Value Creation: Customer, Employee and Stakeholder value
Right now, there’s a buzz out there around the term Value Creation. But there’s also a lot of fuzz. Far too often, companies send out mixed messages about the focus of any Value Creation initiatives. Is the Customer the primary focus? Or the Shareholder? Or the Employee? Or all three?
Sorting this quandary out is critical for any business that intends to stay vibrant and profitable. And, as we hope to convince you, it all comes down to a consideration of what happens at the Customer-Supplier interface. That’s where everything that you plan, everything that you produce, everything that you hope for meets the real world. It’s where your business wins or loses. And it’s where, hand on heart, the Value Genie team has world-leading insights, tools and methodologies that are researched and proven to maximize your chances of sustainable prosperity.
Where it all gets fuzzy
Businesses are wary about appearing too wedded to shareholder dominance and the short-termism that seems inevitably to go fingers-in-wallet along with it. Consequently, Value Creation thinking often gets explained like this:
“Value Creation for Customers is very important.” Pause. “Oh, and Value Creation for Employees is also very important.” Pause and sucking of teeth. “But, of course, Value Creation for Shareholders is crucial.” And, as they warm to the theme, some go on to add Value Creation for, variously, Suppliers / Partners / Society / the Planet and the office Cat.
But it’s all to no avail: from the moment a second category of Value Focus is added, let alone half a dozen, the whole well-intentioned edifice crumbles. It becomes a self-contradictory structure lacking focus and alignment. Think of a tug-of-war team. If they don’t get behind one another and put all their weight into pulling in the same direction in a straight line they’ll all end up face down eating mud.
Value Creation is all about alignment (about which, more later) and alignment only works if there is ONE clear Value Focus (hence Primary Value Focus or PVF). But which one?
One Value Focus to rule them all
Customer. Employee. Shareholder. Any of them can be chosen to be the PVF but which is the wisest and best choice to deliver sustainable prosperity?
In recent years, particularly since the last economic crash, shareholder dominance is openly questioned. Yet, according to Lynn Stout, “Shareholder value thinking is endemic in the business world today … Today, you are likely to be told the company has but one purpose, to maximize its shareholders’ wealth.”[i] This despite the fact that the admired former CEO of GE, Jack Welch, said in an interview, “strictly speaking, shareholder value is the dumbest idea in the world.”[ii] He’s right. Putting the Shareholder in the PVF spot leads to Customers and Employees being accorded second-class citizenship. In turn, that leads to an overall decline in the business.
So, for sustainable prosperity, should the Shareholder be the PVF? NO!
For a very long time, company annual reports have declared that “Our people are our greatest asset.” It’s possibly the most ubiquitous lie in business. During the industrial era a company’s key assets, overall, were its production equipment. But, irony of ironies, in the new intensely networked digital era, a company’s knowledge workers have arguably become its greatest internal asset.
So, for sustainable prosperity, does this mean that the Employee should be the PVF? For the reasons set out next, NO!
Which leaves us with the Customer. Here, let’s draw on the wisdom of, first, Peter Drucker, and then Theodore Levitt:
“There is only one valid definition of business purpose: to create a customer.”[iii]
“The purpose of a business is to create and keep a customer.”[iv]
And here, from John Frazer-Robinson:
“’The Customer’ is, and must always be, the reason for your existence. There is no other reason. In business there is no other purpose. This is the inexorable rationale for the Customer-driven business. It explains, for all those business leaders who can’t seem to make up their minds, why it is quite wrong to stand up in front of staff and tell them that they are the most important asset of the business. They clearly are not. It’s the Customer who has to be first and foremost because, without Customers, who needs staff?”[v]
The earliest of these three quotes is over 40 years old and the most recent is 20 years old. What has been the impact of subsequent events? They have unquestionably reinforced the rightness of these assertions. The technological advances of recent years have gifted power to the Customer and are fundamentally changing the conduct of capitalism. 20th century business was dominated by ‘value in exchange’ – the purchase of products and services based upon their intrinsic value. 21st century business is increasingly dominated by ‘value in use’ – acquiring or using products and services based upon their extrinsic value potential, the outcomes they can deliver.
In fact, we go further: for sustainable prosperity companies need to adjust their basic approach from market orientation to ‘customer relationship orientation. So, should the Customer be the PVF? YES! In fact, this means not only that the Customer should unquestionably become the PVF, but also that new thinking needs to be understood and deployed.
All of which brings us back to the topic of alignment. That’s because this whole issue is about alignment with a clear, unequivocal objective. And the fully aligned organization has one paramount and unifying objective: Maximizing Customer Value. This is the strategic imperative for sustainable prosperity in the intensely networked 21st century economy. With the Customer as PVF you are able to generate optimal results for Employees and Shareholders.
It’s different from the product-led, market orientation of the 20th century. Now, businesses need clarity about the outcomes that Customers need, want or aspire to. And that means forming closer relationships with them, treating them as ‘insiders’. Indeed, when that happens, those with high goodwill towards an organization can become genuine assets of the business. So the challenge is to develop Customer relationships that are relational, co-owned, contextual, cumulative, and memorable.
How do you achieve that? Well, why not start by having a conversation with us? Contact us <here>
[i] The Shareholder Value Myth: how putting shareholders first harms investors, corporations, and the public. Lynn Stout (2012)
[ii] “Welch condemns share price focus” Francesco Guerrera. Financial Times (March 12, 2009)
[iii] Management, Tasks, Responsibilities, Practices. Peter Drucker (1974)
[iv] The Marketing Imagination. Theodore Levitt (1983)
[v][v] Customer-Driven Marketing. John Frazer-Robinson (1997) For completeness, Frazer-Robinson goes on to say, “Employees definitely follow next in priority, for, without loyal and passionate staff, any attempt at Customer loyalty or becoming Customer-driven is doomed to fail.”
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