Prediction: The future of Customer Experience

Many organizations fail to see how improving the customer experience can create value. And despite their efforts, many struggle to understand what really drives the customer experience. McKinsey research reveals that improving the customer experience has increased sales revenues by 2 to 7 percent and profitability by 1 to 2 percent. In addition to this, the overall shareholder return has increased by 7 to 10 percent.

McKinsey & Company Partner Onur Mumcu had a talk with McKinsey & Company Senior Partner Kevin Neher to understand why survey results do not properly account for the real customer experience and what companies should do to solve this problem. This podcast was recorded at the Harvard Business Review’s live webinar. The following transcript was edited for clarity.

Podcast Transcript


Onur Mumcu: We have a McKinsey Senior Partner, Kevin, here with us. Welcome, Kevin. So, Kevin and I have known each other for, almost 15 years now. When I was working for our Chicago office in the US and since then, he started to work for our Denver office in the US and now he is the global co-leader of McKinsey's customer experience efforts. And in this session, we would like to talk about the future of customer experience with Kevin. Today, customers are becoming more sophisticated and customer experience has become very important for businesses all around the world. Our future of customer experience research reveals that improving the customer experience increases sales revenues by two to seven percent and profitability by one to two percent. And in addition to this, the overall shareholder returns increase by seven to 10 percent with better customer experience. And we also saw that during COVID, seventy five percent of consumers changed their buying habits, and 40 percent switched brands retailers. The future of growth will be experience-led and customer-centred. And unfortunately, many organizations fail to see that, and despite their efforts, many still struggle to understand what really drives the customer experience. Today, Kevin, we would like to get some insights from you, and my first question is, what's going wrong in terms of customer experience according to your observations? In the report, you talk about the survey results do not properly account for the real customer experience and the companies are trying different methods. Can you elaborate a little bit on that one?

Kevin Neher: Absolutely. Thank you, Onur. Thank you HBR for having us. It's a great pleasure to talk to everyone today. To your question on our survey-based systems, we think of customer experience, a lot of the work that customer experience groups do today is around getting feedback from customers. And this happens across sectors, right? Whether it's patient experience, customer experience, client experience, consumer experience, everyone is looking to get feedback, and this has been a long-standing method for over 20 years. People have been sending out emails or recently through texts or apps or other avenues, but it's virtually stayed the same.

Onur Mumcu: When you get calls from the customer, the call centres.

Kevin Neher: Yes, you get outbound calls and all kinds of things that will hassle you. But this has really stayed the same, right? This hasn't evolved really in 20 years, except for some minor details on the software. And what we're seeing is that it doesn't reach everyone. Segments are not answering in the same way. People are overloaded with these emails and calls and reach outs of all sorts. In addition, it's got a big lag in it. In the world that's speeding up. The speed of everything is getting faster, digital and communication, and we just move so much quicker. Yet we're still have this huge lag. And when people receive surveys, fill out surveys and companies and organizations analyse those surveys. And so, you have this lag in it as well. Third, you also don't get the root causes out of what people tell you. You get symptoms. People say the line was long, but they don't. You don't know why the line was long. You have to go do work to then figure that out. And then finally, there's one pitfall in all my customer experience work that I see companies make is they don't link customer experience to value, and surveys do not help with this problem. They make it very hard to actually understand what my return is for investing and fixing some of these things. It just doesn't come from survey work. And so, we've kind of taken on those four challenges to say, hey, how can we do this better? How can we actually get more out of customer experience? And maybe surveys aren't the answer anymore.

Onur Mumcu: What is the answer, Kevin? What do some of the companies do? You know, what are other methods, other than the surveys to measure customer experience?

Kevin Neher: Absolutely. There is an explosion of data out there. That's no surprise to anyone and you see other functions taking that on, right? You see, maintenance organizations using data to get predictive on what is going to fail and getting ahead of it, right? You see revenue and pricing organizations using all sorts of data to try to understand how to adjust and where to price better and get a better return. Customer experience just hasn't moved in this direction, and that's what's been missing. We have all kinds of data out there, yet we're still acting like it's 20 years ago and we need to send emails to people. So, take advantage of all the data and we think about data. Think about it in three big buckets. Think about it in customer data, things like demographic data, all kinds of things describing the customer who they are, what they do and where they're headed. Think about operational data? So, all the things that are out there in the experience, right? I don't need to have you fill out a survey to tell me that the airline lost your bags, right? I know whose bags they lost every day if I'm an airline, and I should be doing something about it before I actually get surveyed. That's a problem. And then financial data, which links back to that link to value understanding. The history of a customer and what their potential is very important than linking it back to the investment case for how we're going to go fix the experience. It's about data and then using it to put machine learning, put more predictive algorithms on top of that so that I can address the entire customer base, not just the ones who fill out a survey.

Onur Mumcu: So, Kevin, on that one, I can clearly see the demographics data and also the operational data. But there are certain experiences where you cannot measure with operational data, right? Let's take your airline example. Like I fly with, let's say, Turkish Airlines, Pegasus, or Lufthansa, and I had an issue with a flight attendant or, I didn't like the food on the plane, right? And you probably do not measure it. Similar to your losing the back example, right? What do you do in these cases? How do you measure the customer experience in those cases?

Kevin Neher: So, a couple of thoughts. First off, we're not saying get rid of surveys all together, getting some feedback as part of that customer data set. It’s just don't make it the top of the pyramid. Make it an input into the system, right? Because it is valuable for what it is, and it does help you make the connection. So, you do get good feedback. People do still give you feedback, but just don't make it the top of the pyramid. That's kind of point number one. Point number two is you might need to add some data sources, some listening posts, some different ways together. So, in your example, having a way for flight attendants to quickly rate the meal based on what customers say or the amount of food that's not eaten gives important feedback into the system and the product group or whoever is designing that meal and that piece, right? And that's about now adding data to the thing. And then maybe third, we've talked a lot about the quantitative set of customer experience, and that is how you get into prediction. But designing great experiences is still about human centred design. And that's a whole another big part of customer experience that has really evolved in the last 10 years. Where you really are not doing customer experience if you're not bringing human-centred design into your processes. And so that is how you then take action on what you've learned, maybe in some of the quantitative data on what to go fix. And that's an important basis for how it all comes together.

Onur Mumcu: Very cool. We are not very open about our clients and the type of work we do. But without breaching that confidentiality, can you share some of the good examples, good companies and some of the cool stuff that they've been doing on this one? So, we can also get a bit understanding of this.

Kevin Neher: Well, you're right, we don't usually talk about individual companies, but I think it's important to look out there at some of the sectors that have really had a rise in the last few years and what they're doing about it, right? So first off, if you think about who the winners of the last two years have been, it is a lot of companies that were ahead of the digital curve. Companies that really brought an integrated experience and you see this, whether it's streaming services, right? I'm sure you have examples in Turkey as well. But whether it's Netflix or others, right, who really invested in that experience and have built the content and been able to use data to figure out which ones, how to invest, where to invest and continue to improve that. You also see it in even banking, right? Banking used to be a very stodgy old industry, especially in the U.S. not sure around in Turkey, but the integration and the move to digital and really rethinking experiences. So, the account opening experience, right? That used to be something that took many forms and all kinds of visits to a retail branch. But now you can do it in seconds, literally.

And things like that, where they appreciate what was required was, yes, you want security and trust, but you also want speed. And that has changed. And I think it's important to realize that what we're seeing is that it's B2B companies. It's companies that serve farmers, companies that serve businesses, companies that serve all these other industries are now the ones trying to catch up because customer experience is part perception. Meaning that when my expectations change, then I change how I view everybody. So, if Amazon is going to deliver me a package in 24 hours or 48 hours, and now I'm at a railroad and I have customers who I'm shipping cars of sugar for their candy factory. Guess what? Those same people on the other end are buying Amazon as well, and now they're wondering why their train cars can't get there in 48 hours, or at least why they can't know where they are on the system. And changing expectations that really have set customer experience onto a faster speed and why it's really mattering so much more in how people make choices.

Onur Mumcu: So, let's say I am a chief customer experience or chief consumer officer or even a CEO, right? And I hear this and I get very interested. Where do I start? I mean, do I start with collecting a bunch of data and asking for my teams, and tell “OK, now please use this”. Or should I think about what kind of use cases or what kind of questions I need to ask and then start getting the data? Because we also hear from our clients that collecting data is a problem and processing data is another problem. Finding the right people to do all this work is another problem. So, what would you do if you were an executive on this one? And how can you measure the value or the return on investment on this one?

Kevin Neher: Yes, for sure. Let's set it up. It's a three-step approach to getting to value in customer experience. So, you've got to set an aspiration. Then you have to invest in the new experiences and then you have to have capabilities to go after it. But let's talk about that first one for a second, because that's your question is really about where do we start? Well, in talking about the senior executives, it does have to start with them. Customer experience is fundamentally a cross-functional problem. And what I mean by that is most great companies, have done well over time. These great companies have done so by getting functionally excellent. And customer experience actually cuts across those. Customers don't care who's in finance department or who's in marketing or who's in operations, right? They see their journeys. They need to accomplish stuff. They need to set up that account. They need to get an issue resolved. They need to make a payment. And those don't often align with internal structures. And a company first say, we really want to tackle this. We have to have cross-functional alignment and it does often role all the way up to the CEO because that's the person who can really help push it and drive it and get alignment. So, you do have to have that alignment. Then the second piece is you do need to know your starting point, right? One of the first places that we start with is understanding this current satisfaction and the current importance of the different experiences.

So, just to double click on that for a brief second. What that means I need to know how I'm doing on different journeys. So, taking a journey-based view, but I also need to know what matters to the customer more. What we find is that often it's only two or three journeys out of eight or nine that really drive 70 percent of the experience. So, invest in those first, because getting to your point, we know the ROI is going to follow. Then third, coming back to one of the points from earlier, you have to get after the link to value. You have to start with an aspiration. I don't know the Turkish business landscape well. But in the U.S. and a lot of the multinational corporations’ CFOs are stronger than ever. Finance organizations want a business case. They want to see that solidly in numbers. And if you don't have those six months down the road, your program, your initiative is likely on the chopping block if you can't show tangible value. So, we have to start in that first piece around setting. The aspiration has to include a real link to values that you can show with a fact base. What is the potential ROI from customer experience? And be ready to hang your hat on that because that business case then helps to build the longevity of the program.

Onur Mumcu: Thank you. When the companies are starting these programs what are the typical challenges that they face? Is it more on the technology side, on the talent side or on setting the aspiration side? Where do you think the real challenge lies for the organizations?

Kevin Neher: Yeah, let's assume you get the alignment which we just talked about. Because that is a big one to get going. The two that often hold back people from kind of launching from really getting going around data and people and skill sets. So, let's talk about that for a second. First one is data. Just like I talked about, great organizations are functionally excellent, so is their data. That means, you have a lot of data silos out there. You have a lot of data that have grown up and even been protected by different parts of the organization. And you do have to think about how you engineer some setup, some data lakes, data architecture to bring some of that together around those that customer data, operational data and financial data. But we're not talking about is a big data project, though this is not about a big data mart, a big data warehouse. This is about a flexible data layer that allows you to pull and do that. Often, it's tokenized. We do a lot of work with GDPR and other sort of data privacy pieces to make sure that it's all able to be used, but that's important. It's being able to go after the data and bring it together and having permission. So that's a big thing because again, data is just as separated as sometimes people are or more so. That's one big challenge to take on early and understand that it's a lot easier to say what you want to do with the data than it is to go get it.

And then the second one is on people and skill sets. I mentioned human-centred design earlier, right? We find that companies need to build their design capabilities. They need to have designers part of each journey redesign. They need to have that skill set data science. They need to be able to have people who can help see through the data and have the data work for them rather than having too many people off doing different types of analysis. You need one source of truth in data science can help kind of build that capability, and then you need some strong athletes. This might sound funny coming from someone who leads customer experience globally and works a lot of organizations, but I don't believe necessarily in see experts in an organization. I think it's such an important problem. You want your highest potential people; you want your people who you want to see build different capabilities to work in customer experience as almost to rotation. Give them a project, give them a journey ownership, something that does cut cross functionally because that's only going to serve them better as they take on more in different roles. But you need some strong athletes that know how to work across functional lines that don't necessarily just see themselves as an expert. So those two things are usually the biggest challenges both the data and then also those resources of people and skill sets to bring into it.

Onur Mumcu: So, if I am the CEO of an organization in any industry and if I want to start what would be your advice to me? What should I do first thing in the morning?

Kevin Neher: Yes. This is a strategic choice. Are you going to win with the customer? That is where the commitment starts. Is this going to be part of your differentiation, is this going to be part of how you win in the future? As industries change, as trends change, as all sorts of different things around us go on and on, are you going to set your organization up for success by differentiating with a better experience? Customers for sure, you need to be thinking about your employee experience, too, by the way. We're not going to go into deep on that right now, but the experience I quite like, are you going to differentiate on that? You have to make that commitment as a CEO because it is going to be one of the top two or maybe three things that you do this year and you're going to make a commitment to that. And this is not a quick win type of move, this is a strategic choice.

Onur Mumcu: Thank you, Kevin. I mean, this was very insightful, and I'm sure a lot of our listeners today already started thinking about the customer experience and how they can implement it in their organizations going forward as well. Always a pleasure having you.