Organizations can't afford to lose customers. But they also can't support dozens of unproductive CX initiatives. What's a company to do?

Originally published on GreenBook, 22 April 2021.

In 2018, comparing to the same half year just 12 months earlier, Australia’s leading health insurer, Medibank Chief Executive Officer, Craig Drummond announced a 78% reduction in member defection. In the same breath, he announced a 2% reduction in management expenses. In the two years leading up to that remarkable turnaround, Chief Customer Officer, David Koczkar sought consumer based evidence to drive and empower his decision-making, and to align the organization.

Forethought was engaged to map, measure and model the drivers of defection and to run activation programs to help Medibank develop initiatives to address the loss of members.

78% reduction in member defection and a 2% reduction in management expenses

David Koczkar applied analytics to focus the retention effort and in doing so, to develop new initiatives but importantly, discontinue existing initiatives that were not driving retention. Medibank is one of only a handful of Forethought clients that heroes the discontinuation of initiatives by celebrating and rewarding colleagues for “killing” unproductive CX efforts. Google has a similar philosophy. During the turnaround, Medibank had a monthly prize for the “best” discontinuation of an initiative.

Discontinue existing initiatives that were not driving retention

The importance of a focused retention effort cannot be overstated. As CEO of Medibank Craig Drummond commented, ‘One of the things I’ve learned a lot about is that if you mobilize the organization around a small number of issues, you are much more likely to have success.’ Supporting this opinion, in Forester 2018 found that ‘Most CX initiatives had too little clout to force meaningful operational change.’ The report went on to predict that ‘disillusioned businesses will begin to withdraw resources from CX.’ That time has come.

Many of the expansive customer experience programs found in organizations today, were conceived based on ideology rather than an evidence-based link between customer experience and subsequent customer retention behavior.

Organizations can ill-afford to lose customers but equally, support dozens of unproductive CX initiatives. It is difficult to conclude anything other than intuition and judgement are the most common inputs into CX management and has resulted in a hefty overhead for organizations that treat CX management as a philosophy rather than an efficient allocation of scarce resources to drive organizational outcomes.

Many of the expansive customer experience programs were conceived based on ideology

When knowledgeable CX practitioners say “rigor,” they are most likely calling to mind sample size calculations based on population or sample variance. Their findings are based on representativeness and inferred importance by applying multivariate analytics techniques to identify drivers of outcomes such as customer retention. Their approach encompasses hypothesis testing, confidence intervals and the organization’s objectives embodied in tried-and-true non-financial dependent variables. Their datasets connect to and reasonably approximate actual customer behavior.

The CX practitioner who is at the more “art” – or intuitive - end of the spectrum is thinking of stated importance from a convenience sample, likely sources from a handful of intercept interviews and throwing up terms like, human centred design, personas, journeys, co-creation and so on. All contemporary terms for the formation of hypotheses, but ranging from inert to misleading when it comes to rigorously constructing a CX program designed to positively alter the trajectory of the organization.

This is precisely the issue Amos Tversky and Daniel Kahneman discussed in their timeless 1971 paper.[1] That is, manifestly inadequate samples with practitioners tending ‘to extract more certainty from the data that the data, in fact contain.’ The development and screening of CX initiatives should be based on replicable science and not gut instinct or the “loudest” voice.

The CX practitioner who is at the more “art” end of the spectrum is thinking of terms like human centred design

In the experience of Forethought, the majority of those initiative laden, ideologically based CX programs are built on an absence of rigorous quantitative validation. What is more, many of the self-proclaimed, leading proponents of CX believe that their own intuition is what should govern CX investment. Most curious of all, executives and boards have been slow to impose fiscal discipline by demanding to see evidence of returns on CX investment that promise to raise customer engagement and improve the prosperity of the organization.

Ken Roberts is Executive Chairman and founder of Forethought.

[1] Amos Tversky, Daniel Kahneman, ‘Belief in The Law of Small Numbers,’ Psychological Bulletin 1971, Vol. 76, No. 2, 105-110