The 25 Most Important Customer Experience Questions Answered

Christopher Koch

The Ultimate Customer Experience FAQ

Yes, we’ve done the work so you don’t have to. Our eyes still glowing red from the pain of poring customer experienceover the arcane verbosity of dozens of academic research papers (though a few interesting books helped ease the inflammation; some are noted below), we’ve compiled a list of what we think are the most important questions to ask about the customer experience and, based on our research, come up with the clearest, simplest, and most complete answers to those questions. Please let us know if you agree.

Q. What is customer experience and why does it matter?

Many experts like to say that customer experience is any interaction that customers have with a company. But some interactions matter more than others. The ones that matter the most have a measurable impact on the answers to these two questions:

  • What do your customers think about you?
  • What do your customers do based on their perception of you?

Q. Why these two questions?

Because customer loyalty is the closest thing to a holy grail in customer experience and these two questions represent the two components of customer loyalty: “attitudinal loyalty,” which means having a favorable mental impression of a company, and “behavioral loyalty,” which means that they don’t just like you, they buy from you – and keep buying from you.

Research shows that attitudinal loyalty plays the biggest role in customer loyalty. If customers have a positive emotional outlook towards the customer experience, especially when measured against a competitor, they are more likely to buy from you and become loyal (repeat purchases). Research shows that customers’ evaluations of their experiences mirror the emotions they display during the interactions they have with companies as well as the feelings they experience after the encounter. If those emotions are negative, you can kiss sales and loyalty goodbye.

Q. Isn’t customer experience just another name for customer service?

No. Customer service is just one slice of the customer experience. Customers only contact customer service when they have a problem. As authors Harley Manning and Kerry Bodine put it in their excellent book Outside In, “Equating customer service with customer experience is like saying that a safety net is a trapeze act … If the performer has to use the net then something is wrong with the show.”

Q. So what should be my goals for improving customer experience?

You want them to like you, really like you. A positive attitude toward your company and its products or services has direct ties to customer loyalty and satisfaction. So any efforts that you make to improve customer experience should be considered in terms of how they make customers more satisfied and more loyal. If they are more satisfied with the experience you offer leading up to the sale than competitors, they are more likely to buy from you. If they feel more loyal, they are more likely to buy from you repeatedly.

However, it’s important to keep in mind that satisfaction does not necessarily lead to loyalty. For example, a customer could be satisfied with her experience with you but if a competitor offers something comparable or better she may buy from them next time. Customer experience efforts should drive towards making you customers’ preferred choice. (This distinction between satisfaction and preference is what has helped Frederick Reichheld make millions with his Net Promoter Score methodology.)

Q. But what if my company only sells to a customer once or infrequently? Why should I care about experience and loyalty?

Because even a single positive experience can be expressed in other ways besides repeat purchases. For example, happy customers can give you positive recommendations on websites or in social media or by recommending you to others via word of mouth.

Q. How do I know whether my customer experience needs improvement?

You can’t necessarily trust your customers to tell you. Few will take the time to complain or fill out a survey (especially online); they’ll simply go to a competitor, or worse, social media to complain. Better to ask these questions:

  • Is our market share slipping?
  • Is it costing more to acquire new customers?
  • Are we losing existing customers more rapidly (churn)?
  • Are we getting fewer recommendations and favorable reviews online and in social media?
  • How much pain would our customers have to go through to switch to a competitor (switching costs)?

Getting the answers to these questions will not only help determine the current quality of the customer experience, but will also form the basis of a business case to do something about it.

Q. How much do my actual products and services factor into customer experience?

Less and less, unfortunately. You know the drill: product cycles are getting shorter and automation and globalization have made it much easier for competitors to crank out “good enough” substitutes.

But even for highly complex products and for services, the quality of the customer experience often matters more. Research has found that in some cases, customers would rather buy an inferior (though good enough) product that comes with a superior relationship than a better product that does not.

Q. What are the most important components of the customer experience?

It’s not so much the individual components themselves, such as a Web site or a call center (though those are certainly important); it’s more about whether the individual touch points contribute to creating a positive impression in customers’ minds. Here are the building blocks for creating that impression:

  1. Trust.Thisisthe foundation of a positive customer experience. If customers don’t feel that they can trust the interaction points (say a Web site) or the company behind them, they will be lesslikelytopurchase. Research says that trust consists of two main components:
    • Confidence. Customers must believe that the company has the ability to provide a quality product or service.
    • Benevolence. Customers must believe that the company is willing to consider customers’ self-interest above their own.
  1. Low effort and sacrifice. Customers want their interactions with companies to be free from delays and extra effort. Another issue is the tradeoff between what customers want and what companies are actually capable of providing. In their book The Experience Economy, authors B. Joseph Pine II and James H. Gilmore call this “customer sacrifice.” If the gap between what the customer wants and what the company offers is too great – for example, a cable TV customer has to subscribe to 10 extra channels she doesn’t want to get the one she does want – the experience generates negative emotions.
  1. Positive emotion. Emotion shows up again and again in the research as being the most important factor in the customer relationship. Positive emotions are necessary to build satisfaction and long-term loyalty while negative emotions can destroy in a few moments relationships that companies have invested years in building.
  1. Personalization. Though this is a relatively new and controversial area, research shows that personalizing the customer experience in the right ways creates positive emotion and leads to more satisfaction and loyalty.

Q. How good does my customer experience need to be?

In any relationship with a company, customers expect – or at least hope – that their interactions will require as little effort as possible to get what they want. This means that companies have to make the experience smooth, reliable, and efficient. If, for example, customers are shuttled among three different departments (all asking for their customer numbers) before they can accomplish a typical transaction, then the experience generates negative emotion (frustration is the one that researchers agree is most common) and leads to reduced sales and loyalty.

However, some researchers believe that customers’ perceived effort isn’t just about what they have to do, it’s also tied into how they feel. In their book The Effortless Experience, authors Mathew Dixon, Nick Toman, and Rick Delisi found that only 35% of customers’ perceived effort had to do with exertion; 65% had to do with their emotional reactions during and after the encounter. So easy must go hand in hand with enjoyable.

Q. How do I determine how much I can or should spend to improve customer experience?

If, through competitive analysis and surveys of customers, it’s clear that your customer experience lags behind your competitors then improving customer experience should be considered part of the cost of doing business. Customers can research you and your competitors much more easily now through the web and social media. The holes in your experience will be revealed, causing negative emotion and an exodus to competitors.

Of course, a grocery chain doesn’t have the same profit margins as a luxury hotel chain. However, even companies with limited budgets can try experimenting with small pilots to see how changes in the customer experience impact sales, satisfaction, and loyalty. The percentages of extra revenue, improved loyalty, and increased profits gained from the pilots can help determine the budget for customer experience improvements.

Q. Where should I begin to improve the customer experience?

Removing the bumps in the road that cause customers to expend extra effort is the best place to start. Research by the Corporate Executive Board outlined in the book The Effortless Experience found that moving customers from rating the experience “below expectations” to “meets expectations” gave companies as much economic value as customers who said their expectations were exceeded. So just fixing the existing potholes in the experience will go a long way.

To do this, companies need to look outside by surveying customers about their experiences. Companies also need to look inside by surveying employees (and partners and external providers), about the frustrations they encounter in trying to accomplish their roles in the customer experience.

Q. What role should employees play?

Employee emotions are as important as customer emotions in the customer experience. Employees and managers who feel unable to do their jobs as they perceive they should be done – and feel powerless to change the situation – become unhappy and less able and willing to put out the effort it takes to keep customers happy. Rather than speak up about problems, they simply focus on doing what they are told, what research company Forrester calls a “culture of compliance.”

Yet let’s not be too hard on employees and managers here. An individual employee or manager may not be able to tell where the bumps in the road are. Employees may be happy and feeling confident about their contributions while being completely unaware that they are in fact causing problems further down the line because they are isolated from the rest of the experience process and can’t see the negative impacts.

Q. So how do I identify where the problems are in the customer experience?

Most companies begin by mapping out the customer experience both in terms of how customers interact with the company and the internal processes designed to make the experience flow smoothly. You also have to capture all the processes that happen outside your company, with partners and outsourcers. Having a holistic view can reveal where failures are occurring and form the basis of the case for change.

To create the map, you need your most knowledgeable process participants; ideally, those who have unbroken visibility out to what customers experience, as well as to the internal processes and experiences of employees and managers. Where the line of sight is broken, bring in people who can fill in the gaps. This is best done as a group exercise using the proverbial whiteboard and sticky notes, so that everyone has the opportunity to comment and contribute to determining where the problems are and debunking myths about where people might have thought the problems were, but weren’t.

Of course, this all presumes that the different areas involved in the customer experience in your company are even speaking to one another, much less willing to collaborate on fixing problems. Old habits, old grudges – and old silos – die hard. There should be a high-level executive leading the customer experience change effort, one who is a charismatic convincer (and decider), and who has a direct mandate from the CEO to get everyone to play nice with each other.

Q. What is the role of digital in improving the customer experience?

Digital channels and processes play the most important roles in pursuing the goals of speed and convenience and reducing customer effort. Of course, fixing existing problems with the digital experience (not just for customers but also for employees) is easier said than done because it is expensive and time consuming. Many of the systems that customer service representatives use in call centers, for example, are as old as a graying dad – even a few grandfathers.

Why we are still on hold

And this is the rub. It’s one thing to identify potholes in the customer experience, it’s quite another to fix them. The reason that customers must be put on hold and transferred to different departments and asked for their identification information again and again is usually because the systems that serve these departments were developed in the mainframe era when the concept of integration – and more importantly, the technology to accomplish it – simply did not exist.

Customization has created a nightmare

To make matters worse, companies have layered customization on top of customization over the years to make these systems more able to talk to one another and to company networks, databases, and the internet. They’ve made huge investments just to attain the level of mediocrity we all endure today.

New technologies will help – eventually

The good news is that technology has finally caught up with the customer experience problem. Cloud technologies make application integration easier and in-memory databases have the power to hold massive amounts of information from multiple systems together in real time; that would have seemed like science fiction to mainframe developers of the sixties and seventies.

However, we are still in the early wave of the transformation. Companies remain cautious about discarding old systems that work well in favor of new technologies that are less proven. And though companies have a lot of freedom to make changes in their website experiences, the best Web site is only as good as the data behind it. Customer experience executives would do well to make the CIO their best friend right now.

In the meantime, companies do what they have always done. They pave the potholes in the customer experience with people.

People fill the experience potholes – and pay the price

Companies use people to try to ameliorate the long hold times and the call transfers that stem from having to navigate among different archaic systems and process workarounds. It’s an extremely difficult job and it’s why call center turnover rates are so high.

 Q. What is “emotional labor?”

Most people who work directly with customers these days have been trained to suffer. Researchers have even developed a term for it: “emotional labor.” Studies have shown that employees expend a lot of mental energy in the customer experience, such as having to express happiness when they don’t feel it and having to suppress anger and other inappropriate behaviors when customers treat them abusively.

The toll of this emotional labor can become so high that employees can suffer from researchers call “emotional exhaustion,” which expresses itself in burnout, feelings of low accomplishment, and a kind of emotional numbness in which employees are no longer able to summon the positive attitude and empathy that are so necessary to a successful customer experience.

Q. So does that mean I should be looking for a certain type of person to fill roles in the customer experience?

For those who interact directly with customers, yes. Research says that extroverts do better in customer experience roles because they are more naturally inclined to want to interact with others. But these extroverts should also have the ability to do three things:

  • Regulate inner emotions
  • Tolerate ambiguity
  • Enjoy helping others

In combination, these factors give employees extra endurance when it comes to dealing with people and more ability to suppress inappropriate behavior (even when customers deserve it).

Q. How should I train employees to act during the customer experience?

Even the best employees can burn out if they are forced to adopt what researchers call “surface acting,” in which employees have to put on the proverbial smile and feign emotions that they aren’t feeling during an encounter with customers. Part of the stress is that customers can sometimes detect the falseness of employees’ emotions, which research says causes customers to react negatively.

Instead, companies should focus on training employees to offer two things:

  • Treat customers with empathy. This means hearing customers out and treating them with dignity and respect at every point in the interaction and acting to defuse emotional tension – without having to put on false emotions such as a painted on smile.
  • Offer customers justice. Employees need to get on the same wavelength as the customer to determine what would constitute a just outcome for the experience in the customer’s mind and then weigh that against the limits the company has set on the experience and come to a mutually agreed upon resolution.

In part, this depends on the degree to which employees are allowed to exercise their own independence and judgment. But it also depends on the preset outcomes that the company builds around the experience. For example, are customer service representatives given the freedom to send a replacement product for one that is one month – or one year – past warranty? Companies need to constantly revisit these outcomes to maintain a good balance between giving employees the power to give customers experiences that lead to positive emotions while not breaking the bank.

Q. To what extent should I try to replace the human customer experience with a digital one?

There’s clear evidence that digital contributes a lot to making the experience easy and fast, especially in transactional types of relationships such as buying a book on Amazon, which customers like. Digital is also great for information-intensive experiences, such as complex products and services that require customers to do a lot of research before buying. And of course, digital experiences are much cheaper for companies, though most surveys show that companies do a poor job of managing them — especially when it comes to coordinating across digital and human channels.

Indeed, a good customer experience can rarely be completely online or offline. Increasingly, it’s the coordination of the two that matters most.

Digital may be great for easy, but we still need humans for when things become hard – such as when that product that was so easy to order online breaks offline. Research shows that customers place a high value on the quality of the relationship they have with companies. In that regard, there is no replacement for human-to-human interaction – at least not until virtual reality hits the mainstream (which could be sooner than you think). Until then, careful placement of a pleasurable human interaction into the customer experience when competitors are trying to pave everything over with digital can have a major impact.

An example is ING, the Dutch bank that entered the U.S. market in the nineties with an online experience only – no branches. But in 2001, the company decided to create a human experience, not with a traditional bank branch but with a café in New York City. Instead of serving up deposit slips, employees serve coffee, treats (sales of which help defray the costs of running the offices), and financial planning advice. The original café was a big hit and ING (whose U.S. online business was purchased by Capital One for $9 billion in 2012) began building cafes in major metro areas around the country. Capital One has continued the expansion plan while other banks have been shutting down branches or imitating the approach.

Q. What if I don’t have the resources for a “delight-the-customer” approach to customer experience?

Companies that invest in delighting the customer without first making sure they are at least meeting the expectations of the vast majority of customers are probably wasting their money. Getting a free gift card for a restaurant is meaningless if the food and service aren’t so hot to begin with.

Plus, giving stuff away or sending your employees out on time-consuming missions to bring smiles to customers’ faces is expensive – 10-20% more, according to executives surveyed by authors Mathew Dixon, Nick Toman, and Rick Delisi in The Effortless Experience.

The first priorities should be to drive down customer effort and sacrifice.

However, delighting the customer does not necessarily need to be focused on going above and beyond the call of duty. There are less expensive ways to do it (see the “customer experience as theatre” examples below).

Q. Okay, let’s say customers say the experience is easy and fast. Is that really enough to build loyalty over the long term?

Given the current sorry state of the customer experience in most industries, yes.

But let’s assume for a moment that you are the world’s master of easy, fast, reliable, and convenient. What happens when a competitor catches up? What’s next?

Some researchers argue that there are two other ways to differentiate your customer experience that are harder for competitors to match:

  1. Customer experience as theatre
  2. Personalization

Q. What is customer experience as theatre?

Author B. Joseph Pine II says that Best Buy’s Geek Squad has taken the classic military motif of the uniform a step farther by adding a dose of humor and humility. The Geek Squad purposely dresses its employees in an outfit that still gets nerds hung from their underwear in gym lockers around the world: white button-down shirts, thin, clip-on black ties, black pants, and white socks.

Each employee also gets a titanium badge designed to look just like a policeman’s badge. The geek squad drives Volkswagen Beetles painted black and white to look like extremely awkward and ineffective police cars. It is the nerd as the anti-hero hero, here to save the day for you and your computer.

Theatre need not cost much

Through this minimalist and, Pine is careful to point out, inexpensive, bit of theatre, the Geek Squad, which Best Buy bought when it was a tiny startup, has grown exponentially and become a household brand name. Is it because of the name and the uniforms, or is it simply because the Squad offers better service and is tied to Best Buy, which has long been a household brand? Impossible to tell, but once again, the clip-ons haven’t hurt.

Pine, who is co-author, with James H. Gilmore, of The Experience Economy, believes that any company, with enough creativity and a good employee screening and training program, can create the same kind of differentiated experience. “Whenever employees are in front of your customers, those employees are acting,” says Pine. “They need to act in a way that engages the audience. And it does not require any expenditure. It requires that you direct your workers to act, that you give them roles to play and you help them characterize those goals on the business stage.”

Though he acknowledges that he has nothing beyond anecdotal evidence to back up his theory, Pine argues that performance is a way to stand apart in a crowded field and create customer preference rather than mere satisfaction.

Q. What about personalization? Can that create a differentiated customer experience?

Personalization is controversial but holds promise because it can be another form of easy. Though we usually think of customization as adding more, it can also mean simplifying the experience by removing everything except what the customer truly wants. This is particularly true on the web, where websites and e-commerce portals overstuffed with offers and information can trip that magic switch of frustration that kills sales and loyalty.

Sweeping away the noise and personalizing a Web site to a customer’s tastes – we will look back on Amazon’s recommendation engine as the stone-age prototype for this sort of thing – can reduce customer effort and sacrifice. Research has shown that offering relevant information and simplifying the experience result in more customer trust and satisfaction and more sales.

More importantly, as databases become ever-more fast and powerful, we can add a powerful new aspect to the digital customer experience: learning. At the core of recommendation engines like Amazon’s and Netflix is machine learning – the ability to memorize your actions and preferences and use algorithms to serve up personalized offers.

However, personalization treads on the same dangerous turf as efforts to “delight” the customer. It can be complex and expensive. And if it only leads to satisfaction rather than positive preference for the brand, that money may be wasted. Indeed, one research study found that for customers that were already satisfied with their experience, personalization had limited benefits. Only in instances where the customer had a high degree of trust in the company but low levels of satisfaction did personalization make a significant difference. Therefore, it’s best to start with a pilot project to see if personalization will make a difference before investing too much.

Q. Personalization also raises issues of privacy, right?

In order to make recommendations and personalize web pages, companies need to gather information. And as we’ve all learned, various companies and governments have stepped all over people’s privacy in order to gather data about them.

Businesses need to build a customer experience model that helps individuals understand the data that companies want to collect about them, the methods the companies will use to make behavioral predictions, and the trustworthiness they can expect from those predictions.

Here are five ways to use Big Data to be cool, not creepy.

  • Articulate “What’s in it for me?” Research has found that the majority of consumers in the United States and the United Kingdom are willing to have trusted retailers use some of their personal data in order to present personalized and targeted products, services, recommendations, and offers. But the value has to be crystal clear, no matter who’s tracking the data. For example, insurance provider Progressive and Tesla Motors have convinced car owners to have devices installed in their vehicles that track where and how they drive. In exchange, customers potentially get lower car insurance rates (an average 10% to 15% reduction on premiums) or improved service, such as supercharger stations near their most frequent routes.
  • Be transparent about the data relationship. Slapping a dense data use policy written in legalese on the corporate Web site does little to enlighten customers. Instead, companies should think about the customer data transaction – what information the customer is giving them, how they’re using it, and what the result will be – and try to describe it as simply as possible.
  • Let customers learn about each other. In 2011, Procter & Gamble created a “Mean Stinks” campaign for Secret deodorant that encouraged girl-to-girl anti-bullying posts on Twitter, Facebook, and Instagram. The pages let participants send apologies to those they had bullied; view videos; and share tips, tools, and challenges with their peers. Besides helping girls, it drove a 16% market share increase in the Secret deodorant line.
  • Experiment and build trust. Building a Big Data strategy that improves customer experience takes time and continual tweaking. Google’s Autocomplete isn’t always on point. Amazon’s suggestions sometimes go astray. But as customers build up a history of experience with a brand, they see that data is used for their benefit more often than not. They develop a trust in the exchange of data for value. They see where it came from. And they forgive the missteps.
  • Make the distinction between little data and Big Data. “I steer companies to really focus on leveraging the data that customers give them in the normal process of doing business first and think about the third-party stuff later,” says Elea McDonnell Feit, assistant professor of Marketing at Drexel University. “At least 80% of the value you can generate from customer data comes from using the information customers reveal about themselves directly to you.”

Q. Do some customers deserve more personalization than others?

Given that personalization can be complex and expensive, it could pay to segment customers into those most likely to respond to personalization.

Some companies have created composite personas of customers to do more broad-brush personalization that doesn’t cost as much as one-to-one efforts. For example, you could create a set of categories across the customer base based on past purchase history and other data and create separate customer experiences for each category.

Q. How do I determine the ROI of customer experience improvements?

Unfortunately for customers (and in the long run, companies, too), there’s really only one measure that matters: switching costs. If there are no viable alternatives in the market, or if switching to a competitor would cost more than the product or service itself or involve so much customer effort that it doesn’t seem worth it, customer experience becomes less important to revenues. Research shows that customers who perceive high switching costs are more likely to stick with a company that provides a less-than-stellar (but acceptable – again anger and conflict trump all other factors) experience, thereby reducing the potential returns from investing in improving that experience.

But even companies with high switching costs or lack of competition neglect customer experience at their peril. Cable companies, for example, are feeling the pain today as disruptive pay-per-view entertainment options such as Hulu, Netflix, and Amazon Prime lure away cable customers who have long wished for an alternative but have had no other choices – until now.

Loyalty over time matters

But let’s assume that you are in a competitive industry. The most important impact that a good customer experience has is in customer loyalty. Because it costs more to acquire new customers than to maintain relationships with existing customers, most experts point to loyalty as the decisive metric. More specifically, they cite lifetime customer value – usually computed as the revenue from each customer over the length of the relationship.

Author Frederick F. Reichheld puts a finer point on the metric in his book The Loyalty Effect, saying that companies should measure the lifetime profit per customer minus the cost of acquiring them in the first place. The problem here is that few companies even measure revenue per customer over time, much less take it to Reichheld’s ideal level. And not all researchers agree with Reichheld that profits matter more than revenues.

Three other metrics to consider

In their book Outside In, authors Manning and Bodine modeled three areas where companies can benefit from improved customer experience that are slightly easier to measure :

  • More incremental purchases from existing customers
  • Higher retained revenue as a result of reduced churn
  • New sales driven by word of mouth

They found that in the hotel and wireless industries, small improvements in customer loyalty led to major gains – in the billions – in revenue, because competition in those industries is so intense and switching costs are so low. However, even in less volatile industries where switching costs are higher, such as health insurance, Manning and Bodine saw opportunities to gain revenue in the tens of millions by improving the customer experience.


About Christopher Koch

Christopher Koch is the Editorial Director of the SAP Center for Business Insight. He is an experienced publishing professional, researcher, editor, and writer in business, technology, and B2B marketing. Share your thoughts with Chris on Twitter @Ckochster.

How Restaurants Can Survive Digital Disruption

Stephanie Waters

The restaurant business is being disrupted by new, digitally enabled competitors. In 2016, delivery transactions made up about 7% of total U.S. restaurant sales. Predictions are that restaurant delivery could eventually reach 40% or higher.

Third-party delivery services such as UberEats, GrubHub, Amazon Restaurants, and Deliveroo have emerged, and while they can increase brand awareness for some restaurants, their fees can be as high as 30% of the transaction. Many restaurants can’t survive that kind of margin hit.

Ambitious food delivery services now want to get more involved in food preparation. UberEats recently acquired Ando, a delivery-only ‘restaurant’ founded by Momofuku chef David Chang.

TGI Fridays, the iconic casual dining chain with 500 locations, is up to the challenge. In the first year they introduced online ordering, take-out sales grew 30%, online order size was 7.2% higher than in-restaurant, and more than 70% of online orders came from new customers. They’ve also recently announced a partnership with Lash, a startup in Dallas, to deliver alcohol and food. The company is also working on an at-home bartending service to offer a more complete TGI Fridays experience outside of the restaurant.

What’s next: How restaurants can survive digital disruption

So, what’s next? Restaurants can survive digital disruption, right?

There are success stories of restaurants preparing for and staying ahead of the disruption in their industry. But there are also lessons to be learned from other retailers’ false starts, e.g.:

  • Taking the fast and easy route of partnering with a third-party provider for your online delivery business, only to have them acquired by one of your biggest competitors
  • Over-investing in an elaborate warehouse and distribution system for an initial foray into selling online, rather than using existing store assets to build scale
  • Building a supply chain system from scratch that results in empty shelves and unhappy employees, rather than choosing a best-in-class, time-tested solution

For restaurants to succeed in the face of industry disruption, they need to:

  • Have leadership vision and commitment
  • Look outside your industry to fill resource and experience gaps
  • Explore what the world has to offer in terms of business models and solutions
  • Be open to coopetition partnerships and acquisition

But most of all, restaurants need to select a technology partner that has:

  • The industry expertise, resources, and tools to help you create your vision and build your strategic plan and road map
  • Market-leading “innovation to execution” pre-integrated modular solutions
  • Long-term financial stability to invest in new technologies such as IoT, artificial intelligence, machine learning, conversational commerce, blockchain, and more
  • Global experience with local presence and expertise

Learn more about what your customers want here

This article originally appeared on The Future of Customer Engagement and Commerce.


Connected Marketing: How IoT Is Revolutionizing Customer Engagement

Joerg Koesters

It’s 6 pm, and you’re driving home from work, using a navigation app to make your way through rush-hour traffic. As you pass one of your favorite fast-food restaurants, a 2-for-1 deal pops up on your navigation screen. Seconds later, you’re in the restaurant’s drive-thru, about to enjoy a tasty snack.

This example of real-time customer engagement is not a futuristic scenario. It’s happening right now, thanks to new connected technologies driven by the Internet of Things (IoT). IoT is transforming the way companies and customers interact by revolutionizing customer engagement, leveraging data and insights for real-time action.

How IoT is changing customer engagement

A company’s interaction with its customers used to be limited to the point of sale. Companies had to piece together data from anecdotal feedback, customer surveys, product returns, and customer service complaints to gather any insight into their customer’s needs and behaviors. Consequently, customer engagement was reactive rather than proactive. That’s all changing thanks to data available through the Internet of Things.

IoT has long been the domain of industrial B2B (business-to-business) applications. Now, B2C (business-to-consumer) companies are beginning to understand the power of IoT to revolutionize customer engagement. Consumer brands like Nestle, Philips, and Target are using IoT applications to better predict and respond to consumers’ needs.

Using IoT to exceed consumer expectations: 3 applications for B2C companies

Today’s digital-savvy consumers expect personalized products and services that suit their unique needs and situations. They also expect contextual and meaningful interactions through their choice of channels. IoT technology makes both possible by connecting people, processes, and things. IoT platforms provide immediate, actionable insights so companies can respond to customer needs in real time. The result: Companies do not just meet customer expectations—they exceed them.

Here’s how IoT is transforming customer engagement for B2C companies:

  1. Creating new points of differentiation by shortening the R&D cycle:
    IoT allows companies to interact with customers in unique ways, differentiating these companies from other businesses that have not made IoT engagement a priority. Product developers, for example, can gain valuable insights from customer feedback and immediately apply these insights to deliver higher-performing products and services. By better understanding how customers use their products, developers can update features to better align with customer needs and expectations.
  1. Refining the marketing process with greater personalization:
    IoT offers a tremendous volume of data on consumer habits and behaviors, positioning companies to better understand customers’ needs and wants. Rather than flooding customers with an onslaught of poorly timed advertising, companies can better market their products to customers at the exact moment of need. Personalized, “in-moment” offers – like the one described above – also reduces unnecessary marketing expenditures and delivers a better advertising ROI.
  1. Strengthening customer loyalty: IoT makes it possible for companies to act on real-time data insights by offering rewards and discounts. For example, CITO Research reports that Coca-Cola gathered data from its vending machines and determined that beverage consumption spikes on college campuses at specific times correlated with popular TV shows. Coca-Cola can then use this data to offer targeted rewards through cross-promotions, driving immediate consumer action and boosting brand loyalty.

Learn how to innovate at scale by incorporating individual innovations back to the core business to drive tangible business value: Accelerating Digital Transformation in Retail. Explore how to bring Industry 4.0 insights into your business today: Industry 4.0: What’s Next?


About Joerg Koesters

Joerg Koesters is the Head of Retail Marketing and Communication at SAP. He is a Technology Marketing executive with 20 years of experience in Marketing, Sales and Consulting, Joerg has deep knowledge in retail and consumer products having worked both in the industry and in the technology sector.

Hack the CIO

By Thomas Saueressig, Timo Elliott, Sam Yen, and Bennett Voyles

For nerds, the weeks right before finals are a Cinderella moment. Suddenly they’re stars. Pocket protectors are fashionable; people find their jokes a whole lot funnier; Dungeons & Dragons sounds cool.

Many CIOs are enjoying this kind of moment now, as companies everywhere face the business equivalent of a final exam for a vital class they have managed to mostly avoid so far: digital transformation.

But as always, there is a limit to nerdy magic. No matter how helpful CIOs try to be, their classmates still won’t pass if they don’t learn the material. With IT increasingly central to every business—from the customer experience to the offering to the business model itself—we all need to start thinking like CIOs.

Pass the digital transformation exam, and you probably have a bright future ahead. A recent SAP-Oxford Economics study of 3,100 organizations in a variety of industries across 17 countries found that the companies that have taken the lead in digital transformation earn higher profits and revenues and have more competitive differentiation than their peers. They also expect 23% more revenue growth from their digital initiatives over the next two years—an estimate 2.5 to 4 times larger than the average company’s.

But the market is grading on a steep curve: this same SAP-Oxford study found that only 3% have completed some degree of digital transformation across their organization. Other surveys also suggest that most companies won’t be graduating anytime soon: in one recent survey of 450 heads of digital transformation for enterprises in the United States, United Kingdom, France, and Germany by technology company Couchbase, 90% agreed that most digital projects fail to meet expectations and deliver only incremental improvements. Worse: over half (54%) believe that organizations that don’t succeed with their transformation project will fail or be absorbed by a savvier competitor within four years.

Companies that are making the grade understand that unlike earlier technical advances, digital transformation doesn’t just support the business, it’s the future of the business. That’s why 60% of digital leading companies have entrusted the leadership of their transformation to their CIO, and that’s why experts say businesspeople must do more than have a vague understanding of the technology. They must also master a way of thinking and looking at business challenges that is unfamiliar to most people outside the IT department.

In other words, if you don’t think like a CIO yet, now is a very good time to learn.

However, given that you probably don’t have a spare 15 years to learn what your CIO knows, we asked the experts what makes CIO thinking distinctive. Here are the top eight mind hacks.

1. Think in Systems

A lot of businesspeople are used to seeing their organization as a series of loosely joined silos. But in the world of digital business, everything is part of a larger system.

CIOs have known for a long time that smart processes win. Whether they were installing enterprise resource planning systems or working with the business to imagine the customer’s journey, they always had to think in holistic ways that crossed traditional departmental, functional, and operational boundaries.

Unlike other business leaders, CIOs spend their careers looking across systems. Why did our supply chain go down? How can we support this new business initiative beyond a single department or function? Now supported by end-to-end process methodologies such as design thinking, good CIOs have developed a way of looking at the company that can lead to radical simplifications that can reduce cost and improve performance at the same time.

They are also used to thinking beyond temporal boundaries. “This idea that the power of technology doubles every two years means that as you’re planning ahead you can’t think in terms of a linear process, you have to think in terms of huge jumps,” says Jay Ferro, CIO of TransPerfect, a New York–based global translation firm.

No wonder the SAP-Oxford transformation study found that one of the values transformational leaders shared was a tendency to look beyond silos and view the digital transformation as a company-wide initiative.

This will come in handy because in digital transformation, not only do business processes evolve but the company’s entire value proposition changes, says Jeanne Ross, principal research scientist at the Center for Information Systems Research at the Massachusetts Institute of Technology (MIT). “It either already has or it’s going to, because digital technologies make things possible that weren’t possible before,” she explains.

2. Work in Diverse Teams

When it comes to large projects, CIOs have always needed input from a diverse collection of businesspeople to be successful. The best have developed ways to convince and cajole reluctant participants to come to the table. They seek out technology enthusiasts in the business and those who are respected by their peers to help build passion and commitment among the halfhearted.

Digital transformation amps up the urgency for building diverse teams even further. “A small, focused group simply won’t have the same breadth of perspective as a team that includes a salesperson and a service person and a development person, as well as an IT person,” says Ross.

At Lenovo, the global technology giant, many of these cross-functional teams become so used to working together that it’s hard to tell where each member originally belonged: “You can’t tell who is business or IT; you can’t tell who is product, IT, or design,” says the company’s CIO, Arthur Hu.

One interesting corollary of this trend toward broader teamwork is that talent is a priority among digital leaders: they spend more on training their employees and partners than ordinary companies, as well as on hiring the people they need, according to the SAP-Oxford Economics survey. They’re also already being rewarded for their faith in their teams: 71% of leaders say that their successful digital transformation has made it easier for them to attract and retain talent, and 64% say that their employees are now more engaged than they were before the transformation.

3. Become a Consultant

Good CIOs have long needed to be internal consultants to the business. Ever since technology moved out of the glasshouse and onto employees’ desks, CIOs have not only needed a deep understanding of the goals of a given project but also to make sure that the project didn’t stray from those goals, even after the businesspeople who had ordered the project went back to their day jobs. “Businesspeople didn’t really need to get into the details of what IT was really doing,” recalls Ferro. “They just had a set of demands and said, ‘Hey, IT, go do that.’”

Now software has become so integral to the business that nobody can afford to walk away. Businesspeople must join the ranks of the IT consultants.

But that was then. Now software has become so integral to the business that nobody can afford to walk away. Businesspeople must join the ranks of the IT consultants. “If you’re building a house, you don’t just disappear for six months and come back and go, ‘Oh, it looks pretty good,’” says Ferro. “You’re on that work site constantly and all of a sudden you’re looking at something, going, ‘Well, that looked really good on the blueprint, not sure it makes sense in reality. Let’s move that over six feet.’ Or, ‘I don’t know if I like that anymore.’ It’s really not much different in application development or for IT or technical projects, where on paper it looked really good and three weeks in, in that second sprint, you’re going, ‘Oh, now that I look at it, that’s really stupid.’”

4. Learn Horizontal Leadership

CIOs have always needed the ability to educate and influence other leaders that they don’t directly control. For major IT projects to be successful, they need other leaders to contribute budget, time, and resources from multiple areas of the business.

It’s a kind of horizontal leadership that will become critical for businesspeople to acquire in digital transformation. “The leadership role becomes one much more of coaching others across the organization—encouraging people to be creative, making sure everybody knows how to use data well,” Ross says.

In this team-based environment, having all the answers becomes less important. “It used to be that the best business executives and leaders had the best answers. Today that is no longer the case,” observes Gary Cokins, a technology consultant who focuses on analytics-based performance management. “Increasingly, it’s the executives and leaders who ask the best questions. There is too much volatility and uncertainty for them to rely on their intuition or past experiences.”

Many experts expect this trend to continue as the confluence of automation and data keeps chipping away at the organizational pyramid. “Hierarchical, command-and-control leadership will become obsolete,” says Edward Hess, professor of business administration and Batten executive-in-residence at the Darden School of Business at the University of Virginia. “Flatter, distributive leadership via teams will become the dominant structure.”

5. Understand Process Design

When business processes were simpler, IT could analyze the process and improve it without input from the business. But today many processes are triggered on the fly by the customer, making a seamless customer experience more difficult to build without the benefit of a larger, multifunctional team. In a highly digitalized organization like Amazon, which releases thousands of new software programs each year, IT can no longer do it all.

While businesspeople aren’t expected to start coding, their involvement in process design is crucial. One of the techniques that many organizations have adopted to help IT and businesspeople visualize business processes together is design thinking (for more on design thinking techniques, see “A Cult of Creation“).

Customers aren’t the only ones who benefit from better processes. Among the 100 companies the SAP-Oxford Economics researchers have identified as digital leaders, two-thirds say that they are making their employees’ lives easier by eliminating process roadblocks that interfere with their ability to do their jobs. Ninety percent of leaders surveyed expect to see value from these projects in the next two years alone.

6. Learn to Keep Learning

The ability to learn and keep learning has been a part of IT from the start. Since the first mainframes in the 1950s, technologists have understood that they need to keep reinventing themselves and their skills to adapt to the changes around them.

Now that’s starting to become part of other job descriptions too. Many companies are investing in teaching their employees new digital skills. One South American auto products company, for example, has created a custom-education institute that trained 20,000 employees and partner-employees in 2016. In addition to training current staff, many leading digital companies are also hiring new employees and creating new roles, such as a chief robotics officer, to support their digital transformation efforts.

Nicolas van Zeebroeck, professor of information systems and digital business innovation at the Solvay Brussels School of Economics and Management at the Free University of Brussels, says that he expects the ability to learn quickly will remain crucial. “If I had to think of one critical skill,” he explains, “I would have to say it’s the ability to learn and keep learning—the ability to challenge the status quo and question what you take for granted.”

7. Fail Smarter

Traditionally, CIOs tended to be good at thinking through tests that would allow the company to experiment with new technology without risking the entire network.

This is another unfamiliar skill that smart managers are trying to pick up. “There’s a lot of trial and error in the best companies right now,” notes MIT’s Ross. But there’s a catch, she adds. “Most companies aren’t designed for trial and error—they’re trying to avoid an error,” she says.

To learn how to do it better, take your lead from IT, where many people have already learned to work in small, innovative teams that use agile development principles, advises Ross.

For example, business managers must learn how to think in terms of a minimum viable product: build a simple version of what you have in mind, test it, and if it works start building. You don’t build the whole thing at once anymore.… It’s really important to build things incrementally,” Ross says.

Flexibility and the ability to capitalize on accidental discoveries during experimentation are more important than having a concrete project plan, says Ross. At Spotify, the music service, and CarMax, the used-car retailer, change is driven not from the center but from small teams that have developed something new. “The thing you have to get comfortable with is not having the formalized plan that we would have traditionally relied on, because as soon as you insist on that, you limit your ability to keep learning,” Ross warns.

8. Understand the True Cost—and Speed—of Data

Gut instincts have never had much to do with being a CIO; now they should have less to do with being an ordinary manager as well, as data becomes more important.

As part of that calculation, businesspeople must have the ability to analyze the value of the data that they seek. “You’ll need to apply a pinch of knowledge salt to your data,” advises Solvay’s van Zeebroeck. “What really matters is the ability not just to tap into data but to see what is behind the data. Is it a fair representation? Is it impartial?”

Increasingly, businesspeople will need to do their analysis in real time, just as CIOs have always had to manage live systems and processes. Moving toward real-time reports and away from paper-based decisions increases accuracy and effectiveness—and leaves less time for long meetings and PowerPoint presentations (let us all rejoice).

Not Every CIO Is Ready

Of course, not all CIOs are ready for these changes. Just as high school has a lot of false positives—genius nerds who turn out to be merely nearsighted—so there are many CIOs who aren’t good role models for transformation.

Success as a CIO these days requires more than delivering near-perfect uptime, says Lenovo’s Hu. You need to be able to understand the business as well. Some CIOs simply don’t have all the business skills that are needed to succeed in the transformation. Others lack the internal clout: a 2016 KPMG study found that only 34% of CIOs report directly to the CEO.

This lack of a strategic perspective is holding back digital transformation at many organizations. They approach digital transformation as a cool, one-off project: we’re going to put this new mobile app in place and we’re done. But that’s not a systematic approach; it’s an island of innovation that doesn’t join up with the other islands of innovation. In the longer term, this kind of development creates more problems than it fixes.

Such organizations are not building in the capacity for change; they’re trying to get away with just doing it once rather than thinking about how they’re going to use digitalization as a means to constantly experiment and become a better company over the long term.

As a result, in some companies, the most interesting tech developments are happening despite IT, not because of it. “There’s an alarming digital divide within many companies. Marketers are developing nimble software to give customers an engaging, personalized experience, while IT departments remain focused on the legacy infrastructure. The front and back ends aren’t working together, resulting in appealing web sites and apps that don’t quite deliver,” writes George Colony, founder, chairman, and CEO of Forrester Research, in the MIT Sloan Management Review.

Thanks to cloud computing and easier development tools, many departments are developing on their own, without IT’s support. These days, anybody with a credit card can do it.

Traditionally, IT departments looked askance at these kinds of do-it-yourself shadow IT programs, but that’s changing. Ferro, for one, says that it’s better to look at those teams not as rogue groups but as people who are trying to help. “It’s less about ‘Hey, something’s escaped,’ and more about ‘No, we just actually grew our capacity and grew our ability to innovate,’” he explains.

“I don’t like the term ‘shadow IT,’” agrees Lenovo’s Hu. “I think it’s an artifact of a very traditional CIO team. If you think of it as shadow IT, you’re out of step with reality,” he says.

The reality today is that a company needs both a strong IT department and strong digital capacities outside its IT department. If the relationship is good, the CIO and IT become valuable allies in helping businesspeople add digital capabilities without disrupting or duplicating existing IT infrastructure.

If a company already has strong digital capacities, it should be able to move forward quickly, according to Ross. But many companies are still playing catch-up and aren’t even ready to begin transforming, as the SAP-Oxford Economics survey shows.

For enterprises where business and IT are unable to get their collective act together, Ross predicts that the next few years will be rough. “I think these companies ought to panic,” she says. D!

About the Authors

Thomas Saueressig is Chief Information Officer at SAP.

Timo Elliott is an Innovation Evangelist at SAP.

Sam Yen is Chief Design Officer at SAP and Managing Director of SAP Labs.

Bennett Voyles is a Berlin-based business writer.

Read more thought provoking articles in the latest issue of the Digitalist Magazine, Executive Quarterly.


The Differences Between Machine Learning And Predictive Analytics

Shaily Kumar

Many people are confused about the specifics of machine learning and predictive analytics. Although they are both centered on efficient data processing, there are many differences.

Machine learning

Machine learning is a method of computational learning underlying most artificial intelligence (AI) applications. In ML, systems or algorithms improve themselves through data experience without relying on explicit programming. ML algorithms are wide-ranging tools capable of carrying out predictions while simultaneously learning from over trillions of observations.

Machine learning is considered a modern-day extension of predictive analytics. Efficient pattern recognition and self-learning are the backbones of ML models, which automatically evolve based on changing patterns in order to enable appropriate actions.

Many companies today depend on machine learning algorithms to better understand their clients and potential revenue opportunities. Hundreds of existing and newly developed machine learning algorithms are applied to derive high-end predictions that guide real-time decisions with less reliance on human intervention.

Business application of machine learning: employee satisfaction

One common, uncomplicated, yet successful business application of machine learning is measuring real-time employee satisfaction.

Machine learning applications can be highly complex, but one that’s both simple and very useful for business is a machine learning algorithm that compares employee satisfaction ratings to salaries. Instead of plotting a predictive satisfaction curve against salary figures for various employees, as predictive analytics would suggest, the algorithm assimilates huge amounts of random training data upon entry, and the prediction results are affected by any added training data to produce real-time accuracy and more helpful predictions.

This machine learning algorithm employs self-learning and automated recalibration in response to pattern changes in the training data, making machine learning more reliable for real-time predictions than other AI concepts. Repeatedly increasing or updating the bulk of training data guarantees better predictions.

Machine learning can also be implemented in image classification and facial recognition with deep learning and neural network techniques.

Predictive analytics

Predictive analytics can be defined as the procedure of condensing huge volumes of data into information that humans can understand and use. Basic descriptive analytic techniques include averages and counts. Descriptive analytics based on obtaining information from past events has evolved into predictive analytics, which attempts to predict the future based on historical data.

This concept applies complex techniques of classical statistics, like regression and decision trees, to provide credible answers to queries such as: ‘’How exactly will my sales be influenced by a 10% increase in advertising expenditure?’’ This leads to simulations and “what-if” analyses for users to learn more.

All predictive analytics applications involve three fundamental components:

  • Data: The effectiveness of every predictive model strongly depends on the quality of the historical data it processes.
  • Statistical modeling: Includes the various statistical techniques ranging from basic to complex functions used for the derivation of meaning, insight, and inference. Regression is the most commonly used statistical technique.
  • Assumptions: The conclusions drawn from collected and analyzed data usually assume the future will follow a pattern related to the past.

Data analysis is crucial for any business en route to success, and predictive analytics can be applied in numerous ways to enhance business productivity. These include things like marketing campaign optimization, risk assessment, market analysis, and fraud detection.

Business application of predictive analytics: marketing campaign optimization

In the past, valuable marketing campaign resources were wasted by businesses using instincts alone to try to capture market niches. Today, many predictive analytic strategies help businesses identify, engage, and secure suitable markets for their services and products, driving greater efficiency into marketing campaigns.

A clear application is using visitors’ search history and usage patterns on e-commerce websites to make product recommendations. Sites like Amazon increase their chance of sales by recommending products based on specific consumer interests. Predictive analytics now plays a vital role in the marketing operations of real estate, insurance, retail, and almost every other sector.

How machine learning and predictive analytics are related

While businesses must understand the differences between machine learning and predictive analytics, it’s just as important to know how they are related. Basically, machine learning is a predictive analytics branch. Despite having similar aims and processes, there are two main differences between them:

  • Machine learning works out predictions and recalibrates models in real-time automatically after design. Meanwhile, predictive analytics works strictly on “cause” data and must be refreshed with “change” data.
  • Unlike machine learning, predictive analytics still relies on human experts to work out and test the associations between cause and outcome.

Explore machine learning applications and AI software with SAP Leonardo.


Shaily Kumar

About Shaily Kumar

Shailendra has been on a quest to help organisations make money out of data and has generated an incremental value of over one billion dollars through analytics and cognitive processes. With a global experience of more than two decades, Shailendra has worked with a myriad of Corporations, Consulting Services and Software Companies in various industries like Retail, Telecommunications, Financial Services and Travel - to help them realise incremental value hidden in zettabytes of data. He has published multiple articles in international journals about Analytics and Cognitive Solutions; and recently published “Making Money out of Data” which showcases five business stories from various industries on how successful companies make millions of dollars in incremental value using analytics. Prior to joining SAP, Shailendra was Partner / Analytics & Cognitive Leader, Asia at IBM where he drove the cognitive business across Asia. Before joining IBM, he was the Managing Director and Analytics Lead at Accenture delivering value to its clients across Australia and New Zealand. Coming from the industry, Shailendra held key Executive positions driving analytics at Woolworths and Coles in the past. Please feel to connect on: Linkedin: Twitter: