Corner Office-Customers First!

Corner Office-Customers First!

Putting "shareholder value" ahead of customer service is a long-term losing strategy.

Peter F. Drucker, who died in 2005 at age 95, is often called the world’s most influential business guru, because his thinking transformed corporate management. I liked his teachings simply because he had a way of cutting through the bull and telling it the way it is. I particularly respect one of his most repeated statements, which he made 50 years ago: “There is only one valid definition of business purpose: to create and retain a customer.”

Recently, I wondered what this great teacher would have said to the manager at a golf resort where I had the misfortune of trying to play 18 holes (in Arizona during peak vacation season, by the way). I had stopped by the resort the day before to set up my tee time and confirm the fees. The next morning when I arrived, I was told a different—and much higher—fee.

Apparently, this resort charges different fees to residents and nonresidents (which I had not been told the day before), yet it didn’t have a clear definition of “resident.” Even though I pointed out to the manager that I owned a home and paid taxes there, she insisted that I was “really not a resident.”

As I stood in the pro shop overlooking the nearly empty parking lot while discussing the matter, I decided to walk away from the resort, never to go back again. At that point, it wasn’t about the higher fee; it was about the principle of customer service and doing what’s right to make your customers feel happy, loyal, and valuable. And that resort’s managers just didn’t understand that principle, so I didn’t want to give them my business.

As this economic recession drags on and continues to make consumers reluctant to part with their ever more precious dollars, the biggest differentiator between those companies that survive and those that don’t will be providing customers with a positive buying experience.

There was a reason why that Arizona golf resort’s parking lot was empty, while other lots were nearly full. Especially in today’s world, consumers are only willing to spend where they believe they are getting real value and are realizing a positive experience; they will choose to go elsewhere when they don’t.

Most of you probably have had unpleasant customer service experiences recently: the grumpy flight attendant who barked at you to take your seat (so that you could sit at the gate or on the tarmac for another one to two hours); the snarly waiter who didn’t greet you to the restaurant and tried to make you feel like he was doing you a favor by waiting on you; the cranky auto mechanic who did unauthorized repairs and insisted on getting paid or he wouldn’t release your car.

Believe me, I have enough stories like this to fill up this magazine for the next few years, and I’m sure everyone else would, too. The point is that American businesses are rife with poor customer service. Businesses act as though customer service is obligatory, not a desired activity.

While it is important for those working in the front lines of customer interaction to strive to provide positive customer experiences, I challenge you to think about where the focus on customers should ultimately be rooted. Now look into the mirror. Yes, you’re right—it’s in the hearts and minds of those who occupy the executive corner office and who sit at the boardroom table.

If leadership doesn’t demonstrate to the rest of the organization the importance of customers, then don’t expect the front-line workers who are interacting with customers to find religion on their own. For instance, is there a system set up for customer complaints at your company? Who reads them? The CEO? Board members? And who responds?

In a well-researched and well-written article in the Harvard Business Review’s January-February 2010 issue titled “The Age of Customer Capitalism,” Roger L. Martin, the dean of the Rotman School of Management at the University of Toronto, cites research supporting the theory that the “shareholder value first” mantra that we have been operating under for the past 30 years hasn’t actually resulted in maximum shareholder value.

Rather, Martin says, those companies that put their customers first, with shareholders in a nearby second place, have maximized shareholder value because they run their businesses for a long-term marathon instead of with a quarterly sprint-like focus on stock price. He compares the mission statements, executive compensation policies, and market caps of two companies known for their intense focus on shareholder value—Coca-Cola and General Electric—with two other companies known for their similarly intense focus on customers—Johnson & Johnson and Procter & Gamble.

While J&J and P&G aren’t the sexy Wall Street darlings that Coca-Cola and GE have been, their shareholders have been better off in the long term. That’s because the corporate culture at J&J and P&G, from the corner office down to the front lines, is to put customers first.

To test Martin’s theory at home, I decided to review the mission statements of Minnesota’s top five public companies, as ranked by annual revenue. Consider these excerpts from these firms’ investor-relations materials:

 

UnitedHealth Group: “Our mission is to help people live healthier lives . . . . We serve people through a value and performance culture based on integrity, quality, innovation, diversity, and social responsibility. The best way we can satisfy the millions of people we serve—our customers and members, employees, shareholders, and partners—is to execute on the fundamentals of our business to the very best of our abilities, each and every day.”

Target: “More than ever, our guests are looking to us for both great value and great ideas. By maintaining an appropriate balance throughout our business, we create a superior shopping experience while remaining relevant to our guests as their wants and needs continue to evolve. This approach ensures that we deliver more value for our guests, team members, shareholders, and communities over time.”

Supervalu: “Our mission at Supervalu always will be to serve our customers better than anyone else could serve them . . . . Our responsibility to our investors is clear—continuous profit growth while ensuring our future success. Supervalu will prosper through a balance of innovation and good business decisions that enhances our operations and creates superior value for our customers.”

Best Buy: “Best Buy has a unique ability to make people happy. A great place to work makes employees happy. Happy employees make customers happy. Happy employees and customers make our shareholders, vendors, and community partners happy.”

3M: “Our values: Act with uncompromising honesty and integrity in everything we do; satisfy our customers with innovative technology and superior quality, value, and service; provide our investors an attractive return through sustainable, global growth; respect our social and physical environment around the world; value and develop our employees’ diverse talents, initiative, and leadership; and earn the admiration of all those associated with 3M worldwide.”

 

It’s not a fluke that these firms are at the top of the revenue list in Minnesota. They’ve each made a conscious strategic business decision to put customers first—a decision that is reinforced at the board and executive levels.

What “putting customers first” means exactly is up to each company to determine—by asking customers what is important to them and what would result in a “memorable buying experience.” We know that focusing on customers and making them the top priority improves the quality of corporate decision making, as the company starts doing the right things—improving operations and products and services, for example.

As demonstrated, a customer-first strategy provides a fair and respectable return to a company’s shareholders over the long haul. On the other hand, as Martin writes, “Making share price the prime objective creates the temptation to trade long-term gains in operations-driven value away for temporary gains in expectations-driven value.”

To get corporate directors and CEOs to focus on the former, we need to reinvent the purpose of the firm, Martin says. And I’m sure Peter Drucker would agree!

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