For much of the 80s and 90s much of the private sector inhabited something called the Shareholder Era. This was part of the justification for the economy's financialization; that was where the money was so it was considered inefficient - and by extension in our highly politicized socio-economic times - strategically inept and possibly morally deficient to pay obeisance to anything other than the shareholder's interests when making management decisions.
The problem with that, of course, is that it is tough (though not impossible) to run an institution without employees or, frankly, customers. In the palmy days of the early financial era, however, those 'stakeholders' were considered fungible, powerless and prone to manipulation, so of less worth than shareholders.
But then the crash happened, followed by the recession. Suddenly, customers' value became apparent: they were the people who actually paid for stuff. And the more loyal they were, the more profitable, too. Meanwhile, technology and statistics had converted most shareholders to an algorithm whose 'holdings' might last exactly a nano-second, rendering them indifferent to management's brilliance or the enterprise's putative worth. Then Steve came up with all these devices we didnt know we needed and suddenly, The Customer became a god whose wisdom and power held the secret to institutional success and personal advancement.
So, as someone once said, there we go again. From shareholder to customer, all other considerations a distraction for the unserious or naive. Except that, of course, we have once again elevated one element of the complex web that binds us above all others without considering the implications.
The quote in this post's header refers to Henry Ford's response when asked what people would have said if he had inquired about the prospects for the automobile. He claimed they would have simply demanded a faster horse, because that was the only frame of reference they had. And no one, it should be clear, asked for an iPod, or iPad or Siri or any of the other innovations Apple has delivered.
This is not to say that the customer is unimportant or should be ignored. Far from it. But the customer represents one set of voices with a particular perspective. There are many others of value - and significance - whether one works in the private or public sector. The crucial task is melding all of those inputs into a coherent whole. JL
Greg Satell comments in Digital Tonto:
There’s a reason why people like Henry Ford and Steve Jobs don’t like listening to customers. They usually represent the conventional wisdom of the present, rather than the possibilities of the future and following them often leads to mediocrity, not excellence.
The customer is always king” has long been a time-honored business adage. Peter Drucker, the most renowned management thinker of the 20th century, was probably best known for advocating a consumer-centric approach.
So I probably shouldn’t have been surprised that, when I said in a recent post that creating, delivering and capturing value are at the heart of any viable business model, several commenters felt the need to correct me. “You always start with the customer,” they said.
Forget about the fact that “creating, delivering and capturing value” implies that value is created for someone—and who, if not a customer? The truth is that a successful business must balance the needs of a variety of stakeholders. Focusing on customers to the exclusion of everyone and everything else can kill a business just as easily as neglect.
Creating A Customer
The idea that a business is made up of more than customers seems so simple that it should be obvious. Yet consumer advocacy has become so fashionable lately that it has become regarded as beyond question, no matter how extreme. Any deviation from orthodoxy is judged apostasy.
I think a lot of the confusion stems from a misunderstanding of what Drucker actually said, which was:
Because the purpose of business is to create a customer, the business enterprise has two–and only two–basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs.That’s quite a bit different than an obsession for customers to the exclusion of everything else. It was, in fact, an attack on the production obsessed management practices of an earlier age. What Drucker was really saying was that managers should focus on creating value rather than merely output.
And, as it turns out, many successful innovators have been positively derisive about listening to customers. Henry Ford reportedly said that if he asked people what they wanted, they would have said “a faster horse.” Steve Jobs didn’t think customers knew what they want until they saw it.
The truth is that nobody starts a business thinking about the customer. People start businesses thinking about their dreams. Some want to create technology that will change the world, others think they can make the best pizza in town and still others simply seek financial independence for their family.
Even worse, sometimes crowds are reflexive, feeding off themselves. That’s when they become dangerous, creating booms and busts, fads and one-hit wonders. Blindly following trends is more likely to lead to strategic confusion than a solid, profitable business.
That’s why truly visionary entrepreneurs make their fortune from betting against the crowd. They create something new, something nobody is asking for because they’ve never seen it before. It’s difficult to “start with the customer” when one doesn’t exist yet.
So it shouldn’t be surprising that most great entrepreneurs have big egos. They start businesses to aggrandize themselves and there’s nothing wrong with that. People who set out to achieve great things usually find others to share their dreams.
In Brick By Brick, Wharton Professor David Robertson tells the story of the fall and rise of Lego, one of the world’s great consumer products. Strangely enough, its problems started not by ignoring customers, but by trying to serve more of them.
In the late 90’s, all of the consumer experts were pointing to the rise in electronic games. Lego, as a low-tech building toy, seemed irrelevant. With all the gizmos and doodads on the market, who would want to play with inert plastic bricks? So Lego moved quickly to expand their horizons.
It was a disaster. Most of the new products bombed and the company lost a ton of money. Relief only came when they started ignoring most customers, focused on those who liked building toys and put in reasonable cost controls and profitability targets. Lego, after all, only needs to sell to a small slice of potential consumers in order to be wildly successful.
That’s the problem with using customers as an exclusive lens, it’s basically a license to do anything. There are so many people who want so many things that treating them as a coherent entity is nonsensical.
The Mission Driven Organization
Great businesses businesses are not built by solely thinking about the consumer, but by creating a compelling mission that aligns consumers, employees, shareholders and communities. It is through forging a unity of purpose that a culture of excellence emerges.
And that’s the irony of running a customer centric business: it doesn’t start with the customer, but with building an organization—including people, processes and practices— that are capable of serving the customer well.
Take a look at the world’s most valuable brands and it becomes obvious that what sets them apart is their commitment to excellence, which goes far beyond devotion to the consumer or any other stakeholder. It comes from a firm belief in the soul of the enterprise and an unshakeable faith that the task at hand is one worth doing.
Consumers, after all, are not served by mere good will, but by developing the means to meet their needs and desires.