The X-Interviews | CX Value for Customers

Interview #6 - Maxie Schmidt on CX Measurement & Value Exchange

Dr. Maxie Schmidt on CX Measurement

How do we know that customers value the experiences we intentionally craft?

Today on The X-Mentor we are delighted to have Maxie Schmidt from Forrester Research. Maxie will share an update on Forrester’s prediction for CX Programs in 2023, we will discuss how customers get value (and why companies misunderstand that), talk about the latest on CX Measurement challenges and opportunities and explore use cases for AI and CX Management.

The X-Mentor: Welcome to The X-Mentor, Maxie! Great to have you with us.

Dr. Maxie Schmidt is Vice President, Principal Analyst at Forrester Research and is a Customer Experience expert helping companies create, improve, and sustain customer experiences that drive loyalty and business growth. Maxie leads Forrester’s research on CX Measurement and Value for Customer and advises leaders how to build effective CX Measurement programs and co-create value with customers.

I will add a personal note here to say that people who are the top CX thought leaders think of Dr. Maxie Schmidt as “The Leading Expert” on CX measurement.

CX Career Journey

You know, Maxie, I think our readers would appreciate getting an understanding of how you got to where you are in your Career journey. I mean, as a kid, were you thinking “I want to be a CX expert?” What happened along the way that ultimately shifted you toward Customer Experience?

Maxie: It would sound cool if I said I wanted to become a CX expert when other kids were saying they want to be firemen and firewomen. But it did not occur to me at all until I attended a lecture at the School of Business in Ingolstadt, Germany, where I completed my Masters, and I was so blown away by this professor, by his gravitas, by his passion. And I could see myself in everything he talked about. I could see how customer experience, or services management as we called it back then, was so important for so many people because we are all either a customer or we are involved in creating something that customers will use. And this applicability felt so exciting for me that in that moment, I decided I'm going to study that.

I then did my PhD in services management and then fell a bit off the bandwagon because much of what we did was about being customer centric and having the customer in mind and much of that sounded very fluffy. So, I went into pricing consulting. Which is also about understanding customers, but with the goal of understanding what they are willing to pay for something and then putting the right pricing models in place. So, it's very numbers driven. And that was really interesting for me, that quantitative aspect of how to know what people want. What they'll pay for. But my passion was in the customer experience field and when Forrester recruited me, I was glad to say yes. I've been there for the last 11 years leading the research on CX measurement. But doing, of course more broadly, research on customer experience.

The X-Mentor: So, it wasn't the case that you started your career journey with a focus on Customer Experience. Rather, you met a professor that inspired you and sparked your imagination and passion.

Maxie: Professor Bernd Stauss. He had Germany’s first university chair of services management. And he co-authored the standard book on complaint management, which is an amazing book, still today. Back then, he made the point that CRM is not a technology, it's a strategy. This is my kind of mindset, this whole area of understanding humans that we're serving, making human life better, using technology to do that. Technology is a tool and not the goal.  Prof. Stauss was part of an academic school of services management that had ties to professors in Scandinavia but also at Arizona State University. Like Mary Jo Bittner and Valerie Zeithaml who wrote really influential pieces about customer experience and about perceptions of customers and service management. So that's kind of the academic background that connected America and Scandinavia and Germany (where I'm from).

The X-Mentor: What are you excited about that you see coming next for CX?

Maxie: Maybe a general thing is that the analyst job at Forrester is only boring if you are boring.

[Laughs]

As an analyst, you talk to a lot of people in the profession and see where they're struggling. You see technology trends, you see consumer behavior trends and you realize: Ah, there is an area that I think we really should be thinking about. And whatever that area is, it changes over the years. For example, in 2015, I started writing about Beyond Survey Dependence for Measure. Now we're in 2023 and we are starting to see more people take this seriously. This is the kind of thing that I'm looking forward to doing also in the future. To think about where we are blind to things. And where I could help CX people be more successful? What's some common wisdom that we can debunk?

In terms of topics, I've been trying to get people in customer experience to be more at the leading edge of thinking about the value exchange between the company and the customer.

Only if customers get value from doing business with the company, does the company get value from doing business with the customer.

Most companies don't even know when customers are getting value, right? They're thinking, engagement is value, but it's not. They think usage is value, but it is not. A customer is trying to get something done and they derive value if they get more than they give up in pursuit of their goal. Specifically, along 4 dimensions: Economic, functional, experiential, and symbolic value.

What’s more, as customers pursue their goals, they interact with a lot of people. Just think about buying a car, right? There's a bank involved. There is an insurance company involved. There are friends involved. Maybe there’s a negotiation service involved. There's the dealership and manufacturer and so on. Right?

“All the people and organizations a customer interacts with to achieve goals are his or her customer value network.”

Companies who want to be customer obsessed need to earn a place in that value network. And there are companies who go a step further and try to make navigating that value network easier for customers. For example, DBS Bank Singapore helps you navigate some of that complexity for car buying. Same for Bancolombia in Colombia.

I have already built research on what companies need to do to help customers realize more value. They need to know customers’ journeys and goals, customers’ value networks and customers’ value drivers. And then, as a company, you need to figure out how you can help them. How you can build partnerships, how you can integrate technologies, how to apply your API strategy, etc. to facilitate value creation in that value network.

Now, I am investigating to see how this will change in the future. But in the future how will this develop when you think about personal assistants, generative AI, digital twins, etc. What role could the customer play in this? Supported through these new technologies? And that's something I'm really excited about. We already see some exciting possibilities down the road. And the exciting thing: I get to spend time to find out the answer to this through research and conversations.

The X-Mentor: You've set the stage here for us to drill down on some of these areas and we're going to. When we're starting to look at debunking things, as fast as technology may change, human needs really don’t. Research shows how fundamental human needs really are slow to change – if ever.

Maxie: And for people who don't like research, they then tend to quote the Jeff Bezos letter to Amazon shareholders, that he says he built his business based on things that won't change. E.g., People will always want big choice for low prices delivered quickly.

The X-Mentor: Yeah!

[Laughs]

The State of CX 2023

The X-Mentor: As you know, one of the things that Forrester had published back in October 2022, was the potential impact of 80% of CX teams lacking critical Design, Data, and Journey skills. This led to a prediction that “One in five CX programs will disappear” and the report further stating: “That’s bad news for the 54% of CX pros who told us that their teams are unable to prove the ROI of their projects.”

A lot of people are talking about that prediction in the CX Community. So, I want to ask where do we stand today as we’re more than halfway through 2023 at this point?

Maxie: So, we predicted that the CX teams will vanish on the surface as a prediction. We then were a bit more nuanced in saying that these teams will either lose people or be subsumed into other teams where they're not having the same responsibility or get downgraded in their organization. I see evidence of that every week. We have yet to count how numerically correct we were, but I see a lot of that movement that we predicted happening.

The X-Mentor: So, it's happening. Are we still seeing the same kind of causation around that? Is it still around this idea of not being able to prove value? Or is it something else that's driving that as well? Like economics?

Maxie: There are two answers to that, Greg.

1. The first, and obvious answer is that people in customer experience aren't embedded enough and haven't proven enough that they add value to the organization. In some organizations, that might be an ironclad business case. In other organizations that might be through pilot projects that makes stakeholders say, “We need these CX people.” In other organizations, again, it might just be through forecasting NPS over the five years. It depends really on the organization and how customer-centric the organization is and what the priorities are. But just something we've been saying for years that everybody in CX needs to understand how their organization is making money and what their priorities are to then show that they're driving that; that the CX leader is helping their organization drive outcomes.  

2. Second, I think the environment is getting more short-term. Whatever customer experience leaders are doing is usually a long-term bid: Trying to get an organization to make more customer-centric decisions. But, in a world where we're super short-term oriented, where people think about the next six months or two years rather than longer, it becomes very hard to show what you're doing is creating value. When you think about the customer experience team, in many cases they must fight against very short-term greed driven initiatives. A company might think about increasing fees to get a revenue upside of several million in a year. And then a CX leader suggests a more long-term investment like training agents or changing decision-making to reap loyalty and business benefits down the line. They're going to follow the short-term bets because most of the people making these decisions won’t be there when the second shoe drops, and all see that the decision is hurting the company long term. So, I think the environment is getting more short-termistic than ever.

First, CX needs to put their value in whatever the company needs them to do. But that is becoming harder because of what CX teams do is long term work.

Value Exchange

The X-Mentor: The report states that “one in 10 [CX programs] will be stronger than ever.” The report also projects that 20% of organizations that are embracing great CX and can show positive ROI will reward their CX teams. That suggests an 80% majority of organizations are not embracing great CX.

As I like to say “Rock. Then Roll. Always in that order!” It’s my tongue in cheek, hopefully humorous, way of saying: Value-to-Customer first leads to Value-to-Company – always in that order. More precisely, I’m saying it’s Experiential metrics that drive-up Operational metrics, which in turn drives up financial returns for the organization in terms of revenue, reduced cost, lower risks, margin, profitability, etc.

Why aren’t organizations looking upstream at the [financial] impact of leading Experiential metrics instead of these lagging metrics like ROI and NPS?

Maxie: So, I have a hypothesis based on the last 10-ish years and it has to do with that Value stuff I mentioned earlier. Sometimes, making a direct link between CX and business success can be hard.

There are just industries where customer experience and good business results are inversely correlated.

Think about airlines. The more seats packed into the airplane, the better my profitability and the worse my experience, right? The fuller the retail store, the better my footfall (i.e., # of people entering an area in a given time), the better my sales, the worse my experience.

Now, let’s get to that value link: I said earlier that if customers are getting value from doing business with the company, they will give value in return: they're staying, they're paying more, and so on. When you think about the value the customer gets from doing business with the company, there's four different dimensions across which customers perceive value:

1. Economic value. We're paying fair prices, predictable prices.

2. Functional value. We can achieve something useful to us.

3. Experiential value.  We are having great interactions – with well-designed digital channels or with empathetic employees.

4. Symbolic value. That's the meaning you get from doing business with the company. And that could be about I feel better about myself. It could be who I have a better status in front of my neighbors. It could be, oh, I can take care of my family. That's the meaning.

A good experience is part of that value. That means CX leaders are most involved in the experiential and functional dimension. Less in the economic dimension because most CX leaders don't set prices. Less in the symbolic dimension - that's usually where brand comes in. By the way – CX usually have crucial cross-silo insights about key value drivers across those four dimensions.

As people experience value across those four dimensions, they make trade-offs. They might pay more (less economic value) for a highly sustainable product (higher symbolic value). They might go out of their way (lower functional value) to buy a product endorsed by an influencer (higher symbolic value).

Bad CX lowers perceived value – for example in the experiential (unfriendly employees, bad UX) or the functional value (hard to do business) dimension. And what happens then? Customers will want some higher value elsewhere to keep doing business. For example, they might expect a discount (which is higher economic value and costs the company money) or they want to only buy from a snazzy brand (which is higher symbolic value but costs marketing dollars).

CX leaders who know this can now share the full picture. For example, to say “If people are having bad experiences, we might need to give bigger discounts to get people into our stores.” That story requires a Customer Experience person to liaise with the people who do the pricing. Or CX leaders could say “Having bad experiences means we must invest more in attracting and keeping customers. We must invest more in creating an awesome fun brand. You must invest more in some kind of social Initiative to show that we care, because of the worse experience.” But CX leaders must actively go out to the people who own these different parts of value.

CX Measurement

The X-Mentor: What are your suggestions for the best way to incorporate these 4 quadrants of the Value Network into CX measurement?

Maxie: I did write a [Forrester] report on How to Measure Value for Customer. And you know what I realized? I realized I needed a whole section of that report about “how do I know what customers value.”

So, the first big take away for incorporating value for customer to measurement is to step away from the metrics we often use as proxies for value. Oh, the person has logged in 20 times in the last month. They might find the software very valuable, versus the person has only logged in five times. Yeah, because maybe they must log in so many times because they got thrown out of the program.

There are a lot of metrics that we use that we think are proxies for value but aren't. So, the first step, like in any customer experience measurement needs to be to understand what it is that customers expect and value, and then think about the metrics we can use to measure that. There are some good examples like HESTA, a pension fund in Australia, (a 401K for the US readers). And they were able to measure economic value by looking at the returns that a person made with their 401K. They're able to measure functional value by looking at whether people were ready for retirement (they predicted whether their retirement savings would match their need for spending in 20-30, forty years). They measured experiential value through the ease of interacting with the call center person and other metrics, and they measure symbolic value through the members perceptions that pension fund really shows up for them. But this firm did that by first understanding what the drivers of value in these 4 dimensions are and then finding metrics. That's the first thing that you need to do.

The X-Mentor: Yeah, I see this proxy metric problem often, especially in software. Product Managers will fill a performance dashboard with proxy metrics exactly as you described. They are literally looking at this dashboard and wondering why aren't the numbers going up? The answer is obvious, you haven't created any value yet. Plus, it’s not a customer value metric in the first place!

Maxie: Don't get me wrong. I have nothing against proxies. However, what we do often is put a proxy in place and then that's it. When we need to first understand what it is that people want. For example, people want to feel confident in their financial decisions. Maybe there's a proxy around how many times they call back with the same question. But maybe that proxy is not so great, so you need to ask them in a survey or do text analysis. For each driver of experience and value, we need to carefully decide what the best way of measuring it is and if we use proxy metrics, we need to check back every so often to see if they are still good proxies.

The X-Mentor: I’m wondering what would change the metrics in the C-Suite? For example, if they care about revenue, cost, risk, profitability and margin and things like that, why not give it to them up-front and early-on as those numbers are rolling up from all the journeys of their organization? They might see a picture developing where their costs are about to [predictively] go off target in some of their most critical customer journeys. What if we gave CX Practitioners the ability to go in and pull levers so that it changes those outcomes? Might that shift this “short-term greed driven initiatives” view and behavior you were talking about a few minutes ago?

Maxie: I'm aware of that journey economics work that you mentioned.

That’s where the business case for CX has to go.

In 10 conversations that I have, 5 are about the business case and in each of those five conversations, I tell people that tying customer experience to revenue at the company or organization level is a sexy story at best. “Oh, One point of NPS at these companies, it's worth X in revenue.” Full story, it gets you some air cover. But the real work happens at a journey level. Where you can measure very specifically whether a journey is successful. And when I say successful, I mean successful for a company and the customer. And then you can see how much it costs you, which is part of success. And you can see what it would take to improve it. For example, take a mortgage journey. The mortgage journey is successful for a company if they sell lots of mortgages, ideally to customers who don't default. And the cost to sell per mortgage is low because much of it happens digitally. That's success.

For customers, it's successful if they get the mortgage before they need to close on their house. And if they get a low rate, and if they feel confident that they made the right financial decision. Again – these are quite specific success metrics that you can measure.

The X-Mentor: What do you do with the journey success metrics?

Maxie: First, you identify signal metrics along the journey that predict success. And then you put both in a business case. Then you look at what interventions we are trying to make for a journey. Would those interventions improve the signal metrics, and would they eventually improve success? And what investments are required?

 For example, you might think about adding an affordability calculator to a mortgage journey. You know what these costs you. You have some design costs, some implementation costs, but you also know that this is most likely going to affect the number of people who make it through the journey. The number of people who feel confident in this decision. Your cost to sell each mortgage. And now you suddenly have a really good business case for improving the mortgage journey. Basically, now you’re getting away from this idea of trying to say, OK, if we improve this journey, our NPS will go up by one point, which means our overall revenue will go up by X. That's hard to do.

But if you improve this journey, this specific success metric will go up. And if you aggregate across all journeys, here is the impact we're making.

The X-Mentor: When you mentioned the mindset of Forrester analysts asking “what common wisdom can we debunk” earlier, that really delighted me. I'm of that mindset too. I know things are not optimal with NPS – making it a good target for debunking.

It feels like there's a great distance between anything actionable coming out of NPS and what's immediately happening right now in our journeys. It’s the latency issue.

Forrester has their CX Index that shows a correlation between a 1-point increase in that CX Index and X $USD worth of revenue, right. Forrester has also shown that CX leaders outperform CX laggards in stock performance.

Maxie: We can indeed show how each point in increase on Forrester’s CX Index drives business growth for 13 industries. And that's a great story that gives you air cover. But then the real work of the business case happens at a much more granular level (e.g., journey).

The X-Mentor: Okay, then there’s this notion of modeling ROI. And you know, I've had this conversation with other people, including a retired VP of CX who launched the CX practice at Forrester, and we've concluded that CX professionals just don't see modeling ROI as part of their job.

So, it brings into question, why isn’t the CFO more involved? Why aren't CX & CFO partnering more?

Maxie: CX leaders need to step up and take responsibility but sometimes the context is the problem. A CX leader might want to show that the most profitable customers are also the ones that are having better experiences. Or that costs to serve are lower for happy customers. But the organization doesn’t have the data to make that case. It’s hard for people in customer experience to make the business case when the companies don't have the financials to back them up to help them make that case.

I hope that executives will heed Fred Reichheld's call for a customer-based accounting which he did in his latest book when he suggested Earned Growth as a success measure.

The X-Mentor: I'm still thinking about how to move CX Measurement further up, so we are looking more at the leading metrics and continuously monitoring and tweaking customer interactions in our journeys.

You have written about interaction metrics, and how that drives up perception metrics, which in turn drives up outcome metrics. All measured in the context of Touchpoint, Journey, and Brand.

Thinking about where we are today, and where technology is taking us, how might you see the operating environment around CX Measurement and Management changing?

Maxie: Yes, that’s our core model for the CX measurement research area. For readers who aren’t familiar: Interaction metrics measure what happens in an experience; wait time for example, or even how many complaints I've had during the last year. Perception metrics measure how I feel about the experience, how I feel about the last call, how I feel about the last journey, how I feel about my relationship with the company. Outcome metrics measure what I do because of these feelings; including retention, NPS.  You should measure those three types of metrics at the relationship level, at the journey level, and at the touchpoint.

Let's take a mortgage journey. Interaction metrics tell you that there are lots of steps necessary, lots of waiting time until the decision comes in. Perception metrics tell you customers are frustrated and unhappy. Outcome metrics show that customers don’t complete the journey which affects business performance.

What I think will happen now with technology, it will become easier to put these metrics in the same place to be able to analyze them because only if you can do that ideally at the customer individual level, can you really see their nuances.

So, take an early example of that, Allied Irish Bank. They were able to put the decision time for a loan, the satisfaction, NPS, and conversion all in one place and see relationships between those metrics. By the way, NPS is not a metric that measures CX quality. I.e., How I feel about the experience. It measures my resulting loyalty.

Looking at these three types of metrics, most CX leaders only “own” perception metrics that they collect in surveys; sometimes outcome metrics that they get from surveys, like NPS. For other data, they need to go to other stakeholders. But with technology and data coming together, they might find it easier to bring this data together, and they might find it easier to model the links between these three types of metrics to then point the organization to where it's most important to invest.

The X-Mentor: “Ownership.” That’s a cultural problem. And it’s been around for as long as I can remember. It just doesn't seem to change because people associate power with access to, or control of, the company’s resources - data being just one.

Maxie: It's a cultural problem for sure. It's also a bit of a legacy problem, because the second thing that happens is the data that we have is also available in different kinds of levels of granularity. Perception metrics are on the customer individual level, if I can go so far, privacy rights and so on.

But interaction metrics are measured e.g., per month, not for a particular customer. These interaction metrics are often channel focused. The website loading time is X this month. The wait time in the call center is Y in that week.

Outcome metrics behaviors again we have either at the aggregate level or we don't at all have these behaviors measured. So, it is not just the ownership of data that is a challenge. That's where this journey approach becomes very interesting because we're getting to a point where we're trying to look at an individual customer's journey and trying to find data about that individual customer's journey as they go through a digital experience, through a call center experience, through a store experience, how they feel about that and what they do as a result.

AI & CX Management

The X-Mentor: We've got just a little bit of time left here so I’d like to get your hot take on CX plus AI. Recently, we’ve seen some examples of how AI is being used to nudge customers to get them back on track toward goal completion in their journeys.

Have you given any thought to things like AI companions for CX practitioners or AI automation for CX?

Maxie: Yeah, we as a team have spent a lot of time thinking about the use cases of generative AI for CX. There are two types of use cases of generative AI for CX.

1. Improve customers’ experiences. Generative AI can create explainers for standardized documents. It can help design better customer experiences, produce content, make content and experiences more accessible, create more personalized experiences, improve customer service and enable agents, etc.

2. Make CX professionals more effective and efficient. Take the role of GenAI in design and user research, in the summarization of feedback, think about suggestions for emails to closing the loop with customers. Or journey management where there is upside and scale, even for less technically inclined users. Lots of use cases around enabling customer experience people to be more successful.

The X-Mentor: Like, listening to every customer conversation. It’s one of the things that humans can't do as well as AI. AI can listen to every conversation, on every channel, and that's entirely possible now, which is mind boggling.

But at the same time, when you think about it. Well, what do you do with that, right? Let's say you're looking at a specific journey. You're listening to a customer call. You're listening to a representative interacting with the customer. Now you know if AI is listening, theoretically, it can tell you whether you're creating a promoter or a detractor, like on an NPS scale, for example.

Naturally, if a CX practitioner knows that things are not going well, then maybe they can ask the AI for suggestions on how to turn that situation around and make it a positive? Or maybe the AI automates it, like routing calls to the right [Human] expert who can best address the problem.

Maxie: At Forrester we still advise caution when thinking about using generative AI in live customer conversations because it creates unpredictable suggestions. It creates coherent nonsense. But I can still enable an agent with suggestions. But – like with all AI- you need to have an expert in the loop who can evaluate whether that's a good idea. And doing that on the fly for the agent is very hard, right? On the on the fly. The AI suggests something, the agent is attending their time target, and then it's like, “oh, I'm just going to say that.” It's very hard. It's a Lot to put on the agent. By the way, that's not research that I've done. Check out the wonderful blogs of my colleagues Christina McAllister and Max Ball.

The same thing goes for the other use case. Remember, I mentioned that the CX people might be more effective through generative AI? You can now go out there and have generative AI create a survey for you. I tried this; I asked generative AI to create a survey about my performance as a wife.

[Laughs]

And the survey wasn't terrible. And I would say to a non-survey expert it would have looked good. But I am a survey design expert and I know that you can't use different scales. I know that you can't use certain formulations. I know that you must use the scales all the same way around. So, there was a lot that I would have had to do on that wife performance survey before using it. And that's one of the key things that we see that expert in the middle, based on everything that AI creates is crucial. And that cannot happen easily in live conversation. So, you then need a lot of governance around that if you want to make that work.

The X-Mentor: So, having an expert in the middle. Is that like having a CX companion? I.e., CX practitioners with an AI companion working together? Or how would you characterize that?

Maxie: I see it more as picking those use cases where you can make sure that there can be an expert in the middle. And where you're not expecting too much of a normal employee to suddenly become an expert.

Just back to the use case I mentioned earlier with the call center agent. Do they really have to decide in every call: “Should I use that suggestion or not?” That's too much to ask, right? And then the same thing with customer experience. Should customer experience professionals now say, “oh, everybody can write their own survey with Generative AI.” No, please don't! Right. That's a terrible idea.

I think the enthusiasm for Generative AI is high. But the awareness that we actually might need more time, because we need the expert in the middle, is low.

The X-Mentor: So, in other words, curb your enthusiasm. There is always going to be this place where it's inappropriate for a machine to take full control here. There's always a place where the human must be involved.

The broader message here, I think, is to ensure that we're being mindful. And not being too blinded by the enthusiasm over the potential of this new technology. Right?

Maxie: Yes, yes, and yes.

Maxie: Which, Greg, makes a very important point for all our readers. You need to manage expectations. And don't let your bosses think that writing a survey is now a 5-minute job because generative AI is involved. It is still an hour-long job.

[Laughs]

It is that you're starting from a different point, but you still need the time to make sure it's right. And by the way, you still need to pretest it and so on, right? But that's important that we often think there is efficiency to be gained. And then think that we need less time for things. But we need the time for other ways to massage the products that are being created by a Generative AI.

The X-Mentor: A perfect parting message!

Maxie, thank you so much for joining me today for The X-Mentor interview. Such an awesome conversation. I’ve learned a lot and I’m sure our readers will too. So, I truly appreciate everything that you've shared today! I feel we’re at a pivotal moment for CX. While we are indeed seeing a lot of change, there’s also a lot of hope it all leads to a better place.

ABOUT THE AUTHOR(S)

Maxie Schmidt is Vice President, Principal Analyst at Forrester Research, leading Forrester’s research on CX Measurement and Value for Customer.

Greg Parrott is The X-Mentor and publisher of The X-Interviews.