The conflicting perspectives of ‘measuring business performance’
We all think we know what “business performance” means, but we often disagree about its exact definition. This is because any business, including those in the public and voluntary sectors, involves many groups of stakeholders, including customers, employees, directors, shareholders, creditors, suppliers, government, regulators, state agencies, voters, local communities, taxpayers and patients. Performance means different things to each of these groups. Although positive performance for one group may be correlated in the long run with positive performance for others, in practice their interests often conflict, especially in the short run. For instance, a drive for efficiency may mean fewer employees and longer queuing times for customers; satisfying creditors may mean disappointing shareholders. A company can make excellent profits this year if it; cuts customer service standards to increase productivity, fires 30% of its staff, cuts its marketing budget by half, fails to invest in product development and cuts all of its IT development budgets. Yet, although customer service excellence is key to differentiating any business which has regular contact with customers, CMOs say they worried that the drive to reduce costs may undermine customer trust. The focus on short-term profit compromises long-term sustainability.
Each stakeholder group may rate performance measures differently. For shareholders, profits are important, but even this has several dimensions e.g. short versus long-term. Not all stakeholder groups are equally “important”. There is of course a legal hierarchy. In a public company, secured creditors come first, shareholders last, though poor governance may allow shareholders to “jump the queue”. Business performance should to be judged by the hierarchy of measures set by the board. However, at the top of this hierarchy for most private sector companies is PROFIT. Sometimes this is so important that other measures are not taken seriously, particularly systemic drivers of profit such as customer engagement. Our view is that by focusing on a SYSTEM of measures which include profit, rather than on profit alone, companies will balance optimally short and long term performance, and that a critical component of the system is customers.
A measurement hierarchy or line of sight between business performance and customer management activity
Extensive SCHEMA® benchmarking across the world shows that although customer management models are evolving, measurement approaches are not keeping up. They need to incorporate customer engagement and recognise the unique role of digital, social and mobile in engaging and selling to high value customers and influencers. Business leaders need a systematic approach to determining how business performance is improved by managing customers well. Here’s a suggested approach used by some leading companies. This ‘line of sight measurement approach is underpinned by a fundamental belief that sustainable business performance comes from winning, keeping and developing customers: who are, or can become, heavy spenders in a category and by building their trust and engagement over time.
Engagement comes from delivering a distinct and appropriate customer experience which appeals to customers (the right blend of functional, rational, sensory and emotional elements). These experiences result in customers preferring the brand.
Customer experience is also achieved most effectively through engaged, motivated and capable colleagues (even for online businesses) who can design and deliver the experience in a way that customers value.
Colleagues work within the context that the company sets which supports the overall customer management approach (e.g. proposition, insight & planning, channel mix, measurement, workflow and agility, IT and data). This business infrastructure or “system” must work in harmony so that the organisation is aligned to deliver sustainable business performance.
Would love to know what you think.