The CEO Series: Richard Owen of Satmetrix
Editor’s Note: Regular readers know that GreenBook and Research Access have a great collaborative relationship; we partner on a variety of fronts. most notably the #MRXIdeas Webinar series. We also share content between our sites pretty liberally, and today’s post is a great example of why. I wasn’t able top attend the recent Net Promoter conference in San Francisco, but my good friend Dana Stanley, Editor-In-Chief of Research Access, did and he scored a great interview with Richard Owen, CEO of Satmetrix. Now regardless of your opinion on NPS there is no denying that it is a widely used metric and Satmetrix is certainly one of the leaders in that field. At this conference they announced their partnership with Metavana on developing a “social NPS” score using the Metavana social media analytics platform and that is a pretty darn interesting development. Richard is a great interview subject and anyone who is interested in the forefront of VOC research should read this with great interest. Enjoy!
Dana Stanley: OK, we’re here in San Francisco at the Net Promoter conference with Satmetrix CEO, Richard Owen. Good morning, Richard.
Richard Owen: Morning.
Dana Stanley: Thanks for taking some time, and I appreciate the chance to be here.
Richard Owen: Thanks for the opportunity.
Dana Stanley: I want to ask you about your company, Satmetrix. For those who aren’t familiar, could you please give give a quick overview of Satmetrix and what you guys are up to?
Richard Owen: We’re first and foremost a cloud-based software company, so we’re a Silicon Valley company. We’re based here in the Bay Area, although we have operations around the United States, Europe and in India.
At a basic level, we’re engineers, we’re software developers, and we have a product that essentially enables companies to successfully create and implement Net Promoter programs.
On the other hand, if people look at us from the outside, they may see some of our more visible aspects that don’t look like a typical cloud-based software company. Conferences, for example, and a lot of our thought-leadership, set us apart. We were the company that developed the Net Promoter Score alongside Fred Reichheld and Bain & Company, dating back to around 10 years now. With the early research and data sets we had, we recognized that it was really important to create the methodology, and we’ve published books in the space.
So we’ve really got a public persona that in many ways looks quite different than your traditional Silicon Valley company. But at our heart, we’re interested in how technology can enable companies to really capitalize on the power of the Net Promoter approach and methodology.
Dana Stanley: Great. And for those who may not have worked with Net Promoter, how exactly does that methodology work?
Richard Owen: So Net Promoter is based around one core concept, and then around a series of insights and processes that companies use in order to make that concept effective. The core concept is pretty simple. Companies need to be able to measure the health of their customer base through the lens that is a really strong correlation to the business outcomes they’re trying to achieve. So Net Promoter Score was a breakthrough in the sense that general management could quantify customer loyalty in a way that linked it to growth.
At a superficial level, it’s a pretty easy metric to calculate. You measure it by asking a single question, which is the recommend question: “Would you recommend this product or service to a friend or colleague? And you measure it on a 0 to 10 scale. Nines and tens are categorized as promoters; seven and eights are passives, and sixes and below are detractors. You net out, as a percentage, the detractors from the promoters, and you have the Net Promoter Score.
The reason this was interesting was because over multiple industries in multiple years, it turned out that the metric was extremely good at predicting growth. Companies with high Net Promoter Scores grew in every industry faster than companies with low Net Promoter Scores. And the success rate does have some function of competitive dimension to it. Because ultimately, in every industry, there is a winner, and there are companies that are also-rans, and the absolute Net Promoter Score varies industry by industry.
So at a high level, there’s a metric, the Net Promoter Score. Behind that, though, there’s a series of very important analytics and processes from which companies really derive value. I think the most common thing I find is when people read about the score, they find it’s very intellectually appealing, and they don’t really go any further than that. And I’m not sure I’ve seen a lot of case studies of companies that get much out of just looking at a single score like that.
So as you start to explore the score, the most obvious question people would want to ask is, well, why do I have to track this? For that, you need diagnostic techniques. Diagnostics can be done using additional types of survey gathering questions, or through text analytics, or, as we’re seeing now through the SparkScore, through understanding the sentiment in the social web. But, it’s necessary to understand why you’re creating detractors or promoters, so you can adjust and design actions to address that as a business.
The Net Promoter Score also was always envisioned as a very action and process-centric type of initiative for a company. So service recovery processes tend to be highly coupled with the identification of detractors. Put simply, if you know a customer’s unhappy, you need some sort of service recovery process keyed to it and automatically enabled so that your organization can respond.
So the whole story has moved from a mathematical artifact which was, “Oh, we know that this score is interesting statistically,” to a series of processes and tools that companies use to really make it effective. Not every company is sophisticated in its use of Net Promoter Score, but ultimately the companies that are following a very comprehensive methodology are the ones getting all the really exciting results out of it.
Dana Stanley: Interesting. Yeah. And that’s traditionally the knock, as it were, on customer satisfaction, is, “Well, that’s nice to know, but now what do I do?”
Richard Owen: Right. Well, and I think, to be fair, critics of Net Promoter Score have questioned whether it’s actionable. And I think to some extent, there’s not a disagreement as much as a misinterpretation of what we would suggest people do. If you’re going to ask the recommend question, and you’re not going to ask any other questions, then I would completely agree with critics. It is completely non-actionable and I’d never recommended somebody does that. I just think you have to understand diagnostics.
So for a variety of reasons, Net Promoter Scores have been associated with the idea of very, very short questionnaires, only asking one or two questions, or as some people like to put it, two questions and a math puzzle. I think that’s appealing in its simplicity and purity, but probably isn’t effective in terms of companies getting good value out of it. I think customer satisfaction has been criticized in the past, and I think quite rightly, on two grounds:
The first being that satisfied customers don’t really represent a good foundation for business, anyway. It’s too loose and soft a measure. Satisfying a customer doesn’t grow your business. It keeps you in business.
I think that the second criticism is there’s a bias towards a very research-oriented stance without thinking too much about action. That’s not to knock research. It’s simply saying that research without action is valueless.
And so, Net Promoter is much more directly driven by an action orientation. It is much more targeted at getting line and general management engaged, which I think all of us, including your readership, should be regarding as a positive thing. Our objective here is not to create an arcane science that only we understand, but to find a way to get the organization to really use our tools, to make them successful.
Dana Stanley: One of the things that’s been very interesting in Day One of the conference, and I expect continuing in day two, is that some of your customers have gotten up and given examples of how they’ve taken their Net Promoter methodology and their scores and done something with them. What are some ways that you help people go beyond that initial score and take it through to action?
Richard Owen: So we think of this as sort of two big loops. There’s a strategic and a tactical loop. And the tactical loops occur when– let’s take a contact center, for example, generating millions of customer interactions a year. Some of those customer interactions are successful, and others are less than successful. The organization needs to be able to quickly identify less successful interactions and initiate service recovery processes. They need to be able to give contact center reps individual performance scorecards that tell them how they’re performing, and equally important, tell them why they’re struggling or why they’re performing better. They need to be able to stack-rank their different groups and contact centers. So there’s this constant, frenzy of activity that represents responding to the creation of detractors in almost real time, to do service recovery and intervention.
Similarly, on the promoter side, customers who are identified as promoters need to be seamlessly moved into environments where they can promote the product. This is where the greatest gift to Net Promoter finally arrived in the last few years. It’s called social media and it finally gives promoters a venue in which to promote. So now, it’s become vital that identified promoters, your best customers, are gently enabled to promote within social environments where they can, in fact, go and promote you. This is accomplished by linking through technology the process where they identify themselves as promoters and linking it directly into the social media application. That’s the kind of thing that we’re doing a lot of.
That’s the small tactical loop activity. So it’s more on a micro level, an individual level. What do you do with an individual promoter? What do you do with an individual detractor?
At the strategic level, companies are asking bigger questions. What is it we’re going to do as a business to create armies of promoters, to gain competitive advantage? That’s where I think a lot of the tools that people are familiar with, in terms of being able to do data mining and data segmentation, understand the behavior of different groups, key driver analytics and text mining analytics. And a lot of those really come into play, because the objective is to distill strategic insight and strategic action out of a lot of data. And I think the Net Promoter framework gives a very easy way of thinking about this, because ultimately we’re asking the question, what are we going to do differently as a company that’s going to create promoters?
Once that big question gets asked, all of these research tools, I think, become very applicable to help answering that question and help get the executive management of the company really focused on the business of creating promoters. Because if you can’t create promoters as a business, you won’t grow. Companies may be growing without knowing they’re creating promoters, without measuring their promoter score, but I assure you, if they’re growing, they are creating promoters. It’s happening. They may just not recognize it’s happening, which is a luxury for a company that’s doing very well, perhaps.
Dana Stanley: You mentioned the importance of social media. There are a lot of companies that are trying to figure out how to make sense of the web. There are a lot of solutions in the area of social listening and text analytics. You guys had a significant announcement yesterday, adding something called a SparkScore to your offerings. Tell us a little bit about SparkScore, and what that’s all about, and what customers can expect with respect to it.
Richard Owen: So SparkScore is the social Net Promoter Score. Companies that were looking to understand what their Net Promoter Score was based on conversations occurring in social media will finally have a tool to enable them to see that. Now as you said, there are a lot of companies that, for some time, have been looking at various ways of analyzing sentiment on the web. I think that these approaches have yielded no doubt some interesting insights in terms of what people can learn. But remember why we started around the Net Promoter Score. It was a metric that was a proven correlation to growth. So we know that Net Promoter Score as a metric is massively appealing to businesses because of the very definitive business orientation to it.
For social media to become relevant to organizations, a metric that measures its performance has to similarly drive that connection to business growth, and that’s a nontrivial problem to solve. A Net Promoter Score, as we just described it, is a tertiary measure of sentiment. It’s not whether people are happy or unhappy. It’s whether people are promoters (this uber-group), detractors, or passives.
A lot of our work with Dr. Minh at Metavana, and Laura Brooks from Satmetrix, was crunching through the huge amounts of data over the last 10 or 15 years on Net Promoter companies and their performance, and figuring out how to develop algorithms that, in an accurate way, provide a Net Promoter Score to comments and opinions on social web. They worked to create an algorithm that would enable us to look at somebody’s comments in a social environment and with accuracy say, this is a promoter or a detractor, without them actually having to declare they’re a promoter or a detractor. And SparkScore is the only proven approach to doing that today.
Now if you don’t buy the fundamental Net Promoter Score methodology, then SparkScore is not going to necessarily appeal to you, because the two are tightly coupled. But given that Net Promoter is today the most widely adopted approach to measuring customer loyalty, we think it’s very natural that SparkScore would be the most widely adopted approach to measuring customer loyalty in the social web.
What we’re discovering as our research continues in this space is that there are all kinds of interesting diagnostic overlap between these two products. You start to look at why promoters are promoters on the social web, versus promoters of the same product through your traditional survey-based mechanism. Of course, because the methodology is consistent, the differences are not methodological, but rather a result of real differences in customer behavior. So put simply, if I’m standing up in front of the chief executive of a large company and saying, your SparkScore is 20 and your Net Promoter Score measured through surveys is 15, that difference is entirely attributable to differences in, perhaps, the social demographic, or the types of product those people bought. But it’s a genuine business difference. It’s not a methodological difference.
And as social media has become very relevant to companies, they’re going to want to be able to get past that methodological gap. I mean, imagine the alternative. Say I’ve got two scores that measure completely differently. And what can you learn from that? I think an apples to oranges comparison gives companies no basis for understanding. Today, social media even for the most advanced companies that we see is not 100% of their customer universe.
But if we project forward, it’s very clear that over the next 5 or 10 years, social conversation, or unstructured data that occurs outside the company’s controlled environment, is going to make up a bigger and bigger percentage of the voice of the customer. And so companies are going to have to, we believe, understand what’s occurring in the social web to be successful. SparkScore will be the scorecard for their performance in that regard, and companies love scorecards.
Dana Stanley: And how did Dr. Minh at Metavana and Dr. Brooks at Satmetrix work together to assess the validity of SparkScore?
Richard Owen: So here is where two very, very capable scientists know far more about the topic than I possibly could. I can tell you at a high level what our approach was– if we have huge amounts of data that couple unstructured data with declared promoters and detractors, we are able to use a lot of that data to calibrate and iterate through a variety of algorithms, which Dr. Minh had developed.
And he is an absolutely exceptional scientist. He’s a former Stanford professor. His book on chaos theory is pretty much required reading in physics today. He approaches language in a very different way. He breaks language into atomic-level elements, if you like, and then finds ways to combine them in different ways. I think that the scientific approach with this very strong drive towards getting accuracy, enabled the two of them to iterate their thinking until they reached very high-level accuracy for fairly large numbers.
The challenge then became, how do you get good accuracy at more granular levels? So once we’d decided that you could take a lot of data and, with a high level of accuracy say, I can predict your Net Promoter Score across maybe 1,000 customer comments or 10,000 customer comments, the question is, can I predict what one individual customer comment is?
And it turns out that there are challenges in doing that, as you might imagine. Very negative customers are very easy to spot. Very positive, very easy to spot. People who were passives in their promoter language were very challenging, because people don’t go on the social web and post passive comments. I don’t go on and say, I decided to write a blog to explain how ambivalent I am about this product. Passives are disguised in their commentary by words with a positive or negative sentiment. It turns out that, however, they are disguised in a predictable and uniform fashion. It turns out that, statistically, they are behaving consistently in their bias. So adjustments can be made for that.
The other difference, of course, is that the social web differs from Net Promoter Score in a fundamental way, in that Net Promoter Score asks whether you would recommend, not whether you do recommend. Those who already do recommend are activated, if you like, and are a subset of your potential promoter or detractor pool. In the social media environment, by definition, people are activated. We’ve done a lot of research over the years to understand the differences between activated and non-activated promoters. And so that plays into our overall theory.
Having said all that, I have no doubt that over the next few months and years, we’re going to see this depth of research and science continue to evolve. We’re learning more and more as we analyze different industries and different sources. And of course, the social media world is incredibly volatile and very different. The notion that there is a single, monolithic entity called social media is clearly not correct.
The behavior of people who tweet versus people who post on Facebook is very different, even the timing of how people respond to things. For instance, consider an event like Alec Baldwin’s issue on an airplane. I use that as my example because it’s something that we can all relate to, as it made headlines, not because I mean to say that that’s how we spend a lot of time thinking about the social web. So with respect to Alex Baldwin’s incident, if you look at the flow of conversation amongst Twitter users, that activity spiked very, very rapidly and then quickly diminished. Amongst Facebook users, it spiked slowly, and actually became amplified when he went on Saturday Night Live and spoofed the incident.
Think of these different social media actually as different countries with cultural and behavioral differences. We wouldn’t just automatically say, oh, folks in Japan are going to behave the same way as the folks in the UK. So we shouldn’t be surprised at all if people who are active Twitter users are going to behave differently than active Facebook users.
Dana Stanley: What’s been the reaction since the announcement yesterday here at the conference and beyond?
Richard Owen: Well, you’ve been here. So I think, to some extent, I’d ask you– you always tempt providence when you ask a CEO, what do you think people think of your product. So I can give you the stock answer, which people would expect, which is, of course it’s been fantastic. We’re delighted, everyone loves it. I think a less biased assessment would be to look at people’s level of interest. We have break-out threads in the conference, and the break-out thread on Spark Score was absolutely packed and disproportionately drew people. So I think what that tells us with great confidence there is a huge amount of interest in this.
Now we will find out after the conference as we go back and naturally measure Net Promoter Score for the conference– we’ll find out whether or not people liked what they heard. But an early indication was that we ran a one-day social Net Promoter Score workshop on Wednesday, as part of our certification program. You might know we have something like 1,500 people who’ve been through our certification on how to do Net Promoter Score, and this is the first advanced offering we’ve created for the social program. We had a pilot group go through it, and the pilot group had a Net Promoter Score in the 90′s for that course. So I think that indicates people’s response to it.
I also think, fundamentally, this is an exceptionally exciting idea for people who are in this space. Because this is a wonderful time to be in voice of the customer. If you’ve been laboring in the field of voice of the customer for the last 10 or 20 years, you could argue that your time has finally come, because companies are going to take the voice of the customer very seriously.
And that’s not to say they haven’t in the past, but I think that the amplification of the social web has put an enormous pressure on companies, because now their dirty laundry, if you like, is washed in front of everybody. I think people who care passionately about the voice of the customer are going to see it become very central to companies’ thinking because the voice of the customer has gone public. It’s gone out from behind closed, quiet doors where nobody could quite see it. Now it’s become very loud and very public.
Word of mouth is now becoming intrinsically central to companies’ thinking. Social media is inherent to word of mouth. Marketers are going to look at marketing tactics differently. Just advertising through the social web, of course, is ballooning. And it won’t have escaped people’s notice that Procter & Gamble made some significant announcements in the last few days that they were switching huge amounts of marketing to the social web. We also know that referral-based activity in the social web is intensely powerful. It’s the most effective part of marketing, and it trumps just about every other type of marketing in the social web.
So I think, first of all, we’re seeing a dawn of an era, where all the things we believed– word of mouth, voice of the customer– are becoming material because of social media. I think people at the conference, even if right now, today, their business isn’t heavily involved in measuring SparkScore or social Net Promoter Score, I think they look to the future and say, this is a very exciting opportunity for us as a business. And as professionals, I think it gives people a great personal development opportunity.
Dana Stanley: I can corroborate your assessment of the reaction by telling you, at least anecdotally, that they had to bring a lot more chairs in the session on SparkScore. That’s always a good sign.
Richard Owen: Well, it’s certainly better than the alternative. If the room was empty, we’d be quite worried.
Dana Stanley: Absolutely. Well, thank you for your time this morning. And if people want to learn more about Satmetrix or Net Promoter, what would you recommend they do?
Richard Owen: So I think, obviously, visit our website, www.satmetrix.com, to learn more about the company. If you want to learn more about Net Promoter, a great place to start is netpromoter.com, which is a community website we host. It has 20,000 registered members and it’s very active. And if you want to go deeper, there are lots of great assets.
Clearly, we think our certification is a great way for people to understand all aspects of practicing Net Promoter. Our book, Answering the Ultimate Question, I think is a pretty comprehensive approach. Fred Reichheld and Rob Markey’s latest book, The Ultimate Question 2.0, is a great primer and overview of why businesses are so attractive. So you can read, you can learn, you can go online. And I think there are a lot of resources out there.
Dana Stanley: Excellent. Those are lots of options and lots to think about. Thanks very much.
Richard Owen: My pleasure. Thank you.