The Dubious Management Fad Sweeping Corporate America

 

NPS—or net promoter score—is a measure of customer satisfaction that has developed a cultlike following among CEOs. It also may be misleading.

Best Buy and American Express use it to dole out employee bonuses. Target and Intuitpoint to it to justify investments. Delta Air Lines and UnitedHealth can’t stop talking about it.

Much of Corporate America is obsessed with its net promoter score, or NPS, a measure of customer satisfaction that has developed a cultlike following among CEOs in recent years. Unlike profits or sales, which are measured and audited, NPS is usually calculated from a one-question survey that companies often administer themselves.

Last year, “net promoter” or “NPS” was cited more than 150 times in earnings conference calls by 50 S&P 500 companies, according to a Wall Street Journal analysis of transcripts. That’s more than four times as many mentions, and nearly three times as many companies, compared with five years earlier.

Executives pointed to strong or rising NPS as proof that shoppers preferred to pick up orders at Target Corp. stores or that Google’s newest Pixel smartphone was off to a good start. Out of all the mentions the Journal tracked on earnings calls, no executive has ever said the score declined.

.. The score was introduced in 2003 in a Harvard Business Review article titled “The One Number You Need to Grow.” The Bain & Co. consultant who wrote the article called NPS the “simplest, most intuitive and best predictor of customer behavior” and a “useful predictor of growth.”

.. Since then, the metric has taken on a life of its own, so much so that the inventor, Fred Reichheld, said he is astonished companies are using NPS to determine bonuses and as a performance indicator. “That’s completely bogus,” Mr. Reichheld, who still consults for Bain, said in an interview. “I had no idea how people would mess with the score to bend it, to make it serve their selfish objectives.”

The score is typically derived from customer responses to a single question that companies ask at the checkout register of a store or in an email or web pop-up online: On a scale of 0 to 10, how likely are you to recommend the company’s product or service to a friend? The survey usually includes a follow-up question asking customers to explain their ratings.

NPS is based on the premise that every company’s customers can be divided into three groups. People who answer 9 or 10 are “promoters,” or loyal enthusiasts who keep buying. Those who give a score of 0 to 6 are “detractors,” or unhappy customers. Those who answer 7 or 8 are considered “passives,” satisfied but easily wooed by competitors.

.. Management consultants are notorious for pushing ideas to CEOs using jargon and claims of improved business performance. Total quality management, or TQM, which advocated installing quality programs at companies, and business re-engineering process, and BRP, which was a way to restructure companies, gained traction in the 1990s and then faded. NPS has outlived such fads, spawning a cottage industry of consultants and software firms that help businesses implement and boost their score.
Some academics have questioned the whole idea, suggesting that NPS has been oversold. Two 2007 studies analyzing thousands of customer interviews said NPS doesn’t correlate with revenue or predict customer behavior any better than other survey-based metric. A 2015 study examining data on 80,000 customers from hundreds of brands said the score doesn’t explain the way people allocate their money.“The science behind NPS is bad,” said Timothy Keiningham, a marketing professor at St. John’s University in New York, and one of the co-authors of the three studies. He said the creators of NPS haven’t provided peer-reviewed research to support their original claims of a strong correlation to growth. “When people change their net promoter score, that has almost no relationship to how they divide their spending.”

Some data scientists said the way NPS is calculated, in which one survey metric is subtracted from another, increases the margin of error and requires a larger sample size to get useful results.

“It’s common for companies to track NPS data as if it’s gospel—not knowing that it’s super noisy by design,” said Kim Larsen, who has worked as a data scientist at several companies, including Charles Schwab Corp.

Bain, which now refers to NPS as “net promoter system,” said some companies are focusing too heavily on the score, but still defended the approach for some practical benefits. It is simple to communicate to employees, provides an easy way to follow up with customers and can be used to benchmark against rivals. The firm also said third-party analyses, including the 2007 studies, of whether NPS correlates with revenue aren’t as good as the analyses companies conduct internally.

“These are not stupid people. They are running large, successful companies,” said Rob Markey, a Bain partner who helps clients use NPS. “They have demonstrated to their own satisfaction that it’s good.”

Among the first companies to implement NPS were General Electric Co., Intuit Inc. and Charles Schwab Corp., whose leaders were convinced of the benefits after meeting with Mr. Reichheld and other Bain consultants. Now, hundreds of companies are using the score and many have tweaked the methodology, such as making the numerical scale 1 to 5 or including additional survey questions.

International Business Machines Corp. said it switched from a three-question survey to NPS in 2015. Employees in different departments can see the NPS feedback on their phones. “What it’s become here is a shared truth,” said Kathy McGettrick, vice president of market development and insights at IBM.

.. “A big challenge with the methodology is that organizations tend to focus on the metric as the objective instead of gaining the insight to learn and act on to improve the customer experience,” he said. “When organizations manage to the metric, they find ways to game the system.”

The results are easy to manipulate, whether intentionally or unintentionally. On Reddit posts, Best Buy employees share tips and tricks to improve NPS, which the company derives from a random sample of customers. They said they can get better results when they explain to customers how the scoring works, or tell them their compensation is connected to the result. Some said they remind only the happiest customers to take the survey.

“When horrible NPS comments would come in, the management would rail at the employees,” said Alan Sabido, a former Best Buy employee who worked at a Las Vegas store for three years until he quit last year. Mr. Sabido recalled an instance when his store team received a bad score because a customer had a poor experience at a different Best Buy location.NPS took on a greater role after Hubert Joly joined as Best Buy’s chief executive in 2012. The company said it was administering the NPS survey question to customers who bought products as well as those who didn’t. Best Buy also made the metric one of the criteria used to determine bonuses.

.. Delta executives describe NPS as the “true North Star,” she said, though the airline uses other customer metrics as well. “We have been able to statistically correlate our NPS performance with our revenue premium,” she said, referring to how much more Delta is able to charge than a competitor because of its brand.

.. It’s hard for investors to interpret the score because companies don’t typically share response rates, margin of error, or whether results are adjusted for cultural and other biases. Research shows  , and Americans tend to give higher scores than consumers in some countries such as Japan and Korea.

Say Anything, Cain Version

For a $50K household, married couple, two kids, all income from earnings and standard deductions, the current tax burden is $8.3K.  Under 9-9-9, that would grow to $13.5K, an increase of over $5,000 (hat tip: CCH, BS).  The WaPo fact checker came to a similar conclusion.  E Klein too.

(I expect that any minute now the Tax Policy Center will release a slew of data supporting these points with their much more detailed tax model.)

But Lowrie wouldn’t accept that conclusion.  In fact, he asserted that their federal tax would be lower because they’d move from a 15% payroll tax to a 9% income tax.  This, as I said on air, is “patently wrong.”

First of all, assuming they plan to exist, they’ll need to consume stuff, and thus they’ll also face the 9% sales tax.  That already makes their tax rate 18%, higher than the 15%.

But as Michael Linden points out, and this is widely agreed upon by tax economists, the incidence of the 9% tax on business income (which denies businesses a deduction for wages paid) also hits them, which is why former Joint Tax Committee chief of staff Ed Kleinbard described the tax as a 27% payroll tax for families whose incomes derive from earnings (note that Lowrie is perfectly comfortable with the standard assumption assigning the incidence of the employers side of the payroll tax to the family—this one re the business tax is equally standard).

For a family with $500K, same assumptions as above, their tax bill would fall by $44K.

But where this plan really gets regressive is when you get up into the families who derive their income from non-labor sources.  While the details of the plan are fuzzy when it comes to capital gains and dividends, it seems clear that those earning thousands or even millions of dollars in these types of non-labor income would enjoy a massive tax cut.  And that would further widen the disparity between the highly preferential treatment of capital gains and dividends on the one hand, and the taxation of “ordinary” wage and salary income on the other.

We’ve got enough income and wealth inequality coming from the pretax distribution—we don’t need to exacerbate it through the tax code.

Middle class families that depend on earnings will pay more taxes under the Cain tax plan.  High income families will pay a lot less.  His advisors who say otherwise are misleading the electorate and that must not stand.

Trumpism Is ‘Identity Politics’ for White People

After Democrats lost the 2016 presidential election, a certain conventional wisdom congealed within the pundit class: Donald Trump’s success was owed to the Democratic abandonment of the white working class and the party’s emphasis on identity politics. By failing to emphasize a strong economic message, the thinking went, the party had ceded the election to Trump.

.. the meantime, Trump’s administration has seen that economic message almost entirely subsumed by the focus of congressional Republicans on tax cuts for the wealthy and plans to shrink the social safety net. But even as the message has shifted, there hasn’t been a corresponding erosion in Trump’s support. The economics were never the point. The cruelty was the point.
.. Nevertheless, among those who claim to oppose identity politics, the term is applied exclusively to efforts by historically marginalized constituencies to claim rights others already possess. 
.. Trump’s campaign, with its emphasis on state violence against religious and ethnic minorities—Muslim bans, mass deportations, “nationwide stop-and-frisk”—does not count under this definition, but left-wing opposition to discriminatory state violence does.
.. A November panel at the right-wing Heritage Foundation on the threat posed by “identity politics,” with no apparent irony, will feature an all-white panel.
.. But the entire closing argument of the Republican Party in the 2018 midterm elections is a naked appeal to identity politics—a politics based in appeals to the loathing of, or membership in, a particular group. The GOP’s plan to slash the welfare state in order to make room for more high-income tax cuts is unpopular among the public at large. In order to preserve their congressional majority, Republicans have taken to misleading voters by insisting that they oppose cuts or changes to popular social insurance programs, while stoking fears about

.. In truth, without that deception, identity politics is all the Trump-era Republican Party has.

.. Trump considers the media “the enemy of the people” only when it successfully undermines his falsehoods; at all other times, it is a force multiplier, obeying his attempts to shift topics of conversation from substantive policy matters to racial scaremongering.

.. The tenets of objectivity by which American journalists largely abide hold that reporters may not pass judgment on the morality of certain political tactics, only on their effectiveness. It’s a principle that unintentionally rewards immorality by turning questions of right and wrong into debates over whether a particular tactic will help win an election.

.. In the closing weeks of the campaign, the president has promised a nonexistent tax cut to the middle class after two years in which unified Republican control of government produced only a windfall for the rich
.. Trump’s nativism, and the Republican Party’s traditional hostility to government intervention on behalf of the poor, have had a happier marriage than some might have expected.

.. But that wasn’t what Trump promised—rather, his 2016 campaign pledged both generous social-insurance benefits for working-class white Republicans and cruelty for undeserving nonwhites.

.. Republicans are scrambling to insist that they will cut taxes on the middle class, offer robust health-care protectionsand protect Medicare, Medicaid, and Social Security, even as GOP leaders in Congress plot to slash all three to cut the deficit created by their upper-income tax cuts.

.. When armed agents of the state gun down innocent people in the street, when the president attempts to ban people from entering the U.S. based on their faith, or when the administration shatters immigrant families, these are burdens that religious and ethnic minorities must bear silently as the price of their presence in the United States.

And in the impoverished moral imagination of Trumpist political discourse, any and all white Americans who also oppose such things must be doing so insincerely in an effort to seek approval.

.. America is not, strictly speaking, a center-right or center-left nation. Rather, it remains the nation of the Dixiecrats, in which the majority’s desire for equal opportunity and a robust welfare state is mediated by the addiction of a large chunk of the polity to racial hierarchy. It is no coincidence that the Democratic Party’s dominant period in American history coincided with its representation of both warring impulses and ended when it chose one over the other. The midterms offer a similar choice for the American voter, in rather stark terms.