Kainos, Revenue Growth & Net Revenue Retention

Posted on December 1, 2022 at 12:30 pm.

Kainos, Revenue Growth & Net Revenue Retention

What Drives Revenue Growth?

For much of 2022, I’ve been discussing the topic of revenue growth with senior executives of B2B companies.

What drives it? What capabilities do companies need for growth? Is Net Revenue Retention (NRR) a good predictor of profitable growth? If not, what is?

One of the most interesting discussions I had was with Brendan Mooney, CEO of IT services company Kainos. The reason I was keen to have a chat with him should be clear when you look at the table below.

Table 1. Revenues at Kainos, excluding acquired companies (£m, 2015-2022)

NRR Explained

Net Revenue Retention is not yet a commonly-used financial term in business even though it is a well-known term in Software as a Service (SaaS) companies.

Let’s look at Kainos’ revenues from a NRR perspective. Let’s group revenues by the year in which they were acquired.

The graph on the right shows that in 2015, Kainos generated revenues of £61m.

Now suppose Kainos signed up no new clients in 2016. Its revenues would still have grown as the clients that were on its books in 2015 generated revenues of £68m in 2016.

Here’s the NRR calculation:

Kainos’ Net Revenue Retention for 2016 is:

NRR = £68m ÷ £61m = 111%

NRR At Kainos

Kainos may not be a household name but since it floated on the London Stock Exchange in 2015, it has been growing revenues organically by 20-30% a year. That’s 20-30% a year every year. Without fail. How many companies can claim revenue growth like this over the past eight years?

I certainly know of very few companies with such a track record. Some of our own clients at Deep-Insight are struggling to achieve any organic growth at the moment. So that’s why I wanted to talk to Brendan. I was really curious to find out how Kainos achieved such consistent growth. What was their secret sauce?

It turns out that the real secret to Kainos’ phenomenal growth is their great Net Revenue Retention (NRR) rates but, more importantly, those NRR figures are the outcome of consistently excellent service delivery for their clients.

Large B2B companies with NRRs consistently above 100% can be considered ‘very good’. Any company with an NRR above 110% should be considered as ‘excellent’. Brendan Mooney sets the bar higher and believes you need an NRR of 115% to be considered ‘Best in Class’.

Kainos is a high growth, high profit company precisely because its NRR figures are so strong. In its eight years as a publicly-quoted company, its NRR has only once dropped below 100%. In 2019, it hit 139%. Kainos is certainly ‘Best in Class’ and is a role model for any company trying to achieve above-average revenue and profit growth.

NRR is not a difficult concept to grasp but few senior executives truly understand the power of monitoring their company’s NRR performance. The reason for this is that most B2B leadership teams don’t understand how much it costs to land a ‘Net New’ client (brand new logo). If they did, they would become obsessed with retention in general, and NRR in particular as a key metric to monitor.

Which is More Important: Land, Expand or Retain?

Many companies grow revenues by investing heavily in new sales. It works. But it’s expensive – much more expensive than people think. Our analysis at Deep-Insight shows that it typically takes 4-6 years to break even when you sign up a new client. If CFOs and leadership teams measured Customer Lifetime Value (CLV) – and most don’t – they would realise that a significant proportion of their clients never make a profit. The reason? They don’t hang on to those clients long enough for them to pay back the acquisition cost and break even.

In some cases, a company’s ability to Land a large number of ‘Net New’ clients each year can mask a failure to Expand its footprint across those accounts, and/or a failure to Retain those clients over the longer term.

Companies can grow revenues by investing heavily in new sales but it’s difficult to stay profitable if all you’re doing is replacing existing clients with expensive new logos, many of which never stay around to generate a profit.

So why is NRR so important? The answer is that you can achieve growth with an NRR performance well below 100% but it’s rarely sustainable. Profitable growth always trumps revenue growth. Expanding and Retaining are far more important activities than Landing.

Who Needs New Clients Anyway?

Here’s another thing: if your NRR is consistently above 100%, you don’t need ANY new clients to grow your business.

Just think about that for a minute. I’ve said that it’s expensive to acquire a new client in the first place. It’s not just the cost of the salespeople who win the bid. You also have to factor all the time and money they spend on bids that they DON’T win.

We’re not suggesting that companies disband their sales teams. We are suggesting that they become much more discerning in what they bid for, and once they sign up a ‘Net New’ client, they need to organise themselves to retain those clients for, well, pretty much forever. They also need to figure out a good strategy for expansion across that account – finding additional products and value-added services to cross-sell.

And that’s what Kainos does really, really well.

From Campus Company To FTSE 250 Star

Let’s get back to Brendan Mooney and Kainos. Brendan joined the company as a trainee software engineer from Ulster University in 1989.

At the time, Kainos was a small university campus company with around 25 employees. It was a joint venture between Fujitsu and Queens University, Belfast. Most of its work was for Fujitsu in Great Britain. Brendan was one of two graduates hired from Ulster University that year. Both still work at Kainos, which might give a hint at why the company has been so successful over the years.

Brendan started working in Dublin in 1994 as Kainos started to expand its footprint across the island of Ireland. In 2001, he took over as CEO. Roll forward a few years. In 2015 Kainos floated on the London Stock Exchange. Today it is a constituent on the FTSE 250 Index.

I asked Brendan why Kainos was not as well-known as other IT service providers, despite its hugely impressive track record. His answer was simple: “We do our best marketing by delivering for our customers”.

In terms of brand awareness, our customers – and those who we want to do business with – know us quite well. We’re also probably well-known inside universities because that’s our heritage and where we target students for recruitment. But yeah, I guess we don't have a particularly high public profile.

The thing is that we do our best work by delivering for our customers. That’s where we put our energy and enthusiasm, and that gives us the results and recognition we’re looking for. For us, it’s all about the ongoing relationship with our customers.

Engage, Deliver, Grow

When I talked to Brendan Mooney about Landing, Expanding and Retaining clients, he said he preferred to use a different phrase: Engage, Deliver, Grow.

His explanation goes to the heart of the NRR/Growth challenge, and it’s a hard-nosed commercial view. Kainos is very focused on profit margins – particularly where there a likelihood of margin erosion. In Brendan’s view, the best way to hold profit margins and reduce erosion is to manage Engagement Efficiency. Here’s how he defines it:

So you've made promises during the sales campaign. Now you have to deliver against those promises and commitments. And if I think about profit margins in a contract, there are three points of margin erosion in a ‘Net New’ client – three areas where you incur additional costs or give away margin.

COST NUMBER 1 is the cost of a sales team. Good salespeople are well paid. They have a pre-sales team that supports them. They don't win every bid. There's the lost business cost you need to factor in as well. So that's cost number one.

COST NUMBER 2 is competitive pricing. For a ‘Net New’ client, it’s typically a competitive bid. It doesn't matter how disciplined you are as a sales professional, your instinct will be to price more keenly than the competition in order to win. The client will always tell you price is a problem, and you know it’s going to be part of the conversation with a professional procurement team...

But actually, COST NUMBER 3, which relates to ‘Engagement Efficiency’, is the key one. That’s what drives our view about the reciprocal nature of a long term relationship. Because we've had a significant cost in winning that client, we want to see that client retained 15 or 20 years, obviously even longer. Then what do you do? You put a really strong team on that first engagement. When you start any new project, you don't know the client very well. But are they sure about their outcome they're trying to achieve? How competent are they as an organisation to deliver their part of the overall project plan? And if they're using third party suppliers, how responsive will they be in that project? We can't control all those factors but we can control the quality of our people. So we put on a very experienced team for that first engagement to provide us some degree of flex, in case anything happens, which it usually does.

In summary, Kainos stacks the initial engagement with very experienced people. That’s precisely because Brendan Mooney knows that if something can go wrong in those initial months, it probably will. Kainos needs experienced people to be able to handle all eventualities and still deliver a really successful Phase 1 of the engagement.

Once that initial phase has been delivered, Kainos can change the mix on the project team. But that initial phase is crucial to build Kainos’ reputation. It will build the trust their clients have in Kainos as an organisation and as a true business partner.

Get the Engage and Deliver elements right and the Grow piece becomes a lot easier.

Getting The Balance Right

And if it sounds like Kainos is purely a company focused on numbers and profit margins, it’s not. Brendan Mooney was quick to point out that “it’s all about balance”.

As a business, Kainos sets out three ambitions, all of which are important, but they do have a priority order. These are, in priority:

Being a great employer
Delivering value to our customers
Being a growing, profitable and responsible business

The apex of Kainos’ pyramid is its people. It works hard at keeping the talent that it has, as well as attracting more great people. Unlike its NRR rates, Kainos can’t achieve a people retention figure of greater than 100% but its current figure of 86% compares well against the market.

Growth = Consistently Good Service Delivery

When it comes to that third point about growth, Brendan’s philosophy is simple: “If you want to build your business, keep your current clients. Then you can expand in terms of the other share of their expenditure. That’s our thought process.”

And at the heart of that philosophy is a drive and obsession with delivery excellence. Consistently good service delivery helps build trust and commitment and those elements are the key to any long-term business partnership.

I joined an organisation that was young but had a very mature view about delivery. And it was about the premise that if you delivered to your client and you helped them achieve their business objectives, then they would come to you in the future to place business with you.

For us, it's all about delivery – I can't explain it another way. So it's not a complicated concept at all. But the important thing here is the delivery.

Our sales team will always point out that the reason we won that bid was because of our delivery reputation. The reason we won a DEFRA contract for £54 million was that we did Phase One so well that the client was just blown away.

Or the reason that we had a £92 million contract with the Passport Office in the UK was that for the previous four and a half years we had managed to beat every single deadline they'd set into their plan.

And we're easy to work with – that's important too. But if you don’t have that delivery capability, it’s so much harder for any sales or account manager to win. And again, it's a community that self-references quite quickly.

The UK is a bigger place than Ireland, but it's not an enormous place. People will be able to find out about you quite quickly, if you fail to deliver a project.

Key Takeaway

In my interview with Brendan Mooney, we covered a few other topics as well. We talked about how it wasn’t all plain sailing, particularly during the banking crisis in 2008 when many of Kainos’ clients were financial services companies; how they diversified into international markets and made the strategic move to start supporting Workday clients; and the more recent move into digital transformation and agile software development practices.

However, the key takeaway from my interview with Brendan Mooney was this: If you want to grow revenues consistently over time, you need to have a really well-structured approach to engaging with the right clients, and then delivering the goods for them time after time after time.

It’s not rocket science. But that doesn’t mean that it’s easy.

How Do You Measure B2B Customer Experience?

Posted on November 16, 2022 at 1:40 pm.

Written by John O'Connor

How Do You Measure B2B Customer Experience?

B2B Customer Experience

A lot of words have been penned on the topic of customer experience (CX) in recent years. But here’s the thing. Most of what’s written relates to CONSUMER experience.

There really is very little out there about CX purely written from a business-to-business (B2B) perspective. That’s really surprising when you consider that B2B commerce is significantly larger than its business-to-consumer (B2C) counterpart.

So let’s try to redress that with this blog. Let’s explore how CX is, and should be, measured in B2B companies.

The answer to the first question is easy. Most large B2B companies use Net Promoter Score these days. The second question – how should CX be measured – is harder to answer. There are other measurement systems out there so is NPS really the best metric? Does it even work in a B2B context?

What is Customer Experience anyway?

Before we answer these questions, I need to provide a little bit of context to how we got to where we are today. The reason is that the term ‘Customer Experience’ is actually a very recent term. As the Box below shows, the term was first coined in 1999.

‘Customer Experience’ was called something else for most of the last century. In fact, CX was called a lot of different things over the last 100 years.

Professor Saba Fatma traces the term Customer Experience back to a 1999 book by Joe Pine and James Gilmore called The Experience Economy: Work Is Theatre and Every Business a Stage.

The book itself starts with a wonderful example of how the value in a cup of coffee is in the experience, rather than the quality of the underlying commodity (in this case, the humble coffee bean).

This example above is from the consumer, or B2C, world but the concept is equally applicable to the B2B world. Experiences are subjective. They tap into the emotional as well as the rational side of the brain.

A Brief History of CX in the 20th Century

So if CX is a term that only came into common usage at the turn of the 21th century, what was it known as before then? Time for a short history lesson.

A hundred years ago, there were practically no formal customer-related performance measures in existence. That’s not to say manufacturing companies didn’t think about the customer. And it was all manufacturing back then. The services economy didn’t really take off until much later. In fact, it was only after the end of the Second World War that services became the dominant component of western economies. The graphic below shows that in the UK, the services sector hit 50% in 1950. Today, it’s closer to 80%.

Back in the 1950s, it made sense to focus on product quality. By then, management gurus like W. Edwards Deming, Joseph Juran, and Philip Crosby were rolling out a series of techniques and approaches for Total Quality Management, or TQM. That’s what customer experience was all about in those days.

By the 1960s, management theory had become a little more sophisticated. People started thinking not just about the quality of the product being manufactured, but also about whether the customer was satisfied with the product. Did it meet expectations? Did it exceed expectations? This is when Customer Satisfaction, or CSat, measurement started to take off.

It’s strange to think that this was the first time that management gurus started thinking explicitly about the customer.

By the 1980s, most economies in the world were dominated by services rather than by manufacturing. Service Quality became a fashionable, if fuzzy, topic led by American academics like Valerie Zeithaml and Leonard Berry. They proposed measuring concepts like reliability, responsiveness and customer care.

It wasn’t until the 1990s that people like Fred Reichheld (the guy who later came up with the concept of Net Promoter Score) really started thinking about the value of a customer over the lifetime of that person buying from a company, rather than just the value of the individual transaction. Customer Loyalty became the new buzzphrase. Reichheld’s book The Loyalty Effect is still one of the most sought-after management books of the last 30 years.

Also in the 1990s, another couple of American academics Morgan and Hunt came up with their views on the critical role of Trust and Commitment in business relationships. I’ve written about Morgan and Hunt before, in this blog.

Standing on the Shoulders of Giants

While CX is only a little over 20 years old as a concept, it is in fact built on a series of measures going back as far as the 1950s. Here’s the important thing. All of the concepts and measures in the following table are STILL relevant today. Fred Reichheld’s Net Promoter Score may be the most commonly used metric at the moment, but it’s not the only one. It’s not even the best one. But, in its favour, it is a simple concept to understand and equally simple for leadership teams and boards to implement.

ERA	MEASUREMENT
1950s & 1960s	Total Quality Management (TQM)
1970s	Customer Satisfaction (CSat)
1980s	Service Quality
1990s	Customer Loyalty Trust & Commitment
2000s	Customer Experience (CX) Customer Experience Management (CEM) Net Promoter Score (NPS)

When CX met NPS in the early 21st century, it seemed a marriage made in heaven. If the customer experience was excellent, we could measure just how good it was by asking a very simple question: “Would you recommend it?” NPS turned out to be a really straightforward way to measure consumer experience.

But is NPS a good metric to measure B2B customer experience? After all, the business world has had nearly a century of research into product quality, satisfaction, service quality, customer loyalty and business relationships. Should all these metrics be cast aside in favour of NPS?

As Isaac Newton famously said to a letter to Robert Hooke in 1675: “if I have seen further, it is by standing on the shoulders of giants.” CX professionals need to do the same when they consider what metrics to use in the B2B world. By all means, use NPS as a key metric. But also look back to the giants of the 20th century for inspiration.

Measuring B2B Customer Experience – is NPS Enough?

In short, No!

Fred Reichheld’s Net Promoter Score may be a great metric for measuring advocacy and is well suited to consumer environments and brands. Don’t get me wrong – it also has applicability in B2B environments even though I haven’t always been a fan.

The great strength of NPS – its sheer simplicity – also turns out to be its main failing.

Everybody understands intuitively the concepts of ‘Promoters’ and ‘Detractors’. They also grasp the ‘net’ concept. In other words:

NPS = % Promoters minus % Detractors

Boards and leadership team love the fact that it works on all types and sizes of customers. It’s easy to administer as it’s a single question. But therein lies the problem. It’s a single question. It’s very one-dimensional. It ignores all the giants of the 20th century and the work they did to understand what customer experience really involves, and how best to measure it.

NPS tells you whether you have a problem or not. It doesn’t give you the deep insights you need in complex B2B environments about the nature of the underlying problems. Or how to fix them.

Customer Relationship Quality (CRQ)

The answer to the question at the top of this blog – how should you measure B2B customer experience – is to combine the best of all worlds. To stand on the shoulders of the giants of the 20th century. And to do so in a pragmatic way.

The Net Promoter question is worth asking, but in conjunction with a handful of other questions that are built on a foundation of nearly a century of good research. The result is a methodology that we call CRQ – Customer Relationship Quality – which covers six building blocks:

The approach we take at Deep-Insight is to stand on the shoulders of giants such as Deming, Juran and Crosby way back in the 1950s. I’ll come back to this topic again in the near future as I believe one of the most fundamental building blocks on customer experience for any B2B organisation is consistently good service delivery. Our own research shows that service delivery is the most important driver of long-term trusted relationships.

If you’re interested in finding out a bit more about customer experience and how to measure B2B customer experience, download our white paper by clicking on the image below.

Alternatively, give us a call to have a chat.

What is a Good Net Promoter Score?

Posted on September 28, 2022 at 2:58 pm.

Written by John O'Connor

What is a Good Net Promoter Score?

Times have changed

Way back in 2014, I wrote a blog called What is a ‘Good’ B2B Net Promoter Score? It was purely about B2B companies (which get very different NPS results to B2C companies).

In that blog, I said that “a Net Promoter Score of about +10 is par for the course” for B2B companies and that a “a Net Promoter Score of +30 is excellent.”

A lot has happened since 2014. Back then, NPS was very popular in the USA. That’s not surprising. Its inventor – Fred Reichheld – was a partner in the American consulting company Bain & Company.

Most Bain clients and many other large US firms had adopted NPS as a key performance indicator in 2014. In Europe, they had not.

But eight years on, Europe has caught up. Times have changed.

Net Promoter Scores Are Now Reported in Europe

One of the biggest changes since 2014 is that most large European companies now measure NPS. They also report it to their shareholders in their annual reports. A look at our own client base confirms this.

Telecoms provider BT started piloting a Net Promoter measure in 2016 and announced it in its annual report that year. It rolled out NPS more widely in 2017. The outsourcing company Capita started reporting its NPS results in 2018. As did the French technology firm Atos. International law firm DWF reported its first net promoter scores to shareholders in 2019.

What is a Good B2B Net Promoter Score today?

There have been more recent changes too. In 2020, Covid hit. The nature of working changed. Surely that had an impact on the way companies interacted with their clients? For better, or for worse? 2014 seems a lifetime ago.

So what is a good B2B Net Promoter Score in 2022, compared to 2014?

Oddly enough, not much has changed in the last eight years. Let’s take a closer look. The following scores are taken from our Deep-Insight database and cover nearly 100 major B2B Customer Experience programmes, from 2015 to 2022.The benchmarks are based on responses from nearly 25,000 individuals so it’s a pretty robust set of data.

Net Promoter Scores (2015 – 2022)

Top Decile	+51
Top Quartile	+37
Average	+3
Bottom Quartile	-29
Bottom Decile	-47

Do remember that Deep-Insight works primarily with companies in Europe and Australia, and we have written before about how Americans score more positively than Europeans (or at least, those in Northern Europe). Average Net Promoter Scores for American B2B firms will be higher than those in the table above.

It’s worth recapping on the five key factors that can make a significant impact on your NPS result:

Which geographical region do your customers come from? This is the point about Americans scoring more positively than Europeans.
Do you conduct NPS surveys by telephone or face-to-face or by email? Email gives lower – but more realistic – scores. F2F and telephone gives higher, over-inflated scores.
Is the survey confidential? Surveys that are not confidential tend to paint a much rosier picture than those that are confidential.
Is there a governance structure in place? Governance is required to minimise ‘gaming’ – for example, when clients are excluded because everybody knows they will give poor feedback.
Is the survey carried out by an independent third party, or is it an in-house survey? In-house surveys can be cost-effective but are rarely confidential and are therefore likely to generate inflated NPS results.

Takeaways

On the face of it, things are broadly similar to 2014 but with a few twists:

Average NPS scores have dropped slightly, from +10 to +3, but this could easily be due to the mix of clients that we work with. My own sense is that over the last decade, things have broadly stayed the same. For most B2B companies, a slightly positive NPS result is the norm.
The bar for Excellence has been raised, and now stands at +50 (if you consider the Top 10% to be the bar you’re aiming for). Even if you’re aiming for a Top Quartile performance you have to get close to +40. Back in 2014, the bar was at least 10 points lower.
There are more companies in the “Danger Zone” which we generally regard as anywhere below a score of -30. In 2014, 10-15% of our clients could expect scores in the “Danger Zone”. Today, that figure is nearly 25%.

To sum up: average scores haven’t changed hugely; good companies have got better; poor companies have got worse. The divide between truly customer-centric companies and those who are not remotely customer-centric has increased.

Conclusions

So what is a good Net Promoter Score today? What targets should you be setting for your company?

That depends on your ambition, but it also depends on where you are starting from. There’s no point in aiming for +50 next year if you’re currently in the “Danger Zone”. That’s a journey that will take 5-6 years and will require a complete cultural transformation within your organisation.

If you have that ambition and need assistance to get started, get in touch with us.

If you have no idea what your Net Promoter Score is and are intrigued to find out, you should also get in touch with us!

You Said, We Listened

Posted on May 5, 2022 at 5:05 pm.

Written by John O'Connor

Last month, we asked our clients what they thought of us. We do this every year and take our Customer Relationship Quality (CRQ) feedback seriously. We try to follow the advice we give to our own clients: give your customers the opportunity to tell you what they think. Listen to what they say. Then act on their feedback.

As we did last year, we cast the net for our 2022 CRQ assessment quite wide. We didn’t just limit the survey to a handful of key decision makers in current clients. We included many operational and administrative contacts. Their views are equally important. We also asked dormant customers what they thought of us.

Last year, you said…

The main message that you gave us last year – actually for the last two years – was that you needed more than just a survey provider. In practice, that meant providing more assistance AFTER your customers gave their feedback. You needed a partner that could help you deliver meaningful change across your whole organisation. You also wanted us to be more flexible and supportive.

We listened, and here are three of the things we did in response to your feedback.

1. Deliver more than just a survey

We have always strived to be more than just a survey company. Our mission is to help companies become truly customer-centric. Getting customer and employee feedback is part of that process, but there’s much more to it than launching a survey. That’s why we completely redesigned the way we work with clients, based on what you said to us.

Today we spend a lot more time with leadership teams and sales or account teams both BEFORE we think about asking our customer’s clients for their views as well as AFTER they give their feedback. The BEFORE piece is critical and must be done properly. If you don’t invest the time up-front, your CX (or EX) programme will not deliver the results that Management and the Board expect from it. More than likely, it will end in failure. It’s as simple as that.

2. Assist with Customer Relationship Quality ‘Healthchecks’

Last year we conducted CRQ ‘Healthchecks’ for clients in the UK and Ireland. The objective of a ‘Healthcheck’ is to benchmark how good a company’s Customer Experience or Customer Satisfaction programme is. That doesn’t just mean assessing if the right questions are being asked of the right people. It’s a more fundamental look at whether all the right components are in place to deliver genuine and meaningful benefits. We do this under four headings:

1. LEADERSHIP. The most important quadrant. Good Customer Excellence (CX) programmes are ALWAYS led from the top
2. STRATEGY. Good CX programmes link customer, product, operational and organisational strategy explicitly to customer needs
3. EXECUTION. Success requires properly resourced teams that are brilliant at executing the Strategy
4. CULTURE. Finally, Customer Excellence must become integral to the DNA of the organisation: “it’s how we do things around here”

All four quadrants are necessary for a successful CX programme. The ‘Hard Side’ quadrants of Strategy and Execution are all about metrics and processes. ‘Hard Side’ activities lend themselves to key performance indicators (KPIs) and while the activities in these two quadrants are important and easily measurable, the quadrants of Leadership and Culture are actually more critical.

In our experience, Leadership is the most important quadrant while Culture is the most challenging. And yet, here’s the strange thing: in most CX programmes the ‘Soft Side’ is often overlooked and almost always under-resourced.

3. Run Customer Centricity ‘Masterclasses’ for managers and leadership teams

One of the key ‘Soft Side’ challenges is making sure your entire organisation is on board with your CX (or CSat or NPS or Customer Relationship Quality) programme. Over the past 12 months, we have partnered with the world-leading HEC Business School in Paris.

That collaboration has helped us develop and deliver a ‘Masterclass’ to educate leadership teams, managers and partners about the importance and benefits of putting the customer at the heart of everything they do. The ‘Masterclass’ also helps employees understand the crucial role they play in making their companies customer-centric.

Already, these ‘Masterclasses’ have been delivered both virtually (for COVID reasons) and face-to-face to clients in Europe, Asia and the Americas.

How did we score this year?

Having made the investments over the past two years, we were very curious to get your reaction. In short, you were very generous in your responses this year.

This year we achieved a Net Promoter Score of +66 and a Customer Relationship Quality (CRQ) score of 6.1 out of 7.

This is the highest NPS result we have ever achieved to date and the third time we have scored over +50. Our CRQ score is also the highest we have ever achieved and we are honoured to be thought of so highly by you, our valued clients.

Result: new client wins

I honestly believe that it’s because of the trust that our clients place in Deep-Insight that we have been able to announce some great new wins in recent months.

We have a 10+ year relationship with Atos but primarily in the UK & Ireland. Earlier this year, we extended that relationship to Germany and over the next three years we will be partnering with Atos on one of their most important and strategic global accounts.

One of our largest accounts in Australia was the logistics company Toll Group. Last year our key contact at Toll moved to Scotts Refrigerated Logistics and we recently signed a new 3-year contract to help ScottsRL become one of the most customer-centric companies in Australia.

Vreugdenhil Dairy Foods is a Dutch milk powder manufacturer that operates in Barneveld, Scharsterbrug, Gorinchem and Madrid. Its 500 staff process 1.4 billion kilograms of milk each year. Over the next three years, we will be working with the Vreugdenhil leadership team to turn a company that creates great food products into a truly customer-centric organisation.

Agenda for 2022

While we’re really proud of these Customer Relationship Quality (CRQ) and NPS scores, there is more to do.

For starters, we got feedback from 48% of the people we asked to participate. While that’s not bad, we do see some room for improvement. Last year our response rate was 55%. We know that some of our clients achieve rates of 70% or more. We will be working hard to improve on this figure next year.

Second, the main feedback we received this year is that our new consulting services are great BUT not enough. Our clients are looking for Deep-Insight to provide even more support. The two customer quotes below confirm to me that we need to support clients on a year-round basis.

“Would like to see greater insight on how we can really make a difference for our customers. How do we truly address those recurring themes that come up each year? It would be great to get insight on how we can do this better – beyond the data”

“I would question to what degree on a continual basis Deep-Insight provides interaction and insight as a partner to the business. Also, to what extent there are follow-up meetings post results as you as experts help inform our response and strategy.”

Third, the feedback process is not finished yet. We need to ‘close the loop’ with all clients and discuss their specific feedback. We will be in touch shortly and will be looking specifically for more insights into any additional support needs they may have.

I need to finish off by thanking Fiona Lynch for planning, organising and running this year’s client assessment. Fiona joined us earlier this year from Atos where she was part of a global service delivery team. It’s great to have her on board.

So, well done Fiona, and thank you to all of our clients. We really do value your feedback.

John O’Connor
CEO, Deep-Insight

The CX Factor

Posted on November 29, 2021 at 12:28 pm.

Written by John O'Connor

This blog is a shortened version of The CX Factor which originally appeared in the October 2021 edition of Modern Lawyer. Modern Lawyer is published by Globe Law and Business.

Download the article, including the case studies with Baker McKenzie, DWF, Shoosmiths and Travers Smith by clicking on the image below.

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SUMMARY

There’s a lot of talk at law firms about client relationships. For many clients these can still seem hollow words based on one-way relationships.

Robert Millard and John O’Connor explore how firms that are trying to embrace true client centricity are setting themselves apart.

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The CX Factor

Much has been written over the years about how diﬃcult it is for clients to diﬀerentiate between one law ﬁrm and the next. From a client perspective, law ﬁrms all look remarkably similar. Trust, reputation and brand generally play an unusually important role in buying professional services.

Appearing in directories such as Chambers & Partners, Legal 500 and International Financial Law Review are also important as are word-of-mouth recommendations. These are recognised to be among the most compelling means of winning new clients.

But what keeps clients loyal? What drives client relationship longevity? Except for the most complex or unique of matters, a range of ﬁrms exist from which clients can choose. Those ﬁrms are all staﬀed by highly competent, capable lawyers.

Making the Transition from Client Listening to Customer-Centricity

Within ranges, all charge roughly similar fees for similar matters. All are highly attentive to service quality. Most engage in at least some form of client listening. They claim to mould their services and service delivery channels around the needs of clients. But have they?

In our opinion, few have transitioned from client listening to becoming truly customer-centric.

This article is aimed at helping law ﬁrms to make that transition. The content is based on client- centricity work that John O’Connor has done with many large corporates and ﬁnancial institutions, including DWF Group plc. It is also based on Robert Millard’s unparalleled understanding of modern law ﬁrms.

It was informed by interviews with Baker McKenzie LLP (Ana-Maria Norbury and Deanna Gilbert), DWF Group plc (Zelinda Bennett), Shoosmiths LLP (Peter Duﬀ and Gaius Powell) and Travers Smith LLP (Julie Stott and Charlie Rogers) about their CX journeys. All of these were exceedingly generous with their time and insights. We thank them most sincerely.

Clients’ Demands are Shifting

Across many industry sectors and geographies, customers are shifting the ways in which they choose suppliers and service providers. Current research in the United States shows that the percentage of clients recommending law ﬁrms is at an all-time high of 69%. That’s up from 49% in 2020 and from 47% in 2019.

This increase is remarkable. But those results are not from superb skill in solving legal problems alone – the focus on service quality has given way to one of client experience (CX). For all but the most complex and diﬃcult of services, service quality is no longer a source of sustained competitive advantage. It is a prerequisite to be even considered.

Clients now demand that their experience with the ﬁrm advising them be hassle free, transparent and even emotionally uplifting. They also expect law ﬁrms to look further than the legal advice. They expect them to help solve business problems.

Law ﬁrms are changing their business models in line with these shifting client requirements. But too slowly, in our view. The time has come to accelerate. Bluntly, modern law ﬁrms must move from client listening to more detailed conversations, and act decisively on what they discover.

No UK law ﬁrm has what a leading corporate or ﬁnancial service client would acknowledge to be a world-class CX programme, or true customer-centricity. Pockets of excellence do exist though, and some of these can be seen in the case studies at the end of this article.

CX is Different to Service Quality

The concept of ‘quality’ emerged from the total quality management (TQM) movement of the 1950s. In the early days, the focus was on product quality. The emphasis moved in the 70s and 80s to service quality as economies in the western world became more services-based economies. ‘Client satisfaction’ became a prominent metric.

Client experience (CX) is diﬀerent. It means that a ﬁrm’s core focus is on its entire relationship with its clients – not just on satisfaction. Contemporary research shows that CX is generated through a long process of interaction between a ﬁrm and its clients, across multiple channels and through generating both functional and emotional eﬀects.

To achieve this requires ‘client-centricity’ which, in simple terms, means putting clients at the very heart of the ﬁrm. This transcends quality, to mean all the ﬁrm’s lawyers and business services professionals viewing every aspect of the ﬁrm from the client perspective. In this article, we use the terms ‘client centricity’ and ‘CX’ interchangeably.

For clients, quality assurance is diﬃcult in legal and other professional services. Lawyers and other professionals frequently have more knowledge of the topic in hand than do their clients. This creates a ‘power asymmetry’. Work product is frequently co-created with clients, or at least based heavily on client inputs. Consistently poor performance leads inevitably to reputational damage, sanctions for professional negligence and, ultimately, failure.

The Intangibilty of CX in the Legal World

That much is clear. How, though, does a client assess whether services rendered in a speciﬁc matter were merely ‘good’, or ‘excellent’?

It turns out that it is far easier for clients to assess how they feel about the services and about their experience, than the objective quality of the service received. Clients must trust the professionals that they instruct to be technically competent and diligent. Such trust is not necessary to assess their reaction to their experience – their ‘gut-reaction’ – to dealing with the ﬁrm and the way in which the ﬁrm deals with them.

At an event held at White & Case’s oﬃces in London some time ago, the former chairman of Allen & Overy (A&O), David Morley spoke of a very complex, challenging transaction where A&O was pitching for the legal advisory work against the usual range of premium London law ﬁrms. A&O won the engagement and, he said, he was later told by the client’s general counsel that the reason for that was that they felt that when, late at night in the midst of the deal when pressures were immense, they believed that A&O’s lawyers would be the easiest to deal with.

This is an excellent example of how intangible CX can be.

Professional Services are Different

Professional services have always been recognised as being distinct from products, and from other types of services. More than two decades ago, professional services were deﬁned as:

highly knowledge intensive, delivered by highly educated people, frequently linked to cutting-edge knowledge;
involving a high degree of customisation;
involving a high degree of discretionary eﬀort and personal judgement on the part of the professional creating and delivering the service;
requiring substantial interaction with the client; and
being delivered within constraints of professional norms of conduct, including setting client needs above proﬁt and respecting the limits of professional expertise.

For much of the past century, this has been an accurate description of the services delivered to clients by lawyers. Ask any lawyer if they are concerned about their clients, and the quality of services that they deliver to them, and the answer will almost always be: “of course I do!” And that response would be sincere and truthful – to the extent even that the question might be regarded as facile.

Commoditisation

Yet the statistics for clients defecting to rival ﬁrms in recent years have been alarming. Legal services are also changing. On the one hand, the complexity of legal issues increases continually and exponentially.

On the other, it is becoming diﬃcult to justify including the more process-driven ‘commoditised’ services under the umbrella of professional services. This does not mean that law ﬁrms need to discard these services. They form an important part of the business of many law ﬁrms.

The term for services that are not ‘professional’ is not ‘unprofessional’. It’s ‘technical’. The fact is that clients view technical legal services through a diﬀerent lens, and the proﬁt drivers of these services are diﬀerent to those of professional services. The ﬁrm’s business model needs to be more granular if the tensions between these client expectations and proﬁt drivers are to be managed.

As the ‘4th Industrial Revolution’ unfolds, more of the services now delivered by people will be better delivered by technology. Some lawyers will focus on using ever-more complex technological tools to advise clients on meeting their own increasingly diﬃcult, complex needs. The business of law is also being disrupted by emerging digital technologies and the geo-economic impacts that they spawn. Some firms will build highly proﬁtable legal service platforms (LegalZoom being a good current example) to focus on more mainstream legal needs. Best CX practice will evolve diﬀerently for each.

These tensions can and must be managed. CX has proved a valuable tool for banks, retail organisations, airlines and others to improve levels of customer satisfaction. It is now gaining rapid traction with law ﬁrms and might even be a new frontier on which law ﬁrms are competing. Many ﬁrms, however, appear to be struggling to separate the concept from similar ones such as ‘service quality’ and ‘client relationships’ and ‘client listening’.

What to Measure?

Metrics are obviously crucial. One of the best-known CX metrics is Net Promoter Score (NPS), created by Fred Reichheld based on his work at the consulting company Bain & Co. In his book The Loyalty Effect, Reichheld stated that clients should be valued according to the net present value (NPV) of the future revenues to be earned from them. This has given rise to the notion of client lifetime value (CLV).

NPS is based on the proven premise that client relationship longevity can be predicted by a client’s response to a single question: “how likely would you be to recommend our ﬁrm to a friend or colleague?”

Reichheld’s research showed that surprisingly high NPS scores are required to indicate long-term client loyalty. The NPS of a ﬁrm overall is calculated by subtracting the percentage of clients who allocated a score of 6 or less (Detractors) from the percentage who allocated a score of 9 or 10 (Promoters).

NPS scores can theoretically range from –100 to +100. An average NPS for a European B2B company is around +10 while an average score for European professional services ﬁrms is around +30.

But is NPS the best metric for law ﬁrms? We mentioned earlier how A&O won an engagement based on the general counsel’s level of Trust in the ﬁrm’s ability to deliver when the going got tough. Few companies measure trust explicitly – yet it is the fundamental building block of any client relationship.

Customer Relationship Quality (CRQ)

An alternative to NPS is to view the client relationship more holistically. Client relationship quality can be visualised as a pyramid comprised of three diﬀerent levels (see Figure 1).

Figure 1. The Customer Relationship Quality (CRQ) model

Three levels of Customer Relationship Quality

The ﬁrst and most fundamental is the Relationship level. Do your clients trust you, are they committed to a long-term relationship with you, and are they satisﬁed with that relationship?

The second is the Uniqueness level. Do your clients view the experience of working with you, and the solutions you oﬀer, as truly diﬀerentiated and unique?

At the top of the pyramid is the Service level. Are you seen as reliable, responsive and caring?

If law ﬁrms score well on all six elements of customer relationship quality (CRQ), their clients will act as ambassadors, generating a high NPS.

NPS and CRQ scores are highly correlated. Law ﬁrms should track their NPS but in order to understand what that is really telling you – and what you have to do to improve that score – law ﬁrms also need to measure and understand all six elements of the CRQ model.

Turning ‘Client Listening’ into an Effective CX Programme

Client listening is obviously more than just the score and the verbatim feedback that is captured. A fully-ﬂedged CX programme is also far more than a client listening survey. It includes what we refer to as ‘hard side’ and ‘soft side’ activities (see Figure 2).

Figure 2. Deep-Insight CX framework

The four quadrants are:

LEADERSHIP. The most important quadrant. Good customer excellence (CX) programmes are always led from the top.
STRATEGY. Good CX programmes link customer, product, operational and organisational strategy explicitly to customer needs.
EXECUTION. Success requires properly resourced teams that are brilliant at executing the strategy.
CULTURE. Finally, customer excellence must become integral to the DNA of the organisation: “it’s how we do things around here”.

The hard side activities of Strategy and Execution are important. These include setting up the CX programme, determining what to measure, executing the survey process, and using the client feedback to update company strategy. However, one of the key lessons from interviews with corporate leaders is that successful CX programmes require heavy investment in ‘soft side’ activities if they are to generate real long-lasting results. This means spending signiﬁcant amounts of time with law partners and client teams planning for success.

All four quadrants are necessary for a successful CX programme. Many law ﬁrms start at the execution quadrant and are often disappointed when their client-listening programme produces no meaningful result or change. In our experience, the soft side is often overlooked and almost always under-resourced. Leadership is the most important quadrant while culture is the most challenging.

Step 1. Drive change from the leadership level

Client relationship longevity is a crucial building block of the ﬁrm’s client value proposition (CVP). It deserves the attention of the ﬁrm’s most senior leaders. Without active and highly visible senior leadership support, a ﬁrm is unlikely to achieve the CX results that they need to build sustained competitive advantage. It is crucial that the ﬁrm’s leaders themselves be truly client-centric. The must:

Be genuinely passionate advocates for the ﬁrm’s clients and their interests;
Take personal ownership of enhancing client- centricity in the ﬁrm;
Have an intuitive understanding that client satisfaction drives ﬁnancial success;
Use client-centricity as a lever to eﬀect organisational change; and
Be relentless about execution.

This list might appear daunting, but it is crucial. Too often, a ﬁrm’s CX initiatives founder because the task is delegated to mid-level teams who have no more than lukewarm support from senior leadership. The result? They are unable to drive the degree of change that can really make a diﬀerence. The need for active and visible senior leadership support is evident in the comments of Peter Duﬀ, chairperson of Shoosmiths, in Case Study 1.

Step 2. Link Strategy Explicitly to Actual Client Needs

Once the leadership for the CX programme has been secured, the law ﬁrm must use the voice of the customer to drive all aspects of the ﬁrm’s strategy. This can, and often will, involve major organisational and operational change. It will also require changes to the ﬁrm’s business model (CVPs, resources and proﬁt model). O’Connor and Whitelaw devote an entire chapter of their book Customer at the Heart to the strategy of client-centricity.

In Case Study 2, Zelinda Bennett speaks of some of the major strategic changes that DWF Group have made in order to serve their global clients more eﬀectively. Reorganising the business into global divisions and acquiring an alternative legal services provider (ALSP) were bold and decisive actions taken precisely because DWF wanted to become more client-centric.

Strategy must involve all aspects of the law ﬁrm’s business. It includes HR (hiring, training and promoting the most client-centric lawyers) as well as ﬁnance (investing only in initiatives that will have a demonstrable impact on clients). It must pervade the entire organisation. Every department in the law ﬁrm must see its role through the lens of the client.

Step 3. Build a CX Execution Capability

Besides strong leadership, a successful CX initiative also requires an ‘execution’ capability to ensure that the voice of the client is both captured correctly and acted upon. Execution is more than setting up a client listening post. It involves turning the outputs from those client conversations and collaborative explorations into tangible actions that solve real client problems.

In today’s world, the client personnel involved in buying and consuming legal services extend far beyond the legal department. The client’s voice needs to extend beyond just the GC and her or his legal team. Law firms must think about the ‘inﬂuencers’ who are telling those decision makers that “We have to work with Firm X” or “Firm Y really aren’t delivering value for money – we should be looking elsewhere”.

One of the better examples of a good execution capability is Baker McKenzie’s Reinvent programme (Case Study 3). Reinvent started by using client listening to map existing client interactions with the law ﬁrm – ‘journey mapping’ as it’s often referred to – but then moved to the next logical level. Baker McKenzie started working with clients to re-engineer processes and even co-creating new services and solutions. The Reinvent programme was developed to establish the governance, skills and infrastructure required to support better client outcomes. This programme focuses both on re-engineering speciﬁc processes and services with clients, as well as a way to develop teams across the ﬁrm – empowering execution at a grassroots level. Such an approach is a highly eﬀective way to build engagement with the CX process and commitment to its success.

Step 4. Embed Client-Centricity into the DNA of the Organisation

Lawyers are consummate professionals. But are they truly client-centric? Most legal professionals entered the legal industry to practise law. They wanted to advise clients and to mitigate risk. They didn’t join to help CFOs and procurement professionals to cut costs. However, that’s what partners in law ﬁrms are being asked to do these days.

Embedding behaviour changes and aligning the ﬁrm’s culture with the ‘voice of the client’ takes patience, persistence and continuous eﬀort over a long time. Engagement with clients must be ongoing. Building and sustaining the momentum required to be true client-centric needs a constant stream of input from clients. It also requires constant conversations within the ﬁrm about what that input means, and how clients can be better served.

In Case Study 4, we look at Travers Smith’s ability to embed the culture of client-centricity into the DNA of the ﬁrm. Silos have been broken down. Close collaboration between lawyers and business services has been achieved. International clients are serviced almost seamlessly. The ﬁrm’s senior leadership takes a very active lead in this.

The reason why most law ﬁrms are lagging behind might be not that they are inattentive to clients (that is usually patently not the case). It is more likely to be that they simply do not have the systems and processes in place that are required to get input of the quality and detail that can drive continuous improvement. A properly designed CX programme delivers that. Over time, measurable results emerge both in terms of client loyalty (NPS and CRQ scores) and also, more importantly, economic performance.

Conclusion

Earlier, we said that many companies start with Execution. We strongly believe that the ﬁrst step in a successful CX programme is gaining the right Leadership commitment to putting the client at the heart of everything a law ﬁrm does.

Once that leadership is in place, it becomes easier to get the law ﬁrm’s strategy aligned to what clients actually need and the CX execution tasks become much easier. With leadership, strategy and execution in place, culture change automatically follows.

As David Morley’s earlier anecdote reveals, the primary impactors of CX emerge when things go wrong. Clients report four major areas where the law ﬁrms that advise them are inconsistent, namely: keeping them informed; dealing with unexpected changes; handling problems; and meeting scope. Feel free to work on these immediately, of course.

But if you want to achieve a step change, that starts at the top.