Things that never happened: a Net Promoter Score of 91

Posted on August 8, 2023 at 6:41 pm.

Things that never happened: a Net Promoter Score of 91

Net Promoter Score

I came across two posts on LinkedIn recently where two separate business-to-business (B2B) companies – one professional services company and one IT services provider – announced the exact same Net Promoter Score results from their clients: +91. The spokesman for the profession services company was particularly chuffed: “We were delighted with the results of the survey resulting in an NPS of 91.”

Now +91 is indeed an impressive result. If you understand the scoring mechanism behind NPS, you’ll know that a score of +91 requires almost every one of your customers to score you either 9 or 10 to the question: “On a scale of 0 to 10, how likely are you to recommend [Company] to a friend or colleague?”

“We were delighted with the results of the survey resulting in an NPS of 91”

The calculation for Net Promoter Score is simple: just subtract the percentage of Detractors from the percentage of Promoters. The resulting score will be somewhere in the range from -100 to +100.

Promoters score you 9 or 10. Detractors score you 6 or less. What about the 7s and 8s, I hear you say? Well, they’re called Passives and the sad thing is that they don’t get counted at all.

A NPS result of +91 equates to a combination of Promoters, Passives and Detractors that might look something like:

91% Promoters, 9% Passives, and no Detractors (91 – 0 = 91)
93% Promoters, 5% Passives, 2% Detractors (93 – 2 = 91)
95% Promoters, 1% Passives, and 4% Detractors (95 – 4 = 91)

You get the picture. To achieve a Net Promoter Score of +91, almost everybody has to love you. Not just LIKE you, but LOVE you. And I mean REALLY, REALLY love you!

+91 is an astonishingly good score in the B2B world.

A bit more context: In Northern Europe we generally think that a score of 8 out of 10 is pretty good. 9s and 10s are reserved for experiences that are truly special. I’ve written about this before. It’s conditioned into us in school and at university not to give 9s and 10s when we rate somebody or some service that we have received. Think about it. If you have a college education and graduated with a First Class Honours degree, you scored 70% (or maybe a little higher) in your final year exams. That’s 7 out of 10.

If you’re a Premier League footballer and score a couple of goals in a Cup Final, you might be lucky enough to get a player score of 8 from the sports writers commenting on the game. When Liverpool won the Premiership for the first and only time in 2020, they did so with a Net Promoter Score of MINUS 45.

We’re a difficult bunch in Europe. A dour lot. And the further north you go, the harsher we score. Other countries are different. In America (both north and south), you can get 10/10 if you do a good job or provide an excellent service. There are major attitudinal differences from country to country when if comes to scoring – you can read about it here.

An 'average' B2B Net Promoter Score is slightly above zero

So what happens in real life? How many B2B companies score +91 on the NPS metric?

At Deep-Insight, we have been running large NPS programmes for nearly two decades – mainly in Europe – and the reality is that there is a surprisingly wide spread of scores ranging from -50 to +50.

An ‘average’ Net Promoter Score is slightly above zero. Nobody scores worse than -75. And nobody scores better than +75.

CX Programmes: most responses are biased

So am I saying that the professional services and IT firms claiming Net Promoter Scores of +91 are lying?

Not necessarily. Theoretically, it is possible to get a NPS result of +100 from your customer experience (CX) programme but in nearly 20 years we have never seen this happen. In fact, we’ve never seen any B2B company get close to +75.

In practical terms, the only way you can get a NPS result of +91 is as follows:

First, you really do have to be excellent at what you do – particularly when it comes to delivering excellent service every time
But that’s not enough. You also need to ‘frig the system’ by selecting a small number of clients who are Ambassadors for you and your service
You also need to select only those individuals in those client organisations who you believe will score you 9/10 or 10/10
You need to carefully deselect any client that is likely to give you a poor score – you can use the excuse: “Now is not the right time to ask them their views” or “We’ll only antagonise them if we approach them now”
Never send a survey to somebody who doesn’t know you really well, even if it’s a senior decision maker that you’d love to have a conversation with – as we’ve seen already, the chances of them giving you 9 or 10 are very slim indeed
Finally, don’t outsource the survey process to a third party who will give the option of confidentiality to the survey participants – confidential surveys are likely to elicit lower scores even if they provide a more realistic and honest view of your product or service

You might think I’m being cynical. Surely B2B companies don’t act in such a manner? Surely the leadership and CX teams will prevent this happening by putting an appropriate governance process in place?

Even if companies aren’t that cynical – and in our experience most are not – subtle biases always creep in to soften any hard messages, inflate the true Net Promoter Scores, and water down the recommended actions. Sometimes these biases are blatant. But they always exist.

What’s worse is that leadership teams often compound the problem by setting inappropriate targets (“We’re expecting a completion rate of 75%”) or by incentivising a completely biased result by paying bonuses if certain NPS targets are reached. We all know that if you give good sales managers a target and an incentive plan, they will do their best to achieve it.

Don’t fall into that trap with your CX programme. Work hard at getting what we refer to as ‘unvarnished truth’ about what your customers really think.

Things that never happened: a NPS of +91

Back to our professional services and IT companies and their +91 NPS results.

I don’t believe they deliberately set out to ‘frig the system’ in order to achieve a score of +91. I also suspect they genuinely do deliver a really good service. But even without knowing the full details behind the surveys, I know in my heart that they were administered to a small sample of hand-picked clients. The individuals administering the survey were probably not even aware that they were ‘frigging the system’. After all, they had to ask to account managers to nominate the people to be contacted as they don’t manage the client relationships themselves. They weren’t to know that the leadership teams had (unwittingly) conveyed to the account teams that a high NPS result would be good to promote their company on LinkedIn and other social media. They didn’t tell the CEO that she needed to put a robust governance process in place.

With a good governance process in place to elicit the ‘unvarnished truth’ from clients, European B2B companies will never achieve Net Promoter Scores of +91. That’s simply a fact. It never happened.

B2B leadership teams shouldn’t be targeting high NPS scores. Instead, they should be trying to identify key areas for improvement, and then implementing changes based on real unbiased feedback from clients. If they are successful, the NPS results will improve slowly and steadily over time.

So don’t just chase a NPS number. Listen to your customers instead. Act on their suggestions. Resolve their issues. The NPS result will take care of itself.

If you would like more information on how to run an effective CX programme that delivers real and long-lasting change, do get in touch with us. We’d love to help!

Is the Service Recovery Paradox true for B2B relationships?

Posted on April 27, 2023 at 5:37 pm.

Written by John O'Connor

Is the Service Recovery Paradox true for B2B relationships?

The Service Recovery Paradox (SRP)

A couple of years ago, I wrote a blog called The Service Recovery Paradox – Fact or Myth? Today I’m looking more specifically at whether the Service Recovery Paradox is true for business-to-business (B2B) relationships.

But first, a quick recap on the basics of SRP.

The Service Recovery Paradox is a concept that was first introduced by service management guru Christopher Hart in the Harvard Business Review way back in 1990. Here’s what he said more than 30 years ago:

“A good recovery following a service failure can turn angry, frustrated customers into loyal ones. It can, in fact, create more goodwill than if things had gone smoothly in the first place.”

Sounds great. But is it true? Or, as some other academics have asked more bluntly, is it a more of a smouldering myth than a justifiable theory?

Like most things in life, the answer is nuanced.

The evidence – and there really is little of it out there as I discussed in that blog – suggests that in most circumstances the Service Recovery Paradox is simply not true.

“A good recovery following a service failure can turn angry, frustrated customers into loyal ones. It can, in fact, create more goodwill than if things had gone smoothly in the first place.”

When a company does a really good job at fixing the service issue, Satisfaction can go back up to – and even beyond – pre-failure levels. But here’s the rub. Even though Satisfaction recovers, Loyalty does not. So, to summarise that earlier blog, the Service Recovery Paradox (SRP) is indeed a smouldering myth, at least in the consumer world.

The basic message in that blog was to get the basics right, rather than trying to recover a bad situation. Do things right, and do them right first time. Reliable and consistent service delivery is the cornerstone of long-lasting client relationships. And it doesn’t cost anything to ensure consistency of service delivery because Quality is Free.

But what about the B2B world?

Is the Service Recovery Paradox true for B2B relationships?

All the case studies mentioned in that previous research were from the consumer world. Do the same conclusions hold true for B2B companies? Is the Service Recovery Paradox true for B2B relationships? I was curious to find out.

It turns out that there is even less written about B2B service failures than consumer service disasters. That said, three Swiss consultants – Denis Hübner, Stephan Wagner and Stefan Kurpjuweit – did examine B2B service failure and subsequent recovery in the logistics industry. They interviewed senior managers and front line workers in 25 different companies across three continents and came up with some interesting conclusions.

The Service Recovery Paradox in B2B Situations: A Smouldering Myth

In summary, they did find some evidence to support a positive aftermath after a service failure. However, they could only find evidence for the SRP in nine of the 25 cases that they investigated. That means that in nearly two thirds of cases, there was zero evidence of any recovery after a service failure.

And here’s a more interesting finding. In those nine cases, the discussion is around satisfaction. There is no mention of increased loyalty in any of the cases. Yes, in nine cases and under quite specific circumstances, satisfaction did recover to pre-failure levels. But there is no discussion about increased purchases or purchasing intentions. Nothing about deeper relationships or increased levels of trust.

In other words, loyalty appears to be remain compromised even when B2B service providers implement an excellent service recovery.

This suggests that the SRP truly is a “smouldering myth” in both the B2B world as well as the consumer world.

Now let’s look at some of the nuances in their research, because there are some good messages for B2B leaders to take on board.

“Overall, we observed the service recovery paradox (SRP) or service failures resulting in increased customer satisfaction in nine of the 25 cases”

B2B: Critical external failures are easier to recover from

The analysis of those nine cases where satisfaction improved after a successful service recovery led Hübner and his colleagues to a couple of key conclusions:

Service failures must exceed a “zone of indifference” before SRP is seen. The reason is simple. It often takes a truly critical service failure to draw sufficient attention – and a corresponding response – from senior management.
External failures are easier to recover from than internal failures. Customers are tolerant of events such as events that they perceive as force majeure. For example: a volcano eruption in Iceland or a nation-wide transportation strike. Customers are far less tolerant of perceived internal failures that the service provider should have been able to anticipate and plan for.

The corollary is also true. If the service failure is low-impact and part of an ongoing systemic problem, it’s almost impossible to recover from, because it rarely gets taken seriously by leadership teams.

B2B: An immediate response coupled with longer term action are ‘must haves’

Even when the service failure is seen to be in the “that was massive and nobody could have predicted it” category, a lot of hard work is required to rebuild satisfaction level afterwards. A few points are worth noting:

Compensation is of limited value. Much more important than compensating direct losses is the avoidance of expensive downstream consequences: delayed deliveries, lost production, and so on.
Apologies are also of limited value. For the same reason, formal apologies provide less value than a significant and fundamental change in behaviour in the aftermath of a service failure.
Response speed is critical. In fact, speed of response is possibly the B2B service provider’s only truly effective weapon. If it can be deployed, it can go a long way to defusing the situation.
Prevention is better than cure. In the longer term, even speed of response is of little value if the underlying issues are not resolved. The service provider must implement action plans that ensure the failure won’t re-occur. That means carrying out root cause analysis rather than simply treating the symptoms. ‘Action’ may mean significant investments in technology and re-engineering of processes. It is also likely to include “softer” interventions such as empowered operating-level employees, and improved communication.

B2B Bottom Line – Get it Right First Time

When you read Hübner’s article in detail, it’s hard to come to any other conclusion than the only successful way of ensuring loyal customers is to prevent service failures from happening in the first place. That’s the same conclusion as in my earlier blog.

Easier said than done.

That means going back to the old principles of Total Quality Management (TQM) and “getting it right first time”. Remember that it’s easier and cheaper to build quality in at the start than it is to firefight when things go wrong.

Apologies are not sufficient (but they do matter)

A final thought: even when B2B service providers do everything to prevent service failures, they still happen. When they do, act quickly and learn how to say sorry, even if an apology on its own has limited value.

Contact us if you want to find out what your clients think of your service. And if you’re not sure how to say sorry, our friends in Corporate Visions may be able to help!

What Does Net Promoter Score Actually Measure?

Posted on January 18, 2023 at 12:49 pm.

Written by John O'Connor

What Does Net Promoter Score Actually Measure?

Interview with Professor Nick Lee

Some weeks ago, I met Nick Lee, Professor of Marketing at Warwick Business School to discuss his views about Net Promoter Score (NPS). I specifically wanted to get Nick’s views on NPS as a measurement tool. Does it work? Is it linked to sales growth? What does Net Promoter Score even measure?

Nick has an impressive background. In fact, The Academy of Marketing has already honored him with Life Membership in recognition of his outstanding lifetime research achievements and contribution to marketing scholarship. He is currently the Editor-in-Chief of the Journal of Personal Selling and Sales Management (JPSSM), which is the premier journal for research in professional selling. He is the first UK academic to hold this position, and only the second ever from outside the US. Nick was also the Editor in Chief of the European Journal of Marketing from 2008-2018.

Nick is more than just an academic. He holds strategic advisor positions for a number of innovative sales and leadership development companies, and he was part of the All Party Parliamentary Group inquiry into professional sales in 2019. His work has been featured in The Times, the Financial Times and Forbes, and he has appeared on BBC Radio 4, BBC Radio 5Live, and BBC Breakfast television.

Net Promoter Score: 20th Birthday

What prompted me to interview Nick Lee was a recent academic paper he was involved in called “The use of Net Promoter Score (NPS) to predict sales growth” which was published in the Journal of the Academy of Marketing Sciences (JAMS) in 2022.

Our discussion was very timely as Net Promoter Score is a metric that was invented by Fred Reichheld, a partner at Bain & Company, 20 years ago this year.

Over the past two decades, NPS has divided opinions. While it has been embraced enthusiastically by many businesses, it has been shunned by others. The academic world has questioned what Net Promoter Score actually measures.

I think you’ll find Nick’s comments on Net Promoter Score and what it really measures quite fascinating because he doesn’t hold back from his criticism of NPS but also points out that the flaws don’t invalidate its usefulness as a measurement system, as long as it’s used in the right way: tracking changes over time, rather than simply chasing a number.

The Interview

John:

Good morning Nick. To start, could I ask you to tell me a little about your own academic background. What was your first interest in the field of marketing?

Nick:

Well, I began my academic career as a doctoral student in marketing strategy. It seemed to me that the connection between sales and psychology was quite important. And there was a lot of work in management that was related to psychology, but very little of that research had been focused on the sales force.

A lot of sales research is actually about things like incentive structures and territory design. I call that ‘technical management’ but what I was more interested in was not so much the decisions that managers made, but how they implemented those decisions. Sales management is more about psychology than a mathematical or technical thing. More recently, we’ve seen how digital transformation has led to a a merging of the ‘technical’ things with the more psychological things, and that’s really the space I operate in now.

Is NPS a Fundamentally Flawed Metric?

John:

So let’s talk about the psychology of Net Promoter Score. It’s clearly a sales and marketing concept. It’s also a performance metric. When did you start getting involved with Net Promoter Score and is it a good sales and marketing measurement tool?

Nick:

My interest in NPS really came from Sven Bähre and that paper we wrote called The use of Net Promoter Score (NPS) to predict sales growth. Sven drove that project while my role was to use that project to address something that was important to the marketing literature. And I think it is very interesting that academia’s gone down one road with Net Promoter Score, the very simple road which says “NPS is useless and a load of rubbish”.

At the same time, business practice has completely ignored that academic view. Net Promoter Score has become the dominant customer metric in business. It feels like someone has to be right and someone has to be wrong here. But the interesting thing is it turns out that both sides are right. They’re just talking about different things. And that’s what fascinated me.

John:

So tell me about those different things. When I looked at Net Promoter Score many years ago, a guy called Tim Keiningham – one of the people you refer to in your paper – was very critical about NPS as a metric. At the time he worked at Ipsos so I wondered if he was bringing his own biases to the table. But at the same time, he was saying that the data did not show any link between NPS and sales growth.

Nick:

Oh, that’s interesting about Keiningham, I didn’t know that he was at Ipsos then. So there are a couple of issues that lead to this disconnect. One is that we generally don’t like it when a publication like the Harvard Business Review tells us there’s a single number that every company needs to look at. That automatically gets people’s interest and it actually didn’t make sense to me.

The other issue is, and I have every sympathy with this view, is that Net Promoter Score doesn’t really measure what it claims it measures. There are so many potential flaws in the idea that this one number could be a valid measurement of anything real. I spend a lot of time trying to develop measures around attitudes and psychological concepts. And this is a classic example of a metric that doesn’t seem to actually ‘measure’ anything. So on that basis, it is quite flawed.

When you add in the idea that you have to subtract the bottom scores (Detractors) from the top scores (Promoters), you're torturing the measure to within an inch of its life.

What does NPS Actually Measure?

John:

Surely Net Promoter Score is a measure of advocacy, if nothing else?

Nick:

To some extent it taps into advocacy, sure. However, it’s a number in response to a single question that doesn’t take account of all kinds of other factors that might be relevant. And then you have this weird calculation for subtracting ‘Detractors’ from ‘Promoters’. As a mathematical construct, that’s not great. But the real issue is that advocacy is a much more complicated idea and can’t really be accurately captured by a response to a single question.

So there’s no real evidence that that answer to the NPS question is a reliable measure of advocacy. And then when you add in the idea that you have to subtract the bottom scores (Detractors) from the top scores (Promoters), you’re torturing the measure to within an inch of its life. At that point, it ceases to become a measure anymore, even if it was at the beginning. It becomes a number which is divorced from the underlying concept.

John:

I’m with you. But does that invalidate it completely as a measure?

Nick:

Well, here we get to the bigger question: rather than “is NPS a measure”, we need to ask “is NPS actually useful?” In academia. we’ve said nothing about NPS for the last 20 years apart from “it’s crap”. But when I see a whole bunch of senior executives in large companies saying “well, I’m finding a use in it”, then academia needs to look at that.

What’s my conclusion? I think that is a problem for academia insofar as we tend to talk past each other in a lot of areas. We have to provide some insight into what practitioners are doing in this field. Of course, it’s our sole driving force as a discipline to find out what practice is doing and we study that. But at the same time, it is worth studying if the entire business community is using something that 20 years ago we in academia said was wrong.

John:

Have you come to any conclusions as to why senior leaders use Net Promoter Score, or how they can use it more effectively?

How Should NPS be Used?

Nick:

One reason why it’s used so much is partly a self-fulfilling prophecy. It’s used because everyone uses it and therefore nobody wants to not have that information. That’s an important factor.

But then the other aspect is that it’s used because it’s simple. It’s easy to collect and it’s simple to use. Whether it’s easy to interpret is actually a more challenging question. I don’t think it is that easy to interpret. For starters, what does the NPS number actually mean at any given point in time?

Now when you start tracking NPS over time, those questions fall away because what you’re looking at is trend data. What was it last year? Is it up or is it down? You have to operationalise NPS in the right way – by tracking the change in NPS score from one period to the next, not the absolute score. That’s important.

Net Promoter Score is also influenced by a lot of transient factors. For example, it’s very easy to manipulate and there’s a big selection bias. Who is asked to complete the NPS survey? Also, every surveyor cannot help but lead the customer on towards a higher NPS score. So at any given point in time, the net promoter score doesn’t mean much because of that selection bias. But if you assume that those forces are broadly the same over time, you can extract that little bit of signal from that noise with the time series a little bit more effectively than at a single point in time.

John:

I’m with you. But in our experience, the level of bias can increase over time. So you need to have a governance structure to ensure consistency. Or indeed, you may need to break the system apart and start again if the ‘gaming’ gets too deeply ingrained.

We should track trends, not individual time points. And the more data we have, the better. More bad data isn't better than less good data. But more flawed data is probably better than less flawed data.

Nick:

Yeah, I think you’ve got it right there. It is important not to be naïve that over time there might be an ‘instrument effect’ or a ‘history effect’ where people learn how to better game the system. I think with something like Net Promoter Score, that’s less of a thing because it’s pretty easy to know how to game the system straight away. And the only thing you can do really is try to say to your customers: “this is really important to me, can you please leave me a good score?” And there’s only so convincing you can be there. It’s not like you’re going to get better at doing that after a certain point in time. So I would be less worried about that.

But of course there are always ways to game the system. But the point is we should track trends and not individual time points. And the more data we have the better. Of course more bad data isn’t better than less good data. But more flawed data is probably better than less flawed data. So given we assume the data is flawed all the time, the most important thing is to know how that data is flawed. And while you can never perfectly extract the signal from the noise, the signal is there if you have enough data points gathered over a sufficiently long period of time.

Where Do We Go From Here?

John:

So where do we go from here, and where should academics be focusing their efforts?

Nick:

A few things for us to work on. First is international comparability. Big multinationals use Net Promoter Score across their different national areas. And I would imagine they’re comparing EMEA with America with Australasia. Is NPS really able to support that comparison? That’s a challenge so that’s the first thing I would look at.

Second is to move away from a single question. We really need multiple measures in order to compare them statistically across different cultures. So Net Promoter Score is one item. You would like it to be three or four items. And then you could compare those items across countries.

A third area is to get a wider industry perspective. We looked at NPS in a branded consumer goods context: sportswear. Is it equally useful across all kinds of different industry sectors? Particularly if you look at the service sector and front line services, which are linked to business to business (B2B) personal selling. Is NPS a useful metric for these interpersonal interactions? How well does it work in a B2B setting?

John:

Nick, I really appreciate your time today. I’m looking forward to seeing more research into Net Promoter Score. From a selfish perspective, I’d particularly like to see some B2B research done as there’s very little out there that I can find on the topic. Thanks again, Nick.

Kainos, Revenue Growth & Net Revenue Retention

Posted on December 1, 2022 at 12:30 pm.

Written by John O'Connor

Kainos, Revenue Growth & Net Revenue Retention

What Drives Revenue Growth?

For much of 2022, I’ve been discussing the topic of revenue growth with senior executives of B2B companies.

What drives it? What capabilities do companies need for growth? Is Net Revenue Retention (NRR) a good predictor of profitable growth? If not, what is?

One of the most interesting discussions I had was with Brendan Mooney, CEO of IT services company Kainos. The reason I was keen to have a chat with him should be clear when you look at the table below.

Table 1. Revenues at Kainos, excluding acquired companies (£m, 2015-2022)

NRR Explained

Net Revenue Retention is not yet a commonly-used financial term in business even though it is a well-known term in Software as a Service (SaaS) companies.

Let’s look at Kainos’ revenues from a NRR perspective. Let’s group revenues by the year in which they were acquired.

The graph on the right shows that in 2015, Kainos generated revenues of £61m.

Now suppose Kainos signed up no new clients in 2016. Its revenues would still have grown as the clients that were on its books in 2015 generated revenues of £68m in 2016.

Here’s the NRR calculation:

Kainos’ Net Revenue Retention for 2016 is:

NRR = £68m ÷ £61m = 111%

NRR At Kainos

Kainos may not be a household name but since it floated on the London Stock Exchange in 2015, it has been growing revenues organically by 20-30% a year. That’s 20-30% a year every year. Without fail. How many companies can claim revenue growth like this over the past eight years?

I certainly know of very few companies with such a track record. Some of our own clients at Deep-Insight are struggling to achieve any organic growth at the moment. So that’s why I wanted to talk to Brendan. I was really curious to find out how Kainos achieved such consistent growth. What was their secret sauce?

It turns out that the real secret to Kainos’ phenomenal growth is their great Net Revenue Retention (NRR) rates but, more importantly, those NRR figures are the outcome of consistently excellent service delivery for their clients.

Large B2B companies with NRRs consistently above 100% can be considered ‘very good’. Any company with an NRR above 110% should be considered as ‘excellent’. Brendan Mooney sets the bar higher and believes you need an NRR of 115% to be considered ‘Best in Class’.

Kainos is a high growth, high profit company precisely because its NRR figures are so strong. In its eight years as a publicly-quoted company, its NRR has only once dropped below 100%. In 2019, it hit 139%. Kainos is certainly ‘Best in Class’ and is a role model for any company trying to achieve above-average revenue and profit growth.

NRR is not a difficult concept to grasp but few senior executives truly understand the power of monitoring their company’s NRR performance. The reason for this is that most B2B leadership teams don’t understand how much it costs to land a ‘Net New’ client (brand new logo). If they did, they would become obsessed with retention in general, and NRR in particular as a key metric to monitor.

Which is More Important: Land, Expand or Retain?

Many companies grow revenues by investing heavily in new sales. It works. But it’s expensive – much more expensive than people think. Our analysis at Deep-Insight shows that it typically takes 4-6 years to break even when you sign up a new client. If CFOs and leadership teams measured Customer Lifetime Value (CLV) – and most don’t – they would realise that a significant proportion of their clients never make a profit. The reason? They don’t hang on to those clients long enough for them to pay back the acquisition cost and break even.

In some cases, a company’s ability to Land a large number of ‘Net New’ clients each year can mask a failure to Expand its footprint across those accounts, and/or a failure to Retain those clients over the longer term.

Companies can grow revenues by investing heavily in new sales but it’s difficult to stay profitable if all you’re doing is replacing existing clients with expensive new logos, many of which never stay around to generate a profit.

So why is NRR so important? The answer is that you can achieve growth with an NRR performance well below 100% but it’s rarely sustainable. Profitable growth always trumps revenue growth. Expanding and Retaining are far more important activities than Landing.

Who Needs New Clients Anyway?

Here’s another thing: if your NRR is consistently above 100%, you don’t need ANY new clients to grow your business.

Just think about that for a minute. I’ve said that it’s expensive to acquire a new client in the first place. It’s not just the cost of the salespeople who win the bid. You also have to factor all the time and money they spend on bids that they DON’T win.

We’re not suggesting that companies disband their sales teams. We are suggesting that they become much more discerning in what they bid for, and once they sign up a ‘Net New’ client, they need to organise themselves to retain those clients for, well, pretty much forever. They also need to figure out a good strategy for expansion across that account – finding additional products and value-added services to cross-sell.

And that’s what Kainos does really, really well.

From Campus Company To FTSE 250 Star

Let’s get back to Brendan Mooney and Kainos. Brendan joined the company as a trainee software engineer from Ulster University in 1989.

At the time, Kainos was a small university campus company with around 25 employees. It was a joint venture between Fujitsu and Queens University, Belfast. Most of its work was for Fujitsu in Great Britain. Brendan was one of two graduates hired from Ulster University that year. Both still work at Kainos, which might give a hint at why the company has been so successful over the years.

Brendan started working in Dublin in 1994 as Kainos started to expand its footprint across the island of Ireland. In 2001, he took over as CEO. Roll forward a few years. In 2015 Kainos floated on the London Stock Exchange. Today it is a constituent on the FTSE 250 Index.

I asked Brendan why Kainos was not as well-known as other IT service providers, despite its hugely impressive track record. His answer was simple: “We do our best marketing by delivering for our customers”.

In terms of brand awareness, our customers – and those who we want to do business with – know us quite well. We’re also probably well-known inside universities because that’s our heritage and where we target students for recruitment. But yeah, I guess we don't have a particularly high public profile.

The thing is that we do our best work by delivering for our customers. That’s where we put our energy and enthusiasm, and that gives us the results and recognition we’re looking for. For us, it’s all about the ongoing relationship with our customers.

Engage, Deliver, Grow

When I talked to Brendan Mooney about Landing, Expanding and Retaining clients, he said he preferred to use a different phrase: Engage, Deliver, Grow.

His explanation goes to the heart of the NRR/Growth challenge, and it’s a hard-nosed commercial view. Kainos is very focused on profit margins – particularly where there a likelihood of margin erosion. In Brendan’s view, the best way to hold profit margins and reduce erosion is to manage Engagement Efficiency. Here’s how he defines it:

So you've made promises during the sales campaign. Now you have to deliver against those promises and commitments. And if I think about profit margins in a contract, there are three points of margin erosion in a ‘Net New’ client – three areas where you incur additional costs or give away margin.

COST NUMBER 1 is the cost of a sales team. Good salespeople are well paid. They have a pre-sales team that supports them. They don't win every bid. There's the lost business cost you need to factor in as well. So that's cost number one.

COST NUMBER 2 is competitive pricing. For a ‘Net New’ client, it’s typically a competitive bid. It doesn't matter how disciplined you are as a sales professional, your instinct will be to price more keenly than the competition in order to win. The client will always tell you price is a problem, and you know it’s going to be part of the conversation with a professional procurement team...

But actually, COST NUMBER 3, which relates to ‘Engagement Efficiency’, is the key one. That’s what drives our view about the reciprocal nature of a long term relationship. Because we've had a significant cost in winning that client, we want to see that client retained 15 or 20 years, obviously even longer. Then what do you do? You put a really strong team on that first engagement. When you start any new project, you don't know the client very well. But are they sure about their outcome they're trying to achieve? How competent are they as an organisation to deliver their part of the overall project plan? And if they're using third party suppliers, how responsive will they be in that project? We can't control all those factors but we can control the quality of our people. So we put on a very experienced team for that first engagement to provide us some degree of flex, in case anything happens, which it usually does.

In summary, Kainos stacks the initial engagement with very experienced people. That’s precisely because Brendan Mooney knows that if something can go wrong in those initial months, it probably will. Kainos needs experienced people to be able to handle all eventualities and still deliver a really successful Phase 1 of the engagement.

Once that initial phase has been delivered, Kainos can change the mix on the project team. But that initial phase is crucial to build Kainos’ reputation. It will build the trust their clients have in Kainos as an organisation and as a true business partner.

Get the Engage and Deliver elements right and the Grow piece becomes a lot easier.

Getting The Balance Right

And if it sounds like Kainos is purely a company focused on numbers and profit margins, it’s not. Brendan Mooney was quick to point out that “it’s all about balance”.

As a business, Kainos sets out three ambitions, all of which are important, but they do have a priority order. These are, in priority:

Being a great employer
Delivering value to our customers
Being a growing, profitable and responsible business

The apex of Kainos’ pyramid is its people. It works hard at keeping the talent that it has, as well as attracting more great people. Unlike its NRR rates, Kainos can’t achieve a people retention figure of greater than 100% but its current figure of 86% compares well against the market.

Growth = Consistently Good Service Delivery

When it comes to that third point about growth, Brendan’s philosophy is simple: “If you want to build your business, keep your current clients. Then you can expand in terms of the other share of their expenditure. That’s our thought process.”

And at the heart of that philosophy is a drive and obsession with delivery excellence. Consistently good service delivery helps build trust and commitment and those elements are the key to any long-term business partnership.

I joined an organisation that was young but had a very mature view about delivery. And it was about the premise that if you delivered to your client and you helped them achieve their business objectives, then they would come to you in the future to place business with you.

For us, it's all about delivery – I can't explain it another way. So it's not a complicated concept at all. But the important thing here is the delivery.

Our sales team will always point out that the reason we won that bid was because of our delivery reputation. The reason we won a DEFRA contract for £54 million was that we did Phase One so well that the client was just blown away.

Or the reason that we had a £92 million contract with the Passport Office in the UK was that for the previous four and a half years we had managed to beat every single deadline they'd set into their plan.

And we're easy to work with – that's important too. But if you don’t have that delivery capability, it’s so much harder for any sales or account manager to win. And again, it's a community that self-references quite quickly.

The UK is a bigger place than Ireland, but it's not an enormous place. People will be able to find out about you quite quickly, if you fail to deliver a project.

Key Takeaway

In my interview with Brendan Mooney, we covered a few other topics as well. We talked about how it wasn’t all plain sailing, particularly during the banking crisis in 2008 when many of Kainos’ clients were financial services companies; how they diversified into international markets and made the strategic move to start supporting Workday clients; and the more recent move into digital transformation and agile software development practices.

However, the key takeaway from my interview with Brendan Mooney was this: If you want to grow revenues consistently over time, you need to have a really well-structured approach to engaging with the right clients, and then delivering the goods for them time after time after time.

It’s not rocket science. But that doesn’t mean that it’s easy.

How Do You Measure B2B Customer Experience?

Posted on November 16, 2022 at 1:40 pm.

Written by John O'Connor

How Do You Measure B2B Customer Experience?

B2B Customer Experience

A lot of words have been penned on the topic of customer experience (CX) in recent years. But here’s the thing. Most of what’s written relates to CONSUMER experience.

There really is very little out there about CX purely written from a business-to-business (B2B) perspective. That’s really surprising when you consider that B2B commerce is significantly larger than its business-to-consumer (B2C) counterpart.

So let’s try to redress that with this blog. Let’s explore how CX is, and should be, measured in B2B companies.

The answer to the first question is easy. Most large B2B companies use Net Promoter Score these days. The second question – how should CX be measured – is harder to answer. There are other measurement systems out there so is NPS really the best metric? Does it even work in a B2B context?

What is Customer Experience anyway?

Before we answer these questions, I need to provide a little bit of context to how we got to where we are today. The reason is that the term ‘Customer Experience’ is actually a very recent term. As the Box below shows, the term was first coined in 1999.

‘Customer Experience’ was called something else for most of the last century. In fact, CX was called a lot of different things over the last 100 years.

Professor Saba Fatma traces the term Customer Experience back to a 1999 book by Joe Pine and James Gilmore called The Experience Economy: Work Is Theatre and Every Business a Stage.

The book itself starts with a wonderful example of how the value in a cup of coffee is in the experience, rather than the quality of the underlying commodity (in this case, the humble coffee bean).

This example above is from the consumer, or B2C, world but the concept is equally applicable to the B2B world. Experiences are subjective. They tap into the emotional as well as the rational side of the brain.

A Brief History of CX in the 20th Century

So if CX is a term that only came into common usage at the turn of the 21th century, what was it known as before then? Time for a short history lesson.

A hundred years ago, there were practically no formal customer-related performance measures in existence. That’s not to say manufacturing companies didn’t think about the customer. And it was all manufacturing back then. The services economy didn’t really take off until much later. In fact, it was only after the end of the Second World War that services became the dominant component of western economies. The graphic below shows that in the UK, the services sector hit 50% in 1950. Today, it’s closer to 80%.

Back in the 1950s, it made sense to focus on product quality. By then, management gurus like W. Edwards Deming, Joseph Juran, and Philip Crosby were rolling out a series of techniques and approaches for Total Quality Management, or TQM. That’s what customer experience was all about in those days.

By the 1960s, management theory had become a little more sophisticated. People started thinking not just about the quality of the product being manufactured, but also about whether the customer was satisfied with the product. Did it meet expectations? Did it exceed expectations? This is when Customer Satisfaction, or CSat, measurement started to take off.

It’s strange to think that this was the first time that management gurus started thinking explicitly about the customer.

By the 1980s, most economies in the world were dominated by services rather than by manufacturing. Service Quality became a fashionable, if fuzzy, topic led by American academics like Valerie Zeithaml and Leonard Berry. They proposed measuring concepts like reliability, responsiveness and customer care.

It wasn’t until the 1990s that people like Fred Reichheld (the guy who later came up with the concept of Net Promoter Score) really started thinking about the value of a customer over the lifetime of that person buying from a company, rather than just the value of the individual transaction. Customer Loyalty became the new buzzphrase. Reichheld’s book The Loyalty Effect is still one of the most sought-after management books of the last 30 years.

Also in the 1990s, another couple of American academics Morgan and Hunt came up with their views on the critical role of Trust and Commitment in business relationships. I’ve written about Morgan and Hunt before, in this blog.

Standing on the Shoulders of Giants

While CX is only a little over 20 years old as a concept, it is in fact built on a series of measures going back as far as the 1950s. Here’s the important thing. All of the concepts and measures in the following table are STILL relevant today. Fred Reichheld’s Net Promoter Score may be the most commonly used metric at the moment, but it’s not the only one. It’s not even the best one. But, in its favour, it is a simple concept to understand and equally simple for leadership teams and boards to implement.

ERA	MEASUREMENT
1950s & 1960s	Total Quality Management (TQM)
1970s	Customer Satisfaction (CSat)
1980s	Service Quality
1990s	Customer Loyalty Trust & Commitment
2000s	Customer Experience (CX) Customer Experience Management (CEM) Net Promoter Score (NPS)

When CX met NPS in the early 21st century, it seemed a marriage made in heaven. If the customer experience was excellent, we could measure just how good it was by asking a very simple question: “Would you recommend it?” NPS turned out to be a really straightforward way to measure consumer experience.

But is NPS a good metric to measure B2B customer experience? After all, the business world has had nearly a century of research into product quality, satisfaction, service quality, customer loyalty and business relationships. Should all these metrics be cast aside in favour of NPS?

As Isaac Newton famously said to a letter to Robert Hooke in 1675: “if I have seen further, it is by standing on the shoulders of giants.” CX professionals need to do the same when they consider what metrics to use in the B2B world. By all means, use NPS as a key metric. But also look back to the giants of the 20th century for inspiration.

Measuring B2B Customer Experience – is NPS Enough?

In short, No!

Fred Reichheld’s Net Promoter Score may be a great metric for measuring advocacy and is well suited to consumer environments and brands. Don’t get me wrong – it also has applicability in B2B environments even though I haven’t always been a fan.

The great strength of NPS – its sheer simplicity – also turns out to be its main failing.

Everybody understands intuitively the concepts of ‘Promoters’ and ‘Detractors’. They also grasp the ‘net’ concept. In other words:

NPS = % Promoters minus % Detractors

Boards and leadership team love the fact that it works on all types and sizes of customers. It’s easy to administer as it’s a single question. But therein lies the problem. It’s a single question. It’s very one-dimensional. It ignores all the giants of the 20th century and the work they did to understand what customer experience really involves, and how best to measure it.

NPS tells you whether you have a problem or not. It doesn’t give you the deep insights you need in complex B2B environments about the nature of the underlying problems. Or how to fix them.

Customer Relationship Quality (CRQ)

The answer to the question at the top of this blog – how should you measure B2B customer experience – is to combine the best of all worlds. To stand on the shoulders of the giants of the 20th century. And to do so in a pragmatic way.

The Net Promoter question is worth asking, but in conjunction with a handful of other questions that are built on a foundation of nearly a century of good research. The result is a methodology that we call CRQ – Customer Relationship Quality – which covers six building blocks:

The approach we take at Deep-Insight is to stand on the shoulders of giants such as Deming, Juran and Crosby way back in the 1950s. I’ll come back to this topic again in the near future as I believe one of the most fundamental building blocks on customer experience for any B2B organisation is consistently good service delivery. Our own research shows that service delivery is the most important driver of long-term trusted relationships.

If you’re interested in finding out a bit more about customer experience and how to measure B2B customer experience, download our white paper by clicking on the image below.

Alternatively, give us a call to have a chat.