Customers should come ahead of shareholders

April 24 2011 by Ellen Roseman

Corporations should stop trying to maximize shareholder value. Instead, they should try to maximize customer delight.

That’s a key idea in Roger Martin’s new book, Fixing the Game: Bubbles, Crashes and What Capitalism Can Learn from the NFL.

You can read it quickly and enjoy it, even if you’re not a football fan.

In the NFL, there are two arenas where the game is played: (1) The football field, where teams make passes, blocks, tackles and score touchdowns, and (2) The expectations market, where gamblers try to guess who will win and place bets on one team or another.

Similarly in business, there is the real world, where companies sell goods and service to customers and try to increase profits. Then, there is the stock market, where investors place bets on companies they hope will outperform rivals.

Martin, the dean of University of Toronto’s Rotman business school, thinks it’s perverse to use stock-based incentives to reward executives. They distort behaviour and lead to excess risk-taking to earn outsize returns.

He admires NFL Commissioner Peter Rozelle’s firm stand, back in 1962, to ban players and coaches from betting on football games.

The NFL realized that, just like a parasite that eventually kills its host, sports betting had the ability to destroy the sport. So, it enforced a strict separation.

But in business, the players in the real game are encouraged to invest heavily in the expectations game. CEOs get stock options to ensure they focus on maximizing shareholder value. They talk frequently to stock analysts about future earnings and give guidance for traders. Says Martin:

When the real market is dominant, customers are the focus and the central task of companies is to find ever better ways of serving them. When the expectations market is dominant, traders are the focus and gaming markets is the task.

The real market produces meaning and motivation for organizations. The organization can create bonds with customers, imagine great plans and bring them to fruition.

The expectations market, on the other hand, generates little meaning. And over time, in trading businesses, since there isn’t opportunity to build something positive for the world, the motivation migrates to earning as much compensation as possible.

He talks about Johnson & Johnson, which adopted a corporate credo in 1943: Customers first. Employees second. Communities third. And shareholders last.

In 1982, when cyanide-laced Tylenol caused seven deaths in Chicago, J&J developed tamper-proof packaging for all its products, an innovation that would become the industry standard.

The company didn’t use insincere apologies to downplay the crisis, as BP did last year after its massive oil spill in the Gulf of Mexico.

Johnson & Johnson’s investors are doing just fine. So are those who own shares in Procter & Gamble, which also puts consumers first and expects shareholder value to follow.

Then, there’s Apple, whose CEO Steve Jobs is the model of a customer-focused executive.

All three companies have stumbled from time to time, Martin says. But they’ve outpaced their peers in creating value for shareholders, while putting customers ahead.

If you take care of customers, shareholders will be drawn along for a very nice ride.

The opposite is simply not true: if you try to take care of shareholders, customers don’t benefit and, ironically, shareholders don’t get very far either.

Martin has just won a 2010 McKinsey award from the Harvard Business Review for an article called The Age of Customer Capitalism, which laid out the thesis for this book.

Customer delight is a noble goal, in my opinion. Many companies talk about it, but few pull it off.

Companies need to invest in excellent systems and staff on the front lines. They can’t see customer service as a cost to be cut again and again.

Here’s a challenge for my readers. Which companies treat you with respect and make it a joy to deal with them? Please provide any names that can serve as an example to others.

11 comments

  1. Shaun Belding

    Apr 24 2011

    Great article!! (although I’m a little skeptical of Steve Jobs being called ‘the model of a customer-focused executive’…) There aren’t many companies out there who really walk their customer-focused talk, and the ones you mention are great examples. One local company that I think is an unsung champion of customer service is theh GTA’s own Mandarin Restaurants. Another is the great little Dutch Credit Union, DUCA Financial.

  2. Ellen Roseman

    Apr 25 2011

    Thanks, Shaun. Did you see a Wall Street Journal piece today, quoting an Amex survey about customers’ desire to speak to real people when they call?

    http://online.wsj.com/article/SB10001424052748703907004576278973476433748.html

    Companies have rolled out numerous social-networking tools, instant messaging programs and text-messaging systems to handle customer-service inquiries.

    But even though increasing numbers of people are comfortable with new communications technology, it’s apparently not how they want to interact with companies.

    According to a survey by American Express Co., about 90 per cent of respondents said they still want their inquiries handled by live representatives over the good old telephone.

    “[Consumers] are frustrated by service or a lack thereof,” said Jim Bush, an executive vice president with American Express, who oversees customer service.

    Companies have traditionally thought of customer service as a cost center, which made it a ripe target for cuts during the downturn, Mr. Bush said. That has contributed to increasing frustration among consumers at poor service in recent years, he added.

    When automated or online services work, customers often like using them, but these services tend not to provide as much information and are rarely as empowered to fix problems as a call-center representative, said Mary Jo Bitner, director of the Center for Services Leadership at Arizona State University.

    “A lot of times people don’t realize how much they value service until a company takes it away,” said Ms. Bitner. “Customers have seen companies cut service and are saying ‘Wait a minute. I really do value that.’”

  3. Support Spy

    Apr 25 2011

    It’s nice for someone to compile positive experiences for a change! I hope to see a large contribution on this list from your readers.

    Disney is one of the best examples I can think of when it comes to great customer service. I plan to share my full experience in the near future. They are great at setting expectations, and then consistently exceeding them. I took my family to Disney World recently and despite having heard that their customer service was great, they still exceeded my expectations.

  4. MO

    Apr 26 2011

    I know that it has become almost routine to criticize the big cell phone service providers, but I have to say that, as a customer for over 10 years, I have always been satisfied with TELUS. Their call centre reps, as well as their corporate store staff, are courteous, professional, and always willing to find a solution to any problem that arises.

    Although it has been a few years since I have flown WESTJET, I was impressed with their customer service — both on the ground and in the air. Their reservation agents are unfailingly cheerful, even when they are working the early morning shift, as I discovered when I called one morning at 8am Eastern Standard Time, which was before dawn out west, where they are (or were) located.

  5. Doug

    Apr 27 2011

    Lee Valley has wonderful service, blazingly fast delivery, hassle-free replacement of items broken in shipping, great communications, easy-to-use online ordering, and wonderful products.

  6. Frances

    Apr 28 2011

    We have Star Choice satellite service (now Shaw) and, at least before the sale, they had excellent service. Nothing has come up yet with Shaw.

    Cisco was very helpful when my husband was setting up our wireless LAN. And Net Gear, who makes the wireless card for our older desktop computer, was very helpful in getting it set up and running.

  7. Potato

    May 3 2011

    Mandarin a champion of customer service?? By what metric? Their official policy for releasing ingredient and allergy information is people with allergies shouldn’t eat at restaurants.

  8. William Russell

    Jun 8 2011

    Unfortunately some places don’t care about the customers and focus more on the shareholders for the sake of ROI and continuous profitability. A big example of that would be Bell Mobility ; customers suffer alot from inconsistent decisions by management that are not based on good forecasting and accurate calculations , but rather based on increasing profile and cut cost that ends up decreasing quality of service.

    Customers and even employees of Bell (customer facing agents) suffer as a result of the unrealistic goals and expectations by the Management. As an employee , I suffered alot as a result of Bell Mobility Management not caring about us and sending our jobs off-shore to decrease costs and make more profit.

    In Bell Mobility’s internal communications , it is stated that shareholder and stakeholder profitability and ROI has increased dramatically and were stated by blue / green color (which means good or excellent) while Customer Service and any related matter was mostly displayed in red (means horrible basically) and there was no explination about how this will improve and blamed the agents basically in the communication by a Bell senior executive.

    Check my blog at http://thetruthaboutbellmobility.blogspot.com to learn more about how things really work at Bell Mobility

  9. Sarah

    Nov 9 2011

    “If you take care of customers, shareholders will be drawn along for a very nice ride.

    “The opposite is simply not true: if you try to take care of shareholders, customers don’t benefit and, ironically, shareholders don’t get very far either.”

    I couldn’t agree more. A business’s main objective should be customer satisfaction because if that satisfaction is lost, everything else will collapse.

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