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New rule: The customer is king. Old rule: Shareholders rule.  NEW YORK (Fortune) -- Whenever you ask a CEO about the importance of customers, you hear the requisite platitudes. But in fact, customers have often lost out in the relentless push to maximize shareholder value (as represented by the stock price) and to maximize it immediately. One Bain & Co. study found a huge gap between the perceptions of executives - 80 percent of whom think they are doing an excellent job of serving customers - and the perceptions of customers themselves: Only 8 percent of them agree.
Every four years, according to Bain, the average company loses more than half its customers. Aggressive pricing (on hotel phone bills, rental-car gas charges, and credit card fees, to name a few examples) has increased as the profit pressure on companies has mounted, says Bain's Fred Reichheld. Abusing customers this way, says Reichheld, "destroys the future of a business." He believes that such behavior - and not scandals like Enron and Tyco - is why fewer than half of all Americans have a favorable opinion of business today. This is shareholder-value theory taken to the extreme: the tail wagging the dog. One CEO, who asked not to be named, describes the pressures this way: Businesses became disconnected from their fundamentals, producing "perceived value" instead of real value, because that's what the stock market rewards. When investor-driven capitalism took over from managerial-driven capitalism, as Harvard's Khurana puts it, CEOs began managing the company by earnings per share instead of focusing on details like new products, service calls, customer-satisfaction scores - all those things that are supposed to produce the earnings per share. Yet some renegades thumbed their noses at Wall Street and truly kept the consumer experience front and center. Think Apple (Charts), which has from inception been predicated on dreaming up what customers want before they know it. Or look at Genentech (Charts), whose employees are greeted each day by billboards of the cancer patients who take its drugs, to remind everyone of the importance of their work. At GE (Charts), CEO Immelt has instigated what he calls "dreaming sessions" to brainstorm with key customers. He also requires all businesses to be judged using a metric called Net Promoter Score, developed by Reichheld and his colleagues at Bain, that measures how likely a customer is to have you back. "When everything is focused on delivering for customers, that makes employees proud," Reichheld says. "They become the powerful engine." Next: 4: Old rule: Be lean and mean. New rule: Look out, not in. ________________________________________________ REPORTER ASSOCIATE Patricia Neering |
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