• Ivaylo Yorgov

CX Science: don't overlook customer satisfaction during mergers


What:

  • Companies that simultaneously achieve an increase in efficiency AND an increase in customer satisfaction realize the most value out of mergers.


Now what:

  • Don't be myopic and focus on efficiencies only. It is only through achieving both at the same time that your business benefits the most.



Running a successful business, I guess not unlike living a happy life, is a fine balancing act. Leaders often need to make a call between conflicting demands, one of the most prominent of which is whether to invest in improving customer experience and satisfaction, or focus on keeping costs low. While admirable, attempting a dual emphasis on these elements is extremely challenging.


Four scholars, Vanitha Swaminathan, Christopher Groening, Vikas Mittal, and Felipe Thomaz, came up with an intriguing suggestion. What if, they ask, a merger provides an excellent opportunity for them to achieve this dual emphasis on costs and customer satisfaction? Could they stand to gain a lot more from the merger if they accomplish both efficiencies and higher customer satisfaction?


This makes logical sense - as the authors argue, "the opportunities created by a merger (i.e., the ability to successfully redeploy employees, the identification of profitable customer segments that are less costly to serve) allow for the increased performance impact of customer satisfaction and efficiency improvements compared to nonmerger scenarios." Using data for 429 companies, 233 of which were involved in a merger, they investigated what opportunities does a merger open for companies to both increase customer satisfaction and achieve efficiencies.


Out of the 8 possible options - merger vs non-merger context, and efficiency increase/decrease coupled with satisfaction increase/decrease - one emerges as the combination companies should go after.


It is the simultaneous increase in both satisfaction and efficiencies that results in the highest change in a company's long-term financial performance (measured with Tobin’s q, see note at the end.). To be sure, there are other scenarios in which a company's financial performance increases, such as an efficiency increase but a satisfaction decrease. But while in the latter case the change in Tobin's q is 0.27, in the most favourable condition, defined by gains in both efficiencies and satisfaction, the change is five-fold: 1.43. Interestingly, none of the non-merger options comes even close to 1.43.


The results clearly show a merger opens a great opportunity for companies to pursue efficiencies and higher customer satisfaction at the same time. They stand to gain the most value if they manage to achieve both at the same time. Based on this research, leaders would do well not to underestimate and under-invest in customer satisfaction during mergers - it pays off.


My best wishes for a great day ahead!


CX Inspirations - card 17
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For the less-financially savvy among us, such as myself: "Tobin’s q is a measure of a firm’s

long-term financial performance... . Tobin’s q measures the ratio of market value of a firm’s securities to the replacement costs of its total assets. It is based on stock prices, which means it adjusts to market reaction, helps ameliorate questions of risk and manager manipulation, and is supported by underlying existing asset measures, such as profits and cash flow... .") *

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