The ultimate measure of HR programs is how well they help attract and retain customers and improve their satisfaction.
Imagine you have just returned from an HR conference full of ideas for a new initiative. You assemble a task force and implement the companywide initiative. After some initial resistance, the ideas take hold, and the program becomes part of the way HR does its work. You declare victory and delightedly move on to the next new thing. Sounds ideal, doesn’t it? When we tell this kind of tale, people tend to snort and say, “Nothing ever goes that smoothly.” True, we say, but even if it did, would it be a success story? And the answer we get is generally, “Yes.”
We disagree. This experience is a “false positive,” something that sounds successful but is at best incomplete. The success of an HR initiative should be measured not by how well its design and implementation went but by what it did for the organization’s key stakeholders. HR actions create value only when they create a sustainable competitive advantage.
Creating a competitive advantage can be simplified into the “wallet test.” Like product development initiatives and marketing programs, HR initiatives create a competitive advantage when they persuade customers to transfer money from their wallets to the company’s instead of to competitors’.
The concept of value is central to changing expectations for HR professionals. value is defined by the receiver more than the giver; HR creates value when those who use the services of HR gain from them. Traditionally, this has meant that because of HR practices, employees are both competent (able to do the work) and committed (willing to work hard). In addition, line managers get value from HR when its activities help deliver strategy and reach business goals. These ways of providing value are easily seen for internal stakeholders, such as employees and line managers.
We believe that HR will greatly increase its value in the future as HR professionals and their practices help external customers become more connected to the organization and encourage investors to invest in the firm. Our research has shown that HR professionals from high-performing firms have substantially greater knowledge of external factors, such as customers and investors, than do their counterparts in low-performing firms. Furthermore, HR professionals from high-performing firms are much more likely to account for external customer requirements in the design and delivery of HR practices than their low-performing counterparts. (In our work, high performance is defined as the financial performance of the firm over the past three years compared to major competitors.)
HR’s emerging contribution is to design practices and activities that build customer share, with target customers making a larger portion of their purchases from the firm because of relationships formed with it, and investors increasing their valuation of a firm’s assets because HR has helped create an organizational reputation that garners the confidence of the investment community.
So how can HR professionals deliver value to external stakeholders and customers? While we have written elsewhere about how HR can create value for investors, this article focuses on how HR can build customer value. We suggest five things HR professionals should know and do to help improve customers’ experiences and deliver value through customer share:
- Develop customer literacy.
- Think and act like a customer and a competitor.
- Measure and track the firm’s share of targeted customers, and contribute to their value proposition.
- Align HR practices to the customer value proposition.
- Engage target customers in HR practices.
Customer literacy means knowing who the customers are and why they are buying from you. Which customers represent 80 percent of your firm’s revenues and profits? These are the target customers, and they should be the focal point of your firm’s HR activities. They are the customers whose loyalty and intimacy you want. They should be uppermost on the mind of every employee. To help employees become customer-centric, HR professionals should be able to pass a customer literacy test that addresses these questions:
- Who are the five major buyers in the markets you serve?
- Who are your firm’s five major customers or most important market segments?
- If the market includes major potential customers who do not buy from you, why not? What is the customer value proposition of competitors that attracts and keeps their customers?
- Why do your target customers buy from you? What combination of service, value, reputation, product features, convenience, innovation or quality keeps them coming back?
- How do you ensure that your target customers have a positive customer experience?
- What do you do to build connectivity or intimacy with your target customers?
This kind of knowledge allows HR professionals to turn customers’ buying criteria into visible employee and organization actions that will satisfy customers.
Think Like Customers and Competitors
For HR professionals to fully appreciate customer experience, they must learn to think and act like customers. Ask yourself, “If I were a customer, would I like being treated the way we treat our customers? If I were looking to make a purchase and could choose among several vendors, would I pick my firm?” Buy your firm’s products without telling anyone where you work. Use competing products.
Now think like a competitor. Identify the weak links of your firm’s offering that a rival might go after. Review existing market research and tapes of customer focus groups, and talk with marketing and sales professionals.
To get direct and unfiltered customer information, consider attending trade shows where you can talk with customers, or go where customers buy products and watch them in action. Join sales representatives for their calls on key accounts. As you become involved in these direct customer contact activities, always be ready for the customers’ question: “Why should I spend time with you?”
Activities like these probably aren’t in your job description, but they will help you see what your firm’s customers really care about.
Customer share—also known as share of wallet or share of customer—is replacing market share as the key measure of success. Customer share is the proportion of money that your target customers spend with you compared to with your competitors. It provides a direct indicator of your firm’s reputation among its best customers—and it doesn’t just happen.
Instead, it is driven by relationship management with targeted customers, and HR professionals have the ideal skills, background and position to assist in developing, sustaining and leveraging the relationships. HR programs should ensure that satisfaction of target customers is one of the indicators of employee performance. In addition, they should reward and recognize outstanding customer service. The more effective these programs are in communicating to employees the importance of target customer satisfaction, the more powerfully they will instill a sense of accountability for customer share.
Gaining customer share may mean selling additional products and services to existing customers. For example, Disney cross-sells products in its theme parks and stores—employees in the theme parks recommend Disney products, and employees in Disney stores recommend theme parks. HR professionals charged with orientation and training can help employees know and discuss the array of products offered by the firm, and can help them understand how to sell its full range of products or services. HR also can provide measurements and rewards that encourage cross-selling.
To please customers, employees need to know how customers react to their experience with your firm. HR can step in to help develop ways to identify, gather, distribute and utilize concrete customer data. At one retail chain, for example, HR was part of the team that designed a system to track customer experience by asking purchasers these questions:
- Overall, how satisfied were you with your shopping experience?
- How responsive was the employee who helped you?
- How reliable was the employee who helped you?
- How much empathy did the employee who helped you demonstrate?
These items then formed an index of overall customer satisfaction. In addition, each sales receipt identified the employee who worked with the customer, and the retailer prepared a monthly customer-experience score for each employee. Despite occasional employee efforts to bias the survey responses (by urging customers to give positive answers), the index provided useful information on employee performance. For the first six months of the system’s operation, the data were simply shared with employees each month. Then they became part of the formal performance review system.
Align HR Practices
The most value-creating HR practices are designed to meet the needs of customers and ensure that they have a positive experience. That is, HR needs to make sure that the firm’s employee staffing, development, rewards, communications and governance practices all work to recruit and encourage the skills and motivation needed for customer commitment. Such HR practices will build customer loyalty over time.
Staffing. We once asked a senior executive team, “If your major customers could hire 20 officers to run the firm, would they hire the 20 of you?” Someone answered, “How could they do that? They don’t know who we are.”
We suggested that they think about this comment, pointing out that what was going on inside the firm might not be adequately connected to what was going on outside of it. Customer-oriented values, after all, should permeate all phases of talent flow, beginning with the criteria for hiring and promotion. What knowledge, skills, values and norms would customers want key employees to have? What would a customer want to see more of or less of in employees’ behaviors?
Training. If customers attended a training event, how would they feel about the content being taught? Would they say that the session helped employees gain value-adding skills? Would they be willing to pay for the event? In essence, customers do pay for training indirectly. Yet too often, training and development experiences are created without careful consideration of customer buying criteria.
Rewards. Standards for what employees should be, know, do and deliver need to reflect customer expectations and enhance customer experiences. Too often, however, they focus on evaluations from inside and not outside the organization. If customers were to review one of your firm’s performance appraisal forms, how would they react? Would meeting the explicit standards and measures mean that employees have provided good customer experiences?
Rewards also can be aligned to customer expectations. Employee bonuses, for example, may be tied to customer experience ratings (loyalty, satisfaction, customer share). And don’t limit the process to financial rewards; nonfinancial rewards may well have a more lasting impact. For example, consider allowing customers to honor exceptional employee service—as defined by the customer.
Communication. The best brand works both inside and outside the company, sending consistent messages about what the company stands for. The quality of both employee and customer communications may be measured by the percentage of employees and customers who feel that they are heard and that their needs are listened to.
Governance. How the firm is organized, allocates resources and makes decisions also should be tailored to targeted customers’ requirements. Some customers want a single contact point; others prefer being able to work separately with subunits. Likewise, some customers will want (and pay for) personal contact; others will be more comfortable with an online interface. Whatever the target customers want, the firm should be able to provide processes to meet those needs.
In each of these cases, HR practices should reflect and reinforce target customer value propositions. As the keeper of the system, HR is ideally placed to institutionalize customer value into the organization.
Belief often follows action. Including targeted customers in HR practices can increase customer commitment to the firm. For example, customers can be involved in designing the content of performance appraisals and training programs. Many HR professionals are finding creative ways to include customers in HR practices.
Staffing. An airline attempting to make flying more fun invites finalist candidates for flight attendant jobs to audition in front of a panel of frequent fliers. A restaurant selecting a chef asks target customers to taste recipes of the finalists and vote for their preferred chef. A hospital invites physicians, third-party payers and investors to interview potential administrators.
Training and development. General Electric’s Crotonville, N.Y., training center opens many of its programs to customers, particularly customers from emerging markets. Specific individuals from emerging markets with strong growth potential are jointly selected by GE and the sponsoring governments, potential partner companies or potential customers. During these programs, GE educates the potential key customers about the management philosophy and decision–making processes that have made GE successful. GE benefits by learning how to better think and act in these new markets, by creating strong interpersonal ties with future customers and by creating a common understanding of business dynamics with future buyers. The trust and understanding of the full capabilities of GE that are created during these programs has helped GE secure and deliver major contracts with customers in developing markets.
Another useful move is to enlist customers as presenters—and not just on technical topics. Customers are often willing to share candid observations about why they do or do not purchase certain products. For example, an electronics company invited three former customers who had recently gone with a competitor to attend an officer meeting and talk about their decisions. These three lost customers collectively represented a major erosion of accounts, and officers at the seminar not only listened but committed to take action. The customers were at least disposed to see if they succeeded, and the insights helped reduce further defections.
HR framed the involvement of these customers in the seminar as part of more-comprehensive developmental initiatives for senior management. HR helped select the dissatisfied customers, communicated with them about the seminar content and facilitated action-planning sessions after receiving their feedback.
Appraisal and rewards. Customers in the appraisal process? Some companies are giving targeted customers a voice in allocating rewards to employees based on their quality of customer service. This yields a double benefit: Customers grow more committed to employees and employees to customers.
Governance and communication. The task forces that most organizations use to design and deliver systems and services usually consist only of employees—and even gathering members from multiple functions often seems like a stretch. The effectiveness of many task forces would be enhanced if customers were involved.
Both public communications—such as newsletters and videos—and personal contacts can help transfer knowledge to employees and customers alike. The benefits can be emotional, as when Medtronic invites recipients of its implants to talk to employees about what the company’s product means to their lives, or they can be directly tied to day-to-day production, as when Wal-Mart connects its inventory system to its supplier network to provide immediate information about sales so suppliers can adjust their production accordingly.
The HR value Proposition
HR can and should create value. By focusing on how internal HR practices align to targeted customers, HR professionals create and deliver enormous value.
Remember the innovative HR program that opened this article? Despite its smooth implementation, the program couldn’t be counted a success based on the information we provided. We have now shown how to include customers at each stage of this program. HR could carefully link the program to organizational activities that support the customer value proposition. That would result in a genuine success, not a “false positive.”
HR professionals can and should blur boundaries by integrating what happens in the organization more directly to what customers experience on the outside.
Dave Ulrich and Wayne Brockbank are professors at the Ross School of Business at the University of Michigan and co-authors of The HR value Proposition (Harvard Business School Press, 2005), from which this article is adapted. Ulrich also is co-editor of The Future of Human Resource Management (Wiley/Society for Human Resource Management, 2005). Brockbank serves on the SHRM Board of Directors.
HR Value Proposition