Fred Reichheld's Blog

Targeting Greatness with NPS: The Rackspace Journey

info@netpromoter.com — Thu, 05 Jan 2012 17:17:34 GMT

At the upcoming Net Promoter Conference in San Francisco, Rackspace CEO Lanham Napier will discuss how his firm has utilized NPS to pursue greatness. During our recent CEO Roundtable* Lanham explained:

For us, NPS is a greatness metric. It’s a value statement about what our company wants to become. We have lots of metrics for our business but most all of them measure bigness—how big our revenues are, how many employees we have, how many servers we have in our datacenters, how big our profits are, how big our market capitalization is. But to achieve our aspirations, what we really need most is a measure of greatness. Net Promoter tells us how often we are delivering what we call Fanatical service—service so great that our customers lives are enriched and their businesses generate better results.

Too many companies these days never go beyond those traditional measures of bigness. They attach budgets and bonuses to the measures, so employees naturally come to believe that growth alone is what really matters. By focusing innovative energy on bigness rather than greatness, companies eventually fall into the trap of bad profits and bad revenues. Growth inevitably stalls as customers search out better alternatives.

Ironically, when a company focuses on greatness, it usually grows bigger. Rackspace, with its emphasis on achieving greatness, is growing at more than 30% per year and has become the leader in its target markets. The firm’s market capitalization has increased more than fivefold since its IPO in 2009. By focusing on greatness (through the lens of Net Promoter), it has outpaced the competition.

In 2009, I joined the Rackspace board of directors and have had the privilege of observing Rackspace’s journey toward greatness up close. One of the lessons I’ve learned is that simply measuring Net Promoter at the corporate center to generate aggregate metrics for senior execs, the board and big investors is not the key to greatness. Rather, the real key is distributing that measurement capability to each front-line team so that team members can track how close they are coming to greatness each day—and then make the appropriate course corrections.

A good analogy is the way that global positioning systems (GPS) have expanded their impact on our lives as the technology evolved from central control to a distributed model. In its early days, GPS was revolutionary, but it was limited to centrally controlled missions. For example, NASA used GPS to guide missiles, and naval operations could use it to provide navigational aid to captains of aircraft carriers. Today, GPS is available through millions of smart phones and inexpensive consumer devices. Just about anyone can determine their current location, the distance to their destination, and the best route to take—not just aircraft carrier captains, but lone kayak paddlers, drivers, and joggers.

Think of NPS as your company’s GPS for greatness. It lets each individual team discover how close they come to greatness—as measured by 9s and 10s from the customers they touch each day, each week, each month. Through closed-loop feedback, they can determine the adjustments required to “recalculate” and home in on their destination. That is the real power of NPS; that is how companies like Rackspace are revolutionizing the quest for greatness. NPS provides a guidance system that can transform the pursuit of greatness from a theoretical conversation about heroic leadership into a practical grass-roots effort.

*Rob Markey and I hosted the CEOs of Rackspace, Intuit, Schwab, Bain, and eBay for a Roundtable discussion about their experience with NPS. We will be releasing shortly a series of videos from that session.

Frugal Wow Redux: Eat Mor Chikin

info@netpromoter.com — Fri, 07 Jan 2011 13:55:31 GMT

It is surprising how often I hear about Chick-fil-A from my friends, even though I live in Massachusetts where there are only a couple of Chick-fil-A restaurants. For example, I was sitting in Bain’s Boston headquarters with the partner team that oversees the firm’s internal Net Promoter process (Bain gathers NPS feedback from its major clients on a regular basis). During a break, I happened to mention to the partner representing our Dallas office that I had invited Dan Cathy, the president of Chick-fil-A, to speak at the upcoming NPS Conference in Miami.

My partner exclaimed that his family simply loved Chick-fil-A and visited the restaurant in his Dallas neighborhood almost every week. He then confided that it was really his three-year-old son who was the biggest fan. Whenever the family got in the car on Saturday, the three-year-old would ask if they could visit Jose the mop-man. My partner explained that the first time they visited their local Chick-fil-A restaurant, an employee named Jose was mopping the floor, and when the family entered, he welcomed the young boy with a big smile. With a wink at the parents, he asked the youngster if he could help with this mopping chore. A moment later, the boy was full of giggles as Jose gave him a ride around the lobby on top of the mop. Now, every time they come back to the restaurant, the son looks for Jose—who welcomes him by name—and they find some important job to work on together.

There are lots of ways you might label this kind of behavior. I’ve heard names like “random acts of kindness,” but I really don’t believe it was random. Maybe intelligent kindness or caring service would be more accurate. Personally, I like to think of it as an example of frugal wow. It didn’t cost the store very much to have Jose make the little boy feel special. It almost certainly made Jose feel better about his job when he made that youngster smile. It probably made the other customers in the restaurant smile too. It probably energized Jose so that he was more productive, and it undoubtedly topped up his reservoir of good will to share with other customers and crew members. Then there is the very tangible value of having repeat customers who tell these happy stories to family, friends, and neighbors.

Just writing about this story is making me smile. Which proves the power of frugal wow. Jose’s frugal wow is rippling out from that Dallas restaurant and spreading smiles all the way to Boston. One of the things I find so remarkable about Chick-fil-A is the frequency and variety of creative frugal wow stories that I encounter. I’m hoping that Dan Cathy can explain why he thinks this is happening—and what he and the other corporate execs in the Atlanta headquarters are doing to encourage this kind of behavior so it continues to occur with increasing frequency in Chick-fil-A restaurants across the country.

The World According to FRED

info@netpromoter.com — Tue, 24 Aug 2010 12:28:24 GMT

Most days of the summer, you will find me walking along Cape Cod’s Shining Sea Bike Path, where the vista over Vineyard Sound inspired the poetry of Katharine Lee Bates, author of the words to “America the Beautiful.” There continues to be something magical about the setting and the way the sea sparkles in the sunlight. This special place also happens to be where I do some of my best thinking. During one walk along the path, it struck me that the only way to really change the way people were treating one another in business was to help change the way they measured success, both organizational and personal. That eventually led to the creation of the Net Promoter System. Granted, there is a long way yet to go, but the progress on NPS over the past few years has been most gratifying. Hundreds of the world’s major companies—and likely many thousands of smaller firms—have begun to measure their success with NPS.

And now, as the hips on the rosa rugosa turn a deeper shade of scarlet and the marsh mallow blossoms herald the beginning of the end of summer, I again find myself asking some of those perennial existential questions that seem to come with the season. You know the kind: Why do we exist? What is our purpose? And so on. One particularly thorny one got stuck in my head: Why in heaven’s name did my parents name me Fred?

Fred. There were no noteworthy relatives on either side of the family by the name of Fred. And I couldn’t think of any particularly famous Freds that might have inspired my parents’ selection. There were no US Presidents by that name. Millard, Grover and Calvin, yes, but no Fred. There weren’t even any vice-presidential Freds, although that group managed to include a Chester, a Hannibal, a Hubert, and a Spiro. In fact, my parents never mentioned any Fred-logic that made sense to me. So I decided I would have to find (or invent) my own explanation. I paced up and down the Shining Sea bike path pondering secret codes and mnemonics that might be hidden within those letters F-R-E-D. And I am happy to report that I think I found the answer.

The Net Promoter System is much more than a score. It embodies a philosophy so basic that it can be captured in just four words: Foster Recommendation, Eliminate Detraction. FRED! That must have been it. My parents were magically anticipating the philosophy that would underlie NPS, and that’s why they gave me this otherwise inexplicable name.

OK, so FRED doesn’t scale the poetic heights of purple mountain majesties or alabaster cities. But everybody loves an acronym, and acronyms like LASER (originally Light Amplification by Stimulated Emission of Radiation) have become part of the language. And doesn’t FRED provide a laser-like focus on a good way to run your business and maybe your life? Someday, perhaps, FRED too will become a popular mnemonic—a reverse acronym if you will—morphing from common name to shorthand for a code of conduct worthy of loyalty. And if organizations continue to adopt this philosophy of FRED, America (and the rest of the world) will indeed be Beautiful.

The Power of Frugal Wows

info@netpromoter.com — Tue, 22 Jun 2010 14:05:27 GMT

During the recent London NPS Conference, a number of companies reported creative methods of delivering “Wow!” experiences to customers in an economically responsible fashion.

David Speakman of Travel Counsellors, for instance, described the “Golden Habits” that his most effective agents employ—inexpensive but thoughtful acts of kindness such as thank-you notes and welcome-home phone calls. By building these frugal wows into its IT systems, the company makes it easy for all of its counsellors to remember and implement the practices. Where a typical travel agent touches a customer several times each year, the Golden Habits help Travel Counsellors’ agents touch their customers far more frequently, and in ways that bring delight.

Rackspace does some similar things. One Racker described the company’s practice of sending a mini-Racker T-shirt to customers who are welcoming a new baby into the family. Another Racker said that, when a customer is pulling an all-nighter, someone from Rackspace will call a local restaurant and have a pizza delivered, so that the night is a little less arduous.

Listening to these creative ideas for wowing customers, I got to thinking about my daughter Jenny’s recent experience when she moved to a new city. We had long been loyal Lexus customers, and I advised her to stop into the local Lexus dealer whenever she had problems with her car. It turned out that the first problem she faced was the transfer of license plates. One of the screws that our own Lexus dealer had used to attach the old Massachusetts plate would not budge.

The new dealer told her that fixing it would be no problem, but that the cost would be $200. Jenny gave me a call because she was astonished—think negative wow—by the price. I agreed that it seemed outrageous, and advised her to grab her new plates and get out of there. She then drove to the corner garage that her new roommate had recommended. When the mechanic saw the situation, he assured her that there was a simple fix. He drilled out the old screw and had the new plates installed in a matter of minutes. When she offered to pay him, he refused to accept any money. He told her that he just wanted to welcome her to the neighborhood.

She was so pleasantly surprised that she has told this story dozens of times to friends and neighbors. And you can imagine how much of her business—and how much of her friends’ and neighbors’ business—will be going to that garage compared to the Lexus dealership. In fact, after buying six Lexus autos in a row over the past decade, we recently defected to Audi. That distant bad experience may have been the last straw for us.

Anyway, back to my daughter. By investing just a few moments with her, that mechanic created a memorable and welcoming wow experience. And he built the foundation for a long and profitable relationship.

The question that I hope more business leaders will be pondering is this: How can we ensure that front-line employees are constantly looking for innovative ways to wow customers without spending too much money? When they do that, it energizes a company’s growth. Frugal wows are not only highly profitable, they are also inspirational, for customers and employees alike.

CTCA: Leading the Way with NPS in Healthcare

info@netpromoter.com — Fri, 19 Feb 2010 14:55:09 GMT

If you were among the 450+ attendees at our recent NPS conference in NYC, you had the treat of hearing Steve Bonner, CEO of Cancer Treatment Centers of America (CTCA), explain how his organization targets what he calls the “Mother Standard”—the kind of care you would want for your own mother. By using the Net Promoter Score as its primary gauge of that standard, CTCA has been able to make steady progress. Steve explained that his Board of Directors reviews NPS trends for each of CTCA’s hospitals near the beginning of their meetings. In fact, these are the first numbers that get reviewed by the Board, before any of the financial reports.

Only one thing happens prior to the review of NPS data, and that is a visit from a current patient who describes his or her experience at a CTCA facility. The Board rotates the location of its meetings so it can learn about the full range of facilities.

Hearing from a current patient helps to center the Board on its true mission: taking such good care of patients that they would recommend CTCA to a friend or relative. Board discussions could easily lapse into PowerPoint graphs full of numbers, as they do at many companies. But when a customer is standing in front of you, it’s a little easier to remember that the numbers that count most are those that reflect the customer’s experience.

I noted to Steve that I was puzzled at the slow adoption of NPS among health care providers. The sluggish pace is especially puzzling since so many of their important vendors and partners—including Sodexho, Philips, Medtronic, GE, and Siemens—have already adopted Net Promoter systems. Steve replied that, as healthcare becomes more competitive and consumer choice expands, more healthcare leaders will realize that the old-fashioned approach to measuring customer satisfaction (long surveys, low response rates, slow cycle times, no closed-loop feedback) are severely inadequate. But today, health care is just not as competitive or as consumer-focused as it needs to be.

In the meantime, forward-thinking organizations such as CTCA have been utilizing cutting-edge tools such as NPS to create a competitive advantage that will be difficult to overcome. By taking customer loyalty seriously—and by turning customers into promoters—CTCA has driven its Net Promoter Scores well above 80% and sometimes above 90%. The company is leading the way toward customer-centered healthcare by treating customers the way everyone feels their dear mother deserves to be treated.

I wonder what the NPS would be at the hospital where your own mother, father, or child will next be treated? Don’t you deserve to know?

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NPS in Healthcare

info@netpromoter.com — Tue, 15 Dec 2009 20:09:40 GMT

My dermatologist is a very smart guy. So at my annual check up, I asked him what lessons he has learned about applying the NPS framework in healthcare. He told me that the big insight for his practice was that he had been spending way too much time focusing on detractors. Most of them, he concluded, were simply not going to be happy doing business with him no matter how much extra attention he provided. These inherently grumpy patients were ruining the office atmosphere for other patients, they destroyed the motivation and enthusiasm of his nursing and administrative staff, and they were eating up a lot of his personal time and energy. So, he decided to help them find other physicians. The result, he told me, was that his practice started to grow and flourish like never before. The cost of detractors was far greater than the accountants could measure, but investing to fix detractor problems was not necessarily the best way to reduce this cost.

I feared I had used up my allotted time on this conversation—but the doctor seemed interested to talk further about NPS. So, I asked him why NPS adoption had progressed so slowly in health care. It is so clearly relevant; the notion of treating a patient in a way that makes them want to recommend friends and family seems perfectly suited for doctors, hospitals, clinics...just about any health care provider. Not only that, major suppliers to the healthcare industry such as GE, Philips, and Siemens have all adopted Net Promoter. Awareness among healthcare executives must be growing.

My doctor agreed, but then opined that perhaps the reason for slow adoption had to do with fear. In his view, the senior executives of hospitals and the like were more concerned with staying out of trouble and keeping their lucrative jobs than they were with building a truly great culture that could provide extraordinary quality care and reasonable prices. I was skeptical. Sure, measuring NPS in any business requires courage. It is one thing to talk about moving from good to great at your Board retreat, but to actually report how many customers are promoters, passives and detractors turns this high-minded concept into a sobering (maybe threatening?) challenge. But it doesn’t make sense that healthcare execs would have less courage than leaders in other industries.

Hopefully, we can get some answers to this question at the upcoming Net Promoter Conference (February 1-2 in New York). I plan to ask keynote speaker Steve Bonner, CEO of Cancer Treatment Centers of America, what he thinks about NPS in healthcare. Bonner’s organization has demonstrated impressive results using Net Promoter. So I want to ask Steve: Why haven’t more of his peers adopted NPS? Are they too focused on fixing detractors (like my dermatologist early on)? Do they think the current customer satisfaction surveys are sufficient for creating promoters—or has the government tied their hands with a measurement process that stifles innovation? Do they fear what NPS might show about the state of their current operations? Or do they simply feel overwhelmed with the amount of turbulent change and complexity?

I can’t wait to learn more from a seasoned industry executive like Steve Bonner about what Net Promoter advances we can expect to see in the healthcare arena.

Getting Results with NPS

info@netpromoter.com — Wed, 11 Mar 2009 22:35:27 GMT

One of my partners at Bain & Company asked me to summarize the most important lessons I learned at the San Francisco Net Promoter Conference. That was a tough request because there were so many impressive sessions, so many insightful case studies, and so many examples of barriers encountered and problems solved. Distilling everything down into a succinct summary of a few key lessons required some time to reflect.

Now that I have had time to ponder, I would say that the most important lesson is the remarkable level of progress that can be achieved with NPS. Walt Bettinger, CEO of Charles Schwab, showed us that his firm achieved a 50 point improvement in NPS between 2004 and the end of 2008. In that same period, Schwab’s retail business moved from a position of negligible growth—indeed, it was one of the weakest performers among large brokerage firms—all the way to top of the industry. In 2008, Bettinger added, Schwab’s net new assets exceeded the combined net new assets for all of its major competitors. Now that is impressive progress!

John Heyman, CEO of Radiant Systems, described how his company transformed its culture through its implementation of Net Promoter. Radiant Systems supplies retailers and hospitality firms with automated cash registers and related front-of-shop systems and is the leader in its industry. Heyman described how his team managed to improve NPS from negative 37% in 2005 to plus 38% in 2008, while growth accelerated to more than 25% per year. We heard similar stories from senior execs at Zappos, Logitech, and Intuit, among others.

What did all of these success stories have in common?

The CEO owned the NPS initiative personally and made sure it became a top priority for the entire leadership team.
A process for closed-loop learning was established for front line teams. Executives engaged directly in conversations with detractors and promoters to fully understand root causes and likely solutions.
Bad profits were identified and eliminated.
Reliable measurement processes were developed to establish accountability for front line teams and for executives.
Net Promoter implementation was viewed in terms of transformational change management, not simply a process for continuous improvement
NPS became more than a report card for the customer experience; it became the practical scorecard for how well the firm was living up to its core values.

Yes, the most important lesson I learned in San Francisco is that when leaders follow these rules, they can generate remarkably impressive results.