Rethinking CX as an Operating Model

1. Why is CX one of the most misunderstood concepts?

Customer experience is one of the most misunderstood concepts in business. This claim can be substantiated by our research over eleven years from 2013-2024. When conducting interviews with employees, from different industries, in workshop settings and on a one-to-one basis we often ask how they would define customer experience. We ask what is it, and how do you understand it? Inevitably, we receive a range of responses that cover the traditional understanding of CX, which is linked to customer experiences at key touchpoints such as the call centre or website and other ones more closely aligned with traditional customer service functions.

The interpretation of CX being linked to touchpoints only originates from where the term CX evolved. Before the term CX became a fashionable term to use in business, there were many ancestral terms. A notable term was Customer Relationship Management, which focused on the importance of using technology to capture and use customer data insights to build and enhance customer relationships so that the organisation could control and "manage" the relationship with its customers in a more meaningful and commercially productive manner. Other notable terms included one-to-one marketing, which focused on the importance of personalising and customising products and services to customers to provide greater relevance and build closer customer relationships.

These terms all focused on customers and what an organisation can do from a technological, customer service, and marketing perspective to increase revenue, acquisition and retention of customers. Later, the term customer experience evolved to highlight the totality of the experience as the primary focus, which became an umbrella for all the piecemeal approaches related to improving our customer's view of our products and services. For many organisations, the new concept of CX was one-dimensional and inextricably linked to customer service. The convenience of its definition made it easier to allocate to a relevant department. CX was generally assigned to the call centre since they were the ones with most of the interactions with customers. In some cases, it ended with the marketing department or the Quality or Performance departments. In some organisations the concept is so misunderstood that it still manages to change ownership every few years.

We have found that the concept of CX is closely linked to the organisation's maturity in understanding the value of CX as a strategic growth tool. In organisations without a united understanding of the value of CX, we find the term is misunderstood, leading to marginalised and tactical practices to improve customer outcomes. These organisations tend to be laggards compared to highly mature organisations with a much deeper understanding of the value of CX and have taken a whole company approach to designing and managing an elevating customer experience. The organisations taking the latter path are the ones that generate higher profits, revenues and customer numbers that place them in the top quartile of their sector. Essentially, many organisations rarely get to the stage where CX generates the type of commercial benefits because they don't fully understand the concept of CX and the enormous power behind it when properly understood and executed as an operating model rather than as standalone initiatives or as a discipline to be managed by a single department. We assess an organisation's practices, thinking, understanding of CX and operating model to identify the CX maturity level of the organisation. The organisation will typically fall under one of our five levels of maturity. Determining maturity gives us a level of understanding of what needs to change to progress the journey towards advanced maturity. To reduce the complexity of our model, we typically find their understanding of CX enables us to classify them into one of these three categories:

  1. CX Laggards: CX is widely misunderstood amongst employees and leaders tend to think it belongs to a single department but are typically debating which one. Few, if any, CX initiatives are being implemented as they are not seen as important.
  2. CX Tactical: CX is mostly understood amongst employees, and CX initiatives are being implemented across mostly customer touchpoints. The view of CX is still focused on customer journeys and customer interactions.
  3. CX Strategic: Organisations with a deep and mature understanding of CX as a strategic growth tool don't simply focus on customer interactions and journeys. They take a much broader view and determine that CX is a type of operating system. Organisations with this view concentrate more on how they operate collectively, focusing inwardly on their people and operations as they do on the external customer.

The research and multiple case studies tell us that organisations in the third category are the only ones that can achieve long-term competitive advantage and commercial benefits from CX.

2. What is CX as an operating model?

To understand the merits of CX as an operating model, we should look at what happens when an organisation takes a tactical view of CX and focuses primarily on customer touchpoints and journeys. When an organisation mainly focuses on customer interactions it is taking the same approach of a poorly trained doctor that treats a patient's symptoms and not the root cause problem of the illness.

What generally occurs is that an interaction or touchpoint is elevated and then given a tick for being fixed. Systematically, the organisation then proceeds to change multiple customer problem areas, giving leaders a sense that customer experience has improved. Customer survey results reflect that things have improved, and the leaders believe they have done their job for their customers. However, we now have enough research evidence proving this is only temporary, and problems will reoccur, leading to more capital expenditure attempting to fix the same issues that were thought to be fixed. Studies have been done that have identified four key areas why tactical CX does not lead to long-term sustainable commercial results:

  1. Lack of clear Strategy and Vision:
    • Study: A report by Forrester Research highlights that many organisations fail to establish a clear CX strategy. Without a well-defined vision, CX initiatives often lack direction and coherence, leading to inconsistent customer experiences.
    • Source: Forrester Research, "The State of Customer Experience Strategy," 2020.
  2. Insufficient Executive Support:
    • Study: Research by Gartner indicates that CX initiatives often fail due to a lack of executive sponsorship. When leadership does not prioritise CX, securing the necessary resources and organisational alignment becomes challenging.
    • Source: Gartner, "Why Customer Experience Programs Fail," 2019.
  3. Siloed Organizational Structure:
    • Study: According to a report by PwC, siloed departments within organisations hinder the seamless delivery of customer experiences. This fragmentation results in disjointed interactions and a lack of a unified customer journey.
    • Source: PwC, "Experience is Everything: Here's How to Get it Right," 2018.
  4. Failure to Measure and Adapt:
    • Study: Harvard Business Review emphasises that many organisations do not effectively measure the impact of their CX initiatives. It is difficult to adapt and improve CX strategies without proper metrics and feedback loops.
    • Source: Harvard Business Review, "The Truth About Customer Experience," 2013.

Tactical CX is a relatively short-term gain and eventually leads the organisation back to its original state, playing catch-up with the competition and never as a leader. This occurs primarily because the leadership team does not fully understand the potential of CX as an operating model versus the traditional view of CX as a discipline focused on all things related to customers.

The alternative view presented in this paper is based on evidence that organisations consistently generate long-term sustainable profits from CX when they embed it into the DNA of their organisations. That defines every aspect of how they operate, from the people they hire to the policies they develop, their processes, their mindset, their culture, and how they design their products and services.

The shift in mindset around CX is to move away from thinking of it as a discipline that focuses on customers but more as the blueprint defining how the organisation operates. The shift towards applying it as an operating model means every aspect of operating the business needs to be properly defined with the optics of the organisation's CX strategy and vision in mind. Startups without the legacy of an existing culture or mindset have an advantage in reaching a CX-driven operating model over more established organisations with multiple legacies that may be opposed to a CX-based operating model.

When we talk about CX as an operating model, what we are really saying is that sustainable and long-term commercial benefits can only occur when your focus shifts to fixing the root cause preventing the organisation from becoming a leader in its sector, generating more revenues and profits and remaining as the long-term favourite for customers. The root cause lies in how the organisation thinks, behaves and acts. The focus needs to begin by looking inward rather than outwards at your customers. It's only when you have laid the foundations for an organisation that can understand and embrace the value of CX and then apply new disciplines and behaviours that you can then move forward with confidence that the decision-making processes of the people in the company will lead to longer-lasting elevated experiences for your customers.        

   

3. What are the Characteristics of a CX Based Operating Model?

An effective CX-based operating model has several characteristics identified in organisations that have successfully become CX leaders in their various sectors and realise the commercial benefits of practising the model optimally. The list of characteristics may vary over time as technologies advance and as customer expectations evolve. The key is to have an operating model that can adapt to the changing marketplace. There are, however, some core characteristics that define a CX-based operating model:

1. The CEO is the driver behind implementing the CX operating model. It is not enough to be a sponsor of the model; they have to embrace the model and attach their name to it so their personal brand becomes linked to the model.

    • Case Study:
      • Steve Jobs from Apple
      • Jeff Bezos from Amazon
      • Tony Hsieh from Zappos

    2. The culture encourages alternative thinking, innovation, and risk-taking among its people. This is an important aspect leading to products and services that are not yet available in the marketplace. People need also to feel that they can fail without retribution for their new ways of thinking.

      • 3M
        • Innovation Culture: 3M has a long-standing tradition of encouraging innovation through its "15% Culture," where employees can dedicate a portion of their time to pursue innovative ideas.
        • Example: The Post-it Note was invented by 3M employees who utilised this time to develop the product.
      • Netflix
        • Innovation Culture: Netflix promotes a culture of freedom and responsibility, allowing employees to take risks and make decisions independently.
        • Example: The company's decision to pivot from DVD rentals to streaming was a bold move that transformed the entertainment industry.
      • Amazon
        • Innovation Culture: Amazon encourages a culture of experimentation and customer obsession, where employees are urged to think big and invent on behalf of customers.
        • Example: The development of Amazon Web Services (AWS) was a result of Amazon's innovative approach to leveraging its infrastructure for cloud computing.

    3. Hiring of employees is detailed mostly linked to attitude rather than just aptitude. The process must ensure you hire people who fit and thrive in your CX-based operating model. Some people are simply not suited and need to be identified at the hiring stage, not at the employment stage.

      • Zappos
        • Approach: Zappos is well-known for its focus on cultural fit. The company conducts a separate "cultural fit interview" to ensure candidates align with its core values.
        • Unique Practice: New hires are offered a financial incentive to leave after the first week if they feel they do not fit the company culture, ensuring only those truly committed remain.
      • Southwest Airlines
        • Approach: Southwest Airlines prioritises hiring individuals who embody their company culture of warmth, friendliness, and a warrior spirit.
        • Unique Practice: The hiring process includes behavioural interviews and assessments to gauge candidates' alignment with the company's values.
      • Patagonia
        • Approach: Patagonia seeks employees who are passionate about environmental activism and align with its mission-driven culture.
        • Unique Practice: The company evaluates candidates on their commitment to environmental and social causes, ensuring they fit the brand's ethos.

    4. The design of products and services is well structured around cross-functional team collaboration. To become a CX leader, you need to design market-leading products and services. Cross-functional teams provide a richer set of inputs in the design process.

      • Apple
        • Approach: Apple is renowned for its cross-functional collaboration, particularly in product development. Teams from design, engineering, marketing, and other departments work closely to create seamless and innovative products.
        • Impact: This collaboration has successfully launched iconic products like the iPhone and iPad, significantly contributing to Apple's profitability.
      • Procter & Gamble (P&G)
        • Approach: P&G employs cross-functional teams to drive innovation and efficiency across its vast product portfolio. These teams include members from R&D, marketing, and supply chain management.
        • Impact: By leveraging diverse expertise, P&G has streamlined processes and introduced successful products, enhancing its market position and profitability.
      • Tesla
        • Approach: Tesla's cross-functional teams work closely to integrate design, engineering, and manufacturing processes, ensuring high-quality and innovative electric vehicles.
        • Impact: This collaboration has allowed Tesla to maintain a competitive edge in the automotive industry, driving profitability through cutting-edge technology and design.

    5. Human-centred design principles are applied in the design of products, services and customer touchpoints. The methodology of applying human-centred design is a critical element in ensuring the organisation becomes a CX leader.

      • Airbnb
        • Approach: Airbnb employs human-centred design to enhance user experience by deeply understanding the needs and preferences of both hosts and guests.
        • Example: The company redesigned its website and app interfaces based on user feedback, resulting in a more intuitive and engaging platform.
      • Apple
        • Approach: Apple integrates human-centred design principles into its product development process, focusing on simplicity, usability, and aesthetics.
        • Example: The design of the iPhone and its user interface reflects Apple's commitment to creating products that are easy to use and visually appealing.
      • Procter & Gamble (P&G)
        • Approach: P&G uses human-centred design to develop consumer products that meet the needs and preferences of its diverse customer base.
        • Example: The company conducts extensive consumer research to inform the design of products like Tide Pods, ensuring they are convenient and effective for users.

    More characteristics define organisations operating a CX-based operating model, but the ones outlined are the key ones displayed by leading CX organisations.

    4. Getting Started

    The journey towards a new way of operating the organisation will depend on multiple factors. The organisation's size, age and maturity levels will play critical roles in determining the implementation of the new model. The opportunity is enormous for startups since they will have no legacy ways of doing things, so they can build amazing CX organisations quickly. Larger organisations with multiple legacies will find the journey more complex. Transforming into a CX-based operating model from a traditional operating model will require the correct levers to be pulled at the right time to be effective.

    Whether a startup or an established business, the starting point is a proper strategy defining your operating model. In the design of the strategy, you will need to include things like your CX strategy, vision, mission and the values that are important in hiring staff. A blueprint with clear initiatives will set you on your journey to becoming an organisation that can generate sustainable economic value from CX.

    As markets become more competitive and innovation more rapid, traditional operating models need to evolve into ones that can adapt quickly and produce products and services that customers continually love.