B2B customer engagement needs rethink
Business-to-business companies need a whole new approach to understanding their customer relationships according to John H Fleming and Ed O’Boyle, two senior leaders at Gallup.
Too often, B2Bs assess the health of their customer accounts by looking in the rearview mirror at traditional indicators of past performance, such as previous quarter sales and percentage of market share. If you ask them to provide detailed, qualitative analysis about their customer relationships, they give you anecdotal information from leaders or members of the account team, not actual data from customers. But this kind of information is misguided at best — and downright harmful at its worst.
A recent study of B2B accounts vividly illustrates the need for real customer feedback. In the study, members of account teams were asked to predict how they thought customers would rate them using Gallup's customer engagement metric. At the same time, the customers were surveyed using the same tool. The results were striking: When we compared the account teams' ratings to those their actual customers gave, the correlation between the two was essentially zero. Yes, zero. There was no meaningful relationship between how the customers judged the health of the relationship and how the account teams thought the customers would evaluate it.
The limits of a balanced scorecard
In the early 1990s, when Robert Kaplan and David Norton introduced the concept of the "balanced scorecard," companies measured their performance primarily using financial metrics. Kaplan and Norton argued that companies needed to broaden their view by incorporating other organizational metrics.
In a landmark article in the Harvard Business Review and in a follow-up book, Kaplan and Norton maintained that though traditional financial measures worked well for the industrial era, a more balanced and comprehensive mix of metrics — including assessments of financials, customers, internal business processes, and learning and growth (i.e., people metrics) — is required to accurately gauge the health of today's organizations.
A key point from their work is that "hard" financial data are lagging indicators of organizational performance while non-financial human performance and process metrics are leading indicators. These leading indicators can help managers and executives take corrective action before declines in financial performance occur.
Following the publication of the balanced scorecard approach, companies rushed to incorporate myriad non-financial performance metrics into their strategic management initiatives. Too often, these efforts resulted in a proliferation of metrics that created more confusion than clarity.
As the dust settled around companies' attempts to deploy a core set of balanced measures to assess their performance, many modifications and variants of the balanced scorecard were developed. Some have proved quite successful. But Gallup believes that the B2B space requires a specialized set of performance metrics that we call the account impact scorecard.
Wanted: superior scorecards
It's perfectly appropriate for B2B companies to use a balanced scorecard method to measure the outcomes of their work with customers. Traditional sales metrics — the measurements companies rely on most heavily in balanced scorecard scenarios — are "rearview" metrics. Though these measures allow for some near-term projections, they fail to indicate potentially significant developments in a B2B relationship over the longer term.
To truly create positive impact for B2B customers, B2B companies must combine traditional financial and performance metrics with measures that anticipate the future of the relationship. An account impact scorecard not only captures current financial measures, it also makes B2B companies aware of other critical factors they need to work on to manage and improve customer relationships.
Gallup finds that four key dimensions are essential to creating an account impact scorecard. These dimensions properly gauge what B2B companies need to do to maintain current customer relationships and to improve the impact they make on those customers moving forward.
Four dimensions of an account impact scorecard
Performing well on a balanced scorecard might be an account team's ticket to receiving a bonus. But without considering and measuring four critical dimensions of the customer relationship, a team can't expect positive performance on traditional metrics to continue.
The result of the account impact scorecard approach is a targeted focus on business impact.
The result of the account impact scorecard approach is a targeted focus on business impact. Gallup finds that it is essential for customers to believe that their B2B partners produce tangible change and impact if those partners are to create, sustain, and improve customer engagement. And B2B companies must produce high levels of customer engagement to make sure their accounts grow.
B2B companies can assess the current health of their customer relationships and manage their future improvement by concentrating on these four dimensions:
- Past performance: Like a balanced scorecard, an account impact scorecard includes traditional measures to assess past performance. Revenue, year-over-year revenue growth, and profitability are examples of important financial or performance metrics that almost always have a place in an account impact scorecard. It is crucial, though, to choose the right measures and to avoid including too many.
- Current positioning: This dimension reflects the B2B's current customer relationship and the extent to which it is set up for future growth and impact. Measures such as share of wallet, revenue diversification, and new product adoption identify exactly what an account team's position is in the customer relationship. If results in this dimension are poor, creating greater impact is difficult.
- Engagement and impact: A balanced scorecard traditionally offers an insider's perspective about the B2B customer relationship. But to truly manage and improve these relationships, B2B companies need an outside view of their work. This dimension allows a B2B company to measure whether it is engaging its customers and creating business impact. Engagement, which Gallup measures using 11 standard items, is a precursor to and a product of impact. An account impact scorecard includes the company's customer engagement score and impact measures, along with other measures that vary by industry and business model.
- Growth potential: The metrics in this dimension gauge the active and deliberate steps the account team has taken to grow the customer relationship. Whether the account impact scorecard assesses the pipeline of upcoming work or the account team's effectiveness in converting quotes or bids to sales, the scorecard offers companies the ability to rate the account team's potential to build out current relationships.
Gallup finds that there are various reasons why B2B companies don't always reap the full benefit of whatever set of measures they use as a scorecard for their customers. Sometimes these tools include too many or too few measures; without the right balance, key data are often obscured. Some scorecards include a mix of numbers, percentages, and ratios, making it difficult for teams to interpret, compare, and act on the data. As a result, users may gravitate to just a few of the categories, potentially missing warning signs in others.
A well-designed account impact scorecard, however, allows companies to incorporate key figures and to weight some more strongly than others based on how those measurements reflect the organization's overall strategies. Using a scorecard at the account level also helps companies determine how to best maximize their impact on their entire customer base.
Account teams that settle for using only the metrics in traditional balanced scorecards fail to conduct thorough, customer-focused analysis that can result in improved customer engagement and greater positive impact on the customer's business. By incorporating those indicators into an account impact scorecard, however, B2B companies create two avenues for growth: delivering increased impact with their current customers and acquiring new customers by using their account impact scorecards to differentiate themselves from their competitors.
Ed O'Boyle is Practice Leader, Marketplace, for Gallup.
John H. Fleming, Ph.D., is Chief Scientist — Marketplace Management and HumanSigma for Gallup. He is co-author of Human Sigma: Managing the Employee-Customer Encounter.
This article first appeared in The Gallup Journal http://businessjournal.gallup.com