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Do You Really Need a Customer Czar?

Do You Really Need a Customer Czar?

Here's how to figure out if a chief customer officer makes sense for your company.

A few years ago, a very large financial institution changed its billing date from the 15th to the 30th of each month. Somehow, the company failed to tell both its customers and its own call centre about the change in advance.

"Guess what?" says Jim Fox, who was then a McKinsey & Company consultant and worked with the institution. "When people didn't get their bills, they started calling." Call-centre representatives couldn't tell customers why they hadn't received their bills. Thousands of nervous callers tied up the lines, demanding that reps look up their balance. "Those were 10-minute calls," Fox marvels. "They cost about $15 each."

Mindful of such snafus, when he and other McKinsey alums launched EqualFooting.com in 1999, they insisted on a chief customer officer (CCO) from the first time they sullied a whiteboard. "It was in the first business plan," says Fox, who is CEO of the Virginia-based business-to-business exchange. A CCO would have prevented the financial institution's blunder, he says. "Any change in billing, that's a touch point - the CCO has to be consulted."

Now that customer relationship management (CRM) is on the tip of every CEO's tongue, some companies are appointing chief customer officers. Others, while reluctant to create a new board-level position, are creating such titles as vice president of customer experience and imbuing the position with sweeping power. Whatever the actual title, the new czar's job is to ensure that substantive decisions revolve around the customer. Some top execs can't imagine life without a CCO; sceptics contend that for many organisations, creating another seat at the boardroom table could very well be a recipe for disaster. Does your company need a CCO? Or is this a management fad you'll want to take a pass on?

Start-ups and Shake-ups.

Meta Group and GartnerGroup both predict steady if unspectacular growth for the new role. A Meta report projects that by 2003, 25 per cent of all Global 2000 businesses will have a CCO or equivalent; Gartner says 15 per cent of US companies will have a customer czar by the end of 2003. Wendy Close, a Gartner research director, cites several drivers for the position's adoption: "Companies are becoming more customer-centric. And there's increased global competition and demand for new levels of customer satisfaction."

At Cisco Systems, senior vice president of customer advocacy Douglas Allred has held his position since 1991, making him one of the field's pioneers. Cisco's customer service, product design and IT groups report to Allred, who oversaw a shift in the company's compensation model that tied managers' paycheques to customer satisfaction.

But so far, few large corporations have a CCO or similar position. While businesses' increased focus on the customer is undeniable, the customer czar position itself "is not yet real in the Fortune 1000", according to Frank Ingari, founder and chairman of Wheelhouse, a marketing infrastructure services company in the US. Today, most CCOs are found in start-up companies.

Doubters suggest that while a CCO makes sense on a start-up's clean-sheet-of-paper organisation chart, attempting to retrofit a customer czar into a larger, established business may cause confusion about responsibilities. "Coordination of [sales, marketing and customer service] is already well done" by most companies, says Jerry McLaughlin, CEO of Branders.com, a California-based online provider of promotional items. "And if it's not, why would it be done well by someone called a CCO, but not by the COO?" The sceptics also fear the position could alienate executives - such as vice presidents of marketing and sales as well as CIOs - who view customer service as part of their own domains. They maintain that CCO is an inflated title cooked up in reaction to the latest management mantra of customer-centricity.

But even if CCOs are doomed to join chief knowledge officers and chief quality officers on the corporate scrap heap, is that sufficient reason not to appoint one? Some, including a few customer czars, say that while the title may have a limited lifespan, it is nevertheless needed to shake up the organisation. "You had chief quality officers in the 70s and 80s," says Ingari. "They tended to be around for a while, then go away. That's not a bad thing." Like quality officers, who were charged with evangelising a cause that never should have slipped off the radar screen but somehow did, perhaps the CCO is a valuable player, transitory by nature, whose top priority is to put himself out of a job as soon as possible.

The CCO's To-Do List.

Because the role is so new, it is difficult to pin down the customer czar's responsibilities. Sometimes, the position seems defined as much by what a CCO does not do as by what he does.

"I'm not the complaints department," says Lacey Roe, CCO at EarthLink, an Atlanta-based Internet service provider (ISP). Though it's intuitive to think of them as ombudsmen for the customer, CCOs insist this is not the case. "The ombudsman is taking complaints and running them up through the organisation," Ingari says. "The CCO is advocating in top management, asking: ‘What should we do to make ourselves better?' It's proactive versus reactive."

"I'm opening channels for customers to communicate with us," says Ted Uczen, CCO at NuEdge Systems, a CRM software and services company based in Milwaukee. "We're not just waiting for customers to call." Uczen organised a customer interface SWAT team that literally sat behind users at 35 customer organisations and watched them work with NuEdge's software. The users "came up with great ideas", Uczen says. "We wrote them down and brought them back" to be designed into future releases.

Most customer czars are expressly not focused on customer acquisition - marketing's turf - but rather on existing customers. In June 2000, Roe became EarthLink's CCO after a merger with MindSpring that created the country's second-largest ISP. "The vision was, let's have someone [in senior management] who's not focused on getting new customers in the door," she says.

To some experts, the emergence of the CCO role is natural and inevitable, given the expense of acquiring new customers; hanging on to existing ones is a relative bargain. According to Patricia Seybold, CEO and founder of Boston-based Patricia Seybold Group and the author of The Customer Revolution! and Customers.com, "People who take seriously the challenge of customer-centricity realise that the big impediment isn't ‘Do we know who our customers are?' but ‘How are we treating our customers? Does anybody have purview across business lines, channels and touch points?'."

Cisco's Allred says organisations that grasp the importance of customer satisfaction won't hesitate to name a customer czar. "If your customer satisfaction is decreasing, you're in a death spiral," Allred says. "Customer satisfaction equals customer loyalty. If you really understand that notion, you will systematise your organisation around continually increasing that metric."

Allred speaks from experience. In the early 1990s, Cisco's internal surveys showed that customers were increasingly unhappy with the company's order fulfilment, which took 12 weeks on average. "Satisfaction dropped quarter after quarter, from 3.9 [on a scale of 1 to 5] to 3.3," Allred says. "Customers said they wanted orders in three weeks. We knew we had to pull out all the stops to hit that."

So in 1993, Allred championed Cisco's decision to adopt a new Oracle ERP system in just eight months - about a quarter of the time most businesses then took to implement that system. The hurried schedule resulted in upheaval and some grumbling in Cisco's finance, manufacturing and customer service organisations, all of which had grown comfortable with the 12-week lead time. But according to Allred, customer satisfaction with fulfilment rose steadily once the system was in place and fulfilment time was slashed to three weeks or less; in its most recent quarter, he says, the company achieved a 4.3 satisfaction rating.

At EarthLink, which sometimes pays $US100 or more for a customer, Roe is also using proactive tactics to try to keep churn rates below 4 per cent. (The industry average, she says, is closer to 8 per cent.) In November, she revamped the retention services department to begin testing proactive customer assistance programs. The department now monitors customers' potentially unhappy experiences and calls them before they become disgruntled. For example, if retention services notices a customer is using a suboptimal dial-up number and thus is sometimes having trouble gaining Internet access, that customer gets an unsolicited call with advice on solving the problem.

This type of program might not find traction in a company without a CCO, because technically, the customer is not yet unhappy - and therefore is nobody's problem. "They're not complaining, but we know they're having trouble," Roe says. "We say let's spend a little money, make sure they're happy." Roe says this program and others have shown "a 20 to 25 per cent reduction in churn in targeted test results".

Does CCO Mean "Cuckoo"?

To be effective, CCOs must tackle the formidable tasks of eliminating functional silos and coordinating departments that may be only tangentially aware of each other's activities. "A lot [of the job] is consensus building, training, major change management," Seybold says. "This is not easy."

"You have to manage the cross-functional nature of the position," says NuEdge Systems' Uczen. "It doesn't fit neatly anywhere." Liz Shahnam, vice president and director of the CRM Infusion Program at the Meta Group, notes that CCOs "aren't functionally responsible for most of the domains they need to influence: CRM, sales, service, marketing." She says that all these dotted-line relationships have led some executives to joke that CCO stands for "cuckoo".

Customer czars also find themselves influencing the selection of customer-facing technologies - and most have backgrounds in marketing or business consulting, not IT. However, "people with this job are not technology-shy," Seybold says. "They learn what they need to know. The important thing for a CCO is using technology to improve the customer experience." Roe says that while she is ultimately responsible for EarthLink's CRM initiative, "we rely on IT for the nuts and bolts. We say: ‘Here's what we want to do. Can you help us find the system that works best?'."

Similarly, Angie Kim, CCO and cofounder of EqualFooting.com, drove the company's strategic decision not to outsource customer service. "Those people talk every day with our customers," she says of the company's customer service reps. "We wanted to keep that in-house." Then Kim worked with IT to create the customer service centre.

Do You Need Another "O"?

So, does your organisation need a CCO? The answer depends on your company's size, age, present management structure, market and risk tolerance. At a large, established corporation, appointing a customer czar - and imbuing that person with the power needed to get the job done - is likely to shake the organisation to its very foundation. This helps explain why most of today's CCOs are found at young businesses, which have the luxury of building their management structure from the ground up. Exceptions to this rule include Cisco's Allred and Alex Sozonoff, who was appointed vice president of customer advocacy at Hewlett-Packard in 1998. But within the technology industry, noted for its early adoption of new ideas, Allred and Sozonoff are in good company. Although analysts say they expect customer czars to catch on in such fields as retail and hospitality, for now most CCOs are clustered in the technology sector.

Vast, complex organisations such as General Motors or Procter & Gamble are less likely to have a single CCO because the sheer number of customer touch points would likely be too much for one person to handle. A Gartner report on the CCO phenomenon notes that "some enterprises may find that it takes multiple individuals to fulfil all of the necessary roles", adding that organisations may choose to spread the duties around. The report also concludes that "there may not be a need to implement [a CCO], depending on the structure of the business or the quality of client communications". In other words, a company with great customer satisfaction ratings whose customer-facing operations are perking along simply may not need a customer czar.

Broker Charles Schwab is often cited for its customer focus, yet the company consciously decided against naming a CCO in favour of a team approach. "We don't want to name just one czar," says Kathy Yeu, Schwab's vice president for retail service quality. "Everyone is responsible." Rather than a single CCO, Schwab has a customer quality assurance committee made up of board members, including co-CEOs Charles Schwab and David Pottruck. Don't look for Schwab to name a CCO any time soon. "I think Chuck Schwab sees himself as the customer czar," Yeu says.

For now, plenty of good seats remain on the CCO bandwagon. A Meta Group report from January 2000 concedes, "We do not currently find a dramatic uptake on this new CCO role, due to the tremendous degree of organisational change it requires." Which is not to say the feat is impossible. According to Seybold, who wrote a case study on Hewlett-Packard for The Customer Revolution!, when CEO Carly Fiorina took the reins at the $US48.8 billion company in July of 1999, "she realised the product-centric organisation was driving [customers] nuts".

Seybold says that on reorganising Hewlett-Packard into two customer-facing entities - one for businesses and one for consumers - Fiorina appointed a vice president of total customer experience in each organisation. Sozonoff, who remains vice president of customer advocacy for all of HP, is responsible for the commercial group; another vice president oversees total customer experience for consumers. The executives wield broad power. For example, according to Seybold, a new metric helps determine Hewlett-Packard executives' compensation; in addition to profit and revenue growth, paycheques are now tied to customer satisfaction and loyalty.

What CCOs Need To Succeed.

If you do name a CCO, what must you do to give that person an honest shot at success? Here at least, practitioners and experts unanimously agree on one thing: a customer czar needs the full backing of the organisation's chief executive officer. Lynn Wright says that her boss's support "was vital" in her first CCO stint at the former Mustang.com. "[Other officers] didn't understand what I was doing - but they understood I had that backing."

NuEdge Systems' Uczen agrees: "If you just throw the position out there, you're going to fail. You need to have the CEO step up and explain why it's needed." As Meta Group's Shahnam puts it, "You need to report to the CEO, because that's the only hammer you're going to have."

If you're creating a new CCO position in an existing company, Seybold recommends looking for someone within the organisation. "That person has to have huge credibility," she says. "They need to have earned their stripes and people's respect. They have to have delivered value in the past." She says CCOs will draw on this credibility to implement the changes required to build a more customer-centric culture. Without that clout, Cisco's Allred might have had trouble mandating the link between managers' pay and customer satisfaction.

"We hold every manager accountable for two things: financial results and customer satisfaction increases year over year," Allred says.

Credibility will also help in any turf wars that arise. "Typically in the CXO ranks, officers compete with each other," Gartner's Close says. "Are those officers going to back up the hiring of a customer czar? I just talked to a CEO who thought customer-relations issues belonged under him."

Regardless of your business's size or market, the most important factor in deciding whether you need a customer czar is risk tolerance. At an established company, a properly chartered CCO will make both waves and enemies while cutting a swath across traditional fiefdoms. Appointing a customer czar is a high-risk strategy. How radical a change do you need? If your customer satisfaction ratings are in decent shape, but say, your call centre needs some attention, you can get by with less drastic measures. If, on the other hand, most of your customer-facing operations are in tatters, maybe it's time to blow things up. As Wheelhouse's Ingari says, "CCO is a job that comes with a fuse". That's true for employee and employer alike.

Should You Appoint a CCO?

A CCO is a good idea if:

Your customer satisfaction ratings are plummeting and the situation requires desperate measures.

Your business is reasonably free of silos and frequently uses cross-functional teams.

Your CEO is willing to throw all her weight behind the customer czar's cause.

A CCO is a bad idea if:

You're not willing to give a CCO sweeping powers, such as the freedom to tie compensation to customer satisfaction.

You've already got a senior executive who's a passionate proponent of customer-centricity.

You had a chief knowledge officer for about six months in 1996 and nobody knew what the heck he did.

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