Shareholder Value Versus Customer Value or How to Destroy and How to Create Value

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Short-term focus on shareholder value is the reason why one big multinational brand is falling after the other in current times. Would the big names have fallen if they had only TRULY focused on customer value? I’m convinced they would have done better if they had not just ran after the price of their stocks, being investment bankers darling…

In Europe you can observe that small and medium, family-run businesses are not suffering the economic crisis as much as their “big” brothers and sisters that are all known to us. German Schaeffel Group taking over Continental tires: an unknown, understatement money-making holding buying into world famous tire manufacturer who about 10 years ago was thinking about taking over US based Autobytel.com … Your business is a success today, and in less than one day is converted to a business shame if what drives you is “the one and only” shareholder value. Customers never check a company’s value in the stock markets to make a decision – customers value a company’s performance towards their expectations of delivering the best solution with the best offer and the best service.

It’s so easy to do well without complicated forecasting and impossible to reach cost reduction targets: just do it right with your customer, he will compensate you for doing right with him. Sometimes I feel embarrassed to call myself a consultant because the only thing I do is opening eyes with COMMON SENSE. Why are we tending to have less and less common sense in business? And the need to prove everything with numbers instead of using intuition and intelligent human behaviour?

Good night from Madrid…

5 COMMENTS

  1. Que tal?

    Clifford Geertz’s works on anthroplogy show that common sense doesn’t travel. One culture’s view view of common sense doesn’t necessarily align with another’s. If they did, I’d be able to survive in the Australian desert, but sadly I don’t possess aboriginal common sense. I do like your feminine approach to consultancy. Intuition and intelligence seems better aligned with a ‘f’ approach than the numbers game played by men.

    I suggest a good read is Peter Doyle’s book “Value-based Marketing: Marketing Strategies for Corporate Growth and Shareholder Value” which shows the clear cause-effect relationship between customer value and shareholder value. Should be essential reading for all consultants irrespective of gender, and it’ll align your ‘f’ intuition with my ‘m’ numbers.

    Francis Buttle, PhD
    The Customer Champion

  2. Silvana,

    In the best of times strategies that focus primarily on shareholder value, like aggressive sales tactics, provoke competitive or adversarial relationships with customer where they expect more for less. Sometimes this is in the initial price, but in many cases it become a case of them never beening satisfied with performance or services. The companies foster this type of relationship. Most often there is a well deserved lack of trust on the part of the customer as over-promise and under-deliver comes into play. This is stressful for customers and requires much more vigilance in monitoring the relationship.

    When customers are faced with the stress and uncertainty of a weak economy they become even more suspicious and distrustful of companies with a one-sided agenda. Given the choice they will favor trusting relationships that reduce stress and uncertainty over price. You might call this customer common sense that is unfortunately uncommon sense to too many businesses focused on the short-term bottomline.

    John

    John I. Todor, Ph.D.
    Author of Addicted Customers: How to Get Them Hooked on Your Company.

  3. Hi Silvana

    A great post about a confusing topic.

    I fully endorse Francis’ recommendation. Peter’s book sits well-thumbed on my bookshelf too. There are also other books by Tim Ambler, Robert Shaw and many others that are well worth looking at too.

    I am a little confused by your reference to Schaeffler.

    Like Porsche’s recent dealings in VW shares, Schaeffler only came to prominence after exploiting German stock market weaknesses, that allowed it to buy large numbers of call options on Continental shares that were paid in cash and which do not require disclosure to the stock market (so called cash swap options). In other words, Schaeffel indulged itself in naked shareholder value enhancement tactics through options trading that had nothing to do with its core business of engineering nor with the creation of value for its industrial customers.

    The recent Porsche/VW shambles which ridiculously saw VW market capitalisation briefly rise to make it the most valueble company in the world – bigger then Microsoft, bigger then GE, even bigger than Exxon – is likely to result in German stock market rules finally being tightened to stop these sort of opaque abuses of the market.

    Or did you have something else in mind for Schaeffler?

    Graham Hill
    Independent CRM Consultant
    Interim CRM Manager

  4. Thank you Francis!

    I like your comment about the “f” approach, and I definitely will read the book you recommend.

    In this century we have two big impacts on society: women are more active and visible in politics and economy, and we get older “later” (just look at a couple of 40 years 20 years ago and now…) I hope this will lead to more “f” thinking and more serenity in our social-political framework – very interesting time we live in!!!

    Best,
    Silvana

  5. Hi Graham,

    you are absolutely right about the SchÄffler take-over of Conti, I should have explained my example better: SchÄffler is a solid, family run SMB with a long tradition in Germany, they have never thought of doing an IPO and being part of the German DAX. They create value for society (charity programs), create value for employees (the whole organization “adores” the woman in charge), create value for their customers and are a German “hidden champion” as Dr. Simon Kucher would say. They just do it right, with their feet well positioned on earth, and do this quite “unknown” for the big business school, newspaper reports, benchmark studies, etc.

    What I want to say: nowadays it’s not the “big blue chip” companies that sustain economics and society, it’s the compund of SMB’s (at least in Europe).

    Best regards,
    Silvana

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