After a period of pandemic-driven growth, software companies now confront a harsh reality. Demand is down, interest rates are curbing growth investments, and many regions are preparing for a sustained economic downturn.
In this climate, price competition is intensifying, exerting significant pressure on already-slim margins established over the last two years when growth took precedence over profitability. To exacerbate the situation, existing customers are reducing their IT spend, leading many software companies to experience a gradual and distressing decline in average contract value.
To reverse course, CEOs placed greater emphasis on net revenue retention metrics. Fixing the customer experience (CX) became a pressing priority for leadership teams looking to gain a competitive advantage during tough times.
However, CX transformations alone often fail to drive the growth executives are looking for. Below, we outline why this is the case, and how software companies can fuel growth by redesigning CX to delight customers, reduce churn, and boost profitability.
Why do many CX transformations fail to drive growth?
We have seen numerous software companies dedicate substantial efforts towards enhancing CX in response to the current economic landscape, only to see them fail to achieve desired results. This is often because they struggle to properly scale and invest in elevated CX due to unsustainable operating costs and structurally unprofitable customers—even among their top accounts.
In our experience, two primary factors lead to this outcome:
1. Lack of personalization and service model differentiation increases cost to serve: This leads to a disconnect between the cost of services offered and the underlying customer value. A major player in the contact center solutions sector discovered that the majority of the negative impact on profitability was driven by customers who were over-extended FTE-based services. The company also found certain custom white-glove and premium services are frequently offered to lower-tier customers to simply close a deal.
Counterintuitively, we typically see organizations extend premium services to these so-called “troubled renewals” regardless of the customer’s lifetime value; this is due to a lack of industrialized service personalization. For example, one software player staffs teams to help customers map all products and services currently purchased. This could instead be automated, allowing customer service agents to focus on elevating the customer experience, cross-selling, and upselling—rather than investing significant resources to retain dissatisfied customers who ultimately churn.
2. Legacy offshoring strategies hamper growth: Numerous CX transformations fall short in unleashing topline growth because support operations are stuck in costly service delivery models, paradoxically due to years of tactical offshoring. For many organizations, improving cost efficiency of their CX function yielded a “lift and shift” approach to offshore locations in the pursuit of cheap labor. But doing so overlooks the greater benefits of a holistic approach based on foundational elements like automated transactional activities, self-service abilities, agent enablement and augmentation, and location optimization for skill. As such, they miss out on large opportunities for productivity gains.
At one SaaS player, management pursed lower cost per ticket as its key CX metric. This led to multiple rushed offshoring waves, which were later proven to be more costly than cost-saving. Offshore centers located further from top talent pools constrained the company’s CX organization, as a less-skilled workforce struggled with an evolving operating model based on sophisticated digital transformation and greater focus on cybersecurity. As customer satisfaction continued to decline, the company had to face an inevitable and painful reshoring.
What must change to ignite growth through CX transformation?
The challenges posed by the current macroeconomic environment call for a heightened focus on sustainable topline growth and agile ways to address margin pressures. Change efforts, therefore, will need to be more targeted and diligently implemented. This starts by understanding true customer needs, increasing service personalization and differentiation for greater profitability and customer satisfaction, and rethinking offshoring strategies of the past.
1. Utilize data to advance customer service personalization—customer 360 is imperative.
As businesses seek a competitive advantage in a down market, they need to better understand where to focus service efforts.
Leading companies in customer satisfaction have strong personalization models enabled by mature analytics capabilities with seamless cross-departmental data sharing. They harness the power of large signal data generated by multiple functions and teams (e.g., leveraging service interactions, sales touchpoints, self-service, and product usage) to inform a 360-degree view of the customer, identifying needs and pain points.
One customer service organization drove increased net revenue retention through its approach to personalizing service solutions. It consolidated agent front-end solutions into a unified desktop application and integrated prior customer contacts across products, services, and purchase history. As a result, agents were able to identify the root cause of service tickets faster based on contact history and therefore reduce their error rate—which immediately drove greater customer satisfaction.
2. Offshore for skill, not for price
After decades of offshoring for cheap labor to serve front-line functions (e.g., service desks and call centers), a new offshoring strategy based on agent enablement is driving sizeable returns. With agent augmentation through AI assistance, the service agent role has shifted from dispatching and solving simple login tickets to providing a more sophisticated customer experience by engaging the appropriate teams. For example, in SaaS environments, an agent no longer solves login issues, which can be fully addressed through self-service. Rather, agents now engage engineering teams for complex technical issues and identify expansion opportunities, engaging contract renewal teams based on signals from product usage and purchase.
Effective customer service agent augmentation allows for a talent strategy centered on “offshoring for skills,” which propels growth through three core engines:
- Optimized localization: As agent augmentation reduces call volume and demand for FTEs, it is increasingly possible to selectively leverage in-market support teams or centralized multi-language support in lower-cost locations to capture local market nuances and elevate the customer experience.
- Highly skilled centers of excellence: With solid agent augmentation that reduces the need for interactions, non-voice tickets can typically be managed offshore, enabled by an abundance of highly skilled talent in countries like India (with ~1.5M engineering graduates per year). Many successful customer service organizations also leverage generative AI to enhance knowledge management and upskill resources for more complex customer issues significantly scaling productivity.
- Offshored customer success: Many leading service organizations leverage improvements in agent augmentation to transform every interaction into an account growth opportunity (e.g., showcasing advanced features, providing frequent updates to keep customers current, introducing new product capabilities and upgrades, and more). To achieve this level of sophistication, talent strategy and agent augmentation must be more deliberate and advanced than a legacy offshore model. For example, service organizations can use adaptive scripting to help guide agents, pattern recognition to find successful examples of contract renewals and account expansions, and sentiment recognition so augmentation platforms can discern between successful and challenging customer interactions.
3. Relentlessly pursue operational efficiencies to fund growth.
Executives frequently perceive great CX and profitability as conflicting goals. However, embracing operational cost efficiency challenges this paradigm by markedly enhancing profitability, thus becoming a catalyst for growth investments.
Customer service organizations that capture productivity gains diligently track and manage the operational and financial drivers of their cost-to-serve. They deploy regular task forces to target top sources of ticket volume, refocus their services portfolios on core activities driving “land and expand” strategies, and fundamentally rethink their delivery models to optimize cost.
Given the current state of technology advancement, service organizations should pursue outsized gains in productivity and effectiveness through a continuous commitment to building competitive capabilities in service automation and generative AI.
- Prioritize service automation investments, defining an ROI model that translates operational productivity gains (e.g., volume reduction) to measurable cost reductions. Increase your CSAT scores, as this directly correlates to revenue retention and expansion. For example, by building self-service tools for less complex and higher-volume tickets, support organizations can reduce issues handled by agents by up to 30%.
- Accelerate experimentation with generative AI to enhance self-service in weeks rather than years. Generative AI is now able to not only deflect contacts to knowledge articles, but also provide a first-time resolution through answers or API calls to automated services. One software company partnered with ChatGPT to reduce its front-end support operations by 300 employees in six weeks.
4. CEOs must rally leadership towards a common North Star
We have observed that misalignment across customer experience stakeholders has been an Achilles' heel for the majority of homegrown CX transformation programs. Sales and service operations can eliminate friction and deliver a seamless customer journey when leadership is strictly aligned on a common service and delivery model with clear profitability targets.
A successful CX transformation is one that is directly championed by the CEO, setting a common vision across the C-suite. CEOs who set the North-Star aspirations of customer experience and make CX a core agenda topic of executive team meetings see widespread dividends in accelerated transformation. To set a North Star, data and analytics should drive cross-functional collaboration, breaking silos within sales, support, and professional services and embedding North Star metrics in decision making.
One CEO was able to do this successfully by setting a CX North Star through a set of targets covering three core dimensions: customer success, service delivery, and profitability. Some of the North Star goals—such as profitability by customer segment and product—were purposefully co-owned by two C-suite leaders. This led to GTM and service leadership collaborating for the creation of a detailed cost-to-serve model that shed light on customer profitability and available options for service differentiation, and ultimately helped embed profitability guardrails in the sales motion.
It also clarified misconceptions about cost structure that contributed to multiple unprofitable deals, which were then targeted for a turnaround. On the product side, R&D and service leaders joined forces to reduce ticket volume by improving the handshake process for product releases, while IT incorporated service management into cloud operations to govern demand and optimize spend.
The future: an opportunity for scaling
In the current uncertain economic landscape, tailoring your services to customer value and optimizing cost to serve are imperative to elevating the customer experience. Software companies that successfully and selectively offer white-glove service to high-tier customers—and use data to relentlessly optimize operations and free up resources for strategic scaling investments—will recapture growth and emerge as clear winners.