Monday, October 01, 2007

CEO's and Customers

Mark McGregor

Few in business would argue that the success of CEOs like Sam Walton, Fred West, Herb Kelleher and Jack Welch has been pretty amazing. They have delivered some pretty outstanding results for their shareholders. But, unlike many CEOs, they have delivered this through customer understanding rather than pure financial and risk based management approaches. The result is that not only are costs kept under control for enhanced productivity, but sales revenues have grown impressively above the norm too.

In the current climate there is much focus on the Process of Business Process and the how and why it is needed in order to improve and transform business. For the most part however the responsibility for doing the work and delivering the results has been delegated down the organisation, or in some cases outsourced altogether.

There is no doubt that a well managed process centric company is more agile, more able to keep costs under control and to better understand the value of any investment they might make. But, are they in a better position to deliver real growth? It is this author's contention that in the final analysis it is revenue growth that will deliver the ultimate long term returns that investors are seeking, as well as providing the security of employment that employee seek. To merely utilise Process Management in any form purely as a cost or risk reduction strategy, is to squander the real competitive advantages that it can bring.

It is also pertinent to ask at this stage if any board of directors really believes that when outsourcing using the label BPO (Business Process Outsourcing), they are really outsourcing processes? A quick scan through the financial and business press will reveal many deals being done, but it also appears that in reality they are just outsourcing departments or functions based on the traditional structure. Indeed, for many organisations to outsource business processes or even processes is probably impossible. Why? Because at this stage so few organisations have actually mapped their business processes, so if they don't know what or where they are in the organisation, then how can they be in a position to outsource them!

So, if we are to accept that being process centric enables greater agility and better financial control, then we can see the value in making use of techniques in this area. Hopefully we can all agree that revenue growth is a key to long term financial success. Then we come back to the customer centricity of our aforementioned CEOs, each of whom attributes much of their success to an intimate relationship with, and understanding of, customer needs.

When we start to put these together we can start to see that perhaps it is the combination of customers and process that equals increased revenue. Well, certainly these two things have a major bearing but studying successful organisations also brings up another two factors as well, those of culture and organisation itself.

It would appear that the equation for long term success looks more like:

Customer Knowledge +
Customer Centric Processes +
A Culture of Service +
Customer Oriented Organisation =
Superior growth in Profitable Revenue Growth

When looked at in this way we can see that this is not a responsibility to be delegated or outsourced, this is an equation that should be managed from and by the CEO and the board of directors.

Outsourcing of non-care activity has a valuable part to play in serving customers and investors efficiently; we all want to know that we are getting our products and services at the best possible price. But as customers we do not expect the responsibility for serving us to be outsourced.

Process Management can of course be delegated within an organisation, indeed in some ways it is far better executed with the organisation, the further down the organisation we go the better people are able to address the inefficiencies that may be present. But again we expect the company's management to take the ultimate responsibility for ensuring that all parts of the organisation operate as single coordinated unit. Processes Management that uses the customer as the key focus and customer related metrics as the key ones have a tendency to simplify organisations, leading to lower costs and greater service. So, again, we the customer benefit, meaning we are more likely to continue to do business in the future (and tell others about the organisation too!).

Customer Knowledge is not about surveys and second hand evidence, it is about meeting with customers to understand their real problems and needs and using this knowledge to develop our products and services based on this knowledge. It is about creating an intimate relationship where customers are valued.

As Directors, let me ask you a question or two. You may be a top tier member of numerous frequent flyer and hotel guest programs, but how valued do you really feel? When did you last meet with or talk to the executives of those companies? It is not enough to go printing words and putting out gold loyalty cards. As customers we appreciate those that give us the most important commodity of all, someone's time and a listening ear that acts on advice.

Of the CEOs I mentioned, each is reported to spend upwards of 30% of their time meeting with and talking to customers. The rest of their customer input comes not from management, but from the front line staff who are dealing with customers every day—these people are such a valuable source of information but are usually treated as just some kind of blunt instrument.

A culture of service is something that appears to be sadly lacking in the western business world these days. There is so much focus on numbers that we have forgotten to serve. Yet companies like Tesco and Virgin stand out both in terms of their financial success, and also the fact that these figures have come as a result of a deep seating of the culture of serving customers. This is a trait that is evident in many Asian companies and will make it interesting to see, as consumers, how fast we choose to move our spend to organisations that do understand service.

The culture of service also touches on the issue of delegation. Whilst you can't delegate the overall responsibility for customers, you can at least empower those of your staff to resolve customer issues at the point of occurrence, without the need to refer to management. You can ensure that the processes they work with are designed to enable them to serve customers better; you can change reward structures so that staff are better rewarded for serving customers than hitting pure financial targets or other non-customer relevant KPIs (Key Performance Indicators).

A culture of service is also far easier to achieve if you take the time to change your organisation chart, change from a functional hierarchy to one that is organised along process lines. This will enable your teams to support customers better.

It is the combination of these changes that enabled Sam, Fred, Herb and Jack to grow their organisations more successfully than others in the same market. They are not alone for, as we have seen, Richard Branson and Terry Leahy also share many of these beliefs. To this list we could also add leaders like Sergey Brin & Larry Page of Google, Bill Gates of Microsoft, Lou Gerstner of IBM, Andy Groves of Intel and we know there are others too.

These are all examples of what can be achieved if the responsibility for Business and Process Management begins in the boardroom and is married to successful customer outcomes.

No comments: