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Join the Age of "Customer Capitalism"

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The age of "Shareholder Capitalism" has run its course. We are entering the age of "Customer Capitalism." Enhancing shareholder value is an empty goal. Successful companies in today's market will focus on acquiring, retaining and delighting customers as their primary strategic objective.

US businesses are in the middle of a paradigm shift.

We are entering the age of Customer Capitalism. Shareholder Capitalism came into vogue 35 years ago and has run its course. It is no longer possible to build shareholder value simply through cutting costs, spending more money on marketing or leveraging the balance sheet.

This is because of a slow global economy, increasing off shore competition and pervasive technology disruption. A successful company in future must focus on acquiring, retaining and delighting customers through engineering great products, innovating constantly and providing great service. Most of all, great companies must get closer to their customers and provide better products and better service sooner.

The difference is focus, people, empowerment and agility. Forget increasing shareholder value and focus on delighting customers.

In some ways, all it takes is a mental shift to focus on customers. You can do this tomorrow. Perhaps 70% of a company's resources should be oriented toward delighting customers, not increasing shareholder value. Everything else is a distraction. Increasing shareholder value is one way of keeping score, but tells you nothing about successful corporate strategy. However, the goal of delighting customers informs strategy and resources can be immediately redeployed in this direction.

Increasing shareholder value as a goal is a spreadsheet mentality and leads to cost cutting strategies, financial ratio management and disastrous pandering to investment analysts. Recently, we met with a Fortune 200 company that has had huge success in Latin America and is seeking to expand into Brazil, but is being held up by stock analysts who would prefer they use the funds for stock buybacks - in essense increasing leverage and reducing cash liquidity over investment in a promising new region. This past week we saw P&G report they are stretching vendor payments to increase cash for investments and stock buybacks, in essence forcing their vendors to pay for their stock buybacks. This is "enhancing shareholder value" gone way wrong.

Delighting Customers

Delighting customers is about how to reduce the number of customers who are angry at your company and increase the number of customers who actively promote your business. A good example is airline on-time performance. On-time performance is a desirable customer proposition in any industry, but for an airline to improve ontime performance involves a huge investment in the form of maintenance, engineers, spare parts and spare equipment. However, it turns out that customer satisfaction for airline on-time performance has more to do with good, timely, accurate communications than actual performance. Pilots and ground crew who communicate accurate information sympathetically get the same or better satisfaction scores than an airline with a better on-time performance and poor communications.

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Ted Pryor
Ted Pryor
Contributor
Ted Pryor is a Managing Director with Greenwich Harbor Partners and focuses on senior level executive recruiting in Media, Technology and Business Services including general management, sales, marketing and customer service. He has over ten years of experience as a senior executive at GE Capital and over 20 years of experience in corporate finance. Prior to executive recruiting, he served as CFO and CEO of a venture backed start-up company.

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