Let us review some often-neglected basics. Business is a game of cash flow. The ultimate goal is to maximize the free cash available to owners by getting the company to exchange utilities for the cash offered by customers. A lot of actors are important in business, but the two undeniable star performers are customers, who provide the cash, and owners, who appropriate that cash.
All the politically correct chatter about the rights of multiple stakeholders tends to obscure this bedrock truth. And because it obscures the basics, this pseudo-egalitarian rhetoric inevitably understates the importance of customers. Think about it in terms of the Gilbert and Sullivan line: When everyone is somebody, then no one is anybody. If the business exists equally for the benefit of all stakeholders be they employees, managers, and suppliers as well as owners and customers then it does not really exist for any of the above.
The misguided emphasis on community is an attempt to convert a political into a business idea. But what is valid in one arena of life may be singularly inappropriate in another. The effort to democratize business in this mistaken fashion ends up hurting business because it dilutes company focus, causing customers to get less attention than they need, which in turn means that the company will provide customers with fewer utilities and its owners will in consequence garner less cash.
Banking companies have been slower than most other business entities to focus single-mindedly on the primal importance of the customer-owner cash nexus. That is perhaps because their history as quasi-public utilities predisposes them to political rather than purely business or profit-maximizing behavior. Such a background helps explain why many top banking executives have never even spoken to customers or at least have not done so regularly.
This fact is not lost on the marketplace, which penalizes banks for their customer-unfriendly or, more precisely, customer-distant attitudes. How else can one explain why the market will pay appreciably less for a dollar of the earnings of most big banks than it will for a dollar of the earnings of many brokerages that are reputedly more customer-focused?
Banks may be sociologically and politically ill equipped to alter this state of affairs from within. If that is so, what is required is a new executive type call him or her the chief customer officer. This new executive will be responsible to the board and CEO but will function as a representative of that perennial outsider who deserves in the customer. The new CCO will seek to bridge the we-they dichotomy that afflicts most banks. The we (the organization) will now encompass the they (the customers) in the person of a uniquely qualified surrogate for the interests of the latter.
The new champion of the customer will have two basic jobs. First, to identify that fraction of the customer base capable of providing enough present or future net cash that, when suitably risk-adjusted and properly discounted, will sum to a positive present value. And, second, to help cement the loyalty of such customers by, in most cases, jettisoning a transactions orientation and substituting a solutions approach. Otherwise stated, one must change the corporate mindset from one of making sales to one of assisting customers to better manage their lives at every stage of the cycle.
To discharge these two tasks, the new executive must be able to:
- Get inside the skin of customers from every relevant segment.
- Understand the role of technology in effecting more rewarding corporate-customer interactions.
- Promote the availability of an enterprise view of the customer, helping to foster consistent interactions across all delivery channels.
- Work through organizational resistance to greater customer-centricity.
- Develop new metrics for customer satisfaction and new incentives for those charged with increasing that satisfaction.
Its no small job. In fact, the new executive will function as a kind of linchpin of an ambitious exercise in change management.It is a well-worn maxim of management theory that since basic change is so stressful, few will subject themselves to it unless the fear of not changing is greater than the fear of change. Hence it is the job of the CEO to become a kind of fearmonger, persuading both himself and his colleagues of the need for immediate action to arrest customer defection and bolster sagging market valuations. Created by the CEO in this climate of fear, the office of the CCO will begin taking the steps that will eventually banish fear, raising the organization to higher standards of performance that will benefit all stakeholders by concentrating on serving the two key ones, customers and owners.
Ms. Kaplan is a partner at Deloitte Consulting in New York
