Covid-19 Means Your
Company Has to Cut Costs?

Covid-19 is likely to dominate news headlines over the coming months and perhaps longer. The effect on businesses will be quite mixed. Companies that manufacture basic necessities are likely to increase their business, and particularly any home delivery service they may offer. In the world of B2B, companies that provide services to office-based workers are likely to suffer. Non-essential transportation, retail, food, and hospitality businesses will do badly. More broadly, business leaders will become quite paranoid and will want to prepare for the worst. This means cost reduction.

There are only 3.5 ways to cut costs

And let’s face it, there are only 3.5 basic ways to cut costs: the first three are obvious: fewer buildings, fewer people, and paying suppliers less. The 0.5 is one-time accounting changes. As an example of the 0.5, health insurers in Switzerland have massive financial reserves. They can decide to drastically reduce the reserves and may change nothing else.

Fairness in cost cutting… fair to your customers?

Where cost reductions are inevitable, a CEO may take the easy way out, “In the interests of fairness, I am asking every department to cut their costs by 12%.” The people on the receiving end of the message won’t like it but at least the message seems fair. Right? Wrong, from a different perspective! It is completely the wrong approach from the point of view of your customers. This is where the customer experience leader has to provide guidance. At its simplest, the guidance is easy. There are things that customers care about and things they don’t care about. The CX leader needs to provide evidence-based suggestions as to which are which and strongly suggest that cost reductions should be limited to things customers don’t care about.

Evidence-based

Let’s talk about the evidence. You need to be strategic in where you make cuts. If you have been running a corporate CX program for some time, you may well have all the evidence you need, though probably not structured the way you need it to be. Basic corporate CX work tends to be about detecting an extinguishing fire, thereby improving loyalty. More advanced work tends to be about improving financial results by implementing improvements that even your Promoters and Passives are suggesting. CX-centric work on a cost reduction strategy is the opposite of both of these approaches. The foundation is the identification of things that never cause fires and that customers don’t want to see improved. If you don’t have such a framework in place, we suggest it should be your highest priority to get the baseline data now.

Overall intent

The overall statement of the intent of a CX-centric cost strategy is simple. Establishing the framework is a bit more sophisticated but it is far from the most complex aspect of the work. Many of the major costs that customers never see are deeply ingrained in your corporate culture. To pick one example, customers do not care at all about the location of your headquarters. You may be renting a location that costs far more than your competitors’ HQs while moving just a short distance may save you a lot of money without excessive inconvenience for employees.

It would be excessively simplistic to say that everything with which customers come into contact should be untouchable. Our suggestion is that things that customers rarely or never mention as improvement suggestions in their written answers to the open NPS questions are legitimate cost reduction targets. And that is the case even if something is a major customer touch point. To pick a possibly controversial example, if customers rarely or never mention your contact center in their overall brand-level feedback, then you should look at outsourcing the contact center while maintaining the current quality level. Target 20% cost savings.

If you are not worried, you should be

This sort of work may sound uncomfortable to many CX leaders. Please allow us to make you more uncomfortable. A large proportion of CX teams report to marketing. The core mission of the CMO is to generate demand and support sales. Customer experience work does not do either directly. So, if the CMO has to cut costs by 12% and does not want to reduce demand generation or sales support, where are they likely to look?

Let us try to make you even more uncomfortable: If your customer experience program is not explicitly and demonstrably 100% aligned with your overall corporate strategy, it is more likely to be cut. And in a totally rationally cost-cutting program, you and your team will be first on the chopping block if you have not been able to show a clear financial linkage between your CX work and growth or improved financial results. It’s that simple and this is at the heart of our New NPS Manifesto.

Where to start?

If you have a comprehensive customer journey map, that may be a good place to start. Go through all of the touchpoints and all of your survey data. Prioritize them based on the frequency of improvement suggestions. Low or no mentions equals high cost-reduction priority. You may also like to choose some item that seems to be a disaster and in need of a totally new approach, principally if it seems that a new approach needs to be much simpler than what your company currently does.

That’s our current Covid-19 update. If you are a CX leader in a company that will face cost reductions, please start now. If you would like to discuss it with me, please reach out here.