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Customer Experience: The Key to Increasing Value

In the past, private equity companies focused on making operational changes to improve efficiency - thereby cutting costs and increasing the value of their investments. But a shift in the global investment landscape means that focusing on operations as the end-point of organizational change is no longer enough to deliver ample value to investors.

First, ongoing supply chain issues and economic uncertainties are driving up the costs of labor and materials, making operations-focused ‘quick wins’ less reliable for value creation. Additionally, in many cases company management or previous investors have taken the more obvious steps to improve operational efficiency. Finally, the increasing amount of available capital held by PEI firms is driving up the average deal value and increasing competition. Operational improvements are critical, but alone, they may not be enough to provide the value and returns that investment firms require. 

For example, reducing overhead by reducing the number of agents in the contact center will cut labor costs, but if it’s not consistent with improved productivity it will negatively impact service and cost customers.

To have the highest impact in both the short and long-term, PE firms should invest in changes that are bound together by a higher-level strategic goal: Improving Customer Experience.

Why Focus on Customer Experience?

Customer experience (CX) is a compelling, effective value creation engine for businesses, across industries. Making operational changes to a portfolio company with an overarching CX focus helps to improve the internal rate of return (IRR) and profitability at PE portfolio companies across composite index equity returns, benchmark equity performance, and comparative credit ratings.

3x higher composite index equity returns

Research from S&P shows that digital CX leaders have 3x higher composite index equity returns than the ‘learner’ or ‘delayed’ categories (1). A recent study found that 59% of businesses were ‘digitally delayed’ in CX, and 19% were ‘digital learners’. The remaining 22% were identified as ‘digital CX leaders’: companies that disproportionately employ digitally-enabled, CX-focused strategies. The digital CX leaders had 3x higher composite index equity returns.

And this trend holds true across industries, company type and size, although digital CX leaders have an even greater lead over digitally delayed companies in certain industries. For example, in the commercial and professional services sector leaders outperform delayed businesses 28 to 1. In consumer staples, the disparity is closer to 4 to 1.

Outperforming equity benchmarks

CX Leaders consistently exceed benchmark equity performance; diversified financials are consistently the highest performers.

Supporting price increases

Another study by PwC found that the better the customer experience, the more an individual was willing to pay for the product or service. The company reported, “The payoffs for valued, great experiences are tangible - up to a 16% price premium on products and services, plus increased loyalty.”

Improving the customer experience can help to increase the value of portfolio companies by making customers more tolerant of price changes, meaning investment firms can increase prices while maintaining a loyal customer base.

Improving CX with Better Onboarding

In its initial efforts to maximize value, a PE firm can cut costs at a portfolio company by streamlining processes, eliminating duplication of effort, breaking down data silos, and automating repetitive tasks. 

These changes, made strategically and executed correctly, have been shown to improve the customer experience and increase value at portfolio companies at an accelerated rate. For example, customer onboarding is tied to value realization, operational processes, and CX. Onboarding is more than just another piece in a customer’s journey. It is a celebration and should be treated as such. Focusing on the customer experience provides a solid foundation for faster time to value, improved efficiency, and higher customer satisfaction and retention.

Transforming Customer Onboarding

Customer onboarding is critical to the customer relationship. It is the first contact with the company outside of the sales process - and whether positive or negative, it sets the tone for the ongoing customer experience. One indicator that an investment firm can use to gauge onboarding effectiveness is if the portfolio company is losing customers between signing a deal and the service start date. This means that all of the resources invested in winning a client resulted in zero revenue, as customers leave before they even get started.

By identifying this problem and implementing a streamlined onboarding process, companies can dramatically improve the customer experience from the start. This helps eliminate waste with a standardized, repeatable process, thereby improving revenues and cutting costs.

A CX partner, like Peak Process Group, can help PE firms to improve portfolio company value by:

• Assessing organizational performance in the current state

• Identifying both quick wins and long-term strategies that impact value

• Mapping the complete customer lifecycle and streamlining the customer journey

• Establish priorities across different strategies and tasks for maximum impact

Peak Process Group works with private equity firms to identify opportunities to improve the value of portfolio companies and maximize investment. Our specialized and unique focus allows us to implement strategies that have an immediate, substantial effect on productivity and profits; while embedding ourselves within an organization for an extended period of time ensuring long-term, sustained results within portfolio companies. As a highly customizable and hands-on partner, Peak Process Group has an agile yet comprehensive approach to working with every client, regardless of size.

Contact Peak Process Group today and make the most of your portfolio investment.

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In just 90 days, Peak designed and implemented a more efficient service disconnect process at a client company, saving approximately $3 million annually. How can we help your firm maximize the value of your portfolio companies today?

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References:

(1) https://www.spglobal.com/_division_assets/images/special-editorial/cx-leaders/cxleaders.pdf