Book Review: Winning on Purpose
Love it or hate it (I’m a bit of both depending what day you catch me), NPS seems destined to be here to stay. And whatever your thoughts about the measure itself, there’s no doubt that it can be used in ways that totally undermine the purpose it was meant to serve. This book is a result of Fred Reichheld’s frustration with the way the measure he invented has been distorted by so many organisations in practice.
It's a great book, and we’d recommend it to everyone who uses NPS. Here are some of our highlights:
NPS should be about learning, not targets
Sustainable success is built on loving customers
“…while I am pleased that so many companies have embraced NPS, I am deeply troubled how badly most of them are implementing it…far too many practitioners are corrupting NPS by making the score a target rather than a measure that inspires learning and growth.”
“Hear, hear!” is pretty much the only thing it’s possible to say in response to that. The flawed ways in which companies run their NPS programmes reveal not just a failure to understand the purpose of NPS, but a fundamental failure to understand the value of customer relationships.
“[Companies who embrace customer capitalism]…focus on the vital role of kindness, generosity, and love in dealing with their customers and employees.”
The book is not just a critique of survey methodology, but a polemic against the mindless pursuit of the worst kind of short-term capitalism. Reichheld proposes “customer capitalism” as the antithesis of this, something which is basically the same as what we call a “loyalty strategy” — building long-term success by fostering mutually beneficial relationships with the right customers and employees.
“Inner loop” feedback should be embraced, not feared
Profit is a poor predictor of greatness
“…most car companies design their systems not to help fantastic dealer salespeople learn how to enrich customer lives but instead to help their corporate team control their sometimes unruly dealers.”
It’s not just car companies, of course. One of the common signs that an NPS programme has gone wrong is that staff begin to fear NPS feedback, rather than embracing it as an opportunity to learn. This manifests in other damaging behaviours such as score pleading and cherry-picking, and can be exacerbated by linking reward to individual NPS scores. What causes this is normally a focus on blaming individuals rather than looking for systemic improvements. A healthy programme is about empowering staff to find opportunities rather than providing a means to control them.
“…the firms that appeared great though the lens of financial capitalism made their investors very unhappy over the decade following their anointment, while investors in companies that looked great though the lens of customer capitalism delighted their investors in the decade after their NPS superiority was revealed.”
Profit is necessary for a business to be sustainable, but it’s a poor basis for making decisions, and a poor predictor of future performance. Why? Because it’s about extracting value from customers, rather than creating it for them. If you want to build a sustainably “great” company you need to focus on customers first, rather than profit.
Don’t cut costs from areas that customers value
Do you know your Earned Growth Rate?
“…in the mad rush to digitize customer interactions and replace expensive employees with efficient bots, some firms are herding their customers toward a bleak and soulless digital journey.”
If you’re read Reichheld’s previous books you’ll be familiar with the idea of “good profits” and “bad profits”. Unfortunately, traditional ways of accounting don’t distinguish these, and make a poor job of measuring the value of loyal customers and engaged staff. Customer capitalism is about starting with customer needs, not your profit margin.
“These firms have to buy their growth and their profits. They overpay (or underprice) for new customers and underinvest in (or overcharge and undervalue) loyal customers.”
To redress the balance, Reichheld proposes a new financial measure — Earned Growth Rate. This is essentially the growth (or loss) of value coming into your business from existing customers. In other words, it’s the new business you’ve won that you didn’t have to pay for through marketing or sales. It’s conceptually a great figure, but most businesses will find it frustratingly difficult to calculate with their existing accounting systems. That, Reichheld argues, reveals the problem with accounting based on short-term profit and loss.
I really enjoyed this book, and there’s a strong sense of authenticity to it — I really believe that Reichheld believes what he’s saying. Beyond that, there’s a feeling here of someone who wants to leave a legacy, and in his conception of customer capitalism I think there’s an idea that all of us can get behind.
As you’d expect from Reichheld, it’s not a soft and fluffy book, but one focused on rebalancing the way businesses are run away from the short term and towards the long term. Whether or not you use NPS, that’s something all readers of this magazine ought to be interested in.