and will conclude with some additional insights that we have seen in the data that we have tracked over the last seventeen years.
The first area that we will examine is the notion of Relevance and Alignment. The idea is simple – for an organization to have an effective customer listening program, there has to be a firm connection to the company’s strategic initiatives. This effectively cements the notion of customer centricity with the key methods and indicators that management will use to assess the firm’s success. This critical first step is what keeps a customer-focused strategy from becoming the management “flavor of the day;” moreover, it creates the imperative to pursue the discipline of Validation. We will focus specifically on validation in a future blog.
Relevance and alignment are commonly thought of across two dimensions – business issues and financial outcomes. I tend to think of these in a cause-and-effect manner – we link to business issues so that we can connect the rationale of the customer strategy to the core issues facing the business; if we are successful in addressing these issues, then the financial outcome will be the outcome we achieve. Common business issues might include:
1) How can we more effectively cross-sell our product/service portfolio across our existing client base?
2) How do we make certain that our new product initiatives are aligned with the needs of our customers (and can we foresee those needs even before our customers – and our competitors – do)?
3) How can we improve our revenue forecasting capability in an effort to minimize variance in our anticipated financial results?
4) What firms would be an attractive acquisition candidate for us (and how do we maximize our probability for a successful integration of the two firms)?
The financial outcomes are generally the outcome from addressing the business issue; common examples include:
1) The level of customer retention (and the corresponding impact to the top- and bottom lines);
2) Share of wallet and growth within an account;
3) Average customer spend and breadth of the product/service portfolio that a typical customer purchases;
4) Adoption rates of new technologies or products among existing customers and the impact on firm revenue growth;
How do the firms in the Walker Index stack up? Over 90% of the Walker Index companies have clear connection to the core business issues, and nearly three out of five firms have strong alignment to financial outcomes and the trend appears to be showing signs of continual improvement.
This focus on relevance and alignment clearly creates a "stickiness" that is a hallmark of world-class customer listening, as it provides a foundation upon which customer-centricity can nurture and grow, which leads to superlative financial performance.
In my next entry, I will focus on the importance of Team and Resources in the customer listening process and will share how the Walker Index companies perform on that dimension.
Mark A. Ratekin
Senior Vice President, Consulting Services