by Lewis Carbone
Every sound business is built around a simple proposition: It makes or does something so well that customers will pay for the value being created. Peter Drucker, perhaps the most significant management scholar of our time, reduces this proposition to two basic axioms: A business has to make money, and a business has to make customers. It's not an either/or - the two are opposite faces of the same coin. If a business doesn't make customers, it won't survive to make money. If it doesn't make money, it won't survive to make customers. One form of value must connect with the other. Although many people in business will find this proposition familiar, fewer have extended its reasoning to the logical conclusion - that the customer is the ultimate arbiter of the value an organization creates and delivers, not CEOs, CFOs, shareholders, or stakeholders. Though each can make important contributions to the health and success of the business, none of them will be around for the long run unless the business creates value for its customers.
In recent years, many businesses - many entire industries, in fact - seem to have lost their sense of balance in this regard. In trying to maximize the value of customers to their businesses, they appear to have lost sight of the need for their organizations to create value for their customers. The evidence is depressingly familiar: Airlines have systematically reduced the experience of flying to the feeling of being herded onto and off of an airborne cattle car (a form of experience that was ongoing long before September 11).Banks persistently charge account holders premium penalties for the most routine services. Periodically, some even try to nick customers for the experience of talking to a real live teller. Or the customer endures a circuitous maze created by the call center instant voice response banter to get to a destination. Credit card companies have tried to continually create new ways to bump interest rates into double digits and add painful penalty charges, to boot - this in an economy where the interest rate charged to banks has been at or near record levels.
From your own experiences, you can no doubt expand and extend this list with examples from across the full spectrum of business to find companies of every size and industry engaged in dysfunctional value creation. As wide-ranging as your examples may be, however, they'll probably have one thing in common: In virtually every case, someone will have made a decision that emphasizes how the customer can create value for the company (the financial value of the customer's business) more than how the company can create value for the customer. In few of these cases will the desires of customers have been factored in, let alone viewed as a priority. Far from trying to find a balance between customer expectations and business realities, it's a truism today that many decisions are based on only one perspective of value - the company's.
The question of how to balance the value of the experience to the customer and the value of the customer to the company leads to an opportunity to "value engineer" the relationship between organizations and their customers, thereby making any market segment profitable. I believe today's organizations have become extraordinarily vulnerable. By neglecting to factor in customer expectations and preferences consistently - by essentially disenfranchising the customer from the focal point of value creation - these businesses have abdicated their obligation to customers and themselves. The result? With modern management fixated almost solely on the bottom line, the value proposition of far too many businesses has become increasingly one-sided: lots of emphasis on the company but little on enhancing the customer value. The overriding concern for maximizing short-term financial results now permeates business thinking from "mahogany row" to the front line. Even customers are prepared to concede to a rationalization that says "I guess that's what they have to do to stay in business." As a consequence, I believe today's organizations have become extraordinarily vulnerable. By neglecting to consistently factor in customer expectations and preferences, they have essentially disenfranchised the customer from the determinations of value. These businesses have fundamentally abdicated their obligation to customers and themselves. What's more, sensing how little value such businesses place on their interests, customers today have become unpredictable free agents: increasingly disappointed, disgruntled, devalued, and ultimately disloyal. The things businesses do to make money need to be balanced against an enhanced assessment of what it will take to make and keep customers in tomorrow's even more competitive global economy. The point? Without the long-term loyalty of their best customers to provide stability, the foundations of countless businesses are essentially anchored in sand. Yet it appears that many executives and managers charged with running those businesses are unwilling or unable to deal with their vulnerability.
They literally don't have a clue.
This is not the preface to a soft-hearted call to disregard all the hard lessons learned in recent years on the make-money side of the house. Far from it: Indulging every customer request, no matter how fanciful or far-fetched, in the name of enhancing customer experiences is no more a formula for success than is relentless and unrestrained slashing of expenses. Competitive forces will continue to make it imperative to become ever better at taking care of the financial aspects of the business. If anything, the pressure on the make-money side is only going to continue to ratchet up.
But this is precisely why it's time to address the balance by rediscovering the make-customers side of the equation, which makes this a call to re-anchor the foundation of the business itself. It's time to get "clued in" - to develop a renewed and urgent sense of customer value creation - because the consequences of disregarding long-term customer preference and loyalty in the name of short-term cost reductions and cost-laden loyalty programs are both predictable and painful to contemplate.
The premise of the analysis in this book is deceptively simple: The things businesses do to make money need to be balanced against an enhanced assessment of what it will take to make and keep customers in tomorrow's even more competitive global economy.
