How can middle market companies use digital tools to transform ways they connect with customers and beat their competition? The NCMM examines its latest research report on digitizing the customer experience with Jeff Sharritts, Senior Vice President of Cisco's U.S. Commercial Sales.
Transcription
Digitization of the Customer Experience-- Are We There Yet? Find out on the next episode of The Market that Moves America.
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Welcome to The Market That Moves America, a podcast from the National Center for the Middle Market, which will educate you about the challenges facing mid-sized companies and help you take advantage of new opportunities.
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Today's podcast is about customer experience and, in particular, about how middle-market companies can use digital tools to transform the ways in which they connect with customers and beat their competitors. I'm Tom Stewart. I'm the executive director of the National Center for the Middle Market at the Ohio State University Fisher College of Business. We're the nation's leading research group studying mid-sized companies, which account for about a third of private sector employment and GDP and the lion's share of economic growth.
It is the market that moves America. The National Center for the Middle Market is a partnership between Ohio State and SunTrust Banks, Grant Thornton LLP, and Cisco Systems. And with me today is a special guest, Jeff Sharritts from Cisco Systems. He's a senior VP at Cisco, focuses on what Cisco calls the commercial business, which roughly maps to the middle market. He's also a member of NCMM's oversight Board. Jeff, welcome.
Thanks Tom, it's great to be here. It's been great a great partnership over the years with the National Center for the Mid-market. It's critical research that, candidly, hasn't existed for years for middle-market companies. And I know, we, at Cisco, are happy to be a part of the organization and the research that we've done together, certainly, providing a lot of value to our customers.
At the same time, it's really important to me, at Cisco, because the part of the business that I run within the company is really focused on our middle-market customers. So obviously that research can play with my teams and with our customers and partners that we work with in that space. So it's really great to be here. And hey, the added benefit is I'm an Ohio State graduate as well. So that's always an extra bonus.
So O-H, right?
Yeah. That's right. I-O.
You bet.
So let me begin with a couple of points and maybe a little data to set the stage, and first, and also to thank you for that encomium. We really have enjoyed working with you guys. But as you're listening to this, think about the digitization of the customer experience. And when you think about this, just as a consumer, as an ordinary person walking or driving down the street, if you think about what has happened to the way in which you interact with companies?
And you can think of the biggest purchase that a person makes in his or her lifetime, that of a house-- think about how the ways of buying a house have changed as Redfin and Zillow have become the way in which you look for houses, look inside houses, and so on and so forth. And it's not just a matter of going down the main street and seeing all the pictures in the realtor's window, right? Or think about buying a car.
And again, think about how the experience of that second biggest consumer purchase has been transformed by digitization. And think about all these things like buying shoes, and so on and so forth, that can be done digitally now that you wouldn't have imagined being done digitally before. I mean, Jeff, from your standpoint, you look out at companies selling business-to-business, business-to-consumer. What do you see in the transformation of this landscape from a customer experience point of view?
Yeah, Tom, as you stated, I don't think you have to be in the tech industry to see how things are changing from a customer experience perspective. All of us understand, as consumers, that you know this is going on. And the expectation about how we want to interact with companies is certainly changed and continues to change. And I what we see is all companies, including middle-market companies, are being impacted by what we call this digital transformation that's going on. And customer experience is obviously a critical component of that overall transformation for most companies.
And I think in the research report that you guys put out, I think 55% of the companies say they aren't proactively focused on the customer experience aspect of their digital transformation, that, most of the focus is really on the back office. And I think that's where companies like Cisco come to play. We've built our own digitization office to conduct research in this area, as well as, we partner with organizations like yours at the National Center for the Mid-Market to help our mid-sized companies accelerate their transformation to be more competitive in the marketplace.
And reality is, we understand that building a secure digital foundation that supports the back office all the way through to the customer-facing parts of the business are critical to the future success of any company, whether it's large or small. What I like most about, specifically in the mid-market space, is that the move to digitization actually presents a huge opportunity for smaller companies to disrupt the market if they build these digital capabilities to make life easier for consumers. And maybe I can just share with you a quick story.
And this is one I often tell when I'm out of clients. But if you look at a company like Dollar Shave Club-- it's a great story. By the way, this isn't a Cisco example. This is just one that I think is very interesting. What they saw was an opportunity in the market to service consumers in a different way, and in a new way, basically, selling razor blades. And they spun up this company back in 2011. They built a platform to service this opportunity. And what they did is they provided cost-effective and easy access for consumers to razorblades, right?
And who would have thought a longstanding, very successful industry for lots of years-- but as they entered the marketplace and created this new customer experience, what they did is they were able to ramp the revenue to $200 million in just six months. They were only in business for five years, and they had over 3.2 million members in their portfolio. And after that five-year period of being in business, they took 15 points of market share from Gillette and Schick.
And then, in 2016, about a year ago, they actually sold the company, after being in business for five years, for $1 billion to Unilever. So when you think about that customer experience, that transformation that they made, and they created in the marketplace, and you see the market value they were able to create a very short order, in just five short years, you can see, when you get this right, it can have a significant impact on your business.
You know, it's really interesting, when you think about the classic Gillette business model, which is razors and blades. We sell the razor, but we make the money selling the blades. And what Dollar Shave Club did is it basically used a digital platform to pull the rug out from under that model and said you can do this online. And one of the interesting things about razorblades is you've always got extras, right? I mean, if you go to the store and buy Gillette blades or whatever it is, you're always sitting on a little bit of inventory. So it's not as if you know you need it right now. You're always buying a little bit of extra. So it's perfectly suited to this.
But you making me thinking of something that is also one of my favorite digitization of the customer experience examples because it's so counter-intuitive is Warby Parker. And who would have thought 10 years ago that people might start buying prescription eyeglasses online. And in fact, that's an interesting example because now they have a whole bunch of stores, but they created the stores almost by accident. Their intention had been to be a 100% digital.
But the business took off so fast that they were running out of sample eyeglass frames to mail to people. And so they invited people to come to their-- I think it was at their apartment in Philadelphia at that point. And that gave them the idea of, gee, let's create stores. So they went from digital to analog, rather than analog to digital. But it's another one of those examples of taking something-- and the experience of buying glasses from them is completely different from the experience of going to the optometrist.
Yeah, Tom, it's another great example. And I think when you think about those two examples what it just says to you that this transformation cuts across every industry, every product, big or small. The market is being disrupted. And the way in which you engage your consumers and customers is going to be critical to your long-term success as an organization.
Yeah. It's not just disruption too. It's also like digital can be a really interesting way of solving pain points. And one of my favorite-- some people like me are old enough to remember the pain point of banker's hours when you couldn't get your money out of the bank after 3 o'clock, and you could never get money out of the bank on a weekend. And the ATM, which is 50 years old this year by the way, is an example of solving that pain point.
And it's also interesting because it's basically the first time that consumers would actually interact directly with-- you mentioned that back-office IT-- now, suddenly-- in the old days, the back-office banking IT was only touched by a teller. But now the consumer would touch it. And so that created this whole question of what a user interface is like, which is interesting. But I'm intrigued also by solving this pain point. I know you guys work with-- Panera, is it-- on solving the pain point of what do you do when you've got a line, and you're hungry, and it's lunch.
Yeah. It was actually one of our better working relationships and engagements we had. I think it's interesting, as we talk about, being, regardless of industry, companies are starting to say to themselves, OK, at some point, it doesn't matter if we have the best pizza, or we have the best shoes or clothes, or whatever it might be. If we aren't creating that enjoyable and easy-to-use experience for our customers, that we're going to really struggle from a business perspective. And I think Panera Bread is an example of somebody who's embraced that thought process and really transformed the way they interact with their customers.
They were seeing-- to your point, Tom-- they were seeing big traffic jams during peak hours in their restaurant chain that was having a negative impact on customer satisfaction and revenues. And in fact, when the leadership team at Panera found out that the long wait times often lead to customer attrition, they really took a step back and said we got to do something different. And here's what we realized. If they wanted to stay relevant in the marketplace, they needed to transform that entire Panera experience to their customers. And so we worked together.
And we were lucky enough to help them, along with some of our ecosystem partners, to really drive to their business model transformation, which they called Panera 2.0, which was an investment in the customer, enabled by technology, and powered by operational excellence. And what this initiative did is it included things like rapid pick-up, so that you can place an order online, and it's ready and waiting for you to take away when you get to the store. It had in-store ordering via mobile devices.
They had Fast Lane kiosks for dine-in or to-go orders. And when you think about all the digital features, what it allowed Panera to do was track and monitor customer analytics and, therefore, continually enhance that customer service and product development within the stores. And as a result, thus far, since the introduction of Panera 2.0, they've seem more seamless in-store traffic flow from dine-in, and carry out customers, and faster service or to go customers. Digital sales now account for almost 24% of their total sales.
Wow.
A company and their company owned restaurants, which is pretty transformational, when you think about it. And more than 40% of Panera's catering business orders occur digitally now. And then, when you think additionally, when they did some surveys after this process was in place for about a year, customer satisfaction at the restaurant chain showed that Panera topped the survey from a rankings perspective and attributed the company's Panera 2.0 initiative to leading this survey, which was a survey that was done across the entire industry-- so really transformational.
And it really forced them to step back and really think about how they did things to really enhance that customer experience for what used to be a pretty basic experience of going into a quick-service restaurant chain and ordering food and those kinds of things.
You know, you said something really interesting at the beginning. Actually, you said something interesting throughout the Panera story. But at the beginning, you said you mentioned something fascinating. You said it's not necessarily enough to have the best pizza or the best product. Panera doesn't sell pizza. And actually, the data that we have from this study on digitization of the customer experience-- I love the subtitle of this. It's called Digitization of the Customer Experience-- Are We There Yet. And one of the data points is that consumers rank product or service quality number one.
That's their number one concern. And their number two concern is experience, and price ranks third. And experience seems to be coming up. And I think that's a stunning realization. And indeed, in many cases, experience is quality. You've got the quality of the bread, the quality the meat, the quality of this, that, and the other.
But the quality of the experience is absolutely critical when you're making that decision to turn left or turn right to go to this place or that place for lunch. But I'm just thinking also of places where you have a more captive customer like medical care and health care, which is, what, 16% of the economy, where, again-- really complex interactions, but experience is just about as important to medical consideration as the technical quality of the care.
Yeah. I couldn't agree more, Tom. And I think, at the end of the day, it's important because of your health, right? And it's kind of everything. And technology, I think, has truly revolutionized the health care industry in the way that health care is being delivered, the way health data is being processed across systems and providers. Let me let me share a quick example with you. We were working with a company called Mercy Healthcare, which I think many may be familiar with.
But what Mercy was trying to do is they wanted to reach more patients in more places. And they wanted to provide better care to those patients and provide more accessible care in some remote areas to those patients and, more specifically, some of the chronic patients-- if you think about patients that require that ongoing care on a pretty regular basis.
So I'm coming back. I've got diabetes. I'm coming back every month for checkups and so on and so forth. Yeah.
Yeah, Tom. You know--
I mean if I had diabetes, yeah, right, yeah. That's what I meant, yes. Patients like that, yeah.
Turn to technology. And basically what they did is they engaged a number of different technology companies and, collectively, we created a new initiative called the Mercy Virtual. And what Mercy Virtual was is basically allow the medical teams to have an always-on view of their patients and an always-on capability of transacting and interacting with those patients. And we work with them and also one of our technology partners World Wide Technology to build a digital platform for Mercy to share that patient information and provide remote video access to those patients wherever they may exist.
And one of the applications that they provided was kind of an engagement at home application. And what it allowed them to do is access those patients in real time, no matter where they were, and really accelerate the care and improve the care experience to allow those patients to have less trips back and forth to the hospital, let's say in remote areas where they had to drive three or four hours. And the result was just a better patient experience. Within one year of this Mercy Virtual system being launched, they say a 50% reduction in preventable readmissions from patients.
Wow.
They say a 35% reduction in the days spent in the hospital by those patients and, thus, improving care, improving, the experience, and lowering costs. So you can see a real transformational opportunity that took place at Mercy in really changing that patient experience, right?
Jeff, dial down a little bit. Let's think of-- often when people think, or when I think the digital, I think Amazon, I think Facebook, I think Apple, I think these megacorporations. I think Cisco, right? I think about these megacorporations. But some of the stories that you've been telling-- is there a unique or maybe a really critical opportunity that mid-sized companies need to seize or can seize?
If I'm running a $100 million materials company or a $50 million retailer-- I mean, when I think about digitizing the customer experience from the standpoint of being middle-sized, first of all, what the opportunity I need to be thinking about? And second of all, do I need to be think about going at it differently from the way a Fortune 500 company might?
I think the advantage in what we see with our middle market customers is they tend to be-- number one is most of our middle-market customers tend to leverage technology to differentiate themselves from the much larger players in the marketplace. And then, if you think about that, and then how do they leverage this digital transformation and the new capabilities that are starting to exist in the marketplace, whether there be applications or custom-built software, those kinds of things to really change and transform that experience?
I think the opportunity for mid-market companies is they can move quickly. They move much faster than some of the larger players. It allows them to enter markets much faster. They can enter markets leveraging some of these digital platforms globally. They can scale the business in a much, much faster way. And that's what we see. When I look at mid-market and smaller companies, it's just the speed to market and their ability to be nimble to really transform and disrupt the larger players in the marketplace is really the key opportunity as I see it, right?
So it can be on your computer or your phone, virtually. I don't have to build a storefront, right? Basically, I can build virtual scale that allows me to compete with the big guys without building physical scale or before I build physical scale.
Yeah. Just time to market and the cost to enter is certainly, as technology becomes more pervasive, the costs and the investment of that technology certainly continues to come down as well, right, like Moore's law. So time to get into the market, costs to get into the market and disrupt some of these areas is-- I think the mid-market firms don't carry a lot of legacy so it allows them to really think differently and approach markets in a much different way, similar to what we talked about with Dollar Shave Club and some of the other examples I provided.
Yeah. One of the things I know-- we should probably wrap this up in a minute or two. But I'm thinking one of the things that the study shows is the B2C companies tend to be in advance of B-to-B companies in this digitization of the customer experience. But that opportunity is just as big in B2B, isn't it?
Yeah. I think it is. Obviously, in the customers we support, we have a number that aren't directly to the consumer, but certainly are always thinking about how they digitize and improve their business and still really change the game. And I think some of you may be familiar with a company called Noosa Yoghurt. Noosa's mission is to bring the highest quality yogurt to the marketplace. And I think, Tom, they were featured in one of your mid-market customers of the month.
Yeah. companies of the month, yeah. Um-hmm. Good yogurt.
Noosa, they're a privately held production company that I think operates in Colorado. They've been around since 2010, so they've been in business about seven, eight years. They're one of the fastest growing yogurt companies in the country. And they operate out of the Morning Fresh Dairy out in Colorado. So they actually own their own cows. They grow their own feed, which is one of the strategic advantages they have to bring that quality to the marketplace.
And a few years ago-- they've been challenged as they try to scale their business to maintain that quality, to improve the safety of their product from a safety perspective, and also reduce the product loss as they were working through manufacturing. And what we did is, we actually helped them build the digital foundation in their plant environment that allowed them to access data and add value capabilities to that network from a video perspective to do things like reduce production loss, increase up-time, and ensure food safety, as I described a little bit.
And by implementing that digital foundation throughout their plant, they were able to reduce their downtime pretty significantly from a processing perspective. They were able to reduce their loss during the processing. So they had situations where they were losing product and different components of the yogurt out during the manufacturing process. And by leveraging some of the video capabilities, they were able to catch that quickly, shut that down, and reduce the overall loss, which was costing hundreds of thousands of dollars.
And then they were also able to ensure safety and ensure the quality of their product by the way they monitor their lines in the production facilities by leveraging this digital platform of sensors and video technology across the production facility. So an example of how a B2B company is transforming their process to ensure the quality is delivered to their customer, right?
I'm going to make a bad pun about how this helped them improve their corporate culture with it being a yogurt company.
Yeah. Absolutely. Yeah, right. But one of the things-- let me wrap this up and see if I can underscore a couple of things. The study that we did pointed out a few things. One is that it's hard. One is the customer experience is really important. I mentioned that earlier. A second is that it's hard, and that there are real challenges in managing the conflict between what you might call the digital and the analog parts of the business-- the new business and the old or the different functions and silos.
It's really hard to create an omnichannel or a whole length of the customer journey digital experience, which is part of the Noosa Yoghurt experience, but also what you were talking about with Panera and the multiple ways of getting a sandwich, and also Mercy Healthcare. So the omnichannel is really hard. But one of the other things we found, and I just want to emphasize this, is that the companies that got it right, the one 1 of 5 companies that we call digitally strategic were growing twice as fast as the others.
So there's like this hockey stick of rewards from investing in the digitization of the customer experience. And that, I think, is one of the things that we learned from this study. Jeff Sharritts it's been really great to have you here. Where can people learn more about digitization of the customer experience from the stuff that you guys do?
If they want to learn more from a Cisco perspective, certainly they can go to cisco.com. And there's specific information on cisco.com that would share with them some of the stories that I described as well as a host of other information around digital transformation, not only, like I say, customer stories, but just general information about the transformation that's taking place across all industries.
And for those of you who want to learn more about the study that we've just released-- The Digitization of the Customer Experience-- Are We There Yet, please check us out at middlemarketcenter.org. I want to thank you very much for listening to The Market That Moves America. And thank you, Jeff, for joining us today.
Never miss a new episode. You can subscribe to the podcast on iTunes, Stitcher or Google Play, or wherever fine podcasts can be found. Or you can subscribe and learn more about us at our website, which is middlemarketcenter.org. Thanks very much.
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