I blogged earlier about the problems that T-Mobile in Germany is having sorting out its customer service. In a nutshell: T-Mobile’s customer service is rotten, customers are dissatisfied and leaving in drives, and it was recently pilloried in the influential ServiceBarometer 2006 study. T-Mobile’s customer service cost structure is too high – a legacy of its monopoly days – and it has to cut $1Bn from its costs to become competitive. Management says it wants to improve customer service AND reduce costs. Its latest proposal is to outsource 50,000 staff to a holding company, reduce pay by 9% and increase working hours from 34 to 38 hours. If staff do not agree, management has threatened to outsource some of the work to third-parties. Needless to say, staff are very unhappy and have already held warning strikes.
Things have not got any better since. T-Mobile recently had its AGM in Köln and had to face a barrage of criticism from shareholders for its poor performance, as well as demonstrations from disgruntled workers for its aggressive position.
T-Mobile is caught between a rock and a hard place. On the one hand, its performance is lack-lustre and getting worse. On the other hand, staff are resistant to change their cushy working conditions and face up to competitive reality. Despite management’s aggressive position, it really is stuck, piggy in the middle, between the interests of demanding institutional shareholders and those of defensive staff. I do not see how it can realistically hope to improve shareholder returns and increase customer service. Not with its current proposal, which clearly puts the short-term interests of shareholders above the short-term interests of workers.
This is a position that many German companies are now stuck in, as they gradually adopt an anglo-saxon shareholder value driven approach to business, at the expense of the traditional shareholder value model. A few years ago, I would have backed the shareholder value approach 100% as being the right way to go. But older and wiser, I am no longer so sure. And I am not alone. McKinsey has started a long-overdue discussion (here, here and here) about the limits of the shareholder value approach in a business climate that is increasingly hostile. McKinsey and others like John Kay, the British economist recognise that business can only operate within the limits that society allows it to. And society includes more than just shareholders (and bondholders), it also includes customers, partners and suppliers, local communities and society at large. That doesn’t mean that the shareholder value approach is now damaged goods, far from it, just that it needs to be intelligently applied with an eye for how the business system works as a whole, the trade-offs required to make it work optimally, and the long-term interests of the business and society.
Business must tackle this dilemma if it is to avoid further disputes with stakeholders. Or worse still, knee-jerk regulation by governments that need to provide ‘action-theatre’ for angry voters. T-Mobile is one of the first companies to face these challenges so publicly. It will not be the last.
What do you think? Are T-Mobile’s problems largely of its own making? Or is this a sign of changing business times?
Post a response and get the conversation going.