As investment in customer analytics solutions continues to grow, so does the need for top management to understand how to optimize performance of this growing budget item, forecasted to reach 11.6 percent of annual marketing spending in 2022, according to last year’s CMO Survey.
New research from the University of Notre Dame finds that companies need to do more than invest in analytics staff and systems in order to improve business performance. The attitude of the top management team (TMT) makes a critical difference, and their advocacy drives positive outcomes.
“Our findings reveal that while customer analytics use has a positive effect on firm performance at high levels of top management team advocacy, it actually has a negative effect on firm performance at low levels of TMT advocacy,” says Frank Germann, an associate professor of marketing at Mendoza College of Business who teaches core marketing courses in the Notre Dame MBA program.
Germann noticed that even as firms hired customer analytics teams and built databases, top leaders also had a level of skepticism regarding whether they were getting a good return on that investment. “Everyone’s trying to jump on this bandwagon, but many don’t really know how to do it,” he says. And not everyone is reaping the benefits, an outcome that he says is at odds with prior research that indicates customer analytics can have a strong, positive impact on business performance.
His study, “Driving Customer Analytics From the Top,” found that the level of advocacy from TMTs plays a significant role in the differing outcomes, even after controlling for key aspects of the firm’s strategy, technology, human capital and environment. The study, co-authored with Gary Lilien of Pennsylvania State University, Christine Moorman of Duke University and Lars Fiedler and Till Grossmass, McKinsey & Co. partners, is forthcoming in the journal Customer Needs and Solutions.
The insight is consistent with a management theory known as upper echelons theory. “If you want to understand why firms do the things they do, you need to seek an understanding of the people at the top,” explains Germann, who has also served as an academic adviser to McKinsey & Co.
The decision to allocate resources and build an infrastructure isn’t enough. TMTs also need to create an organizational culture where customer analytics insights can inform decision-making and employees are empowered to execute those data-driven strategies effectively. Otherwise, he says, these investments become a cost to the firm.
“It’s really about establishing a culture within the firm where analytics are viewed as something important,” he says.
So how do firms do this? To find out, the researchers conducted in-depth interviews with senior executives from global consulting firms and well-known companies that make use of customer analytics. Across the board, the executives stressed the need for change management activities led by a hands-on top management team in order to successfully implement a customer analytics program.
The executives recommended that TMTs:
Identify customer analytics use cases. Vagueness from top leaders on what they want to do with the analytics, Germann says, is “usually a recipe for failure.” Firms need to identify and agree upfront on what problem they want to solve and what outcome they want to optimize through customer analytics.
Align business units. Without TMT involvement, the researchers were told, “different business units will likely not work together and share their data and insight.”
Focus on the highest places of leverage. In other words, focus on use cases with the greatest potential ROI and don’t neglect a feasibility analysis. Also, the executives told the team, consider kicking things off with a few smaller projects that can generate “quick wins” that will show the value that customer analytics can bring to the company.
Create ownership among businesses. Because business unit leaders can become a bottleneck in the implementation process, it’s important to create ownership and develop buy-in at this level.
Facilitate mindset shift. Senior leadership should always ask how customer analytics informs any proposal or recommendation. This signals the importance of data-driven decisions to all those involved.
The true challenge for companies as they move forward with customer analytics investments is not on the technical side. “What many of our interviewees said is that the models and the analytics, that’s not the difficult part,” Germann says. “What’s really challenging is the organizational change that is required.”
Originally posted on Mendoza News.