Business Intellegence

Innovation, Customers and your Moment of Truth

Filed under: Terry Schurter by: Art Style and Design

Written by Terry Schurter

This paper looks at the importance of the “processes” that are created by every organization as experienced by that organization’s customers.

These “customer processes” are rarely documented, designed, managed or controlled as “end-to-end” processes even though they represent our entire relationship with our customers. Lead by the insights of Richard Normann, there has evolved a way to “look” at these processes, design them, manage them, control them and innovate on them to dramatically increase perceived customer value and to move the organization “up” into a higher level customer value chain.

At the heart of every customer experience are Moments of Truth. Richard Normann first articulated them; Jan Carlzon turned SAS around with them and subsequently wrote the book “Moments of Truth.” Innovation on Moments of Truth is fertile ground for building customer loyalty, expanding market share, and remaking entire market places.

Sir Richard Branson of Virgin uses this type of innovation on a regular basis. The largest Tire Retailer in the US built their $1.5 billion business using it. State Farm lives and breathes it every day. What’s stopping us from doing the same? Nothing but ourselves...

The innovation I am talking about is how some businesses are able to look at the experience the customer has when interacting with the business and challenge it. They challenge the shape of that interaction at a fundamental level, seeking a way to make the interaction simpler, easier and more successful in the eyes of their customers. They do it by challenging the Moments of Truth in the process and eliminating as many as they possibly can.

Moments of Truth

You’ve probably heard the term “Moments of Truth.” You may even use the concept in your own process work. You may even attribute the concept to someone in recent times. But the term Moments of Truth was first articulated as part of a management philosophy by a man named Richard Normann.

Though not nearly as well known as other management thought leaders, Richard Normann holds a special place in the hearts of those you do know about him. Considered by many that do know him to be one of the most visionary business luminaries of our time, Richard Normann developed the foundation of customer-centric value chain thinking with Moments of Truth as the central idea around which his insights were built.

It was Richard Normann that inspired Jan Carlzon. It was Richard Normann who brought to our attention the fact that the experiences we provide to our customers are primarily formed by these Moments of Truth, and that by owning and managing them we can transform the customer relationship into something that delights our customers, astounds our competitors and enthuses our employees.

Our Context is our Limiting Framework

People are motivated by their personal drive and character or by the context that surrounds them. While an economic “downturn” is unneeded motivation some, for others it’s these bumps in the road that get us up and out of our chairs moving, thinking and acting differently. In many ways a challenging business market is the business leader’s Moment of Truth.

But Moments of Truth with our customers are what really matters and innovating around Moments of Truth in customer interactions represents the greatest opportunity to improve business success, create customer loyalty and expand market share.

What are Moments of Truth? Moments of Truth are any – and every – interaction with the customer. First articulated by Richard Normann (considered by many to be one of the most profound and sophisticated management thinkers of our time) in the mid 1970’s, Moments of Truth are the heart and soul of the experience customers have with the businesses they patronize. They are also the singular most influential source of customer dissatisfaction. As a general rule that applies to virtually any industry, excess Moments of Truth are the number one limitation to businesses achieving their full potential.

You may recall the SAS turnaround led by Jan Carlzon back in the early 1980’s. This is the most popularized use of Richard Normann’s customer value chain insights using Moments of Truth to challenge the way the business interacts with its customers. Where Normann theorized, Carlzon implemented and the astounding turnaround results led to Carlzon’s publication of the book Moments of Truth.

The basic principle goes like this. When customers engage with a business for any reason they end up participating in a “process.” That process, as the customer experiences it (from their point of view), is the customer relationship. From the customer’s point of view there is nothing else.

Each and every customer interaction in all of these “customer processes” will leave an impression on our customers and every single interaction is a potential point of failure. Customer dissatisfaction comes from two places, interactions the customer deems unnecessary and interactions the customer deems inappropriate or unsuccessful.

In all of these interactions the customer is judge, jury and when needed, executioner. The business is not an equal partner in this relationship. The customer has all of the power simply because the customer can take their business elsewhere anytime they choose to do so.

Sounds like our customers aren’t very reasonable and that we are at their whim or fancy however that may take them doesn’t it? That’s not how it works though. Customers are generally reasonable and they also act on comparisons. In its simplest form providing an experience that is better than our competitors is usually enough to tip the scales in favor of increased business success. Yet understanding the concept of Moments of Truth and the customer experiences we create can be very empowering to business leaders as a way to create significant differentiation.

For example, if we asked the question “How might we innovate to increase the value of what we offer to our customers?” what might come of that? There are a number of companies that have done just that. Here are several examples.

Discount Tire

Looking at the market from the customer point of view, in the 1960’s Discount Tire decided to run its business by creating a definition for success (customer success) that fulfilled an unmet need in the market. This led to Discount Tire running its business with low prices without up-sell, the employment of staff trained to give objective advice on tire selection appropriate to the needs and goals of each customer and prompt, courteous delivery of services. Those Moments of Truth in the typical up-sell and cross-sell “process” were suddenly gone.

How do you get to $1.5 billion in revenue in a crowded, low-margin business like retail tires as a start-up? Not by adding in extra services. That is another big difference with Discount Tire. The company became an organization of tire experts. It only does tires and tire related services. You can’t get your oil changed at Discount Tire because oil changes are not related to tires.

Another interesting move by Discount Tire was the decision to deliver flat tire repair to customers for free. Again, focusing on the customer and customer success, Discount Tire decided to give away a high-value (to the business) industry service - the repairing of customers’ flat tires - for free. Now having a flat tire is certainly a Moment of Truth for customers, but having those flats fixed for FREE is a Moment of Magic – eliminating the additional Moments of Truth we would normally encounter in attempting to get our flat tire fixed.

Discount Tire is the company that fixes its customers’ flat tires for free, doesn’t up-sell, offers very low prices on a broad selection of tires, has objective tire experts for employees, and gets you in and out fast.
That value proposition and delivery of success has turned the tire sales and service industry upside-down.

Virgin Mobile USA

Virgin Mobile entered the US market with a bang, by offering a newly defined cellular service value proposition - pay as you go (and more).

Certainly the number one customer expectation that Virgin identified as a competitive differentiator was the elimination of the onerous “cellular service contract.” The service contract is a characteristic of the existing cellular service market loosely disguised as a “customer benefit.” This “benefit” is created by making non-contract service unattractive from a pricing standpoint. Why does the service contract exist in this form? It exists as a mechanism for cellular service providers to “push” a product of predetermined customer lifecycle duration because the industry as a whole has been unable to establish profitable customer lifecycle duration due to consistent failure on customer expectations.

The practice (and product) exists as a mechanism to ensure some profit to the cellular service provider. Virgin saw this as an opportunity to define a new customer value proposition that would place it at a competitive advantage for a meaningful portion of the cellular service market. Virgin introduced a new service, pay as you go that requires no service contract. You simply pay as you go.

If you documented the “process” you go through as a customer in “buying” cellular service in the traditional form you would find it fraught with Moments of Truth. It was not that long ago that most people experienced a “process” that took in excess of 30 minutes to complete just to get a cell phone and service.

With Virgin Mobile USA’s approach it can literally take 5 minutes or less. Buy a phone, any phone you want, and go. Charge it any number of ways. No contracts, no credit history, no credit cards, very few Moments of Truth.

The results of the strategy are compelling with Virgin Mobile USA touting an averaged growth rate of 1 million new customers per year.

State Farm Insurance

Like a good neighbor, State Farm is there... and the company takes that motto very seriously.

While it may be surprising to find that State Farm as a company believes very strongly in the unique and important purpose of insurance – the ability to mitigate the impact of unforeseeable and uncommon events by aggregating the risk over a large “pool” of people – this is exactly what they do believe. It makes sense, is a valuable service and stands alone as a business case, yet few insurance companies operate that way anymore.

So for State Farm customers, when something “bad” happens State Farm is “there” with incredibly simple “processes” for getting whatever happened put to rights.

You know the whole “good neighbor” thing comes from times past when a family would suffer a tragedy such as their house burning down. Their neighbors would take the distraught people into their homes then organize a “house raising” to get the family back into a new home quickly through the combined efforts of many.

State Farm still retains much of that mindset, and their customer processes are very streamlined – often imposing no extra activity on the customer or even taking steps to reduce the activity the customer must do to restore things back to the way they were. When contrasted to one competitor, State Farm’s homeowner claims policy had 3 Moments of Truth while the competitor had 13. Which process do you think you would want to “experience” when you’re trying to get something fixed on your home?

Virgin Money

Not surprising to find another of Sir Richard’s companies on the list of companies that have innovated around the customer value chain and Moments of Truth. The most recent venture, Virgin Money, dramatically changes several customer processes and one interesting company process.

The new offering goes like this. There are people who have extra money. There are also people that need extra money. Some of these people from these two groups know each other. Yet lending between “friends and family” is fraught with high risk on the investor’s side – because “friends and family” are NOT good at paying back loans.

Enter Virgin Money. Need a loan from rich Aunt Bessie? Sure. Virgin Money will provide the service that initiates the loan to you just like any other Virgin loan. You get your money, Aunt Bessie actually gets paid back (with interest by the way) and Virgin Money makes money by seamlessly providing the financial services needed to make this work just like a loan from a bank.

That completely changes the customer process for anyone getting a loan from a family member because the interest rate, terms and approval process are whatever the family member says it is... that’s quite a twist.

For the family member with the money, they suddenly have a clearly priced service that makes it easy to put their extra money to work for them while it helps someone they want to help. So Aunt Bessie can now put her money to work for her without the fear of never seeing a penny of it again.

It’s interesting too because this kind of service is likely to bring more working capital back into the economy that would otherwise be set back - protected. So depending on the uptake of this service it could have a positive impact on the global economy by increasing available capital in the marketplace. While that may not happen in any directly observable way it is likely to make some impact which is the final point – real innovation creates a value proposition that has positive knock-on effects.

ROI Times Two

Of course it’s not just the increased value to the customer that drives these companies to do what they do. One of the biggest reasons they do “it” is because improving customer experiences (really improving them) has a double benefit. It decreases the cost of operations while improving the customer experience.

That statement can start some arguments by people who believe that improving the customer experience requires more employees, more work and (heaven forbid) the willingness to give more to customers without increasing what the customer is charged. But consider this, when we are really improving the customer experience we are eliminating the reasons the customer needs to contact us and the Moments of Truth (interactions) that occur when we do. There’s only one way to do that, sophistication.

Sophistication follows from the inspiration by Leonardo da Vinci (“simplicity is the ultimate sophistication”) where he was very intrigued by the challenge of resolving complex matters to their simple – shall we say quintessential – form. It’s like the chipping away of the unneeded parts of a stone to reveal the art form hidden underneath, refining by removing the “dross” if you will.

That kind of refinement will dramatically reduce the work of the processes behind the “customer processes” – and that means they cost less for us to operate and maintain them.

So when we really start improving these customer processes our operating and maintenance costs will also decrease – sometimes as much as 200 or 300% from where we started over several refinement iterations.

How much do you think it costs Virgin Mobile USA to facilitate the sign-up of a new customer? Compared to say AT&T or Verizon? How much do you think it costs State Farm to implement the homeowners small claim process with 3 Moments of Truth compared to the competitor’s process with 13 Moments of Truth?

We are hard pressed to get the return on investment of EITHER of these values that can be derived from innovation on the customer experience let alone both from the same set of actions!

Eliminating Moments of Truth

Discount Tire changed the after-market tire industry in the United States by offering good quality tires at a low price without any up-selling or add-on services. Taking a customer process where people at the front lines of the tire sales business were participating in their company’s internal process of “selling more to every customer,” Bruce Halle changed that process with Discount Tire by participating the customer’s process by helping his customers get the tires they needed as simply, directly and inexpensively as possible. That move, that shift from the company’s process to the customer’s process, was a big enough deal to customers for Discount Tire to become the undisputed 800 pound gorilla in the after market tire industry. Most of the entrenched competitors don’t even exist any more. They were eliminated along with the Moments of Truth Discount Tire eliminated in the customer process.

Steve Jobs and Apple have been very busy lately eliminating Moments of Truth in the interactions people have with Apple products. From notebook computers to music to phones – Apple is changing what people expect in regards to the device interaction they will have when they use Apple products. Simpler, easier and more successful. Elimination of every Moment of Truth we can possibly figure out how to eliminate. This is the difference that has catapulted Apple into suddenly being a serious market contender in entrenched, high-volume markets.

Sir Richard Branson is very good at both eliminating Moments of Truth and giving front line employees the authority and responsibility to own successful customer relationships. Both activities actually eliminate many Moments of Truth, as the initial interaction with many of the Virgin companies is much simpler and giving authority and responsibility to front line staff enables them to resolve customer needs without spewing internal business rules out to customers or engaging in a lengthy internal process that leaves customers angry and frustrated.

Why Can’t We Do That?

So the question is, why are only a handful of companies able to do things like this? What is stopping the rest of us from following suit?

Why can’t we do that?

More than anything else it is a question of perspective. When we view our world from our own perspective we will act in accordance with our own wants and needs. When we place our (our organization’s) wants and needs first the customer experience will always suffer.

Yet that will challenge our ability to get and keep our customers. The two are inextricably interlinked. They cannot be separated. Customers are either an object we are attempting to manipulate for our own desires or they are the reason we exist and we orient everything we do to making their lives as simple, easy and successful as possible.

So while we can all understand that orienting on our customers is obviously the most opportunistic way for us to create business success the vast majority of organizations still manage themselves against their own wants and needs. They may have employees that champion the customer experience, making it be less onerous that perhaps it would be otherwise, but the mindset is a “me, me, me” mindset and that introduces a fundamental limit on the organization’s ability to move up the customer value chain.

What are the Limits?

Using innovation on Moments of Truth and the customer value chain really doesn’t have any limits. Being integral to our customers’ lives at new levels of value is only maxed out until the next innovation comes along. Like many things, because innovation is not a simple thing (nor is it something you just do every so often) we will continually reach plateaus where our thinking stymies for a while. The most innovative ideas come from questioning why something is “that way” – challenging ever assumption “that way” is based upon. Where did these assumptions come from? Often times we act on assumptions that have no firm foundation we can find, they are simply our “set of assumptions.” Innovation roots all of these assumptions out into the light of day to see if they are valid. For customer experiences the “assumptions” that must be challenged are each and every Moment of Truth that exists in every single customer process we create.

The only real limits we face come from our limited observational perspective (more commonly referred to as “not being able to see the forest for the trees”) and our fear (translated as “perceived risk”) of the unknown.

What if GM suddenly implemented a program that allowed customers to buy a new vehicle for a certain monthly price, with a new car of their choice every two years, and all maintenance, upkeep and repairs included? Just one low monthly price? How much would that change things? Could they do that?

It’s like asking the cellular service providers, can we sell our service without contracts – just pay as you go? Before Virgin Mobile USA did it, they would have answered no.

But even when we take ownership of those customer end-to-end processes we have to be brave, because once we own them we are responsible for making them “right” for our customers. Do you know what your customers experience now? Do you really know? Be careful how close you look, because once you look closely you will own them – and you will need to deal with their inadequacy.

Limits to this kind of innovation come from us, the people who must do the innovating. Some people with turn away from the very idea (actually, many people will) because it’s just too different from what they already know.

Any of us can bring innovation into our strategic activities and any of us can improve customer experiences, increase our value, and even raise ourselves up to a higher value chain. Any of us can, some of us will, and a few of us (like Sir Richard) will use it over and over and over again.

Your Moment of Truth

What would you do if you could take this concept to heart? What would change in your organization? How would this play out in the customer experiences your organization provides to its customers?

Could you revolutionize customer value if you were given that opportunity? I hope that you could.

Because for many of us that is where it starts. When we can’t get a corporate mandate to do what we obviously should do to help our organization succeed we can still challenge as many Moments of Truth as possible. We can still eliminate Moments of Truth whenever the opportunity arises. We can find opportunities to do this that wouldn’t find if we are looking for them. We can begin to change the customer experience from within one Moment of Truth at a time.

And that, my friends, may lead to the opening of the door that will grant us permission to challenge all of the Moments of Truth around us.

Terry Schurter
Director International Process and Performance Institute
Terry.schurter@ipapi.org