Balancing the needs of customers & shareholders
For the past 40 years or so, businesses have increasingly been dominated by financial control to create the “bottom line”. This is understandable because the sole purpose of any business is to make money, but for whose benefit? Is it only to provide shareholders with an income or is it to grow the business so that the value of the shareholders’ investment is increased? What about investment in the business? What about the customers who provide the income or the workforce who make it possible? Commercial managers have the responsibility of producing and maximising profitable income for the long term future of the business, by anticipating and satisfying customer demands, but also of maintaining the right balance of the competing requirements of shareholders, employees and customers.
The owners of a business are the shareholders, who provide the initial finance that initiates and enables the business to operate. Shareholders invest for both the long and the short term, with the intention of gaining a profit or income. The value of the shares generally depends on the performance of the company and its ability to make profits in both its short and long term future. But for the short term investor, it is the immediate profits of a company, which may affect the share value or the size of its dividend, and dictate how and when they buy and sell. Other shareholders see shares as a long term investment which they hope will produce a good return when ultimately sold, based on a growth in the value of the business, with “interest” paid in the form of dividends.
Customers are the life blood of every business because they alone provide the source of income. Satisfying the needs of its clients is how businesses make income but how well they do it dictates whether they make a profit or loss. Customers have to know that they have entered a fair exchange in their purchase transaction where they receive the value in goods and services that equates with the money they have paid. When customers are convinced of a fair exchange of goods and services for their money, they become repeat customers. However, if the customers thinks that they have been short changed in the transaction, they are unlikely to become repeat purchasers. In addition, in and age of increasing use of social media, while good service may be lauded by satisfied buyers, what is perceived to be poor service can quickly be widely broadcast, doing serious harm to a business operation.
Growth of income only comes from customers buying more or through an increase in the number of customers. Maintaining and increasing the customer base is a prime requirement of the commercial manager, but there will always be a natural wastage of customers through time, change of requirement or of circumstance. Thus it is incumbent on the commercial manager always to be seeking new customers if only to offset the natural wastage and maintain the number of customers on which the business income is based. Good customer relations are the basis of retaining customers and the foundation for obtaining new ones. However, problems can arise when businesses take their customers for granted by changing their product or service, to the disadvantage of the purchaser, thus undermining the relationship. In a competitive market, the dissatisfied customer can always go elsewhere. Obtaining new customers is always more expensive that retaining existing ones.
While the objective of the commercial manager is to maximise profitable income for the long term future of the business, it is counterproductive to do so at the expense of existing customers. Although there may be short term gains in such action, the long term consequences can be seriously negative. Increasing the level of profit for the bottom line is important, but money is only made by satisfying the customers who provide the income. Satisfying customers is only made possible by the employees who make it happen.
Employees are at the centre of every business. They have the essential knowledge of the customers, the product or service, and the business process. Companies rely on their employees to understand their customer’s requirements and to deliver the product which produces the income. A business cannot function without employees. Retaining and rewarding good employees is cheaper than finding recruiting and training new ones who will still take time to acquire the essential experience of the customers and the business.
To grow and maintain a successful business, the commercial manager must ensure that
- Profitable income is maximised for the long term.
- The requirements of Customers are anticipated and satisfied.
- The morale and motivation of the workforce is maintained to ensure efficiency.
Businesses make money not only for the benefit of the shareholders, but also for re-investment in the business. Developing a profitable business provides income and security for the workforce, and also provides products on which the customers rely. Balancing the requirements of the shareholders with those of the customers and the employee, on whose work the income, profits, share price and dividends depend, is essential if the commercial manager is to maximise profitable income for the long term’