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CEO as Chief Customer Officer

To capture the loyalty premium, you must know everything about your customers-but that doesn’t necessarily mean crowning them kings.

Learn more about your customers, fine-tune products and services to meet their needs and leverage technology to continuously refine a mutually beneficial relationship-what’s not to like? Unfortunately, though, customer-relationship management, or CRM, doesn’t always deliver on its promises.

In fact, despite undertaking massive investments in new channels, sales-support tools and vast data warehouses necessary to realize this Holy Grail of customer value initiatives, many companies never see measurable improvements in revenues or customer retention. Yet no one doubts the power of relationship-building initiatives like CRM to increase brand loyalty and customer equity. The question is, how to make sure they live up to their potential?

CEOs wrestled with that very question at a roundtable co-sponsored by Accenture and Chief Executive. Many noted that aligning the goals of both buyer and seller is a must. “If I do everything my customer wants, we will not make money,” pointed out David Kahn, chairman and CEO of Croscill, a $300 million consumer durable products company in New York.

In comparing notes on proven methods of maximizing the return on CRM investments, several CEOs argued that the customer, in fact, may not always be king. They noted the pitfalls of attempting to retain customers at all costs. As Janet Alpert, president of LandAmerica Financial Group, put it: “We have to align with the customers we can do business with most effectively, and vice versa. We can’t do business with everybody anymore.”

Who’s Who

  • Janet A. Alpert is president of LandAmerica Financial Group, a $2 billion insurance company based in Richmond, Va.

  • J. Hord Armstrong III is chairman and CEO of D&K Healthcare Resources, a $1.6 billion drugs and sundries company based in St. Louis.

  • Fred Brune is president and CEO of Lockwood Greene, a $1 billion engineering firm based in Spartanburg, S.C.

  • J.P. Donlon is principal of The Dilenschneider Group, a strategy and communications consulting firm in New York.

  • John Freeland is global managing partner of Customer Relationship Management Service Line at Accenture, a $10 billion management and technology consulting organization.

  • Harry Gould is chairman, president and CEO of New York-based Gould Paper Corp., an $800 million distributor of printing, publishing, business and fine arts papers.

  • N. Robert Hammer is chairman, president and CEO of Commvault Systems, a provider of enterprise data management solutions in Oceanport, N.J.

  • Derek C. Hathaway is chairman, president and CEO of Harsco, a $2 billion metals and mining company in Camp Hill, Pa.

  • David Kahn is president and CEO of Croscill, a $300 million consumer durable products company in New York.

  • Edward M. Kopko is chairman, president and CEO of Chief Executive Group, a unit of Butler International, a $400 million strategic outsourcing firm in Montvale, N.J.

  • Kenneth P. Manning is chairman, president and CEO of Milwaukee-based Sensient Technologies, an $800 million food products company.

  • Peter Nauert is chairman of Ceres Group, a Cleveland-based $700 million health and life insurance provider.

Getting value from the monolith

John Freeland (Accenture): There are enormous pressures on organizations to create a greater sense of customer loyalty. I’ve spent a lot of time talking to our clients about their views of CRM. A lot of the feedback I’ve gotten has been concern that after spending tens of millions of dollars on enterprise resource planning and building big data warehouses and supply chains and so forth, how do we really get value out of it all? How do we avoid creating this monolithic thing that at the end of the day is a big financial write-off?

A lot of recent articles have questioned whether organizations are really getting value out of CRM. A recent one in the Harvard Business Review warned that organizations launch big technology initiatives without customer strategy in place; are focused on the technology, but really haven’t thought through how to align the organization around the customer; or they view it as, “All we have to do is buy a software product and that takes care of CRM.”

So is CRM just a fad? Or is there some real kernel of value? And if there is, what are each of you doing to mine that value and to make sure that you don’t end up over-investing? In terms of attracting customers and maintaining their loyalty, what are the things that work?

Bob Hammer (Commvault Systems): We use CRM to track customer calls that come in worldwide. We’re a software company, so the first thing we look at is, “Can I solve the problem in my software so the call never occurs? Can I automate it or provide a smart message?” And then if I can’t do that, the question becomes: “Can I solve it in training or knowledge base?” After 12 or 15 enhancements, you’ve got a great piece of code and a methodology to solve a customer problem.

We take a broad philosophy in terms of customer retention that says we’ll solve the problem-even though it’s your own network or another vendor’s problem-as part of our maintenance fee. By doing that we get a reputation of having the best products and the best service. So we have a high retention rate and a high acquisition rate.

Kenneth Manning (Sensient Technologies): Looking at CRM conceptually, communications have to be customized to the consumer. Many people send a lot of emails and use the latest forms of communications, but sometimes the customer just wants to talk to someone. In fact, there are certain subjects that absolutely require face-to-face communication. You have to get up from your desk and go out and see the guy.

Peter Nauert (Ceres Group): I think everybody agrees that the quality of a product is important-unless we set forth to have a bad quality product and maybe charge a low price for bad quality. There’s nothing wrong with that if that’s your market niche. But let’s say we all believe in having a product that meets quality that we’re pricing for. Then it’s up to us to communicate what we’re doing and how we do it to the person we deal with, whether it’s email or face to face.

When I don’t have a lot of personal time with people who report to me or their direct reports, I try to do collective meetings with 20 or 50 managers. But I don’t have a problem with people emailing or voice-mailing 90 percent of their communications if, in fact, they show up once in a while on the job in front of people, either in a group or one on one.

Derek Hathaway (Harsco): We have to look at how we define the word customer. Anybody to whom you provide services or goods can be a customer, from your closest colleagues on out. In a public corporation, my customer is the stockholder and I have a duty to serve him or her as best I can with the colleagues I have available to me. We need to try to be the low-cost provider with the best possible service. It’s really simple common sense. All of the employees’ efforts should be directed at providing the best possible service.

But some companies seem to have a rather subtle culture of lawlessness, which begins to erode their own image in that they are bad to deal with. Even though you may have a long-term agreement with them, for example, they think nothing of breaking legal agreements because they’re under pressure to reduce costs. That’s one of the issues we’re facing. To get on a level playing field, I’ve literally tried to create some tension between us and them.

What we’ve done is formalized controls so that every transaction is monitored based on EVA, or economic value added, and if it doesn’t stand up to our requirements it isn’t done. There’s a very tight discipline taking place now, and that doesn’t help in customer relations, of course. We’ve got repeat customers who say, “We’d like you to invest a few million more in this or that.” We go back to them and say, “Well, that’s fine, but these are the returns we require for investing on your site and on your property.” We have actually turned down deals.

It’s important to convince the customer that we’re a 10-year supplier and in order to provide them with the service or goods they need in a reliable fashion, we require a return on the capital we’re investing. That’s the direction we’re taking to combat the erosion that has taken place in customer loyalty. There are instances when relationships have deteriorated as a result, but by and large we’ve been successful.

Fred Brune (Lockwood Greene): With all of the dynamics going on in terms of managing expectations, you have to seek constant alignment with the customer on what their real goals and objectives are. It’s more easily described than it is done. You really have to designate multiple level relationships with the customer and you have to realign those priorities and objectives more frequently now then ever before.

We do it as an extension of our market research. We interview executives from our clients every year and we find out on multiple levels what their changing business agenda is. What you’re trying to do is anticipate trends in the industry so you can manage expectations, because if everybody wants this for this price-everybody can’t have that.

The incredible force we’re all dealing with now is the evolution of the power of the procurement organizations. Their view of value is a lower unit price, not how you solve a problem or help them achieve economic advantage. It’s, “What’s your unit rate?” We’re in the service business, but we have to deal with that mentality. And it’s more pervasive in a manufacturing environment. In our case, we can get the ultimate user of the facility-the guy who manages the capital project-and dilute the procurement guy’s complete influence over buying just on unit price. There are multiple customer interfaces, so he’s not the sole decision-maker. This agenda alignment from the top is one way to stay out front in managing those expectations.

David Kahn (Croscill): Our customers want a lot. They want exclusivity, guaranteed return if it doesn’t sell, perfect delivery, perfect quality and a cheaper price. Our fundamental decision is, which is the most important priority? If the fundamental issues are that it’s got to be gorgeous and if it doesn’t sell we have to take it back, then we’ll fix it so that it won’t be an issue for the customer. But we will not give him an exclusive, because our whole model is once we find out it sells, we want to sell it to everybody.

Customers are not happy about that. They’re also not happy that we manage our inventory so that under some circumstances we don’t deliver on time. But we find that if the product sells very well we can get our price. We don’t have to deliver it that well and the quality doesn’t have to be that perfect. It sounds a little crazy, but it’s true. One of the things we’ve talked about is tension, and I think we have to make our demands, and that creates tension. Not every customer has the same exact priorities, but most of them do, so you have to dance around some of them to be successful.

Hathaway: I try to inculcate into our organization a new formula: Managed expectations plus delivery equals credibility. It’s really that simple. If you manage the expectations-don’t promise too much, don’t promise too little-just manage them, and then deliver on the expectations, you’ll retain your credibility.

Hammer: But you have to put teeth into that. We put the teeth in by having strict rules. One, I take commissions away if a salesman promises something that we can’t deliver. I did that in a case where a salesman promised the customer functionality we just didn’t have. He thought he could get it through the back door in development, but they couldn’t cover for him. I just pulled his commissions. Two, on sales disclosure, if you make a mistake, you get fired. I call it ��Bob’s Line.’ The last time a new guy stepped over the line and I fired him, he said, “Another company would have slapped my hand.” I said, “Bill, you knew what the rules were.” I heard about it Friday; Monday he was gone.

Your salespeople have to know that it’s under-commit and over-deliver-and they have to know you’re not kidding around.

Janet Alpert (LandAmerica Financial): It sounds like you’ll protect the customer above your employee, and I think your customers know that. That’s why you have credibility.

We’re all acknowledging that these relationships are long-term, so therefore all of these things have to come together or you’ll spend a lot of time on a customer that’s going to blow out very quickly. So what we’re all getting to is a lot more upfront qualification of the customer.

Hammer: If our sales guys go to the CEO and he’s thinking about price, and [they’re having to] sell on price, we tell them to get out, just move on.

Ed Kopko (Butler International): A lot of us don’t have processes in place to determine the value proposition from our customers’ perspective. We’re selecting it ourselves. We learned that the management team [tends to] have strong biases about what we think the client should have versus what the clients really want and what they will pay for. So you have to do it from an “outside in” perspective in terms of doing and building that value proposition.

It’s a process. CRM is going out there and asking the client, “What do you want from this relationship? What do you value and how much might you pay for some of that?”

Manning: But if you don’t get that, you can really run down some wrong roads, because one customer’s perception of value is dramatically different from another’s.

Kopko: Years ago, you’d buy a cell phone and be locked into a one- or two-year deal and you’d feel like you were taken advantage of because that’s the only thing they allowed you to buy. I think some of us create similar mechanisms for our clients that cause them to become extremely frustrated with us. We can blame it on the customer and say it’s bad behavior, but maybe we should also look internally at how well we are managing the relationship.

Sometimes you look at your cost structure and think you should not be giving customers what they’re asking because they’re asking something unreasonable, when the reality is it’s your cost structure that’s unreasonable. We bash the customer and our competitors for bidding too low, when the reality is maybe they just figured out a more efficient way to deliver that service or that product to the market.

The tools can change all the time in CRM, but the process of relationship management is an ever-living thing. We have to take some of the responsibility ourselves. Because when that customer is coming back and saying, “I want changes,” it’s because we haven’t quite done our job in certain ways.

Hord Armstrong (D&K Healthcare Resources): But it’s not always a flat playing field. What some of my enormous competitors-who are much better capitalized than I am-can do may work for them. And if it works for them, then I’ve got to just tip my hat occasionally, pick up my marbles and go to a different game. Because I have to satisfy my real customers-our shareholders.

You have to have the discipline to know when to walk, because no big customer in our industry ever changes distributors for a higher price. In my 15 years in the business it’s never happened. So you have to be agile enough and canny enough, and your sales guys will unfortunately take you down the road to the deceased if you allow them to. They’ve got to understand what our minimum hurdle expectations are, but a lot of them don’t. They’d rather make a $100 million sale that you could lose money on.

Hathaway: A number of years ago, I had dinner with a customer we were doing about $17 million a year with-big time stuff for us. And he looked at me across the table and said, “Young man, beware the complacency of incumbency.” That’s seared on my brain. It works both ways. If you work with partners for a long time they get complacent, we get complacent, and it’s bad.

You need to look in the mirror and be honest with yourselves as suppliers. Are we the best, or do we just say we’re the best? That sense of reality of your own performance will be the guiding factors as to how you deal with your customers.

Kahn: Ironically, we have found over the past 20 years that it is definitely tougher, but our customers are much more honest. The issues are black and white. Deceitful customers with truly criminal or immoral behavior have gone away. You hear a lot of things about Wal-Mart, Target, Bed, Bath & Beyond, but no one says they’re dishonest.

Harry Gould (Gould Paper): If you do business with Wal-Mart, ask your CFO to give you a copy of their checks, because you will find 66 boxes [listing] reasons for deductions preprinted on the back of their check to you, and you just hope that no more than one of those boxes has been checked.

With Wal-Mart you wind up just assuming that’s part of the price of doing business, pricing your goods accordingly and hoping you make the cut. We decided not to continue that relationship, which gets back to the point that there are customers you don’t want at the end of the road. They’re not profitable, no matter how big they are.

Nauert: Just as your customer comes to you as a vendor, you as a vendor have to choose your customer. Not every customer will be good for every vendor. It might not be how you want to do business or represent the margins you want. You have pricing discipline and you have pricing structures. If you start violating the discipline you set up for yourself, eventually you’ll erode your entire profit model. A deal here, a deal there, and you’ll end up with half of what you expected. And it doesn’t take very long, because people talk, customers talk.

Armstrong: In distribution we don’t do anything other than take title to and resell inventories we buy from others. We don’t make anything ourselves. We try to find out some way to become important to customers in terms of helping them manage their businesses better. That’s the hook at the end of the day, because they can buy from me or from my competitors. It’s the same product, and it’s basically the same price.

It’s really not possible for anybody who is a true middleman to dictate price. But any low-margin industry has to pay particular attention to operating expense and the disciplines have got to be there. Whether you use EVA or make your own model, you’ve got to pay attention to it. You can’t be led down the yellow brick road that you’ll make it up in volume when you’re losing your shirt. That’s crazy.

Building culture around customers

Freeland: In the old days, the brand manager, the marketing manager in these organizations had a great deal of influence in terms of the customer’s perception of that organization. The problem today is you can undo all of the desired conditioning the first time the customer calls the call center if there isn’t a consistency of treatment in that call. A lot of organizations have fragmentation between the marketing organization in many cases and the people who are on the front lines in terms of service delivery. The opportunity to destroy value is there with every interaction. It would be nice to have one person in charge of customer communications, but you can’t. You really have to instill a culture across the organization: This is what we stand for, and every interaction needs to reinforce that. Every instance of customer treatment either adds to or detracts from an organization’s value proposition.

That’s what’s tough about this. Even in companies that are largely product organizations, the service component has become more and more important every year. And as the service component becomes more important, how do you create an organizational culture that’s tuned in to this need for consistent customer treatment? As you get bigger, that’s the No. 1 challenge.

Armstrong: You have to create a methodology of going to market that stresses your skills as opposed to those companies that are larger and perhaps are more awkward in the way their services are delivered. It’s the idea of going to Tiffany’s versus Zales.

Alpert: You’re saying you’re smaller, you have to do better than the other guys. Is one of your traits that you’re more accessible as the CEO?

Armstrong: Sure. If I were running a $50 billion corporation, I probably wouldn’t run it any differently than those guys do, but it’s just a physical impossibility for those CEOs to visit every one of their major customers every quarter or every six months.

Alpert: I’ve found that with the Internet I’m much more accessible. It’s amazing how many times the customer complaint will get to me. And almost every time it’s because someone hasn’t communicated. When I give the people two or three levels down the customer service problem to resolve, the first thing they say is, “How did this call get to you?” And I say, “That’s what’s disturbing me.” Because they’ve had two or three opportunities in the organization to have the problem corrected and they didn’t. I only usually need one of those to happen, and then the next time it gets to that next level it gets solved, because now they know it will get up to me and I will know about it. I think the top person sets that standard on whether customers are important.

I meet with customers all the time. We’re working on a big contract with a big customer right now, and I’m not driving it, but I’m showing that customer that this is a priority of the company by being on weekly conference calls.

Kopko: I’ve found that in a lot of cases, particularly from the B2B standpoint, the CEO is not-and can’t really afford to be-the primary relationship person. What we need to do is connect once in a while with that customer to make sure that they have a higher authority to go to in case of problem resolution.

I do believe that part of our jobs is to make sure that we have our methodologies of communicating. I find a lot of my time is about communicating and how to develop communications with the customer so that they understand the value proposition. So you spend a lot of time on that aspect of the customer relationship. It’s a challenge, particularly as you grow your company.

Brune: I’m not the primary customer relationship person on any of our accounts. But I do say, “Call me 24/7.” And every now and then somebody does and then our people go ballistic. I had a call from IBM in Brazil from a guy asking me to call General Electric to try to expedite a piece of equipment. That’s all he wanted, because he knows we have a lot of relationships with different divisions of General Electric. Our people in São Paulo were upset and our people in the States were upset. It was a perfectly appropriate call, but internally there’s this great panic whenever you get a direct call.

Nauert: I think a CEO should-depending on the type of company and the size of the company-direct all of the communication styles the company uses in communicating. I designed the communication pieces for the marketing people, the sales people, things like that. People may change it, but at least it sets the tone and then you review it. You revisit every six months, every year, not actually being the chief communication officer, but being the person that looks at the chief communication officer, and how the company communicates with customers in every sense of the word. That’s probably one of the most important tasks of a CEO.

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About Jennifer Pellet

As editor-at-large at Chief Executive magazine, Jennifer Pellet writes feature stories and CEO roundtable coverage and also edits various sections of the publication.