Employees are customers, too

Leaders, take note: Employee experiences drive business results

impact of digital revolution on society

In 1998, a financial crisis convulsed Asia. The U.S. government recorded its first budget surplus in 30 years. Congress impeached President Bill Clinton for lying about his affair with a White House intern. Google was born, along with a fleeting swarm of internet startups like Flooz and Webvan. In Afghanistan, Osama bin Laden published a fatwa declaring jihad against Christians and Jews.

That same year, Joseph Pine and James Gilmore coined the term “experience economy.” In an influential Harvard Business Review article, they argued that commerce based on memorable customer experiences was the latest stage in economic history, following the agrarian, industrial, and service economies.

Pine and Gilmore cited theme parks and casinos as examples of companies that reaped vast rewards by selling immersive, carefully crafted experiences. They offered design tips to help business leaders turn commodity services into unique experiences: “Engage all five senses”; “Eliminate negative cues”; “Mix in memorabilia.” They warned that the experience economy could “render irrelevant those who relegate themselves to the diminishing world of goods and services.”

Late start to the ‘experience economy’

That prediction has yet to pan out. To be sure, the world’s biggest company by revenue provides distinctive retail experiences based on massive selection, omnichannel availability and “everyday low prices.” Yet the next nine companies on the Fortune Global 500 list are all industrial stalwarts that sell products like oil and gas, electricity, and automobiles.

Today’s digital transformation movement is simply the experience economy with better tech.

In some ways, Pine and Gilmore’s argument feels like an artifact of the dotcom bubble, a time when capital markets often valued big ideas over business fundamentals like building quality products, attracting customers, and turning a profit. And their vision of the experience economy is entirely analog: They failed to anticipate how the mobile revolution would enable app-based consumer experiences like shopping, hailing a ride, ordering a meal, and even finding romantic partners.

[SEE ALSO: Big bets on ambitious ideas pay off. Learn more in Mastercard’s new innovation report.]

From that perspective, today’s digital transformation movement is simply the experience economy with better tech. Digital transformation is an amorphous term, but it generally means orchestrating technologies like cloud, mobile, AI, and digital workflows to change how companies operate and go to market. Increasingly, it also means creating enterprise versions of the seamless mobile experiences that have come to define our lives as consumers.

In a recent Workflow article, my colleague Chris Bedi divides digital transformation into three elements: speed, intelligence, and experience. Speed is about applying machine learning and automation to accelerate every business function, from IT and finance to customer service and procurement. Intelligence means using machine learning to generate real-time insights that enhance human decision-making.

Bedi argues that superior human experiences are the most important aspect of digital transformation because they contribute directly to business results: “Digital technologies enable better processes and experiences for customers and employees. These differentiated experiences are critical to achieving desired business outcomes.”

From CX to EX

In general, the customer experience side of that equation has gotten more attention, probably because it aligns with traditional business bromides about putting the customer first. However, research suggests employee experiences are at least equally important when it comes to driving business results.

Two French management theorists, Charles Ditandy and Benoît Meyronin, coined the phrase “symmetry of attention” to hypothesize that the quality of a company’s relations with its customers is proportionate to the quality of the company’s relations with its employees. Empirical research supports this insight. For example, a 2017 MIT study found companies in the top quartile for employee experiences delivered twice the innovation, double the customer satisfaction, and 25% greater profitability compared to companies in the bottom quartile.

The authors, Kristine Derby and Ina M. Sebastian, define employee experience as “the work complexity and behavioral norms that influence employees’ ability to create value.” They identify three behavioral norms that are critical for building business value: collaboration, creativity, and empowerment. Work complexity is essentially friction: “how hard it is to get work done in your organization.”

Their research found companies could reduce work complexity by investing in technology and process improvements. The more successful companies in their study “provisioned tools and advocated practices to connect employees with ideas and each other and to reduce friction around non-value creating tasks.” In short, reducing the complexity of work made it easier for employees to collaborate and be creative, which in turn created business value for the company.

In recent years, many companies have appointed chief experience officers (CXOs) who work across business functions to provide unified, high-quality experiences to customers. Writing in CEO Monthly, Frédéric Durand invokes symmetry of attention to argue that CXOs should pay equal attention to the employee and customer experiences.

All this yields the rather obvious conclusion that happy employees are more likely to please their customers. Happiness and pleasure are emotional states that result from positive experiences. Companies can create the conditions for those experiences by reducing the complexity of work, thus freeing employees to focus on creative, collaborative work that creates business value. Technology can enable great experiences, but creating the experience economy is ultimately a management challenge.